TANGRAM ENTERPRISE SOLUTIONS INC, DEF 14A, 1997-04-21

TANGRAM ENTERPRISE SOLUTIONS INC
DEF 14A, 1997-04-21
PREPACKAGED SOFTWARE

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<PAGE>

SCHEDULE 14A
(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

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 Rule 14a-11(c) or Rule 14a-12

TANGRAM ENTERPRISE SOLUTIONS, INC.
(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] No fee required.

[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) 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

[ ] 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:

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[GRAPHIC OMITTED]

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 21, 1997

DEAR SHAREHOLDER:

The 1997 Annual Meeting of Shareholders of Tangram Enterprise
Solutions, Inc. (the "Company") will be held at 10:00 a.m. on May 21, 1997, at
11000 Regency Parkway, Suite 401, Cary, NC 27511, for the following purposes:

(1) to elect seven directors;

(2) to approve the 1997 Equity Compensation Plan; and

(3) to transact such other business as may properly come before the
meeting, or any adjournment or adjournments thereof.

Shareholders of record at the close of business on April 1, 1997, will
be entitled to receive notice of, and to vote at, the meeting and any
adjournment or adjournments thereof. If you do not expect to attend the meeting
in person, please complete, date and sign the enclosed Proxy and return it
without delay in the enclosed envelope, which requires no additional postage if
mailed in the United States.

By order of the Board of Directors,

James A. Ounsworth
Secretary

11000 Regency Parkway
Suite 401
Cary, NC 27511
April 21, 1997

<PAGE>
TANGRAM ENTERPRISE SOLUTIONS, INC.
11000 Regency Parkway
Suite 401
Cary, NC 27511

PROXY STATEMENT

This Proxy Statement is furnished in connection with the solicitation
of Proxies by the Board of Directors of Tangram Enterprise Solutions, Inc. (the
"Company") for use at the Annual Meeting of the Company's shareholders to be
held at 10:00 a.m. on May 21, 1997, at 11000 Regency Parkway, Suite 401, Cary,
NC (such meeting and any adjournment or adjournments thereof referred to as the
"Annual Meeting") for the purposes set forth in the accompanying Notice of
Annual Meeting of Shareholders and in this Proxy Statement. The Company intends
to mail this Proxy Statement and related form of Proxy to shareholders on or
about April 21, 1997.

Voting Securities

Only holders of record of shares of the Company's common stock, $0.01
par value per share (the "Common Stock"), at the close of business on April 1,
1997 (the "Shares"), are entitled to receive notice of, and to vote at, the
Annual Meeting. On April 1, 1997, there were 15,657,507 Shares issued and
outstanding. Each shareholder has one vote per Share on all business of the
Annual Meeting.

The seven nominees receiving the highest number of affirmative votes of
the Shares present or represented and entitled to be voted will be elected as
directors. The approval of the proposal to adopt the Company's 1997 Equity
Compensation Plan requires a majority of the votes cast at a meeting at which a
quorum representing a majority of all outstanding voting stock of the Company is
present, either in person or by proxy, and voting on such plan. Votes withheld
from any director, broker non-votes and abstentions are counted for purposes of
determining the presence of a quorum for the transaction of business at the
Annual Meeting. Only those votes which are cast as affirmative or negative will
be treated as voting on any matter presented at the Annual Meeting.

Revocability of Proxy

Proxies are revocable at any time before they are voted by delivering
written notice of revocation to the Secretary of the Company prior to or at the
Annual Meeting, by filing a duly executed Proxy bearing a later date, or by
voting in person at the Annual Meeting. Unless so revoked, the Shares
represented by Proxies will be voted at the Annual Meeting.

Persons Making the Solicitation

The solicitation of this Proxy is made by the Company. The cost of
soliciting Proxies on behalf of the Board of Directors, including the actual
expenses incurred by brokerage houses, nominees and fiduciaries in forwarding
Proxy materials to beneficial owners, will be borne by the Company. In addition
to solicitation by mail, certain officers and other employees of the Company may
solicit Proxies on behalf of the Board of Directors in person, by mail or by
telephone.

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Shareholder Proposals for 1998 Annual Meeting

Shareholders intending to present proposals at the next Annual Meeting
of Shareholders to be held in 1998 must notify the Company of the proposal no
later than December 22, 1997.

SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The table below sets forth, as of April 1, 1997, the beneficial
ownership of the Company's Shares by (i) shareholders known by the Company to
beneficially own more than 5% of the Company's outstanding Shares, (ii) each of
the Company's directors, (iii) each named executive officer and (iv) all
executive officers and directors of the Company as a group.
<TABLE>
<CAPTION>

Number of Percent of
Shares Owned(1) Outstanding Shares
--------------- ------------------
<S> <C> <C>
Safeguard Scientifics, Inc.
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087(2)....................................... 10,448,738 66.7%
W. Christopher Jesse
11000 Regency Parkway, Suite 401
Cary, NC 27511(3)......................................... 1,473,286 9.2%
Steven F. Kuekes
11000 Regency Parkway, Suite 401
Cary, NC 27511 (3)........................................ 1,594,425 10.0%
Nancy M. Dunn(3)............................................ 254,952 1.6%
John N. Nelli............................................... 0 *
John F. Owens(3)............................................ 12,000 *
Charles A. Root(3).......................................... 150,000 *
Carl G. Sempier(3).......................................... 12,000 *
Harry Wallaesa(3)........................................... 2,500 *
Carl Wilson(3).............................................. 2,500 *
All executive officers and directors
as a group (9 persons)(4)................................. 3,501,663 21.1%
</TABLE>
- -------

* Less than one percent

(1) Except as otherwise disclosed, the nature of beneficial ownership is
the sole power to vote and to dispose of the Shares (except for Shares
held jointly with spouse).

(2) These Shares are held of record by Safeguard Scientifics (Delaware),
Inc., a wholly owned subsidiary of Safeguard. All of the Shares
beneficially owned by Safeguard have been pledged by Safeguard as
collateral under its bank line of credit.

(3) Includes for Messrs. Jesse, Kuekes, Owens, Root, Sempier, Wallaesa and
Wilson and Ms. Dunn, 431,250 Shares, 270,000 Shares, 12,000 Shares,
150,000 Shares, 12,000 Shares, 2,500 Shares, 2,500 Shares and 67,500
Shares, respectively, that may be acquired pursuant to stock options
that are currently exercisable or that will become exercisable by May
31, 1997.

(4) Includes 947,750 Shares that may be acquired pursuant to stock options
that are currently exercisable or that will become exercisable by May
31, 1997.

2
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At April 1, 1997, Mr. Root beneficially owned approximately 1.2% of the
outstanding common stock of Safeguard. Other than Mr. Root, all officers and
directors of the Company as a group beneficially owned less than 1% of
Safeguard's outstanding common stock at such date.

I. ELECTION OF DIRECTORS

It is intended that the persons named as proxies for the Annual Meeting
will vote in favor of the following nominees as directors of the Company to hold
office until the Annual Meeting of Shareholders in 1998 and until their
successors are elected and have qualified. All of the nominees are presently
serving as directors of the Company. Proxies may not be voted for more than
seven directors. Each of the nominees has consented to serve if elected.
However, if any of the nominees should become unavailable prior to the election,
the holders of the Proxies may vote the Proxies for the election of such other
persons as the Board of Directors may recommend, unless the Board of Directors
reduces the number of directors to be elected.

The Board of Directors unanimously recommends that shareholders vote
FOR the nominees set forth in this Proposal. Proxies received by the Board will
be so voted unless shareholders specify otherwise on their Proxy cards. The
seven nominees receiving the highest number of affirmative votes of the Shares
present or represented and entitled to be voted shall be elected as directors.
<TABLE>
<CAPTION>

Principal Occupation and Business Has Been a
Name Experience During Last Five Years Director Since Age
---- --------------------------------- -------------- ---
<S> <C> <C> <C>
W. Christopher Jesse President and Chief Executive Officer of
the Company...................................... 1993 46
Steven F. Kuekes Senior Vice President and Chief
Technology Officer of the Company................ 1993 38
John F. Owens President, Solo Systems, Inc., a
management consulting firm(1)(2)................. 1992 56
Charles A. Root Executive Vice President, Safeguard
Scientifics, Inc., a strategic
information systems company(2)................... 1991 64
Carl G. Sempier Business consultant(1)(2)........................ 1992 65
Harry Wallaesa President, aligne, inc., a technology
management consulting company.................... 1996 46
Carl Wilson Senior Vice President and Chief
Information Officer, Marriott
International, an international
hospitality company.............................. 1995 50

</TABLE>
(1) Member of the Compensation Committee.

(2) Member of the Audit Committee.

Charles A. Root is an Executive Vice President of Safeguard
Scientifics, Inc., a strategic information systems company. Mr. Root served as
Vice Chairman and Chief Executive Officer of the Company from June 1991 until
August 1991, as President and Chief Executive Officer of the Company from August
1991 to September 1993, and is currently serving as Chairman of the Board. Mr.
Root is Chairman of the Board of Coherent Communications Systems Corporation and
CompuCom Systems, Inc. and a director of USDATA Corporation.

3
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Harry Wallaesa is the President of aligne, inc., a technology
management consulting company. From November 1995 to December 1996 Mr. Wallaesa
was President-Consulting Services of Sentry Technology Group, Inc. (formerly The
Value Sourcing Group, Inc.), management consultants in information technology.
From 1985 to October 1995, Mr. Wallaesa served as Corporate Vice President,
Management Information Systems, of Campbell Soup Co.

Carl Wilson is the Senior Vice President and Chief Information Officer
of Marriott International, an international hospitality company. From December
1992 to March 1997, Mr. Wilson was the Vice President-Information Resources of
Georgia-Pacific Corporation, a diversified forest products company. From 1991 to
November 1992, Mr. Wilson served as Senior Vice President, Management
Information Services, Grand Metropolitan Plc.-Food Sector and International
Retailing. Grand Metropolitan Plc. is a worldwide food international retailing
and drinks firm.

Directors' Compensation

Directors are elected annually and hold office until their successors
are elected and have qualified or until their earlier resignation or removal.
Directors who are not employees of the Company or Safeguard receive $1,000 for
each Board meeting attended. Non-employee directors are reimbursed for
out-of-pocket expenses incurred in connection with attendance at meetings or
other Company business. Employees of the Company who are directors receive no
additional compensation for their service as directors.

Directors who are not employed by the Company or the Company's
affiliates have participated in the Stock Option Plan for Directors ("Directors'
Plan"). Pursuant to the Directors' Plan, each Eligible Director received an
option to purchase 10,000 shares of the Company's Common Stock upon his election
("Initial Grant"). Thereafter, each Eligible Director has received a grant to
purchase 2,000 shares of Common Stock on the second anniversary of his election
as a director and at the end of every two years' service thereafter ("Service
Grants"). The maximum number of shares of Common Stock subject to options
granted to an Eligible Director under the Directors' Plan did not exceed 20,000
shares. The exercise price of each option was equal to the fair market value of
the shares on the date of grant, which for purposes of the Directors' Plan was
defined as the inside asked price of a share of Common Stock as of the date of
grant as quoted by the market makers of the Company's Common Stock. Each option
had a term of ten years. Initial Grants vested in 25% installments on each of
the first through fourth anniversaries of the date of grant and Service Grants
vested in 50% installments on each of the first and second anniversaries of the
date of grant. In 1996, Mr. Wallaesa received an option to purchase 10,000
shares of Common Stock at an exercise price of $10.75 per share on his election
to the Company's Board. Additionally, in 1996, Messrs. Owens and Sempier
received options to purchase 2,000 shares each of Common Stock at an exercise
price of $5.25 per share and $5.00 per share, respectively, on the fourth
anniversary of their election as directors. Upon the adoption of the 1997 Equity
Compensation Plan, the Directors' Plan will terminate.

Board and Committee Meetings

The Board of Directors held six meetings during 1996. The Company's
Board of Directors has appointed standing Compensation and Audit Committees. It
has not appointed a standing Nominating Committee. The Compensation Committee
reviews and approves management's recommendations for compensation paid to the
executive officers of the Company and administers the Company's stock option
plans. The Compensation Committee acted by written consent during 1996. The
Audit Committee meets with the Company's independent auditors to review and
approve the scope and results of their professional services. It also reviews
the procedures for evaluating the adequacy of the Company's accounting

4
<PAGE>

controls, considers the range of audit fees and makes recommendations to the
Board regarding the engagement of the Company's independent auditors. The Audit
Committee met once during 1996. Except for Mr. Sempier, each director attended
at least 75% of all meetings of the Board of Directors and any committee of
which he was a member.

REPORT OF THE BOARD COMPENSATION COMMITTEE

The Compensation Committee of the Board of Directors (the "Compensation
Committee") reviews and approves compensation levels recommended by management,
including incentive compensation, for the executives of the Company and
administers the Company's stock option plans. Messrs. Owens and Sempier
currently constitute the Compensation Committee.

Executive Compensation Policies

The Company is in a highly competitive industry. In order to succeed,
the Company believes that it must be able to attract and retain qualified
executives, promote among them the economic benefits of stock ownership in the
Company, and motivate and reward executives who, by their industry, loyalty and
exceptional service, make contributions of special importance to the success of
the business of the Company. The philosophy of the Compensation Committee with
respect to the compensation of the Company's executive officers is (i) to
provide a competitive total compensation package that enables the Company to
attract and retain qualified executives and to align the compensation of such
executives with the Company's overall business strategies, and (ii) to provide
such executive officers with a significant equity stake in the Company. To this
end, the Compensation Committee determines executive compensation consistent
with a philosophy of compensating executive officers based on their
responsibilities and the Company's performance. The primary components of the
Company's executive compensation program are (i) base salaries, (ii) bonuses,
and (iii) stock options.

Base compensation levels and benefits are initially established to be
competitive with comparable companies which primarily are small high-tech, high
growth companies with less than $30 million in revenues. For the purpose of
establishing these levels, the Company reviews various published salary surveys.
Annual base salaries are subject to periodic increases to be determined by the
Compensation Committee in its discretion based upon (i) a qualitative review of
the performance of the Company and the executive, and (ii) the compensation of
executives with similar responsibilities employed by companies similar in size
to the Company. The Compensation Committee has no established formula or
methodology for making such determinations. Cash bonuses are intended to
motivate executives to achieve and exceed corporate performance targets. At the
beginning of each year the Compensation Committee approves a target range of
executive bonuses as a percentage of base salary, a target range of annual
pre-tax operating results and specified financial and strategic objectives.
Target ranges of bonuses are based on the Company's progress in achieving its
financial and strategic objectives as described in the Company's annual plan and
the executive's ability to affect the Company's performance.

Grants of stock options are intended to align the interests of
executives and key employees with the long-term interests of the Company's
shareholders and to encourage executives and key employees to remain in the
Company's employ. All of the Company's executive officers are eligible to
receive options to purchase shares of Common Stock granted under the 1988 Stock
Option Plan and the proposed 1997 Equity Compensation Plan. The Compensation
Committee believes that stock option grants are a valuable motivating tool which
provide long-term incentive to management. The Compensation Committee also
believes that issuing stock options to executives benefits the Company's
shareholders by encouraging

5
<PAGE>

executives to own the Company's stock, thus aligning executives' pay with
shareholders' interest. Generally, grants are not made in every year, but are
awarded subjectively based on a number of factors, including the achievement of
the Company's financial and strategic objectives as defined in the Company's
annual plan, the individual's contribution to those achievements and the amount
and remaining term of options already held by an individual. Financial and
strategic objectives may include reaching target levels of operating results,
developing strategic alliances, identifying and exploiting markets, developing
new products and expanding existing market share and penetration.

Company Policy on Qualifying Compensation

Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), provides that publicly held companies may not deduct in any taxable
year compensation in excess of one million dollars that is paid to any of the
individuals named in the Summary Compensation Table and that is not
"performance-based" as defined in section 162(m). The annual levels of executive
compensation are not likely to exceed one million dollars for the foreseeable
future. In order for incentive compensation to qualify as "performance-based"
compensation under section 162(m), the Committee's discretion to grant awards
must be strictly limited. The Company's 1997 Equity Compensation Plan will
qualify as a "performance-based" compensation plan under currently effective
rules. The Compensation Committee believes that the benefit to the Company of
retaining the ability to exercise discretion under the Company's remaining
incentive compensation plans outweighs the limited risk of loss of tax
deductions under section 162(m). Therefore, the Compensation Committee does not
currently intend to seek to qualify any of its other incentive compensation
plans under section 162(m).

CEO Compensation

Mr. Jesse's current compensation consists of an annual base salary of
$185,000, which is subject to periodic increases determined by the Compensation
Committee in its discretion based upon (i) a qualitative review of the
performance of the Company and Mr. Jesse, and (ii) the compensation of
executives with similar responsibilities employed by companies similar in size
to the Company. Mr. Jesse's base salary for 1996 remained at the same level as
his 1995 and 1994 salary.

Consistent with the intent of the bonus plan discussed above, the
Compensation Committee determined to provide for a possible bonus to Mr. Jesse
equal to 100% of his annual base salary. Twenty-five percent of the potential
bonus was based on the achievement of specified cash management objectives and
seventy-five percent was based on the consummation of strategic relationships
with identified resellers and the development of reseller channels. Mr. Jesse
was awarded a bonus of $61,281 for 1996.

Other Executive Compensation

As noted above under discussion of the CEO's compensation, the
Compensation Committee determined to provide Mr. Kuekes and Ms. Dunn bonuses of
up to 100% of their respective base salaries based upon the achievement by the
Company and the executive officers of the performance objectives used in
determining Mr. Jesse's bonus. Mr. Kuekes and Ms. Dunn were awarded bonuses of
$41,406 and $27,863, respectively, for 1996.

By the Compensation Committee:

John F. Owens Carl G. Sempier

6
<PAGE>
EXECUTIVE COMPENSATION

Summary Compensation of Executive Officers

The following table sets forth information concerning compensation paid
to the Chief Executive Officer and all other executive officers of the Company
at December 31, 1996.

Summary Compensation Table
<TABLE>
<CAPTION>

- ----------------------------------------------------------------------------------------------------------------------
Long-Term
Compensation
------------------
Annual Compensation Awards
----------------------------------------------------------------
Other Annual Securities
Name and Principal Compensation Underlying All Other
Position Year Salary ($) Bonus ($)(1) ($)(2) Options/SARS (#) Compensation ($)(3)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
W. Christopher Jesse, 1996 $ 185,004 $ 61,281 -- -- $ 28,652
President and Chief
Executive Officer 1995 185,004 92,500 -- -- 26,810

1994 185,004 92,500 $ 73,576 575,000 --

- ----------------------------------------------------------------------------------------------------------------------
Steven F. Kuekes, Senior 1996 $ 125,004 $ 41,406 -- -- $ 19,076
Vice President and
Chief Technology 1995 125,004 90,000 -- -- 12,044
Officer
1994 125,004 90,000 $ 30,779 360,000 --

- ----------------------------------------------------------------------------------------------------------------------
Nancy M. Dunn, Senior 1996 $ 84,581 $ 27,863 -- -- $ 13,232
Vice President
and President, Tangram 1995 82,008 41,000 -- -- 12,430
Consulting Solutions
Division 1994 82,008 41,000 -- 90,000 --

- ----------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Amounts shown do not include amounts expended by Tangram pursuant to plans
(including group disability, life and health insurance) that do not
discriminate in scope, terms or operation in favor of executive officers
and that are generally available to all salaried employees.

(2) Perquisites and other personal benefits for fiscal year 1996 did not exceed
the lesser of $50,000 or 10% of such executive officer's salary and bonus.

(3) The stated amounts for fiscal 1996 include the following amounts: term life
insurance premium payments of $957, $363 and $957 for Mr. Jesse, Mr. Kuekes
and Ms. Dunn, respectively, and imputed interest of $27,695, $18,713 and
$12,275 for Mr. Jesse, Mr. Kuekes and Ms. Dunn, respectively, in connection
with interest-free, non-recourse loans made to each of the named executive
officers in August 1994 and January 1995. The aggregate principal amount of
the loans made to each of Mr. Jesse, Mr. Kuekes and Ms. Dunn was $370,000,
$250,000 and $164,000, respectively. The principal of each loan is
repayable on the earlier of the fifth anniversary of the loan or such
individual's termination of employment.

7
<PAGE>

Stock Options

No options were granted to the Company's Chief Executive Officer or any
other named executive officer during the last fiscal year. The following table
sets forth information with respect to options exercised during fiscal year 1996
and the number of unexercised options and the value of unexercised in-the-money
options at December 31, 1996.

Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Option/SAR Values

- ----------------------------------------------------------------------------------------------------------------------
Number of Value of
Securities Underlying Unexercised
Unexercised in-the-Money
Shares Options/SARs Options/SARs
Acquired on at Fiscal Year-End (#) at Fiscal Year-End ($)(1)
Exercise Value
Name (#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
W. Christopher Jesse 856,678 $ 5,174,335 431,250 143,750 $ 1,940,625 $ 646,875
- ----------------------------------------------------------------------------------------------------------------------
Steven F. Kuekes -- -- 270,000 90,000 $ 1,215,000 $ 405,000
- ----------------------------------------------------------------------------------------------------------------------
Nancy M. Dunn 85,666 $ 513,382 67,500 22,500 $ 303,750 $ 101,250
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) The value of unexercised in-the-money options is calculated based upon (i)
the fair market value at December 31, 1996, less the option exercise price,
multiplied by (ii) the number of shares subject to an option. On December
31, 1996, the per share fair market value utilized in calculating the
values in this table was $6.00.

Employment Contracts and Termination of Employment and Change-in-Control
Arrangements

In connection with the merger of Tangram Systems Corporation with and
into the Company, the Company entered into severance and non-competition
agreements with Messrs. Jesse and Kuekes and Ms. Dunn which provide for
continued health and dental benefits for up to a one-year period and severance
payments equal to one year of their respective base salaries upon termination of
employment with the Company for any reason other than termination for cause or
voluntary termination. The Company also may, in its discretion, provide for such
benefits and severance payments upon termination of employment for cause or
voluntary termination. Pursuant to these agreements, each of Messrs. Jesse and
Kuekes and Ms. Dunn have agreed to refrain from competing with the Company for
one year after the termination of his or her respective employment, and the
Company's severance payments and benefits are conditioned upon adherence to such
non-competition provisions.

8
<PAGE>

STOCK PERFORMANCE GRAPH

The following chart compares the cumulative total shareholder return on
the Company's Common Stock for the period December 31, 1991, through December
31, 1996, with the cumulative total return on the Nasdaq Index and the
cumulative total return for a peer group index for the same period. The peer
group consists of the companies in SIC Code 737--Computer Programming and Data
Processing Services. The comparison assumes that $100 was invested on December
31, 1991, in the Company's Common Stock and in each of the comparison indices,
and assumes reinvestment of dividends. The Company has historically reinvested
earnings in the growth of its business and has not paid cash dividends on its
Common Stock.

400|--------------------------------------------------------------*---|
| |
| |
350|------------------------------------------------------------------|
| |
| |
300|------------------------------------------------------------------|
| |
| |
250|---------------------------------------------------------------#--|
| & |
| # |
200|------------------------------------------------------------------|
| & |
| |
150|-------------------------*-----------&#---------------------------|
| & |
| & # |
100|-*&#----------*#---------------------*----------------------------|
| * |
| |
50|------------------------------------------------------------------|
| |
| |
0|----|----------|---------|-----------|-----------|-----------|----|
1991 1992 1993 1994 1995 1996

*=Tangram &=Nasdaq #=Peer Group

---------------------------------------------------------------
1991 1992 1993 1994 1995 1996
---------------------------------------------------------------
Tangram 100 113 158 96 83 400
Nasdaq 100 116 134 131 185 227
Peer Group 100 108 114 140 212 260

CERTAIN TRANSACTIONS

The Company and Safeguard are parties to an Administrative Services
Agreement pursuant to which Safeguard provides the Company with administrative
support services. During 1996, the Company paid a fee of $261,000. The agreement
also provides for the reimbursement of certain out-of-pocket expenses incurred
by Safeguard in performing services under the agreement. The administrative
support services include consultation regarding the Company's general
management, investor relations, financial management, human resources
management, certain legal services, insurance programs administration, and tax
research and planning. The Agreement is subject to termination by the Company or
Safeguard upon notice on the last day of any quarter.

9
<PAGE>

The Company has a $5 million unsecured revolving line of credit with
Safeguard. The amount of this line of credit was increased from $1 million to $5
million in February 1997 to finance the cost of rolling out the new Asset
Insight product. The terms of the line of credit require monthly interest
payments at the prime rate plus 1% with the principal due thirteen months after
the date of demand by Safeguard. At December 31, 1996, the borrowings under the
Safeguard line of credit were $400,000 and have increased to $800,000 as of
April 1, 1997. The Company incurred and paid Safeguard interest cost of $6,800
in 1996 under the revolving credit agreement.

The Company has provided two interest-free, non-recourse loans to each
of its executive officers, which loans are secured by a pledge of Shares and
options to purchase Shares of the Company held by each such officer. The
aggregate principal amount of the loans made in August 1994 and January 1995 to
Messrs. Jesse and Kuekes and Ms. Dunn were $370,000, $250,000 and $164,000,
respectively. The principal of each loan is repayable on the earlier of the
fifth anniversary of the loan or such individual's termination of employment.

II. PROPOSAL TO APPROVE THE COMPANY'S 1997 EQUITY COMPENSATION PLAN

The Board believes that the following proposal to approve the Company's
1997 Equity Compensation Plan is in the best interests of the Company and its
shareholders and unanimously recommends a vote FOR approval of this proposal.
Proxies received by the Board will be so voted unless shareholders specify
otherwise on their Proxy cards.

Background and Proposed Amendment

At the Annual Meeting, the shareholders will be asked to approve the
Company's 1997 Equity Compensation Plan (the "1997 Plan") which was adopted by
the Board in April 1997, subject to shareholder approval.

The Company has two outstanding stock option plans under which stock
options may be granted to employees and directors of the Company: the 1988 Stock
Option Plan (the "1988 Plan") and the Stock Option Plan for Directors (the
"Directors' Plan"). As of April 2, 1997, approximately 39,500 shares remained
available for issuance upon the exercise of options granted or to be granted
under the 1988 Plan and 52,000 shares remained available under the Directors'
Plan. The 1988 Plan, which permits grants only to employees of the Company, will
expire by its terms in December 1998. The Directors' Plan was adopted by the
Company to comply with the rules then in effect under the federal securities
laws that directors, to be eligible to administer the Company's stock option
plans as members of the Compensation Committee, receive stock options only
pursuant to a formula. The Directors' Plan does not have a specified term.

During the second half of 1996, the rules applicable to stock option
plans under the federal securities laws were revised to eliminate certain unduly
burdensome requirements of the old rules and to provide greater flexibility with
which a company may issue grants and awards to its officers and directors. These
rules generally provide an exemption from certain adverse consequences that
would otherwise befall stock option plan participants under the federal
securities laws, and most public companies structure their stock option plans to
take advantage of this exemption. Among other things, the new rules no longer
require that stock options be granted to directors only pursuant to a formula
plan to permit the directors to administer the Company's stock option plans.

In light of these changes to the federal securities laws and the
impending expiration of the 1988 Plan, and in the interest of simplifying the
Company's stock option administration,

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the Board determined that it would be advisable to adopt the 1997 Plan in lieu
of amending the Company's 1988 Plan and Directors' Plan. Following approval of
this proposal by the shareholders, the 1988 Plan and the Directors' Plan will be
terminated and an aggregate of approximately 91,500 shares that remain available
for grant under the 1988 Plan and the Directors' Plan will no longer be
available for future issuance.

Purpose of the 1997 Plan

The 1997 Plan was created to assist the Company in retaining and
attracting key employees, officers and independent contractors who perform
services for the Company or its subsidiaries and non-employee directors
(collectively, the "Participants") by offering such Participants a proprietary
interest in the Company.

Shares Subject to the 1997 Plan

Subject to adjustment in certain circumstances as discussed below, the
1997 Plan authorizes the issuance of up to 2,000,000 shares of Common Stock. If
and to the extent options or stock appreciation rights granted under the 1997
Plan terminate, expire or are canceled without being exercised, or if a
restricted stock award or performance unit is forfeited, the shares subject to
such option, stock appreciation right, restricted stock award or performance
unit will again be available for purposes of the 1997 Plan. No grants have been
made under the 1997 Plan. The average of the reported bid and asked prices of
the Company's Common Stock on the Nasdaq National Market on April 1, 1997 was
$4.6875 per share.

Administration of the 1997 Plan

The 1997 Plan is administered by the Compensation Committee, which is
currently composed of Messrs. John F. Owens and Carl G. Sempier. The
Compensation Committee currently satisfies the requirement of section 162(m) of
the Code that grants of options, stock appreciation rights, and performance
units and awards of restricted stock made under the 1997 Plan be approved by a
committee appointed by the Board consisting of not less than two persons who are
"outside directors."

The Compensation Committee is authorized to determine, from time to
time, the persons to whom awards or grants will be made, and the term, exercise
price, settlement terms, forfeiture provisions and other terms and conditions of
each award or grant. The Compensation Committee has the power to establish and
waive, in its discretion, vesting provisions for awards or grants.

Eligibility for Participation and Grants

Employees (including employees who are also officers or directors),
non-employee directors and eligible independent contractors of the Company or of
any subsidiary are eligible to receive grants under the 1997 Plan. As of April
1, 1997, there were four executive officers and approximately 115 employees
considered eligible to participate in the 1997 Plan, and there were no eligible
independent contractors.

Grants under the 1997 Plan may consist of incentive stock options,
non-qualified stock options, restricted stock awards, stock appreciation rights
or performance units (hereinafter collectively referred to as "Grants"). All
Grants are subject to the terms and conditions set forth in the 1997 Plan and to
those other terms and conditions consistent with the 1997 Plan as the
Compensation Committee deems appropriate and as are specified in writing by the
Compensation Committee. During the term of the 1997 Plan, no Participant may
receive Grants in the aggregate for more than 500,000 shares of Common Stock.

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<PAGE>

Granting of Options

The Compensation Committee may grant options qualifying as incentive
stock options ("ISOs") within the meaning of Section 422 of the Code to
Participants who are employees of the Company and/or other stock options
("NQSOs") to any Participant. Such grants are made in accordance with the terms
and conditions set forth in the 1997 Plan and grants to officers and other
employees may be made in any combination of ISOs or NQSOs (hereinafter referred
to collectively as "Stock Options").

The exercise price of Common Stock subject to Stock Options is
determined by the Compensation Committee at the time of grant, provided,
however, that the exercise price per share for an ISO may not be less than 100%
of the fair market value of the Common Stock at the time of grant. Further, an
ISO granted to a Participant who owns stock having more than 10% of the voting
power of the Company or its subsidiaries must have an exercise price of not less
than 110% of the fair market value of the Common Stock on the date of grant. The
1997 Plan provides that the aggregate fair market value (determined as of the
time an ISO is granted) of the shares with respect to which ISOs are exercisable
for the first time by a Participant during any calendar year, under the 1997
Plan and any other ISO plan of the Company or any parent or subsidiary of the
Company, cannot exceed $100,000.

The term of any Stock Option granted under the 1997 Plan may not exceed
ten years from the date of the Grant. An ISO granted to a Participant who owns
stock having more than 10% of the voting power of the Company or its
subsidiaries shall have an exercise period not greater than five years. Stock
Options will become exercisable in such installments and on such dates as the
Compensation Committee may specify. Unless otherwise determined by the
Compensation Committee at or after grant, any Stock Option held by an individual
who dies while employed by the Company or any subsidiary, or whose employment
with the Company and all subsidiaries is terminated for any reason, prior to the
expiration date of such option, will generally remain exercisable by the former
employee or his personal representative, to the extent such Stock Option was
vested and exercisable on the date of death or termination of employment, for a
period of one year in the event of an individual's death or disability or for a
period of three months following an employee's termination of employment for any
other reason. However, in the event of termination of employment for cause, the
Compensation Committee, in its discretion, may terminate all Stock Options held
by the Participant at the date of termination and may require the Participant to
forfeit all shares underlying any exercised portion of an Option for which the
Company has not yet delivered the share certificates upon refund by the Company
of the exercise price paid by the Participant for such shares.

The exercise price is payable in cash, by delivering shares of Common
Stock already owned by the Participant and having a fair market value on the
date of exercise equal to the exercise price, or with a combination of cash and
shares. Shares of Common Stock previously acquired by a Participant which are
tendered in payment of the exercise price may be subject to certain holding
periods and other requirements as set forth in the 1997 Plan. The Company also
may accept such other method of payment as the Compensation Committee may
approve, including a "cashless exercise" of a Stock Option, which may be
effected by a Participant by delivering a properly executed notice of exercise
of the Stock Option to the Company and a securities broker, with irrevocable
instructions to the securities broker promptly to deliver to the Company the
amount of sale proceeds necessary to pay the exercise price of the Stock Option.
Shares of Common Stock may not be issued or transferred upon exercise of the
Stock Option until the exercise price is paid and the withholding obligation, if
any, is fully satisfied.

Restricted Stock Grants

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<PAGE>

The Compensation Committee may award shares of Common Stock under a
Grant (a "Restricted Stock Grant") pursuant to the 1997 Plan to employees and
eligible independent contractors. Shares of Common Stock issued pursuant to a
Restricted Stock Grant may be issued for consideration or for no consideration.
If a Participant's employment or other service to the Company terminates during
the period, if any, designated in writing by the Compensation Committee at the
time of the Restricted Stock Grant during which the transfer of the shares is
restricted (the "Restriction Period"), the Restricted Stock Grant terminates
with respect to all shares covered by the Restricted Stock Grant as to which the
restrictions on transfer have not lapsed. During the Restriction Period, a
Participant may not sell, assign, transfer, pledge or otherwise dispose of the
shares of Common Stock to which such Restriction Period applies. All
restrictions imposed under the Restricted Stock Grant lapse upon the expiration
of the applicable Restriction Period. In addition, the Compensation Committee
may determine as to any or all Restricted Stock Grants that all restrictions
will lapse based on service, performance and/or such other factors or criteria
as the Compensation Committee may determine, in its sole discretion.

Stock Appreciation Rights

The Compensation Committee may make a Grant of stock appreciation
rights ("SARs") to employees and eligible independent contractors in tandem with
any Stock Option for all or a portion of the applicable Stock Option, either at
the time the Stock Option is granted or at any time thereafter while the Stock
Option remains outstanding. In the case of an ISO, SARs may be granted only at
the time of the grant of the ISO. The number of SARs granted to a Participant
that are exercisable during any given period of time may not exceed the number
of shares of Common Stock that the Participant may purchase upon the exercise of
the related Stock Option during such period of time. Upon the exercise of a
Stock Option, the SARs relating to the Common Stock covered by such Stock Option
terminate. Upon the exercise of SARs, the related Stock Option terminates to the
extent of an equal number of shares of Common Stock.

Upon a Participant's exercise of some or all of his or her SARs, the
Participant receives in settlement of such SARs an amount equal to the value of
the stock appreciation for the number of SARs exercised, payable in cash, Common
Stock or a combination thereof. The stock appreciation for a SAR is the
difference between the exercise price specified for the related Stock Option and
the fair market value per share of the underlying Common Stock on the date of
exercise of the SAR. The 1997 Plan provides that the exercise price of a SAR is
the (i) exercise price of the related Stock Option or (ii) the fair market value
of a share of Common Stock as of the date of the Grant of the SAR, if the SAR is
granted after the Stock Option and the exercise price under (i) would result in
the disallowance of the Company's expense deduction upon exercise of the SAR
under section 162(m) of the Code.

A SAR is exercisable only during the period when the Stock Option to
which it relates is also exercisable, provided, however, that unless an
executive officer or director could otherwise transfer shares of stock issued
under the 1997 Plan without incurring liability under Section 16(b) of the
Securities Exchange Act of 1934, as amended, at least six months must elapse
from the date of grant of the SAR to the date of disposition of such SAR.

Performance Units

The Compensation Committee may grant units ("Performance Units") to a
Participant representing the right of the Participant to receive an amount based
on the value of the Performance Unit if the performance goals established by the
Compensation Committee are met. A Performance Unit may be based on one or more
of the following criteria: stock price,

13
<PAGE>

earnings per share, net earnings, operating earnings, return on assets,
shareholder return, return on equity, growth in assets, unit volume, sales,
market share, or strategic business criteria consisting of one or more
objectives based on meeting specific revenue goals, market penetration goals,
geographic business expansion goals, cost targets or goals relating to
acquisitions or divestitures. At the time of grant, the Compensation Committee
shall establish the performance period during which the performance will be
measured, the performance goals applicable to the Performance Units and any
other conditions that the Compensation Committee deems appropriate. At the end
of each performance period, the Compensation Committee shall determine to what
extent the performance goals have been met and the amount, if any, to be paid
with respect to the Performance Units. Payments may be made in cash, in Common
Stock, or in a combination of the two, as determined by the Compensation
Committee. If Performance Units measured with respect to the fair market value
of the Company Stock are granted, not more than 500,000 shares of Common Stock
may be granted to a Participant for any Performance Period. If Performance Units
are measured with respect to other criteria, the maximum amount that may be paid
to a Participant with respect to a Performance Period is $1,000,000.

Termination of the 1997 Plan; Amendment of Options of the Equity Plan

The Board may amend or terminate the 1997 Plan at any time, provided,
however, that no amendment or termination may be made which would impair the
rights of a Participant without the Participant's consent. Further, the Board
may not amend the 1997 Plan without shareholder approval if such approval is
required pursuant to the Code or the rules of any national securities exchange
or over-the-counter market on which the Company's Common Stock is then listed or
included. The 1997 Plan will terminate on April 1, 2007, unless terminated
earlier by the Board.

A termination or amendment of the 1997 Plan that occurs after a Grant
is made will not result in the termination or amendment of the Grant unless the
Participant consents or unless the Compensation Committee revokes a Grant, the
terms of which are contrary to applicable law. The termination of the 1997 Plan
will not impair the power and authority of the Compensation Committee with
respect to outstanding Grants.

Adjustment Provisions; Change in Control of the Company

If there is any change in the number or kind of shares of Company Stock
outstanding (i) by reason of a stock dividend, spin off, recapitalization, stock
split, or combination or exchange of shares, (ii) by reason of a merger,
reorganization or consolidation in which the Company is the surviving
corporation, (iii) by reason of a reclassification or change in par value, or
(iv) by reason of any other extraordinary or unusual event affecting the
outstanding Company Stock as a class without the Company's receipt of
consideration, or if the value of outstanding shares of Company Stock is
substantially reduced as a result of a spin off or the Company's payment of an
extraordinary dividend or distribution, then unless such event or change results
in the termination of all outstanding awards under the 1997 Plan, the Committee
shall preserve the value of the outstanding awards by adjusting the maximum
number and class of shares issuable under the 1997 Plan to reflect the effect of
such event or change in the Company's capital structure, and by making
appropriate adjustments to the number and class of shares subject to an
outstanding award and/or the option price of each outstanding Option and Stock
Appreciation Right, except that any fractional shares resulting from such
adjustments shall be eliminated by rounding any portion of a share equal to 0.5
or greater up, and any portion of a share equal to less than 0.5 down, in each
case to the nearest whole number.

In the event of a Change in Control where the Company is not the
surviving corporation or survives only as a subsidiary of another corporation,
unless the Compensation Committee

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<PAGE>

determines otherwise, all outstanding Stock Options and Stock Appreciation
Rights that are not exercised shall be assumed by, or replaced with comparable
options or rights by, the surviving corporation. Notwithstanding the foregoing,
the Compensation Committee may require that Participants surrender outstanding
Stock Options or SARs for a payment in cash or Stock in an amount equal to the
amount by which the then fair market value of the shares of Company Stock
subject to such Grant exceeds the exercise price of the Stock Option or the base
amount of the SAR, as applicable, or may terminate any or all unexercised Stock
Options and SARs after giving the Participants an opportunity to exercise their
outstanding Stock Options and SARs.

Federal Income Tax Consequences

Set forth below is a general description of the federal income tax
consequences relating to Stock Options, Stock Appreciation Rights, Restricted
Stock Grants and Performance Units under the 1997 Plan.

Incentive Stock Options

If the requirements regarding ISOs set forth in the 1997 Plan are met,
ISOs granted under the 1997 Plan will be afforded favorable federal income tax
treatment under the Code. The Participant will not recognize taxable income and
the Company will not be entitled to a deduction upon the grant of an ISO.
Moreover, the Participant will not recognize taxable income (except alternative
minimum taxable income, if applicable) and the Company will not be entitled to a
deduction upon the exercise by the Participant of an ISO, provided the
Participant was an employee of the Company or any of its subsidiary
corporations, as defined in Section 424(f) of the Code, during the entire period
from the date of grant of the ISO until three months before the date of exercise
(increased to 12 months if employment ceased due to death or total and permanent
disability, or if the employee dies within a limited period of time following
termination of employment).

If the employment requirements described above are not met, the tax
consequences relating to NQSOs (discussed below) will apply.

If the Participant disposes of the shares acquired under an ISO after
at least two years following the date of grant of the ISO and at least one year
following the date of transfer of the shares to the Participant following
exercise of the ISO, the Participant will recognize a long-term capital gain or
loss equal to the difference between the amount realized upon the disposition
and the exercise price. Any net capital gain will be treated as ordinary income,
but will be taxed at a maximum rate of 28%. Any net capital loss can only be
used to offset up to $3,000 per year ($1,500 per year in the case of a married
individual filing separately) of ordinary income.

If the Participant makes a disqualifying disposition of the shares
(that is, disposes of the shares within two years after the date of grant of the
ISO or within one year after the transfer of the shares to the Participant), but
all other requirements of Section 422 of the Code are met, the Participant will
generally recognize ordinary income upon disposition of the shares in an amount
equal to the lesser of (i) the fair market value of the shares on the date of
exercise minus the exercise price, or (ii) the amount realized on disposition
minus the exercise price. Disqualifying dispositions of shares may also,
depending upon the sales price, result in either long-term or short-term capital
gain or loss under the Code rules which govern other stock dispositions.

If the requirements of Section 422 of the Code are not met, the Company
will be allowed a federal income tax deduction to the extent of the ordinary
income includible in the

15
<PAGE>

Participant's gross income in accordance with the provisions of Section 83 of
the Code (and Section 3402 of the Code, to the extent applicable) and the
regulations thereunder.

The use of shares of Common Stock received upon the exercise of an ISO
to pay the exercise price in connection with the exercise of other ISOs within
either the two-year or one-year holding periods described above will constitute
a disqualifying disposition of the shares so used which will result in income
(or loss) to the Participant and, to the extent of a recognized gain, a
deduction to the Company. If, however, these holding period requirements are met
and the number of shares received on the exercise does not exceed the number of
shares surrendered, the Participant will recognize no gain or loss with respect
to the surrendered shares, and will have the same basis and holding period with
respect to the newly acquired shares as with respect to the surrendered shares.
To the extent that the number of shares received exceeds the number surrendered,
the Participant's basis in such excess shares will equal the amount of cash paid
by the Participant upon the original exercise of the Stock Option, and the
Participant's holding period with respect to such excess shares will begin on
the date such shares are transferred to the Participant. The tax treatment
described above for shares newly received upon exercise is not affected by using
shares to pay the exercise price.

Non-qualified Options

All other Stock Options granted under the 1997 Plan are NQSOs and will
not qualify for any special tax benefits to the Participant. Under present
Treasury Regulations, the Company's Stock Options are not deemed to have a
readily ascertainable value. Accordingly, a Participant will not recognize any
taxable income at the time he or she is granted an NQSO and the Company will not
be entitled to a deduction upon the grant of an NQSO.

Generally, a Participant will recognize ordinary income at the time of
exercise of an NQSO, in an amount equal to the excess of the fair market value
of the shares at the time of such exercise over the exercise price.

The Company will be entitled to a deduction to the extent of the
ordinary income recognized by a Participant in accordance with the rules of
Section 83 of the Code and the regulations thereunder. However, no deduction
will generally be allowed to the Company unless the Company deducts and
withholds federal income tax.

A Participant exercising an NQSO is subject to federal income tax on
the income recognized as a result of the exercise of an NQSO and federal income
tax must be withheld. The Compensation Committee, in its discretion, may permit
the Participant to elect to surrender or deliver shares otherwise issuable upon
exercise, or previously acquired shares, in order to satisfy the federal income
tax withholding, subject to certain restrictions set forth in the 1997 Plan.
Such an election will result in a disposition of the shares which are
surrendered or delivered, and an amount will be included in the Participant's
income equal to the excess of the fair market value of such shares over the
Participant's basis in such shares.

If the Participant pays the exercise price in cash, the basis of the
shares received by a Participant upon the exercise of an NQSO is the exercise
price paid plus the amount recognized by the Participant as income attributable
to such shares upon such exercise. If the exercise price is paid in cash, the
Participant's holding period for such shares will begin on the day after the
date on which the Participant realized income with respect to the transfer of
such Stock Option shares, i.e., generally the day after the exercise date. Any
net capital gain realized by the Participant upon a subsequent disposition of
any such shares is subject to federal income tax on the income recognized at the
ordinary income tax rates, but only up to a maximum of 28%. Any loss realized on
a subsequent disposition, however, will be treated as a capital loss

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<PAGE>

and thus can only be used to offset up to $3,000 per year ($1,500 in the case of
a married individual filing separately) of ordinary income.

If the Participant surrenders shares to pay the exercise price, and the
number of shares received on the exercise does not exceed the number of shares
surrendered, the Participant will recognize no gain or loss with respect to the
surrendered shares, and will have the same basis and holding period with respect
to the newly acquired shares as with respect to the surrendered shares. To the
extent that the number of shares received exceeds the number surrendered, the
fair market value of such excess shares on the date of exercise, reduced by any
cash paid by the Participant upon such exercise, will be includible in the gross
income of the Participant. The Participant's basis in such excess shares will
equal the sum of the cash paid by the Participant upon the exercise of the Stock
Option plus any amount included in the Participant's gross income as a result of
the exercise of the Stock Option, and the Participant's holding period with
respect to such excess shares will begin on the day following the date of
exercise.

Restricted Stock

A Participant normally will not recognize taxable income upon the award
of a Restricted Stock Grant, and the Company will not be entitled to a
deduction, until such stock is transferable by the Participant or no longer
subject to a substantial risk of forfeiture for federal tax purposes, whichever
occurs earlier. When the Common Stock is either transferable or is no longer
subject to a substantial risk of forfeiture, the Participant will recognize
ordinary compensation income in an amount equal to the fair market value of the
Common Stock at that time less any consideration paid by the Participant for
such shares and the Company will be entitled to a deduction in the same amount.
A Participant may, however, elect to recognize ordinary compensation income in
the year the Restricted Stock Grant is awarded in an amount equal to the fair
market value of the Common Stock at that time less any consideration paid by the
Participant for such shares, determined without regard to the restrictions. In
this event, the Company will be entitled to a deduction in the same year,
provided the Company complies with the applicable withholding requirements for
federal tax purposes. Any gain or loss recognized by the Participant upon
subsequent disposition of the Common Stock will be capital gain or loss. If,
after making the election, any Common Stock subject to a Restricted Stock Grant
is forfeited, or if the market value declines during the Restriction Period, the
Participant is not entitled to any tax deduction or tax refund.

Stock Appreciation Rights

The Participant will not recognize any income upon the grant of a SAR.
Upon the exercise of a SAR, the Participant will recognize ordinary compensation
income in the amount of both the cash and the fair market value of the shares of
Common Stock received upon such exercise, and the Company is entitled to a
corresponding deduction, provided the Company complies with the applicable
withholding requirements for federal tax purposes. In the event that the
Participant receives shares of Common Stock upon the exercise of a SAR, the
shares so acquired will have a tax basis equal to their fair market value on the
date of transfer, and the holding period of the shares will commence on that
date for purposes of determining whether a subsequent disposition of the shares
will result in long-term or short-term capital gain or loss.

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<PAGE>

Performance Units

The Participant will not recognize any income upon the grant of a
Performance Unit. At the time the Compensation Committee determines an amount,
if any, to be paid with respect to Performance Units, the Participant will
recognize ordinary compensation income in the amount of both the cash and the
fair market value of the shares of Common Stock authorized for payment by the
Compensation Committee, and the Company will be entitled to a corresponding
deduction, provided the Company complies with the applicable withholding
requirements for federal tax purposes. In the event that the Participant
receives shares of Common Stock upon the payment of a Performance Unit, the
shares so acquired will have a tax basis equal to their fair market value on the
date of transfer, and the holding period of the shares will commence on that
date for purposes of determining whether a subsequent disposition of the shares
will result in long-term or short-term capital gain or loss.

Tax Withholding

No later than the date that an amount becomes includible in a
Participant's gross income for federal tax purposes in connection with a Grant
under the 1997 Plan, a Participant who is an employee is required to pay the
Company or make arrangements satisfactory to the Compensation Committee for the
payment of any federal, state or local taxes required to be withheld. Unless the
Compensation Committee determines otherwise, withholding obligations may be
satisfied with shares of Common Stock, including shares of Common Stock received
in connection with the grant under the 1997 Plan. To the extent permitted by
law, the Company may deduct any required withholding from any payment of any
kind otherwise due to the Participant. The obligations of the Company under the
1997 Plan are conditional upon the payment or arrangement for such payment of
any required withholding.

Other Tax Considerations

The 1997 Plan is not qualified under Section 401(a) of the Code and is
not subject to the provisions of the Employee Retirement Income Security Act of
1984, as amended. The comments set forth in the above paragraphs are only a
summary of certain of the federal income tax consequences relating to the 1997
Plan. No consideration has been given to the effects of state, local and other
tax laws on the Participant or the Company.

Approval by Shareholders

Approval of the 1997 Plan requires the affirmative vote of a majority
of the votes cast at a meeting at which a quorum representing a majority of all
outstanding voting stock of the Company is present, either in person or by
proxy, and voting on the 1997 Plan. If not so approved, then the 1997 Plan will
be null and void.

INDEPENDENT AUDITORS

On August 22, 1995, the Company retained Ernst & Young LLP as its
independent public accountants, replacing KPMG Peat Marwick LLP, the former
independent public accountants. During the fiscal years ended December 31, 1994
and 1993, and the subsequent interim periods through August 22 1995, there were
no disagreements with the former accountants on any matters of accounting
principles or practices, financial statement disclosures, or auditing scope or
procedures, which disagreements if not resolved to the satisfaction of the
former accountant would have caused him to make reference in connection with his
report to the subject matter of the disagreements. The former accountant's
reports on the financial statements of the Company for the fiscal years ended
December 31, 1994 and

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<PAGE>

1993, and for all the years that they audited, were unqualified. The decision to
change accountants was reviewed with the Audit Committee and the entire Board of
Directors, and the Board and the Audit Committee concurred with the decision.
Ernst & Young LLP served as independent auditors for the Company for fiscal
years 1995 and 1996. The Audit Committee of the Board of Directors presently is
reviewing the performance of the independent certified public accountants and
thus has not selected a public accountant for the fiscal year 1997. A
representative of Ernst & Young LLP is expected to be present at the Annual
Meeting and will have an opportunity at the meeting to make a statement if he
desires to do so and will be available to respond to appropriate questions.

COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT OF 1934

Section 16(a) of the Securities Exchange Act of 1934 ("1934 Act")
requires the Company's directors and executive officers and persons who own more
than ten percent of a registered class of the Company's equity securities ("10%
Shareholders"), to file reports of ownership and changes in ownership of Common
Stock and other equity securities of the Company with the Securities and
Exchange Commission ("SEC"). Officers, directors and 10% Shareholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file. Based solely on its review of the copies of such forms
received by it and written representations from certain reporting persons that
no other reports were required for those persons, the Company believes that
during the period January 1, 1996, through December 31, 1996, its officers,
directors and 10% Shareholders complied with all applicable Section 16(a) filing
requirements, except a Form 5 that was filed late by each of Mr. Owens and Mr.
Sempier.

OTHER BUSINESS

The Company is not aware of any other business to be presented at the
Annual Meeting. If any other matter should properly come before the Annual
Meeting, however, the enclosed Proxy confers discretionary authority with
respect thereto.

The Company's Annual Report for 1996, including financial statements
and other information with respect to the Company and its subsidiaries, is being
mailed simultaneously to the shareholders but is not to be regarded as proxy
solicitation material.

Dated: April 21, 1997

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<PAGE>

TANGRAM ENTERPRISE SOLUTIONS, INC.
1997 EQUITY COMPENSATION PLAN

The purpose of the Tangram Enterprise Solutions, Inc. 1997 Equity
Compensation Plan (the "Plan") is to provide (i) designated employees of Tangram
Enterprise Solutions, Inc. (the "Company") and its subsidiaries, (ii) certain
Key Advisors and advisors who perform services for the Company or its
subsidiaries and (iii) non-employee members of the Board of Directors of the
Company (the "Board") with the opportunity to receive grants of incentive stock
options, nonqualified stock options, stock appreciation rights, restricted stock
and performance units. The Company believes that the Plan will encourage the
participants to contribute materially to the growth of the Company, thereby
benefiting the Company's shareholders, and will align the economic interests of
the participants with those of the shareholders.

1. Administration

(a) Committee. The Plan shall be administered and interpreted by a
committee appointed by the Board (the "Committee") consisting of two or more
persons appointed by the Board, all of whom shall be "non-employee directors" as
defined under Rule 16b-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and also may be "outside directors" as defined under
section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code") and
related Treasury regulations. References in the Plan to the "Committee" shall be
deemed to include the Board, with respect to ratification or approval of grants
made to Non-Employee Directors.

(b) Committee Authority. The Committee shall have the sole authority to
(i) determine the individuals to whom grants shall be made under the Plan, (ii)
determine the type, size and terms of the grants to be made to each such
individual, (iii) determine the time when the grants will be made and the
duration of any applicable exercise or restriction period, including the
criteria for exercisability and the acceleration of exercisability and (iv) deal
with any other matters arising under the Plan.

(c) Committee Determinations. The Committee shall have full power and
authority to administer and interpret the Plan, to make factual determinations
and to adopt or amend such rules, regulations, agreements and instruments for
implementing the Plan and for the conduct of its business as it deems necessary
or advisable, in its sole discretion. The Committee's interpretations of the
Plan and all determinations made by the Committee pursuant to the powers vested
in it hereunder shall be conclusive and binding on all persons having any
interest in the Plan or in any awards granted hereunder. All powers of the
Committee shall be executed in its sole discretion, in the best interest of the
Company, not as a fiduciary, and in keeping with the objectives of the Plan and
need not be uniform as to similarly situated individuals.

2. Grants

Awards under the Plan may consist of grants of incentive stock options
as described in Section 5 ("Incentive Stock Options"), nonqualified stock
options as

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described in Section 5 ("Nonqualified Stock Options") (Incentive Stock Options
and Nonqualified Stock Options are collectively referred to as "Options"),
restricted stock as described in Section 6 (Restricted Stock"), stock
appreciation rights as described in Section 7 ("SARs"), and performance units as
described in Section 8 ("Performance Units") (hereinafter collectively referred
to as "Grants"). All Grants shall be subject to the terms and conditions set
forth herein and to such other terms and conditions consistent with this Plan as
the Committee deems appropriate and as are specified in writing by the Committee
to the individual in a grant instrument (the "Grant Instrument") or an amendment
to the Grant Instrument. The Committee shall approve the form and provisions of
each Grant Instrument. Grants under a particular Section of the Plan need not be
uniform as among the grantees.

3. Shares Subject to the Plan

(a) Shares Authorized. Subject to the adjustment specified below, the
aggregate number of shares of common stock of the Company ("Company Stock") that
may be issued or transferred under the Plan is 2,000,000 shares. The maximum
aggregate number of shares of Company Stock that shall be subject to Grants made
under the Plan to any individual during any calendar year shall be 500,000
shares. The shares may be authorized but unissued shares of Company Stock or
reacquired shares of Company Stock, including shares purchased by the Company on
the open market for purposes of the Plan. If and to the extent Options or SARs
granted under the Plan terminate, expire, or are canceled, forfeited, exchanged
or surrendered without having been exercised, or if any shares of Restricted
Stock or Performance Units are forfeited, the shares subject to such Grants
shall again be available for purposes of the Plan.

(b) Adjustments. If there is any change in the number or kind of shares
of Company Stock outstanding (i) by reason of a stock dividend, spinoff,
recapitalization, stock split or combination or exchange of shares, (ii) by
reason of a merger, reorganization or consolidation in which the Company is the
surviving corporation, (iii) by reason of a reclassification or change in par
value, or (iv) by reason of any other extraordinary or unusual event affecting
the outstanding Company Stock as a class without the Company's receipt of
consideration, or if the value of outstanding shares of Company Stock is
substantially reduced as a result of a spinoff or the Company's payment of an
extraordinary dividend or distribution, the maximum number of shares of Company
Stock available for Grants, the maximum number of shares of Company Stock that
any individual participating in the Plan may be granted in any year, the number
of shares covered by outstanding Grants, the kind of shares issued under the
Plan, and the price per share or the applicable market value of such Grants
shall be appropriately adjusted by the Committee to reflect any increase or
decrease in the number of, or change in the kind or value of, issued shares of
Company Stock to preclude, to the extent practicable, the enlargement or
dilution of rights and benefits under such Grants; provided, however, that any
fractional shares resulting from such adjustment shall be eliminated. Any
adjustments determined by the Committee shall be final, binding and conclusive.

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4. Eligibility for Participation

(a) Eligible Persons. All employees of the Company and its subsidiaries
("Employees"), including Employees who are officers or members of the Board, and
members of the Board who are not Employees ("Non-Employee Directors") shall be
eligible to participate in the Plan. Key Advisors and advisors who perform
services to the Company or any of its subsidiaries ("Key Advisors") shall be
eligible to participate in the Plan if the Key Advisors render bona fide
services and such services are not in connection with the offer or sale of
securities in a capital-raising transaction.

(b) Selection of Grantees. The Committee shall select the Employees,
Non-Employee Directors and Key Advisors to receive Grants and shall determine
the number of shares of Company Stock subject to a particular Grant in such
manner as the Committee determines. Employees, Key Advisors and Non-Employee
Directors who receive Grants under this Plan shall hereinafter be referred to as
"Grantees".

5. Granting of Options

(a) Number of Shares. The Committee shall determine the number of
shares of Company Stock that will be subject to each Grant of Options to
Employees, Non-Employee Directors and Key Advisors.

(b) Type of Option and Price.

(i) The Committee may grant Incentive Stock Options that are
intended to qualify as "incentive stock options" within the meaning of section
422 of the Code or Nonqualified Stock Options that are not intended so to
qualify or any combination of Incentive Stock Options and Nonqualified Stock
Options, all in accordance with the terms and conditions set forth herein.
Incentive Stock Options may be granted only to Employees. Nonqualified Stock
Options may be granted to Employees, Non-Employee Directors and Key Advisors.

(ii) The purchase price (the "Exercise Price") of Company
Stock subject to an Option shall be determined by the Committee and may be equal
to, greater than, or less than the Fair Market Value (as defined below) of a
share of Company Stock on the date the Option is granted; provided, however,
that (x) the Exercise Price of an Incentive Stock Option shall be equal to, or
greater than, the Fair Market Value of a share of Company Stock on the date the
Incentive Stock Option is granted and (y) an Incentive Stock Option may not be
granted to an Employee who, at the time of grant, owns stock possessing more
than 10 percent of the total combined voting power of all classes of stock of
the Company or any parent or subsidiary of the Company, unless the Exercise
Price per share is not less than 110% of the Fair Market Value of Company Stock
on the date of grant.

(iii) The Fair Market Value per share shall be determined as
follows: (x) if the principal trading market for the Company Stock is a national
securities exchange or the Nasdaq National Market, the last reported sale price
thereof on the relevant date or (if there were no trades on that date) the
latest preceding date upon which a sale was reported, or (y) if the Company
Stock is not principally traded on such exchange or

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market, the mean between the last reported "bid" and "asked" prices of Company
Stock on the relevant date, as reported on Nasdaq or, if not so reported, as
reported by the National Daily Quotation Bureau, Inc. or as reported in a
customary financial reporting service, as applicable and as the Committee
determines. If the Company Stock is not publicly traded or, if publicly traded,
is not subject to reported transactions or "bid" or "asked" quotations as set
forth above, the Fair Market Value per share shall be as determined by the
Committee.

(c) Option Term. The Committee shall determine the term of each Option.
The term of any Option shall not exceed ten years from the date of grant.
However, an Incentive Stock Option that is granted to an Employee who, at the
time of grant, owns stock possessing more than 10 percent of the total combined
voting power of all classes of stock of the Company, or any parent or subsidiary
of the Company, may not have a term that exceeds five years from the date of
grant.

(d) Exercisability of Options. Options shall become exercisable in
accordance with such terms and conditions, consistent with the Plan, as may be
determined by the Committee and specified in the Grant Instrument or an
amendment to the Grant Instrument. The Committee may accelerate the
exercisability of any or all outstanding Options at any time for any reason.

(e) Termination of Employment, Disability or Death.

(i) Except as provided below, and unless otherwise determined
by the Committee at or after grant, an Option may only be exercised while the
Grantee is employed by the Company as an Employee, Key Advisor or member of the
Board. In the event that a Grantee ceases to be employed by the Company for any
reason other than a "disability", death or "termination for cause", any Option
which is otherwise exercisable by the Grantee shall terminate unless exercised
within 90 days after the date on which the Grantee ceases to be employed by the
Company (or within such other period of time as may be specified by the
Committee), but in any event no later than the date of expiration of the Option
term. Any of the Grantee's Options that are not otherwise exercisable as of the
date on which the Grantee ceases to be employed by the Company shall terminate
as of such date.

(ii) In the event the Grantee ceases to be employed by the
Company on account of a "termination for cause" by the Company, any Option held
by the Grantee shall terminate as of the date the Grantee ceases to be employed
by the Company.

(iii) In the event the Grantee ceases to be employed by the
Company because the Grantee is "disabled", any Option which is otherwise
exercisable by the Grantee shall terminate unless exercised within one year
after the date on which the Grantee ceases to be employed by the Company (or
within such other period of time as may be specified by the Committee), but in
any event no later than the date of expiration of the Option term. Any of the
Grantee's Options which are not otherwise exercisable as of the date on which
the Grantee ceases to be employed by the Company shall terminate as of such
date.

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<PAGE>

(iv) If the Grantee dies while employed by the Company or
within 90 days after the date on which the Grantee ceases to be employed on
account of a termination of employment specified in Section 5(e)(i) above (or
within such other period of time as may be specified by the Committee), any
Option that is otherwise exercisable by the Grantee shall terminate unless
exercised within one year after the date on which the Grantee ceases to be
employed by the Company (or within such other period of time as may be specified
by the Committee), but in any event no later than the date of expiration of the
Option term. Any of the Grantee's Options that are not otherwise exercisable as
of the date on which the Grantee ceases to be employed by the Company shall
terminate as of such date.

(v) For purposes of this Section 5(e) and Sections 6, 7 and 8:

(A) The term "Company" shall mean the Company and its parent
and subsidiary corporations.

(B) "Employed by the Company" shall mean employment or service
as an Employee, Key Advisor or member of the Board (so that, for
purposes of exercising Options and SARs and satisfying conditions with
respect to Restricted Stock and Performance Units, a Grantee shall not
be considered to have terminated employment or service until the
Grantee ceases to be an Employee, Key Advisor and member of the Board),
unless the Committee determines otherwise.

(D) "Termination for cause" shall mean, except to the extent
specified otherwise by the Committee, a finding by the Committee that
the Grantee has breached his or her employment, service,
noncompetition, nonsolicitation or other similar contract with the
Company, or has been engaged in disloyalty to the Company, including,
without limitation, fraud, embezzlement, theft, commission of a felony
or dishonesty in the course of his or her employment or service, or has
disclosed trade secrets or confidential information of the Company to
persons not entitled to receive such information. In the event a
Grantee's employment is terminated for cause, in addition to the
immediate termination of all Grants, the Grantee shall automatically
forfeit all shares underlying any exercised portion of an Option for
which the Company has not yet delivered the share certificates, upon
refund by the Company of the Exercise Price paid by the Grantee for
such shares.

(f) Exercise of Options. A Grantee may exercise an Option that has
become exercisable, in whole or in part, by delivering a notice of exercise to
the Company with payment of the Exercise Price. The Grantee shall pay the
Exercise Price for an Option as specified by the Committee (x) in cash, (y) with
the approval of the Committee, by delivering shares of Company Stock owned by
the Grantee for the period necessary to avoid a charge to the Company's earnings
for financial reporting purposes (including Company Stock acquired in connection
with the exercise of an Option, subject to such restrictions as the Committee
deems appropriate) and having a Fair Market Value on

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<PAGE>

the date of exercise equal to the Exercise Price, or (z) by such other method as
the Committee may approve, including, but not limited to, payment through a
broker in accordance with procedures permitted by Regulation T of the Federal
Reserve Board. Shares of Company Stock used to exercise an Option shall have
been held by the Grantee for the requisite period of time to avoid adverse
accounting consequences to the Company with respect to the Option. The Grantee
shall pay the Exercise Price and the amount of any withholding tax due (pursuant
to Section 9) at the time of exercise.

(g) Limits on Incentive Stock Options. Each Incentive Stock Option
shall provide that if the aggregate Fair Market Value of the stock on the date
of the grant with respect to which Incentive Stock Options are exercisable for
the first time by a Grantee during any calendar year, under the Plan or any
other stock option plan of the Company or a parent or subsidiary, exceeds
$100,000, then the option, as to the excess, shall be treated as a Nonqualified
Stock Option. An Incentive Stock Option shall not be granted to any person who
is not an Employee of the Company or a parent or subsidiary (within the meaning
of section 424(f) of the Code).

6. Restricted Stock Grants

The Committee may issue or transfer shares of Company Stock to an
Employee or Key Advisor under a Grant of Restricted Stock, upon such terms as
the Committee deems appropriate. The following provisions are applicable to
Restricted Stock:

(a) General Requirements. Shares of Company Stock issued or transferred
pursuant to Restricted Stock Grants may be issued or transferred for
consideration or for no consideration, as determined by the Committee. The
Committee may establish conditions under which restrictions on shares of
Restricted Stock shall lapse over a period of time or according to such other
criteria as the Committee deems appropriate. The period of time during which the
Restricted Stock will remain subject to restrictions will be designated in the
Grant Instrument as the "Restriction Period."

(b) Number of Shares. The Committee shall determine the number of
shares of Company Stock to be issued or transferred pursuant to a Restricted
Stock Grant and the restrictions applicable to such shares.

(c) Requirement of Employment. If the Grantee ceases to be employed by
the Company (as defined in Section 5(e)) during a period designated in the Grant
Instrument as the Restriction Period, or if other specified conditions are not
met, the Restricted Stock Grant shall terminate as to all shares covered by the
Grant as to which the restrictions have not lapsed, and those shares of Company
Stock must be immediately returned to the Company. The Committee may, however,
provide for complete or partial exceptions to this requirement as it deems
appropriate.

(d) Restrictions on Transfer and Legend on Stock Certificate. During
the Restriction Period, a Grantee may not sell, assign, transfer, pledge or
otherwise dispose of the shares of Restricted Stock except to a Successor
Grantee under Section 11(a). Each certificate for a share of Restricted Stock
shall contain a legend giving appropriate notice of the restrictions in the
Grant. The Grantee shall be entitled to have the legend removed from the stock
certificate covering the shares subject to restrictions when all

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<PAGE>

restrictions on such shares have lapsed. The Committee may determine that the
Company will not issue certificates for shares of Restricted Stock until all
restrictions on such shares have lapsed, or that the Company will retain
possession of certificates for shares of Restricted Stock until all restrictions
on such shares have lapsed.

(e) Right to Vote and to Receive Dividends. Unless the Committee
determines otherwise, during the Restriction Period, the Grantee shall have the
right to vote shares of Restricted Stock and to receive any dividends or other
distributions paid on such shares, subject to any restrictions deemed
appropriate by the Committee.

(f) Lapse of Restrictions. All restrictions imposed on Restricted Stock
shall lapse upon the expiration of the applicable Restriction Period and the
satisfaction of all conditions imposed by the Committee. The Committee may
determine, as to any or all Restricted Stock Grants, that the restrictions shall
lapse without regard to any Restriction Period.

7. Stock Appreciation Rights

(a) General Requirements. The Committee may grant stock appreciation
rights ("SARs") to an Employee or Key Advisor separately or in tandem with any
Option (for all or a portion of the applicable Option). Tandem SARs may be
granted either at the time the Option is granted or at any time thereafter while
the Option remains outstanding; provided, however, that, in the case of an
Incentive Stock Option, SARs may be granted only at the time of the Grant of the
Incentive Stock Option. The Committee shall establish the base amount of the SAR
at the time the SAR is granted. Unless the Committee determines otherwise, the
base amount of each SAR shall be equal to the per share Exercise Price of the
related Option or, if there is no related Option, the Fair Market Value of a
share of Company Stock as of the date of Grant of the SAR.

(b) Tandem SARs. In the case of tandem SARs, the number of SARs granted
to a Grantee that shall be exercisable during a specified period shall not
exceed the number of shares of Company Stock that the Grantee may purchase upon
the exercise of the related Option during such period. Upon the exercise of an
Option, the SARs relating to the Company Stock covered by such Option shall
terminate. Upon the exercise of SARs, the related Option shall terminate to the
extent of an equal number of shares of Company Stock.

(c) Exercisability. An SAR shall be exercisable during the period
specified by the Committee in the Grant Instrument and shall be subject to such
vesting and other restrictions as may be specified in the Grant Instrument. The
Committee may accelerate the exercisability of any or all outstanding SARs at
any time for any reason. SARs may only be exercised while the Grantee is
employed by the Company or during the applicable period after termination of
employment as described in Section 5(e). A tandem SAR shall be exercisable only
during the period when the Option to which it is related is also exercisable. No
SAR may be exercised for cash by an officer or director of the Company who is
subject to Section 16 of the Exchange Act, except in accordance with Rule 16b-3
under the Exchange Act.

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<PAGE>

(d) Value of SARs. When a Grantee exercises SARs, the Grantee shall
receive in settlement of such SARs an amount equal to the value of the stock
appreciation for the number of SARs exercised, payable in cash, Company Stock or
a combination thereof. The stock appreciation for an SAR is the amount by which
the Fair Market Value of the underlying Company Stock on the date of exercise of
the SAR exceeds the base amount of the SAR as described in Subsection (a).

(e) Form of Payment. The Committee shall determine whether the
appreciation in an SAR shall be paid in the form of cash, shares of Company
Stock, or a combination of the two, in such proportion as the Committee deems
appropriate. For purposes of calculating the number of shares of Company Stock
to be received, shares of Company Stock shall be valued at their Fair Market
Value on the date of exercise of the SAR. If shares of Company Stock are to be
received upon exercise of an SAR, cash shall be delivered in lieu of any
fractional share.

8. Performance Units

(a) General Requirements. The Committee may grant performance units
("Performance Units") to an Employee or Key Advisor. Each Performance Unit shall
represent the right of the Grantee to receive an amount based on the value of
the Performance Unit, if performance goals established by the Committee are met.
A Performance Unit shall be based on the Fair Market Value of a share of Company
Stock or on such other measurement base as the Committee deems appropriate. The
Committee shall determine the number of Performance Units to be granted and the
requirements applicable to such Units.

(b) Performance Period and Performance Goals. When Performance Units
are granted, the Committee shall establish the performance period during which
performance shall be measured (the "Performance Period"), performance goals
applicable to the Units ("Performance Goals") and such other conditions of the
Grant as the Committee deems appropriate. Performance Goals may relate to the
financial performance of the Company or its operating units, the performance of
Company Stock, individual performance, or such other criteria as the Committee
deems appropriate.

(c) Payment with respect to Performance Units. At the end of each
Performance Period, the Committee shall determine to what extent the Performance
Goals and other conditions of the Performance Units are met and the amount, if
any, to be paid with respect to the Performance Units. Payments with respect to
Performance Units shall be made in cash, in Company Stock, or in a combination
of the two, as determined by the Committee.

(d) Requirement of Employment. If the Grantee ceases to be employed by
the Company (as defined in Section 5(e)) during a Performance Period, or if
other conditions established by the Committee are not met, the Grantee's
Performance Units shall be forfeited. The Committee may, however, provide for
complete or partial exceptions to this requirement as it deems appropriate.

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9. Withholding of Taxes

(a) Required Withholding. All Grants under the Plan shall be subject to
applicable federal (including FICA), state and local tax withholding
requirements. The Company shall have the right to deduct from all Grants paid in
cash, or from other wages paid to the Grantee, any federal, state or local taxes
required by law to be withheld with respect to such Grants. In the case of
Options and other Grants paid in Company Stock, the Company may require the
Grantee or other person receiving such shares to pay to the Company the amount
of any such taxes that the Company is required to withhold with respect to such
Grants, or the Company may deduct from other wages paid by the Company the
amount of any withholding taxes due with respect to such Grants.

(b) Election to Withhold Shares. If the Committee so permits, a Grantee
may elect to satisfy the Company's income tax withholding obligation with
respect to an Option, SAR, Restricted Stock or Performance Units paid in Company
Stock by having shares withheld up to an amount that does not exceed the
Grantee's maximum marginal tax rate for federal (including FICA), state and
local tax liabilities. The election must be in a form and manner prescribed by
the Committee and shall be subject to the prior approval of the Committee.

10. Qualified Performance-Based Compensation.

(a) Designation as Qualified Performance-Based Compensation. The
Committee may determine that Performance Units or Restricted Stock granted to a
Grantee shall be considered "qualified performance-based compensation" under
section 162(m) of the Code. The provisions of this Section 10 shall apply to
Grants of Performance Units and Restricted Stock that are to be considered
"qualified performance-based compensation" under section 162(m) of the Code.

(b) Performance Goals. When Performance Units or Restricted Stock that
are to be considered "qualified performance-based compensation" are granted, the
Committee shall establish in writing (i) the objective performance goals that
must be met in order for restrictions on the Restricted Stock to lapse or
amounts to be paid under the Performance Units, (ii) the Performance Period
during which the performance goals must be met, (iii) the threshold, target and
maximum amounts that may be paid if the performance goals are met, and (iv) any
other conditions, including without limitation provisions relating to death,
disability, other termination of employment or Change of Control, that the
Committee deems appropriate and consistent with the Plan and section 162(m) of
the Code. The performance goals may relate to the Grantee's business unit or the
performance of the Company and its subsidiaries as a whole, or any combination
of the foregoing. The Committee shall use objectively determinable performance
goals based on one or more of the following criteria: stock price, earnings per
share, net earnings, operating earnings, return on assets, shareholder return,
return on equity, growth in assets, unit volume, sales, market share, or
strategic business criteria consisting of one or more objectives based on
meeting specific revenue goals, market penetration goals, geographic business
expansion goals, cost targets or goals relating to acquisitions or divestitures.

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<PAGE>

(c) Establishment of Goals. The Committee shall establish the
performance goals in writing either before the beginning of the Performance
Period or during a period ending no later than the earlier of (i) 90 days after
the beginning of the Performance Period or (ii) the date on which 25% of the
Performance Period has been completed, or such other date as may be required or
permitted under applicable regulations under section 162(m) of the Code. The
performance goals shall satisfy the requirements for "qualified
performance-based compensation," including the requirement that the achievement
of the goals be substantially uncertain at the time they are established and
that the goals be established in such a way that a third party with knowledge of
the relevant facts could determine whether and to what extent the performance
goals have been met. The Committee shall not have discretion to increase the
amount of compensation that is payable upon achievement of the designated
performance goals.

(d) Maximum Payment. If Restricted Stock, or Performance Units measured
with respect to the fair market value of the Company Stock, are granted, not
more than 500,000 shares of the Company Stock may be granted to a Grantee under
the Performance Units or Restricted Stock for any Performance Period. If
Performance Units are measured with respect to other criteria, the maximum
amount that may be paid to a Grantee with respect to a Performance Period is
$1,000,000.

(e) Announcement of Grants. The Committee shall certify and announce
the results for each Performance Period to all Grantees immediately following
the announcement of the Company's financial results for the Performance Period.
If and to the extent that the Committee does not certify that the performance
goals have been met, the grants of Restricted Stock or Performance Units for the
Performance Period shall be forfeited.

11. Transferability of Grants

(a) Nontransferability of Grants. Except as provided below, only the
Grantee may exercise rights under a Grant during the Grantee's lifetime. A
Grantee may not transfer those rights except by will or by the laws of descent
and distribution or, with respect to Grants other than Incentive Stock Options,
if permitted in any specific case by the Committee, pursuant to a domestic
relations order (as defined under the Code or Title I of the Employee Retirement
Income Security Act of 1974, as amended, or the regulations thereunder). When a
Grantee dies, the personal representative or other person entitled to succeed to
the rights of the Grantee ("Successor Grantee") may exercise such rights. A
Successor Grantee must furnish proof satisfactory to the Company of his or her
right to receive the Grant under the Grantee's will or under the applicable laws
of descent and distribution.

(b) Transfer of Nonqualified Stock Options. Notwithstanding the
foregoing, the Committee may provide, in a Grant Instrument, that a Grantee may
transfer Nonqualified Stock Options to family members or other persons or
entities according to such terms as the Committee may determine; provided that
the Grantee receives no consideration for the transfer of an Option and the
transferred Option shall continue to be subject to the same terms and conditions
as were applicable to the Option immediately before the transfer.

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<PAGE>

12. Change of Control of the Company

As used herein, a "Change of Control" shall be deemed to have occurred
if the shareholders of the Company approve (or, if shareholder approval is not
required, the Board approves) an agreement providing for (i) the merger or
consolidation of the Company with another corporation where the shareholders of
the Company, immediately prior to the merger or consolidation, will not
beneficially own, immediately after the merger or consolidation, shares
entitling such shareholders to more than 50% of all votes to which all
shareholders of the surviving corporation would be entitled in the election of
directors (without consideration of the rights of any class of stock to elect
directors by a separate class vote), (ii) the sale or other disposition of all
or substantially all of the assets of the Company, or (iii) a liquidation or
dissolution of the Company.

13. Consequences of a Change of Control

(a) Assumption of Grants. Upon a Change of Control where the Company is
not the surviving corporation (or survives only as a subsidiary of another
corporation), unless the Committee determines otherwise, all outstanding Options
and SARs that are not exercised shall be assumed by, or replaced with comparable
options or rights by, the surviving corporation.

(b) Other Alternatives. Notwithstanding the foregoing, in the event of
a Change of Control, the Committee may take one or both of the following
actions: the Committee may (i) require that Grantees surrender their outstanding
Options and SARs in exchange for a payment by the Company, in cash or Company
Stock as determined by the Committee, in an amount equal to the amount by which
the then Fair Market Value of the shares of Company Stock subject to the
Grantee's unexercised Options and SARs exceeds the Exercise Price of the Options
or the base amount of the SARs, as applicable, or (ii) after giving Grantees an
opportunity to exercise their outstanding Options and SARs, terminate any or all
unexercised Options and SARs at such time as the Committee deems appropriate.
Such surrender or termination shall take place as of the date of the Change of
Control or such other date as the Committee may specify.

(c) Limitations. Notwithstanding anything in the Plan to the contrary,
in the event of a Change of Control, the Committee shall not have the right to
take any actions described in the Plan (including without limitation actions
described in Subsection (b) above) that would make the Change of Control
ineligible for pooling of interests accounting treatment or that would make the
Change of Control ineligible for desired tax treatment if, in the absence of
such right, the Change of Control would qualify for such treatment and the
Company intends to use such treatment with respect to the Change of Control.

14. Requirements for Issuance or Transfer of Shares

(a) Shareholder's Agreement. The Committee may require that a Grantee
execute a shareholder's agreement, with such terms as the Committee deems

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appropriate, with respect to any Company Stock distributed pursuant to this
Plan.

(b) Limitations on Issuance or Transfer of Shares. No Company Stock
shall be issued or transferred in connection with any Grant hereunder unless and
until all legal requirements applicable to the issuance or transfer of such
Company Stock have been complied with to the satisfaction of the Committee. The
Committee shall have the right to condition any Grant made to any Grantee
hereunder on such Grantee's undertaking in writing to comply with such
restrictions on his or her subsequent disposition of such shares of Company
Stock as the Committee shall deem necessary or advisable as a result of any
applicable law, regulation or official interpretation thereof, and certificates
representing such shares may be legended to reflect any such restrictions.
Certificates representing shares of Company Stock issued or transferred under
the Plan will be subject to such stop-transfer orders and other restrictions as
may be required by applicable laws, regulations and interpretations, including
any requirement that a legend be placed thereon.

15. Amendment and Termination of the Plan

(a) Amendment. The Board may amend or terminate the Plan at any time or
from time to time, provided, however, the Board shall not amend the Plan without
shareholder approval if such approval is required pursuant to the Code or the
rules of any national securities exchange or over-the-counter market on which
the Company's Shares are then listed or included.

(b) Termination of Plan. The Plan shall terminate on the day
immediately preceding the tenth anniversary of its effective date, unless the
Plan is terminated earlier by the Board or is extended by the Board with the
approval of the shareholders.

(c) Termination and Amendment of Outstanding Grants. A termination or
amendment of the Plan that occurs after a Grant is made shall not materially
impair the rights of a Grantee unless the Grantee consents or unless the
Committee acts under Section 16(b). The termination of the Plan shall not impair
the power and authority of the Committee with respect to an outstanding Grant.
Whether or not the Plan has terminated, an outstanding Grant may be terminated
or amended under Section 16(b) or may be amended by agreement of the Company and
the Grantee consistent with the Plan.

(d) Governing Document. The Plan shall be the controlling document. No
other statements, representations, explanatory materials or examples, oral or
written, may amend the Plan in any manner. The Plan shall be binding upon and
enforceable against the Company and its successors and assigns.

16. Funding of the Plan

This Plan shall be unfunded. The Company shall not be required to
establish any special or separate fund or to make any other segregation of
assets to assure the payment of any Grants under this Plan. In no event shall
interest be paid or accrued on any Grant, including unpaid installments of
Grants.

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<PAGE>

17. Rights of Participants

Nothing in this Plan shall entitle any Employee, Non-Employee Director,
Key Advisor or other person to any claim or right to be granted a Grant under
this Plan. Neither this Plan nor any action taken hereunder shall be construed
as giving any individual any rights to be retained by or in the employ of the
Company or any other employment rights.

18. No Fractional Shares

No fractional shares of Company Stock shall be issued or delivered
pursuant to the Plan or any Grant. The Committee shall determine whether cash,
other awards or other property shall be issued or paid in lieu of such
fractional shares or whether such fractional shares or any rights thereto shall
be forfeited or otherwise eliminated.

19. Headings

Section headings are for reference only. In the event of a conflict
between a title and the content of a Section, the content of the Section shall
control.

20. Effective Date of the Plan.

Subject to the approval of the Company's shareholders, the Plan shall
be effective as of April 2, 1997.

21. Miscellaneous

(a) Grants in Connection with Corporate Transactions and Otherwise.
Nothing contained in this Plan shall be construed to (i) limit the right of the
Committee to make Grants under this Plan in connection with the acquisition, by
purchase, lease, merger, consolidation or otherwise, of the business or assets
of any corporation, firm or association, including Grants to employees thereof
who become Employees of the Company, or for other proper corporate purposes, or
(ii) limit the right of the Company to grant stock options or make other awards
outside of this Plan. Without limiting the foregoing, the Committee may make a
Grant to an employee of another corporation who becomes an Employee by reason of
a corporate merger, consolidation, acquisition of stock or property,
reorganization or liquidation involving the Company or any of its subsidiaries
in substitution for a stock option or restricted stock grant made by such
corporation. The terms and conditions of the substitute grants may vary from the
terms and conditions required by the Plan and from those of the substituted
stock incentives. The Committee shall prescribe the provisions of the substitute
grants.

(b) Compliance with Law. The Plan, the exercise of Options and SARs and
the obligations of the Company to issue or transfer shares of Company Stock
under Grants shall be subject to all applicable laws and to approvals by any
governmental or regulatory agency as may be required. With respect to persons
subject to section 16 of the Exchange Act, it is the intent of the Company that
the Plan and all transactions under the Plan comply with all applicable
provisions of Rule 16b-3 or its successors under the Exchange Act. The Committee
may revoke any Grant if it is contrary to law

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<PAGE>

or modify a Grant to bring it into compliance with any valid and mandatory
government regulation. The Committee may also adopt rules regarding the
withholding of taxes on payments to Grantees. The Committee may, in its sole
discretion, agree to limit its authority under this Section.

(c) Governing Law. The validity, construction, interpretation and
effect of the Plan and Grant Instruments issued under the Plan shall exclusively
be governed by and determined in accordance with the law of the Commonwealth of
Pennsylvania.

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<PAGE>

PROXY

TANGRAM ENTERPRISES SOLUTIONS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

I hereby constitute and appoint W. Christopher Jesse, Steven F. Kuekes and
Nancy M. Dunn, and each of them, my true and lawful agents and proxies with
full power of substitution in each, to vote all shares held of record by me
as specified on the reverse side and, in their discretion, on all other
matters which may properly come before the 1997 Annual Meeting of
Stockholders of Tangram Enterprise Solutions, Inc. to be held on May 21,
1997, and at any adjournments thereof.

THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR ALL NOMINEES TO THE BOARD OF DIRECTORS, FOR THE 1997 EQUITY
COMPENSATION PLAN AND AS THE PROXIES MAY DETERMINE IN THEIR DISCRETION WITH
REGARD TO ANY OTHER MATTER PROPERLY BROUGHT BEFORE THE MEETING.

PLEASE MARK, SIGN AND DATE THE PROXY CARD ON THE REVERSE SIDE AND
RETURN PROMPTLY USING THE ENCLOSED ENVELOPE.

[FOLD AND DETACH HERE]
<PAGE>

Please mark |----|
your votes as | X |
indicated in |----|
this example

The Board of Directors recommends a vote FOR proposals 1 and 2.
1. ELECTION OF DIRECTORS
Nominees:
W. Christopher Jesse WITHHELD
Steven F. Kuekes FOR FOR ALL
John F. Owens [ ] [ ]
Charles A. Root
Carl G. Sempier
Harry Wallaesa
Carl Wilson

TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE WHILE VOTING FOR THE REMAINDER, STRIKE A
LINE THROUGH THE NOMINEE'S NAME IN THE LIST.

2. 1997 EQUITY COMPENSATION PLAN FOR WITHHELD ABSTAIN
[ ] [ ] [ ]

SIGNATURE(S)______________________________________________________DATE:________
THIS PROXY MUST BE SIGNED EXACTLY AS NAME APPEARS HEREIN. Joint tenants must
both sign. When signing as attorney, executor, administrator, trustee or
guardian, or for a corporation or partnership, please give full title.

[FOLD AND DETACH HERE]

Your Proxy vote is important,
regardless of the number of shares you own.

Whether or not you plan to attend the meeting in person,
please complete, date and sign the above Proxy card and
return it without delay in the enclosed envelope.