<PAGE> 1
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:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, For use of the
Commission Only (as permitted
by Rule 14a-6(e)(2)
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule
14a-11(c) or Rule 14a-12
</TABLE>
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:
<PAGE> 2
[TANGRAM ENTERPRISE SOLUTIONS LOGO]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
-- NOVEMBER 8, 2000 --
Dear Tangram Shareholder:
You are invited to attend the Tangram Enterprise Solutions, Inc. 2000 annual
meeting of shareholders on Wednesday, November 8, 2000, at 11000 Regency
Parkway, Suite 401, Cary, North Carolina 27511 at 10:00 a.m.
Eastern time. You will find directions to the meeting on the last page.
Only shareholders who owned stock at the close of business on September 22,
2000, can vote at this meeting or any adjournments that may take place. At the
meeting, we will elect 6 directors, and attend to any other business properly
presented at the meeting. We also will report on our 1999 business results and
other matters of interest to our shareholders. You will have an opportunity at
the meeting to ask questions, make comments and meet our management team.
No admission tickets are required. If you cannot attend the meeting in person,
you may listen to the meeting over the Internet through Vcall, Inc. at
http://www.vcall.com. Please go to the website approximately fifteen minutes
early to register and download any necessary audio software. If you cannot
listen to the live broadcast, Vcall will have a replay of the meeting available
on its web site beginning immediately after the meeting.
OUR BOARD OF DIRECTORS IS A VITAL RESOURCE. NO MATTER HOW MANY SHARES YOU HOLD,
WE CONSIDER YOUR VOTE IMPORTANT AND WE ENCOURAGE YOU TO VOTE AS SOON AS
POSSIBLE.
This proxy statement, accompanying proxy card, and 1999 annual report are being
mailed to shareholders beginning October 6, 2000, in connection with the
solicitation of proxies by the board of directors.
Please contact John N. Nelli, Chief Financial Officer, at (919) 653-6000 with
any questions or concerns.
<TABLE>
<S> <C>
Sincerely,
/s/ Norman L. Phelps /s/ James A. Ounsworth
Norman L. Phelps James A. Ounsworth
Chief Executive Officer Secretary
</TABLE>
October 6, 2000
<PAGE> 3
--------------------------------------------------------------------------------
QUESTIONS AND ANSWERS
--------------------------------------------------------------------------------
Q: WHO IS ENTITLED TO VOTE?
A: Shareholders of record as of the close of business on September 22, 2000,
may vote at the annual meeting.
Q: HOW MANY SHARES CAN VOTE?
A: On September 22, 2000, there were 16,457,049 shares issued, outstanding and
entitled to vote. Every shareholder may cast one vote for each share owned.
Q: WHAT MAY I VOTE ON?
A: You may vote on the election of 6 directors who have been nominated to
serve on our board of directors.
Q: HOW DOES THE BOARD RECOMMEND I VOTE ON THE PROPOSAL?
A: The board recommends a vote FOR each nominee.
Q: HOW DO I VOTE?
A: Sign and date each proxy card you receive, mark the boxes indicating how
you wish to vote, and return the proxy card in the prepaid envelope
provided.
If you sign your proxy card but do not mark any boxes showing how you wish
to vote, Norman L. Phelps and Steven F. Kuekes will vote your shares as
recommended by the board of directors.
Q: WHAT IF I HOLD MY SHARES IN A BROKERAGE ACCOUNT?
A: If you hold your shares through a broker, bank or other nominee, you will
receive a voting instruction form directly from them describing how to vote
your shares. This form will, in most cases, offer you three ways to vote:
- by telephone,
- via the Internet, or
- by returning the form to your broker.
Q: WHAT IF I WANT TO CHANGE MY VOTE?
A: You may change your vote at any time before the meeting by any of the
following three ways:
- notifying our chief financial officer, John N. Nelli, in writing,
- voting in person at the meeting, or
- submitting a proxy card with a later date.
If you hold your shares through a broker, bank or other nominee and wish to
vote at the meeting, you must obtain a legal proxy from the nominee
authorizing you to vote at the meeting. We will be unable to accept a vote
from you at the meeting without that form. If you hold your shares directly
and wish to vote at the meeting, no additional forms will be required.
Q: HOW WILL DIRECTORS BE ELECTED?
A: The 6 board nominees who receive the highest number of affirmative votes
will be elected as directors.
Q: WHO WILL COUNT THE VOTES?
A: One or more of our representatives will count the votes and act as the
judge of elections.
Q: WHAT DOES IT MEAN IF I GET MORE THAN ONE PROXY CARD?
A: Your shares may be registered differently or may be in more than one
account. We encourage you to have all accounts registered in the same name
and address (whenever possible). You may obtain information about how to do
this by contacting our transfer agent at:
[TANGRAM ENTERPRISE SOLUTIONS LOGO] 2
<PAGE> 4
--------------------------------------------------------------------------------
QUESTIONS AND ANSWERS (CONT'D.)
--------------------------------------------------------------------------------
ChaseMellon Shareholder Services
85 Challenger Road
Ridgefield Park, NJ 07660
(toll-free telephone 800-526-0801)
If you provide ChaseMellon with photocopies of the proxy cards you receive
or the account numbers that appear on the proxy cards, it will be easier
for ChaseMellon to combine your accounts.
You can also find information on transferring shares and other useful
shareholder information on their website at www.chasemellon.com.
Q: WHAT IS A QUORUM?
A: A quorum is a majority of the outstanding shares. The shares may be
represented at the meeting either in person or by proxy. To hold the
meeting, there must be a quorum present.
Q: WHAT IS THE EFFECT IF I ABSTAIN OR FAIL TO GIVE INSTRUCTIONS TO MY BROKER?
A: If you submit a properly executed proxy, your shares will be counted as
part of the quorum even if you abstain from voting or withhold your vote
for a particular director.
Broker non-votes also are counted as part of the quorum. A broker non-vote
occurs when banks and brokers or other nominees holding shares on behalf of
a shareholder do not receive voting instructions from the shareholder by a
specified date before the meeting. In this event, banks, brokers and other
nominees may vote those shares on matters deemed routine such as the
election of directors. Banks, brokers or other nominees will not be able to
vote on other proposals considered non-routine without instructions from
the shareholder. This will result in a "broker non-vote" on that matter
equal to the number of shares for which they do not receive specific voting
instructions.
Broker non-votes and abstentions are not counted in the tally of votes FOR
or AGAINST a proposal. A WITHHELD vote is treated the same as an
abstention.
Q: WHO CAN ATTEND THE MEETING?
A: All shareholders are encouraged to attend the meeting. Admission tickets
are not required.
Q: ARE THERE ANY EXPENSES ASSOCIATED WITH COLLECTING THE SHAREHOLDER VOTES?
A: We will reimburse brokerage firms and other custodians, nominees and
fiduciaries for their reasonable out-of-pocket expenses for forwarding
proxy and other materials to our shareholders. We do not anticipate hiring
an agency to solicit votes at this time.
Q: WHAT IS A SHAREHOLDER PROPOSAL?
A: A shareholder proposal is your recommendation or requirement that we or our
board of directors take action on a matter that you intend to present at a
meeting of shareholders. However, under the proxy rules we have the ability
to exclude certain matters proposed, including those that deal with matters
relating to our ordinary business operations.
Q: CAN ANYONE SUBMIT A SHAREHOLDER PROPOSAL?
A: To be eligible to submit a proposal, you must have continuously held at
least $2,000 in market value, or 1%, of our common stock for at least one
year by
[TANGRAM ENTERPRISE SOLUTIONS LOGO] 3
<PAGE> 5
--------------------------------------------------------------------------------
QUESTIONS AND ANSWERS (CONT'D.)
--------------------------------------------------------------------------------
the date you submit your proposal. You also must continue to hold those
securities through the date of the meeting.
Q: IF I WISH TO SUBMIT A SHAREHOLDER PROPOSAL FOR THE ANNUAL MEETING IN 2001,
WHAT ACTION MUST I TAKE?
A: If you wish us to consider including a shareholder proposal in the proxy
statement for the annual meeting in 2001, you must submit the proposal, in
writing, so that we receive it no later than March 1, 2001. The proposal
must meet the requirements established by the SEC. Send your proposal to:
John N. Nelli
Chief Financial Officer
Tangram Enterprise Solutions, Inc.
11000 Regency Parkway
Suite 401
Cary, North Carolina 27511-8504
If you wish to present a proposal at the annual meeting in 2001 that has
not been included in the proxy statement, the management proxies will be
allowed to use their discretionary voting authority unless notice of your
proposal has been received by Tangram no later than March 1, 2001.
Q: WHO ARE THE LARGEST TANGRAM SHAREHOLDERS?
A: Safeguard Scientifics, Inc. beneficially owns 65.7%, Steven F. Kuekes
beneficially owns 7.7%, W. Christopher Jesse beneficially owns 2.7%, and
all directors and executive officers as a group beneficially own 11.6% of
our common stock. At September 22, 2000, no other shareholder owned more
than 5% of our common stock.
[TANGRAM ENTERPRISE SOLUTIONS LOGO] 4
<PAGE> 6
--------------------------------------------------------------------------------
ELECTION OF DIRECTORS
ITEM 1 ON THE PROXY CARD
--------------------------------------------------------------------------------
Directors are elected annually and serve a one-year term. All of the nominees
are currently serving as a director. Each nominee has consented to serve until
the next annual meeting if elected, or until his successor is elected and
qualified. You will find detailed information on each nominee below. If any
director is unable to stand for election after distribution of this proxy
statement, the board may reduce its size.
THE BOARD RECOMMENDS A VOTE FOR EACH NOMINEE. THE 6 NOMINEES WHO RECEIVE THE
HIGHEST NUMBER OF AFFIRMATIVE VOTES WILL BE ELECTED AS DIRECTORS.
--------------------------------------------------------------------------------
JOHN F. OWENS Director since 1992
Age 59
Mr. Owens was appointed chairman of our board in December 1999. Mr. Owens is
president of Solo Systems, Inc., a management consulting firm, and president of
Implementation Consulting Services, Inc., a systems software services company.
--------------------------------------------------------------------------------
NORMAN L. PHELPS Director since 2000
Age 63
Mr. Phelps has served as our president and chief executive officer since
December 31, 1999. Prior to joining us, Mr. Phelps held the position of chief
information officer at Blue Cross & Blue Shield of North Carolina, a health
insurance company, from June 1995 to September 1999. Prior to that, he was chief
executive officer of National Liberty Corp., a personal insurance company.
Previously, Mr. Phelps served as executive vice president of Colonial Penn Group
based in Philadelphia, Pennsylvania and also served as president of the Colonial
Penn Group Information Systems Data Corporation.
--------------------------------------------------------------------------------
STEVEN F. KUEKES Director since 1993
Age 42
Mr. Kuekes has served as our senior vice president and chief technology officer
since October 1993.
--------------------------------------------------------------------------------
JAMES A. OUNSWORTH Director since 1999
Age 58
Mr. Ounsworth has served as vice president, secretary and general counsel of
Safeguard Scientifics, Inc. since December 1991, and as a senior vice president,
secretary and general counsel since November 1995. Safeguard is a leader in
developing and operating premier Internet infrastructure companies. Mr.
Ounsworth is a director of Owosso Corporation.
--------------------------------------------------------------------------------
[TANGRAM ENTERPRISE SOLUTIONS LOGO] 5
<PAGE> 7
--------------------------------------------------------------------------------
ELECTION OF DIRECTORS (CONT'D.)
ITEM 1 ON THE PROXY CARD
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
CARL G. SEMPIER Director since 1992
Age 69
Mr. Sempier is a business consultant.
--------------------------------------------------------------------------------
CARL WILSON Director since 1995
Age 54
Mr. Wilson has served as executive vice president and chief information officer
of Marriott International, an international hospitality company, since April
1997. Prior to that Mr. Wilson served as vice president-information resources of
Georgia-Pacific Corporation, a diversified forest products company, from
December 1992 to March 1997.
--------------------------------------------------------------------------------
[TANGRAM ENTERPRISE SOLUTIONS LOGO] 6
<PAGE> 8
--------------------------------------------------------------------------------
BOARD OF DIRECTORS -- ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
MEETINGS OF THE BOARD: The board of directors held eleven meetings in 1999. Each
of the incumbent directors attended at least 75% of the total number of board
and committee meetings of which they were members during the period in which
they served as a director.
ANNUAL AND MEETING ATTENDANCE FEES: Employee directors receive no additional
compensation other than their normal salary for serving on the board or its
committees. Directors who are not employees of Tangram or Safeguard receive:
- $1,000 for each board meeting attended,
- $500 for each committee meeting attended,
- $500 for each telephonic meeting attended, and
- reimbursement of out-of-pocket expenses.
STOCK OPTIONS: Directors who are not employees of Tangram or Safeguard receive:
- a stock option to purchase 10,000 shares of our common stock upon initial
election to the board, and
- service grants to purchase 2,000 shares of our common stock every two years
after election to the board.
Directors' initial options have a ten-year term and vest 25% each year starting
on the first anniversary of the grant date. Service grants have a ten-year term
and vest 50% each year starting on the anniversary of the grant date. The
exercise price is equal to the fair market value of our common stock on the date
of grant. The maximum number of shares subject to option grants for any
individual director is 20,000.
In November 1999, Mr. Wilson received a grant to purchase 2,000 shares at an
exercise price of $1.63 per share.
[TANGRAM ENTERPRISE SOLUTIONS LOGO] 7
<PAGE> 9
--------------------------------------------------------------------------------
BOARD COMMITTEE MEMBERSHIP ROSTER
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AUDIT COMPENSATION EXECUTIVE
--------------------------------------------------------------------------------
<S> <C> <C> <C>
MEETINGS HELD IN 1999 3 3 1
--------------------------------------------------------------------------------
John F. Owens X X*
--------------------------------------------------------------------------------
James A. Ounsworth X
--------------------------------------------------------------------------------
Carl G. Sempier X*
--------------------------------------------------------------------------------
Carl Wilson X X* X
--------------------------------------------------------------------------------
</TABLE>
* CHAIRPERSON
AUDIT: recommends the hiring and retention of our independent certified public
accountants, discusses the scope and results of our audit with the independent
certified public accountants, reviews with management and the independent
certified public accountants the interim and year-end operating results,
considers the adequacy of our internal accounting controls and audit procedures
and reviews the non-audit services to be performed by the independent certified
public accountants.
COMPENSATION: reviews and approves management's recommendations for compensation
paid to executive officers and administers our stock option plans.
EXECUTIVE: acts upon all matters with respect to the management of our business
and affairs, except that its authority to authorize transactions is limited to a
maximum of $5,000,000 in the aggregate between board meetings.
[TANGRAM ENTERPRISE SOLUTIONS LOGO] 8
<PAGE> 10
--------------------------------------------------------------------------------
STOCK OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS
AND GREATER THAN 5% SHAREHOLDERS
AS OF SEPTEMBER 22, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
SHARES OPTIONS SHARES
NAME BENEFICIALLY EXERCISABLE BENEFICIALLY PERCENT
OWNED WITHIN 60 OWNED OF
DAYS ASSUMING SHARES
EXERCISE OF
OPTIONS
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Safeguard Scientifics, Inc. (1) 10,816,604 0 10,816,604 65.7%
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
---------------------------------------------------------------------------------------------
Norman L. Phelps 0 20,833 20,833 *
---------------------------------------------------------------------------------------------
W. Christopher Jesse (2) 30 462,400 462,430 2.7%
---------------------------------------------------------------------------------------------
Steven F. Kuekes 939,727 360,000 1,299,727 7.7%
---------------------------------------------------------------------------------------------
John F. Owens 0 16,000 16,000 *
---------------------------------------------------------------------------------------------
James A. Ounsworth 0 0 0 *
---------------------------------------------------------------------------------------------
Charles A. Root (3) 128,500 0 128,500 *
---------------------------------------------------------------------------------------------
Carl G. Sempier 0 15,000 15,000 *
---------------------------------------------------------------------------------------------
Carl Wilson 0 12,000 12,000 *
---------------------------------------------------------------------------------------------
Nancy M. Dunn (4) 0 0 0 *
---------------------------------------------------------------------------------------------
John N. Nelli 0 62,500 62,500 *
---------------------------------------------------------------------------------------------
Executive officers and
directors as a group
(10 persons) 1,068,257 957,233 2,025,490 11.6%
---------------------------------------------------------------------------------------------
</TABLE>
* Less than 1% of our outstanding shares of common stock
Each individual has the sole power to vote and to dispose of the shares
(other than shares held jointly with spouse) except as otherwise disclosed.
(1) Safeguard Scientifics, Inc. includes shares held by Safeguard
Scientifics (Delaware), Inc., a wholly-owned subsidiary of Safeguard
Scientifics, Inc. All of the shares beneficially owned by Safeguard
have been pledged by Safeguard as collateral under its line of credit.
(2) Mr. Jesse resigned as president and CEO and as a member of the board
effective January 3, 2000.
(3) Mr. Root resigned as chairman and as a member of the board effective
December 31, 1999.
(4) Ms. Dunn resigned as senior vice president, legal effective February 2,
2000.
[TANGRAM ENTERPRISE SOLUTIONS LOGO] 9
<PAGE> 11
SHARES OWNED BY DIRECTORS AND OFFICERS IN PARENT AND SUBSIDIARY CORPORATIONS:
Safeguard Scientifics, Inc. is the parent corporation of Tangram. As of
September 22, 2000, executive officers and directors as a group beneficially
owned less than 1% of Safeguard stock.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE: The rules of the
Securities and Exchange Commission require that we disclose late filings of
reports of stock ownership by our directors and executive officers. To the best
of our knowledge, there were no late filings during 1999.
--------------------------------------------------------------------------------
STOCK PERFORMANCE GRAPH
--------------------------------------------------------------------------------
The following graph compares the cumulative total return on our common stock for
the period from December 31, 1994, through December 31, 1999, with the
cumulative total return on the Nasdaq Index and the peer group index for the
same period. The peer group consists of SIC Code 737--Computer Programming and
Data Processing Services. The comparison assumes that $100 was invested in our
common stock on December 31, 1994, and in each of the comparison indices, and
assumes reinvestment of dividends. We have historically reinvested earnings in
the growth of our business and have not paid cash dividends on our common stock.
<TABLE>
<CAPTION>
----------------------------------------------------
1994 1995 1996 1997 1998 1999
----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tangram 100 87 417 457 278 496
Nasdaq 100 141 174 213 300 546
Peer Group 100 150 189 233 393 757
</TABLE>
[TANGRAM ENTERPRISE SOLUTIONS LOGO] 10
<PAGE> 12
--------------------------------------------------------------------------------
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
--------------------------------------------------------------------------------
COMPENSATION PHILOSOPHY
Our mission is to succeed in a highly competitive business and achieve maximum
returns for our shareholders by:
- maintaining and increasing productivity of our channel partners,
- continuing to hold and expand market mind share for the asset tracking
market, and
- continuing to simplify all aspects of our offering in the asset tracking
market.
Our philosophy is to align the compensation of senior management and other
employees with that mission and the long-term interests of our shareholders.
This philosophy also helps us to:
- attract and retain outstanding employees who can thrive in a competitive
environment of continuous change,
- promote among our employees the economic benefits of stock ownership, and
- motivate and reward employees who, by their hard work, loyalty and
exceptional service, make contributions of special importance to the
success of our business.
COMPENSATION STRUCTURE
The compensation of our executives consists of:
- base salary,
- annual cash incentives, and
- stock options.
BASE PAY
Base pay is established initially on a subjective analysis of a combination of
factors, including a review of various published salary surveys, and certain
other factors including experience and achievements of the individual and the
level of responsibility assumed at Tangram. Salary increases for 1999 were based
on the following criteria:
- the level of achievement of financial and strategic objectives,
- individual performance and contributions to the achievement of our
objectives, and
- maintaining a compensation level consistent with small high-tech, high
growth companies with less than $30,000,000 in revenues.
CEO'S 1999 BASE PAY. Mr. Jesse's annual base salary prior to his resignation was
$225,000. In December 1999, the compensation committee approved a compensation
package for Mr. Phelps for 2000, which included a base salary of $250,000 and a
cash incentive of 50% of his base salary.
OTHER HIGHLY COMPENSATED EXECUTIVES' 1999 BASE PAY. Base pay for other
executives was determined by subjective consideration of the factors discussed
above and individual performance for each executive. 1999 base pay for other
executives was equal to their base pay at the end of 1998.
ANNUAL CASH INCENTIVES
Annual cash incentives are intended to create an incentive for executives who
significantly contribute to and influence our strategic plans and are
responsible for our performance. Our primary objectives are to:
- focus executives' attention on revenue growth, profitability and asset
management,
- encourage teamwork, and
- tie executives' pay to corporate performance goals consistent with
long-term goals of our shareholders.
Incentives are awarded based on achievement of annual financial and/or strategic
goals approved by the
[TANGRAM ENTERPRISE SOLUTIONS LOGO] 11
<PAGE> 13
compensation committee at the beginning of the year, which goals may include
target ranges of:
- revenues,
- pretax earnings,
- earnings per share,
- cash management, or
- some other objective measurement consistent with long-term goals of our
shareholders.
The committee determines a range of potential incentive amounts for each
executive, stated as a percentage of base salary, and based upon the executive's
ability to impact our performance. Incentives are awarded at year-end based on
the level of achievement of the goals compared to the target ranges established.
The committee in its discretion may decide to give excess awards if our
performance exceeds its financial objectives.
CEO'S 1999 CASH INCENTIVE. Prior to his resignation, Mr. Jesse was eligible for
a cash incentive for 1999 of 50% of his base salary. Two-thirds was based on his
achievement of financial performance objectives and one-third was based on
achievement of personal strategic goals. Mr. Jesse was awarded a cash incentive
of $30,000. For 2000, Mr. Phelps is eligible for a cash incentive of 50% of his
base salary.
OTHER HIGHLY COMPENSATED EXECUTIVES' 1999 CASH INCENTIVES. The committee
approved cash incentives based two-thirds on the achievement of specific
financial goals and one-third on the achievement of specific personal goals
determined by the committee. Targets were determined for each of Mr. Kuekes, Mr.
Nelli and Ms. Dunn based on these goals. For 1999, Mr. Kuekes was awarded a cash
incentive of $17,500, Mr. Nelli was awarded a cash incentive of $21,333 and Ms.
Dunn was awarded a cash incentive of $8,000.
STOCK OPTIONS
Stock options are intended to align the interests of executives and key
employees with the long-term interests of our shareholders and other investors
and to encourage executives and key employees to remain in our employ. Grants
are not made in every year, but are awarded subjectively based on the following
factors, including:
- the achievement of our financial and strategic objectives, which may
include:
- reaching target levels of operating results,
- developing strategic alliances,
- identifying and expanding markets,
- developing new products, and
- expanding existing market share and penetration,
- the individual's contribution, and
- the amount and term of options already held by the individual.
Grants may be replaced to assist eligible employees in acquiring and retaining
our stock. This program allows participants to receive a replacement option by
certifying that:
- the participant's stock ownership exceeds his or her ownership goal, or
- the participant is working toward achieving his or her ownership goal and
has not sold and does not intend to sell more than 30% of the total number
of shares acquired through exercise of options.
1999 STOCK OPTION AWARDS. In December 1999, the committee granted a stock option
to Mr. Phelps for 100,000 shares at an exercise price of $7.88 per share.
IRS LIMITS ON DEDUCTIBILITY OF COMPENSATION.
We are aware that Internal Revenue Code section 162(m) provides that publicly
held companies may not deduct in any taxable year compensation in excess of
$1,000,000 paid to any of the individuals named in the compensation tables that
is not "performance based" as defined in section 162(m). Our policy is to
qualify future compensation arrangements to ensure deductibility, except in
those limited cases
[TANGRAM ENTERPRISE SOLUTIONS LOGO] 12
<PAGE> 14
where shareholder value is maximized by an alternative approach.
Submitted by the compensation committee:
Carl Wilson, Chairman
Michael H. Forster
James A. Ounsworth
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee currently consists of Mr. Wilson, Mr. Forster and Mr.
Ounsworth. Mr. Owens and Mr. Sempier served with Mr. Wilson as members of the
compensation committee from January 1, 1999 through May 19, 1999. Mr. Root
served as a member of the compensation committee from May 19, 1999, until his
resignation, which was effective December 31, 1999.
None of our executive officers served as a member of the compensation committee
(or other board committee performing similar functions or, in the absence of any
such committee, the entire board of directors) of another corporation, one of
whose executive officers served on our compensation committee. None of our
executive officers served as a director of another corporation, one of whose
executive officers served on our compensation committee. None of our executive
officers served as a member of the compensation committee (or other board
committee performing equivalent functions or, in the absence of any such
committee, the entire board of directors) of another corporation, one of whose
executive officers served on our board.
[TANGRAM ENTERPRISE SOLUTIONS LOGO] 13
<PAGE> 15
--------------------------------------------------------------------------------
EXECUTIVE COMPENSATION & OTHER ARRANGEMENTS
--------------------------------------------------------------------------------
1999 ANNUAL COMPENSATION FOR THE TOP FIVE OFFICERS
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------------------------------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL COMPENSATION OPTIONS/SARS COMPENSATION
POSITION YEAR SALARY ($) BONUS ($) ($)(4) (#) ($)(5)
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Norman L. Phelps, 1999 -- -- -- 100,000 --
President and Chief
Executive Officer (1)
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
W. Christopher Jesse, 1999 $ 225,000 $ 30,000 -- -- $ 261,181
Former President and
Chief Executive 1998 202,083 99,520 -- -- 53,725
Officer (2)
1997 196,254 95,565 -- -- 45,685
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
Steven F. Kuekes, 1999 $ 150,000 $ 17,500 -- -- $ 19,543
Senior Vice President
and Chief Technology 1998 136,250 37,579 -- -- 19,491
Officer
1997 132,501 37,838 -- -- 19,076
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
John N. Nelli, 1999 $ 160,000 $ 21,333 -- -- $ 405
Senior Vice President
and Chief Financial 1998 127,917 31,444 -- 50,000 332
Officer
1997 114,681 13,598 -- 50,000 374
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
Nancy M. Dunn, 1999 $ 120,000 $ 8,000 -- -- $ 20,516
Former Senior Vice
President, Legal (3) 1998 120,000 37,769 -- -- 20,386
1997 113,834 65,774 -- -- 16,598
---------------------------------------------------------------------------------------------------
</TABLE>
NOTES TO ANNUAL COMPENSATION TABLE:
(1) Mr. Phelps joined us as an executive officer on December 31, 1999.
(2) Mr. Jesse resigned as president and CEO and as a member of the board
effective January 3, 2000.
(3) Ms. Dunn resigned as senior vice president, legal effective February 2,
2000.
(4) Personal benefits do not exceed $50,000 or 10% of the total annual salary
and bonus for any executive.
(5) For 1999, all other compensation includes the following:
<TABLE>
<CAPTION>
IMPUTED INTEREST
OTHER ON INTEREST-FREE, LIFE INSURANCE
NAME COMPENSATION NON-RECOURSE LOANS PREMIUMS PAID
---- ------------ ------------------ --------------
<S> <C> <C> <C>
W. Christopher Jesse $ 225,000* $ 34,494 $ 1,687
Steven F. Kuekes 0 18,713 821
John N. Nelli 0 0 405
Nancy M. Dunn 0 17,027 3,489
</TABLE>
* Represents obligation due under Mr. Jesse's severance and
non-competition agreement.
[TANGRAM ENTERPRISE SOLUTIONS LOGO] 14
<PAGE> 16
--------------------------------------------------------------------------------
1999 STOCK OPTION GRANTS
--------------------------------------------------------------------------------
The following table relates to options to acquire our common stock,
unless otherwise noted in the footnotes.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES OF
INDIVIDUAL GRANTS STOCK PRICE APPRECIATION
FOR OPTION TERM(1)
--------------------------------------------------------------------------------------------------------------
% OF TOTAL
NUMBER OF OPTIONS/
SECURITIES SARs
UNDERLYING GRANTED TO
OPTIONS/ EMPLOYEES EXERCISE OR
SARs IN FISCAL BASE PRICE EXPIRATION 5% 10%
NAME GRANTED(#)(2) YEAR ($/Sh)(3) DATE ($) ($)
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Norman L. Phelps 100,000 29.2% $7.88 12/31/09 $1,282,755 $2,042,572
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
W. Christopher Jesse -- -- -- -- -- --
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Steven F. Kuekes -- -- -- -- -- --
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
John N. Nelli -- -- -- -- -- --
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Nancy M. Dunn -- -- -- -- -- --
--------------------------------------------------------------------------------------------------------------
</TABLE>
(1) These values assume that the shares appreciate at the compounded annual
rate shown from the grant date until the end of the option term. These
values are not estimates of future stock price growth of Tangram.
Executives will not benefit unless the common stock price increases above
the stock option exercise price.
(2) Mr. Phelps' options are to acquire common stock and have a term of 10
years. The first 25% of the options will vest pro ratably in 12 monthly
installments through the first anniversary of the date of grant and 25%
will vest on the second, third and fourth anniversaries of the date of
grant. Options continue to vest and remain exercisable so long as Mr.
Phelps is employed by us. The option exercise price may be paid in cash, by
delivery of previously acquired shares (under certain conditions), or
same-day sales (that is, cashless exercises). The compensation committee
has the authority to modify the terms of outstanding options, including
acceleration of the exercise date.
(3) All options have an exercise price equal to the fair market value of the
shares subject to each option on the grant date.
[TANGRAM ENTERPRISE SOLUTIONS LOGO] 15
<PAGE> 17
--------------------------------------------------------------------------------
1999 STOCK OPTION EXERCISES AND YEAR-END STOCK OPTION VALUES
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARs OPTIONS/SARs
ACQUIRED AT FISCAL YEAR-END(#) AT FISCAL YEAR-END($)(1)
ON VALUE
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Norman L. Phelps -- -- 0 100,000 $ 0 $ 0
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
W. Christopher Jesse -- -- 575,000 0 3,665,625 0
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
Steven F. Kuekes -- -- 360,000 0 2,295,000 0
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
John N. Nelli -- -- 37,500 62,500 93,750 121,875
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
Nancy M. Dunn -- -- 90,000 0 573,750 0
-------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Value is calculated using the difference between the option exercise price
and the year-end stock price, multiplied by the number of shares subject to
an option. The year-end stock price used was $7.88 for each share of our
common stock.
EMPLOYMENT CONTRACTS; SEVERANCE AND CHANGE-IN-CONTROL ARRANGEMENTS
In October 1993, we entered into severance and non-competition agreements with
Messrs. Jesse and Kuekes and Ms. Dunn that provide for continued health and
dental benefits for up to one year and severance payments equal to one year of
their respective base salaries upon termination of employment for any reason
other than cause or voluntary termination. We may, at our discretion, provide
these benefits upon termination for cause or voluntary termination. Each officer
has agreed to refrain from competing for one year after termination during which
time severance payments and health benefits would continue to be paid.
On January 3, 2000, Mr. Jesse voluntarily resigned and the board exercised its
option to grant the benefits provided under the severance and non-competition
agreement with Mr. Jesse. On June 30, 2000, Ms. Dunn voluntarily resigned and
the board exercised its option to grant the benefits provided under the
severance and non-competition agreement with Ms. Dunn.
RELATIONSHIPS AND RELATED TRANSACTIONS WITH MANAGEMENT AND OTHERS
We have an unsecured revolving line of credit with Safeguard of up to
$6,000,000. The loan is evidenced by a promissory note which bears interest at
an annual rate of the prime rate plus 1%. The principal amount is due and
payable thirteen months after the date of demand by Safeguard or earlier in the
case of a sale of substantially all our assets, a business combination or upon
the closing of a debt or equity offering. Interest is payable monthly. At
December 31, 1999, the principal balance outstanding under the loan was
$1,623,000. During 1999, we paid interest costs totaling $253,000.
In prior years, we made non-recourse, non-interest bearing loans to each of Mr.
Jesse, Mr. Kuekes and Ms. Dunn which had an aggregate outstanding balance at
December 31, 1999, of $1,284,000. These loans were secured by shares of our
common stock
[TANGRAM ENTERPRISE SOLUTIONS LOGO] 16
<PAGE> 18
owned by each officer which matured at various dates through April 15, 2000, or
termination of their respective employment, whichever occurred first. In
December 1999, Mr. Jesse repaid in full his outstanding loan in the amount of
$787,500. On January 10, 2000, Mr. Kuekes and Ms. Dunn retired their outstanding
loans of $250,000 and $246,500, respectively, by surrendering 25,932 and 25,569
shares of common stock, respectively. The number of shares surrendered was
determined based on the current market price of our common stock as reflected by
the average of the high and low prices for the day.
Up until May, 2000, we were party to an administrative support agreement with
Safeguard under which we paid Safeguard a fee equal to 1/4 of 1% of net sales,
up to a maximum of $200,000 annually, including reimbursement of certain
out-of-pocket expenses incurred by Safeguard. The administrative support
services included consultation regarding our general management, investor
relations, financial management, certain legal services, insurance programs
administration, and tax research and planning, but did not cover extraordinary
services or services that were contracted out. We paid $183,000 to Safeguard
during 1999.
We employ an indirect sales force that works closely with our major resellers
and partners to manage the development of the indirect channels, distribution of
its product, and product implementation. CompuCom Systems, Inc. has been a
reseller of the Asset Insight product since 1996. During 1999, we recognized
revenue of $882,100 from CompuCom Systems, Inc. associated with their purchase
and resale of the product and related implementation services and annual
maintenance contracts. As of December 31, 1999, CompuCom Systems, Inc. had an
outstanding receivable with us of $662,900. Safeguard is the majority
shareholder of CompuCom Systems, Inc., holding approximately 60% of CompuCom's
outstanding voting securities.
INDEPENDENT PUBLIC ACCOUNTANTS
Ernst & Young LLP served as our independent public accountants in 1999. The
audit committee is presently reviewing the performance of the independent
certified public accountants and has not selected a public accountant for the
fiscal year 2000. A representative of Ernst & Young is expected to be present at
the annual meeting to make a statement and to answer appropriate questions from
shareholders.
[TANGRAM ENTERPRISE SOLUTIONS LOGO] 17
<PAGE> 19
[TANGRAM ENTERPRISE SOLUTIONS LOGO]
11000 REGENCY PARKWAY, SUITE 401
CARY, NORTH CAROLINA 27511
(919) 653-6000
TOLL-FREE NUMBER (800) 4TANGRAM
FOR MORE INFORMATION ABOUT TANGRAM, PLEASE VISIT OUR WEBSITE AT
www.tangram.com
--------------------------------------------------------------------------------
DIRECTIONS TO TANGRAM ENTERPRISE SOLUTIONS, INC.
--------------------------------------------------------------------------------
FROM VIRGINIA AND POINTS NORTH ON I-85
From I-85 take exit 218 onto US 1 South. As you approach Raleigh, US 1 merges
with the I-440 beltline around Raleigh -- take the entrance ramp onto the I-440
"outer" beltline and follow it and US 1 around Raleigh until I-440 and US 1
separate. Follow US 1 South past the Cary Parkway and take exit 98A onto Tryon
Road. Take the first right onto Regency Parkway. When the road forks, keep right
and continue to 11000 Regency Parkway, West Wing, 4th floor.
--------------------------------------------------------------------------------
FROM VIRGINIA AND POINTS NORTH ON I-95
From I-95 take exit 138 onto US 64 West. As you approach Raleigh, US 64 merges
with the I-440 beltline around Raleigh -- take the entrance ramp onto the I-440
"inner" beltline and follow it and US 64 around Raleigh to exit 293A, exit 293A
onto US 1 South. Follow US 1 South past the Cary Parkway and take exit 98A onto
Tryon Road. Take the first right onto Regency Parkway. When the road forks, keep
right and continue to 11000 Regency Parkway, West Wing, 4th floor.
(Note: an alternate "all interstate" route is to continue South on I-95 and take
exit 81 onto I-40 West toward Raleigh, NC, then use the instructions for I-40
below.)
--------------------------------------------------------------------------------
FROM CHARLOTTE, NC, AND POINTS SOUTH ON I-85
Follow I-85 North and merge with I-40 East in Greensboro, NC, then use the
instructions for I-40 below.
--------------------------------------------------------------------------------
FROM SOUTH CAROLINA AND POINTS SOUTH ON I-95
From I-95 take exit 81 (near Benson, NC) onto I-40 West toward Raleigh, NC,
then use the instructions for I-40 below.
--------------------------------------------------------------------------------
FROM ALL POINTS EAST AND WEST ON I-40
Follow I-40 to Raleigh and take exit 293A onto US 1 South. Follow US 1 South
past the Cary Parkway and take exit 98A onto Tryon Road. Take the first right
onto Regency Parkway. When the road forks, keep right and continue to 11000
Regency Parkway, West Wing, 4th floor.
--------------------------------------------------------------------------------
[TANGRAM ENTERPRISE SOLUTIONS LOGO] 18
<PAGE> 20
PROXY
TANGRAM ENTERPRISE SOLUTIONS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Please sign and date this proxy, and indicate how you wish to vote, on the back
of this card. Please return this card promptly in the enclosed envelope. Your
vote is important.
When you sign and return this proxy card, you
- appoint Norman L. Phelps and Steven F. Kuekes, and each of them (or any
substitutes they may appoint), as proxies to vote your shares, as you have
instructed, at the annual meeting on November 8, 2000, and at any
adjournments of that meeting,
- authorize the proxies to vote, in their discretion, upon any other business
properly presented at the meeting, and
- revoke any previous proxies you may have signed.
IF YOU DO NOT INDICATE HOW YOU WISH TO VOTE, THE PROXIES WILL VOTE FOR ALL
NOMINEES TO THE BOARD OF DIRECTORS AND AS THEY MAY DETERMINE, IN THEIR
DISCRETION, WITH REGARD TO ANY OTHER MATTER PROPERLY PRESENTED AT 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-
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.
[TANGRAM ENTERPRISE SOLUTIONS LOGO]
<PAGE> 21
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1.
Please mark [X]
your votes as
indicated in
this example
<TABLE>
1. ELECTION OF DIRECTORS FOR [ ] WITHHELD [ ]
Nominees: FOR ALL
<S> <C>
John F. Owens
Norman L. Phelps
Steven F. Kuekes TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
James A. Ounsworth NOMINEE WHILE VOTING FOR THE REMAINDER, STRIKE A
Carl G. Sempier LINE THROUGH THE NOMINEE'S NAME ON THE LIST.
Carl Wilson
</TABLE>
SIGNATURE(S)__________________________________________ DATE:__________________
YOU MUST SIGN EXACTLY AS YOUR NAME APPEARS ON THIS PROXY CARD. If shares are
jointly owned, you must both sign. Include your full title if you are signing as
an attorney, executor, administrator, trustee or guardian, or on behalf of a
corporation or partnership.
-FOLD AND DETACH HERE-
