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[LOGO OF BBN]                                     BOLT BERANEK AND NEWMAN INC.
                                                  150 CAMBRIDGEPARK DRIVE
                                                  CAMBRIDGE, MASSACHUSETTS 02140
 
                                                              SEPTEMBER 29, 1995
 
Dear Shareholder:
 
     You are cordially invited to attend the 1995 Annual Meeting of Shareholders
of Bolt Beranek and Newman Inc. The Annual Meeting will be held in the
Enterprise Room, 5th floor, State Street Bank Building, 225 Franklin Street,
Boston, Massachusetts, on Monday, November 6, 1995, at 10:30 a.m.
 
     As set forth in the accompanying Notice and Proxy Statement, the primary
business to come before this year's Meeting will include not only the election
of directors, but also a proposal to increase the number of shares available
under the Company's 1986 Stock Incentive Plan as well as the approval of
amendments to the plan as it relates to options for non-employee directors of
the Company, and a proposal to change the name of the Company to "BBN
Corporation". The enclosed Proxy Statement fully describes these proposals, as
well as other items to come before the Annual Meeting. We urge you to review the
Proxy Statement carefully.
 
     We appreciate your continuing interest in the business of the Company and I
personally hope that many of you will plan to attend this year's Annual Meeting.
 
     Whether or not you are able to attend, it is important that your shares be
represented at the Annual Meeting. You are urged to vote, and then to sign,
date, and mail the enclosed proxy card promptly.
 
     Very truly yours,
 
                             /s/ GEORGE H. CONRADES
                             ----------------------
                               GEORGE H. CONRADES
                                 President and
                            Chief Executive Officer
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                          BOLT BERANEK AND NEWMAN INC.
 
                    NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
 
                                                                NOVEMBER 6, 1995
 
To the Shareholders of
  BOLT BERANEK AND NEWMAN INC.
 
     NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Bolt
Beranek and Newman Inc. will be held in the Enterprise Room, 5th floor, State
Street Bank Building, 225 Franklin Street, Boston, Massachusetts on Monday,
November 6, 1995, at 10:30 a.m. (local time) for the following purposes:
 
          1. To elect two directors to serve as a class of directors, each for a
     term of three years and until his or her successor is chosen and qualified.
 
          2. To amend the Company's 1986 Stock Incentive Plan by increasing the
     number of shares available under the Plan from 3,000,000 shares to
     3,850,000 shares; and to authorize the issuance of the additional shares of
     Common Stock under the Plan.
 
          3. To further amend the Company's 1986 Stock Incentive Plan to provide
     that options granted to non-employee directors under the Plan may be
     exercised in whole following retirement as a result of reaching mandatory
     retirement age or as a result of long-term disability of the director.
 
          4. To amend the Company's Restated Articles of Organization, to change
     the corporate name to "BBN Corporation".
 
          5. To ratify the selection of the firm of Coopers & Lybrand L.L.P. as
     auditors of the Company for the fiscal year ending June 30, 1996.
 
          6. To consider and act upon any matters incidental to the foregoing
     purposes, or any of them, and any other matters which may properly come
     before said meeting and at any or all adjourned sessions thereof.
 
     The Board of Directors has fixed the close of business on September 14,
1995 as the record date for determination of shareholders entitled to notice of
and to vote at the Annual Meeting.
 
     Whether or not you expect to attend the meeting, you are urged to complete
and sign the accompanying form of proxy and return it promptly in the enclosed
envelope.
 
                                            NANCY J. NITIKMAN
                                            Clerk
 
Cambridge, Massachusetts
September 29, 1995
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BOLT BERANEK AND NEWMAN INC.
150 CAMBRIDGEPARK DRIVE
CAMBRIDGE, MASSACHUSETTS 02140
TELEPHONE (617) 873-2000
 
                                PROXY STATEMENT
 
     The enclosed form of proxy is solicited on behalf of the Board of Directors
of Bolt Beranek and Newman Inc. (the "Company" or "BBN") for use at the Annual
Meeting of Shareholders (the "Annual Meeting") to be held in the Enterprise
Room, 5th floor, State Street Bank Building, 225 Franklin Street, Boston,
Massachusetts on Monday, November 6, 1995, at 10:30 a.m., and at any and all
adjourned sessions thereof. A proxy once given may be revoked by a shareholder,
at any time before it is voted, by returning to the Company another properly
signed proxy representing such shares and bearing a later date, or by otherwise
delivering a written revocation to the Clerk of the Company. Shares represented
by the enclosed form of proxy properly executed and returned, and not revoked,
will be voted at the Annual Meeting.
 
     It is expected that this Proxy Statement and the enclosed form of proxy
will be mailed to shareholders commencing on or about September 29, 1995.
 
     In the absence of contrary instructions, the persons named as proxies will
vote in accordance with the intentions stated below. As of September 14, 1995,
the record date for determination of shareholders entitled to notice of and to
vote at the Annual Meeting, the Company had issued and outstanding and entitled
to vote           shares of Common Stock, $1.00 par value. Each such share of
Common Stock is entitled to one vote on each matter to come before the Annual
Meeting.
 
     The presence (in person or represented by proxy) of the holders of a
majority in interest of the issued and outstanding shares of Common Stock
entitled to vote at the meeting will constitute a quorum for the transaction of
business at the Annual Meeting.
 
     The nominees for election as directors at the Annual Meeting who receive a
plurality of the votes properly cast for the election of directors shall be
elected directors. The affirmative vote of a majority of the votes properly cast
upon the question is required for the approval of the increase in the number of
shares available (and the authorization of their issuance) under the 1986 Stock
Incentive Plan (Item 2 of the accompanying Notice), and the approval of
amendments to the 1986 Stock Incentive Plan as it relates to options for non-
employee directors (Item 3 of the accompanying Notice), although in order to
list on the New York Stock Exchange the additional shares to be issuable under
the 1986 Stock Incentive Plan, the total votes cast on Item 2 of the
accompanying Notice must represent over 50% in interest of all shares entitled
to vote on the proposal. The language of Section 162(m) of the Internal Revenue
Code, as it pertains to shareholder approval of proposals such as Item 2,
requires that approval by a "majority of the vote in a separate shareholder
vote" be received on a proposal; final interpretive regulations under Section
162(m) have not yet been issued. The affirmative vote of a majority of all
shares outstanding and entitled to vote on the proposal is required for the
authorization to change the corporate name (Item 4 of the accompanying Notice).
The affirmative vote of a majority of the votes properly cast upon the question
is required for the ratification of the selection of Coopers & Lybrand L.L.P. as
independent auditors for the Company for 1995 (Item 5 of the accompanying
Notice). The Company will count the total number of votes cast "for" approval of
Items 2, 3, 4, and 5 for purposes of determining whether sufficient affirmative
votes have been cast.
 
     The Company will count shares represented by proxies that withhold
authority to vote for a nominee for election as a director, or that reflect
abstentions and "broker non-votes" (i.e., shares represented at the meeting held
by brokers and nominees as to which instructions have not been received from the
beneficial owners or persons entitled to vote, and the broker or nominee does
not have the discretionary voting power in the particular matter) on any other
matter, only as shares that are present and entitled to vote for purposes of
determining the presence of a quorum. None of the withheld votes, abstentions,
or broker non-votes will be counted as "cast". As a result none of the withheld
votes, abstentions, or broker non-votes will have any effect (outside of the
NYSE listing requirements) on the outcome of voting on the matters under
proposal in
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Items 2, 3, and 5 of the accompanying Notice, even though persons analyzing the
results of the voting on those Items may interpret the results differently. Such
withheld votes, abstentions, or broker non-votes will have the effect of voting
against the proposal in Item 4 of the accompanying Notice.
 
     The Annual Report of the Company, including consolidated financial
statements for the year ended June 30, 1995, is being mailed to the Company's
shareholders with this Proxy Statement. The Annual Report is not a part of the
proxy soliciting material.
 
                           1.  ELECTION OF DIRECTORS
 
     The Company's Board of Directors is divided into three classes of
directors, with each class having a staggered three-year term. The total number
of directors is divided among the three classes so that, as nearly as may be
possible, each of the classes has the same number of directors. As a result of
action taken at the 1994 Annual Meeting, the Board currently consists of seven
directors.
 
     Consistent with Massachusetts law and notwithstanding any inconsistent
terms of the Company's Bylaws superseded by the law, for purposes of election at
the Annual Meeting, the Board has fixed the number of directors at seven. As a
result, two directors are to be elected at the Annual Meeting as Class III
directors, with terms which expire at the annual meeting to be held in 1998. The
Board has nominated Lucie J. Fjeldstad and Andrew L. Nichols for election as
Class III directors, as listed below.
 
     The current terms of office of the Class I and Class II directors do not
expire this year, and each of the directors in these classes continues in
office. Such directors' current terms expire in 1996 and 1997, respectively.
 
     Each director will continue in office until his or her term expires and
until his or her successor is chosen and qualified, or until earlier death,
removal, or resignation.
 
     Unless authority to do so has been withheld or limited in the proxy, it is
the intention of the persons named as proxies to vote the shares to which the
proxy relates for the election to the Board of Directors as Class III directors
of the two nominees listed below.
 
     Management knows of no reason why either nominee should not be available
for election to the Board of Directors at the time of the Annual Meeting.
However, should either of the nominees not be available, it is the intention of
the persons named as proxies to act with respect to the filling of that office
by voting the shares to which the proxy relates, unless authority to do so has
been withheld or limited in the proxy, for the election of such other person or
persons as may be designated by the Board of Directors or, in the absence of
such designation, in such other manner as they may, in their discretion,
determine. In no event will the proxy be voted for any number of directors
greater than two.
 
BIOGRAPHICAL INFORMATION
 
     The biographical information that follows includes (1) the name and age of
each nominee as a Class III director and for each director continuing in office,
(2) the principal occupation or employment of each during the past five years,
(3) the period during which each has served as a director of the Company, (4)
the principal other directorships held by each, (5) the number of whole shares
of Common Stock of the Company beneficially owned by each (as determined under
the rules and regulations of the Securities and Exchange Commission), directly
or indirectly, as of September 14, 1995, based upon information furnished by the
nominee or director, (6) the percentage of the class outstanding so owned by
each (where such percentage exceeds 1%), and (7) the date of the expiration of
the term for which the nominees are candidates and for which the continuing
directors hold office, and the class designation. Except as otherwise indicated,
beneficial ownership consists of sole voting and investment power. Each of the
nominees for election as a Class III director is currently a director of the
Company, in Ms. Fjeldstad's case upon election on August 17, 1994 by action of
the Board to fill a vacancy created by a resignation, and in Mr. Nichols' case
upon election most recently by the shareholders at the 1992 Annual Meeting.
 
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                                                                                        SHARES OF COMMON
                                                                                       STOCK BENEFICIALLY
                                                                                          OWNED AS OF
                                                                             TERM        SEPTEMBER 14,
                                                               DIRECTOR    EXPIRES/          1995;
NAME AND PRINCIPAL OCCUPATION                           AGE     SINCE       CLASS       PERCENT OF CLASS
-----------------------------                           ---    --------    --------    ------------------
                                                                                 
NOMINEES FOR DIRECTOR:

*   Lucie J. Fjeldstad................................  51       1994        1998/             1,750(2)
       President of the multimedia business                                   III
       unit of Tektronix Inc. (1)

+   Andrew L. Nichols.................................  59       1978        1998/            13,650(4)
       Partner of Choate, Hall & Stewart (3)                                  III

DIRECTORS CONTINUING IN OFFICE:

+   John M. Albertine.................................  51       1986        1997/            33,104(7)
       Chairman of the Board and Chief Executive                               II
       Officer of Albertine Enterprises, Inc. (5)(6)

    George H. Conrades................................  56       1993        1996/           377,202(9)
       President and Chief Executive Officer (8)                                I               2.1%

*   George N. Hatsopoulos.............................  68       1990        1996/            11,750(11)
       Chairman of the Board, President, and Chief                              I 
          Executive Officer of Thermo Electron 
          Corporation (10)                                                            
                    

    Stephen R. Levy...................................  55       1973        1996/           435,991(13)
       Chairman of the Board (12)                                               I               2.5%

*+  Roger D. Wellington...............................  68       1981        1997/            36,303(15)
       Consultant (14)                                                         II
 
---------------
+ Member of the Audit Committee of the Board of Directors.

* Member of the Compensation and Stock Option Committee of the Board of Directors.
 
 (1) Ms. Fjeldstad has been the President of the Video and Networking business unit of Tektronix Inc., a manufacturer of printers, 
     displays, test instrumentation, and video equipment, since January, 1995. During 1993 and 1994, she was President and Chief
     Executive Officer of Fjeldstad International, computing, telecommunications, media/entertainment, and consumer electronics 
     industries consultants. Prior to that time, she had been employed for 25 years at International Business Machines Corporation.
     During her employment with IBM, Ms. Fjeldstad held a number of senior technical and management positions, including most
     recently corporate vice president, and general manager of multimedia (1992 to 1993); corporate vice president, and president of
     the multimedia and education division (1990 to 1992); and corporate vice president, and general manager of the general and
     public and academic section (1988 to 1990).
 
 (2) The shares shown as owned beneficially by Ms. Fjeldstad include 750 shares as to which Ms. Fjeldstad has the right to acquire 
     ownership through the exercise of those options, held by her under the stock option plans of the Company, which are exercisable
     within 60 days of September 14, 1995.
        
 (3) Mr. Nichols has been a partner of the law firm of Choate, Hall & Stewart, Boston, Massachusetts, since 1969.
 
 (4) The shares shown as owned beneficially by Mr. Nichols include 900 shares owned by a partnership of which Mr. Nichols is a 
     general partner and in which he has a 50% beneficial interest, and 10,750 shares as to which Mr. Nichols has the right to
     acquire ownership through the exercise of those options, held by him under the stock option plans of the Company, which are
     exercisable within 60 days of September 14, 1995.
 
 (5) Dr. Albertine has been Chairman of the Board and Chief Executive Officer of Albertine Enterprises, Inc., economic and public 
     policy consultants, since its organization by him in 1990. Dr. Albertine is also
 

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     Chairman of the Board of JIAN Group Holdings, LLC, a financial services
     consulting and holding company. Dr. Albertine was Vice Chairman of the
     Board of Farley Inc., a diversified manufacturing company, from 1986 to
     1990, and Vice Chairman of the Board of its affiliate, Fruit of the Loom,
     Inc., a manufacturer of personal apparel, from 1987 to 1990. Dr. Albertine
     also held the office of Vice Chairman of the Company of West
     Point-Pepperell Inc., a textile manufacturer and an affiliate of Farley
     Inc. from 1989 to 1990. Dr. Albertine is a director of Thermo Electron
     Corporation and American Precision Industries, Inc.
 
 (6) In July 1991, an involuntary petition was filed against Farley Inc., of
     which Dr. Albertine was Vice Chairman of the Board from 1986 to 1990, under
     Chapter 7 of the Federal bankruptcy laws. In September 1991, Farley Inc.
     converted the Chapter 7 proceeding into a Chapter 11 reorganization, and a
     plan of reorganization was confirmed in December 1992. Also in 1992, Farley
     Inc.'s holdings in West Point-Pepperell Inc., of which Dr. Albertine served
     as Vice Chairman of the Company from 1989 to 1990, was financially
     restructured by exchanging equity for debt forgiveness, as part of a
     so-called "pre-packaged" Chapter 11 bankruptcy reorganization of the Farley
     Inc. affiliate owning West Point-Pepperell. Dr. Albertine had also served
     as Vice Chairman of the Farley Inc. affiliate owning West Point-Pepperell
     from 1989 to 1990.
 
 (7) The shares shown as owned beneficially by Dr. Albertine include 324 shares
     owned by Dr. Albertine's spouse, as to which shares Dr. Albertine disclaims
     beneficial ownership, and 10,750 shares as to which Dr. Albertine has the
     right to acquire ownership through the exercise of those options, held by
     him under the stock option plans of the Company, which are exercisable
     within 60 days of September 14, 1995. The shares shown as owned
     beneficially also include 16,496 shares represented by units allocated
     under the Company's deferred compensation plan for non-employee directors
     entitling Dr. Albertine as of July 1, 1995 to receive that number of shares
     on or after his deferral termination date.
 
 (8) Mr. Conrades has been the President and Chief Executive Officer of the
     Company since January 1994. Prior to that time, he had been employed for
     over 30 years at International Business Machines Corporation. During his
     employment with IBM, Mr. Conrades held a number of marketing-management and
     general-management positions, including most recently senior vice
     president, corporate marketing and services and general manager of IBM
     United States, including hardware, software, maintenance, and services, and
     for over 100,000 employees and approximately $27 billion in revenue. Mr.
     Conrades retired from IBM in March 1992, and since that time and prior to
     his appointment as President of the Company, Mr. Conrades was consulting in
     venture capital businesses and was on the board of directors of several
     small technology ventures, including a subsidiary of the Company. Mr.
     Conrades is a director of Westinghouse Electric Corporation, Pioneer
     Companies, Inc. and CRA Managed Care, Inc.
 
 (9) The shares shown as owned beneficially by Mr. Conrades comprise 27,202
     shares owned jointly with his spouse, as to which shares Mr. Conrades and
     his spouse share voting and investment power, and 350,000 shares as to
     which Mr. Conrades has the right to acquire ownership through the exercise
     of those options, held by him under the stock option plans of the Company,
     which are exercisable within 60 days of September 14, 1995. Mr. Conrades
     also owns $50,000 principal amount of the Company's 6% Convertible
     Subordinated Debentures due 2012.
 
(10) Dr. Hatsopoulos is the founder and has been Chairman of the Board,
     President, and Chief Executive Officer of Thermo Electron Corporation, a
     manufacturer (including through subsidiaries) of analytical instruments,
     cogeneration systems, biomedical products, and industrial processing
     equipment, and a provider of environmental and engineering services
     worldwide, since 1956. Dr. Hatsopoulos is a director of Thermedics Inc.,
     Thermo Ecotek Corporation, Thermo Fibertek Inc., Thermo Instrument Systems
     Inc., Thermo Power Corporation, Thermo Process Systems Inc., and ThermoTrex
     Corporation.
 
(11) The shares shown as owned beneficially by Dr. Hatsopoulos comprise 1,000
     shares owned jointly with his spouse, as to which shares Dr. Hatsopoulos
     and his spouse share voting and investment power, and 10,750 shares as to
     which Dr. Hatsopoulos has the right to acquire ownership through the
     exercise of those options, held by him under the stock option plans of the
     Company, which are exercisable within 60 days of September 14, 1995.
 
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(12) Mr. Levy has been an officer of the Company since 1970, serving as
     President and Chief Executive Officer from 1976 to 1983; as Chairman of the
     Board and Chief Executive Officer from 1983 to 1993; as Chairman of the
     Board, President, and Chief Executive Officer in 1993; and as Chairman of
     the Board from 1994.
 
(13) The shares shown as owned beneficially by Mr. Levy include 32,995 shares
     held in his participant account under the BBN Retirement Trust, and 202,500
     shares as to which Mr. Levy has the right to acquire ownership through the
     exercise of those options, held by him under the stock option plans of the
     Company, which are exercisable within 60 days of September 14, 1995.
 
(14) Mr. Wellington serves as President and Chief Executive Officer of
     Wellington Consultants, Inc. and of Wellington Associates, international
     business consulting firms he founded in 1994 and 1989, respectively. Prior
     to 1989, Mr. Wellington served as Chairman of the Board of Augat Inc., a
     manufacturer of electromechanical components, for more than five years.
     Prior to 1988, he also held the positions of President and Chief Executive
     Officer of Augat Inc. Mr. Wellington is a director of Thermo Electron
     Corporation.
 
(15) The shares shown as owned beneficially by Mr. Wellington include 10,750
     shares as to which Mr. Wellington has the right to acquire ownership
     through the exercise of those options, held by him under the stock option
     plans of the Company, which are exercisable within 60 days of September 14,
     1995. The shares shown as owned beneficially also include 19,553 shares
     represented by units allocated under the Company's deferred compensation
     plan for non-employee directors entitling Mr. Wellington as of July 1, 1995
     to receive that number of shares on or after his deferral termination date.
 
BOARD OF DIRECTORS AND COMMITTEE ORGANIZATION
 
     During the Company's fiscal year ended June 30, 1995, the Board of
Directors of the Company held a total of 12 meetings. Each director who was not
a full-time employee of the Company received an annual retainer of $10,000 for
services as a director, plus $750 for each Board meeting attended by him during
the year and for each date (other than the date of a meeting of the Board) on
which he attended one or more meetings of committees of the Board, plus $375 for
each date of a meeting of the Board on which he also attended one or more
separate meetings of committees of the Board. Each incumbent director attended
not less than 75% of the aggregate of the meetings of the Board and of the
committees of which he was a member held during the fiscal year ended June 30,
1995.
 
     Under the Company's deferred compensation plan, each non-employee director
has the option to make an annual election to defer his or her compensation as a
director and to receive the deferred amounts in shares of the Company's Common
Stock, either after the individual ceases to be a director or after the
individual retires from his or her principal occupation. Deferred compensation
is credited in units of stock of the Company, based on the value of the Common
Stock at the time so credited. Messrs. Albertine and Wellington currently
participate in this plan; at July 1, 1995, the two individuals had units under
the plan entitling them to an aggregate of 36,049 shares of Common Stock.
 
     Audit Committee.  The Audit Committee of the Board of Directors held 4
meetings during the fiscal year ended June 30, 1995. In general, the function of
the Audit Committee is to recommend to the Board of Directors the engagement or
discharge of the independent auditors; to consider with the independent auditors
the scope of their audit and their audit fees; to review with the independent
auditors the scope and results of their audit and their report and management
letters; to review non-audit professional services by generic classification to
be provided by the independent auditors, to review the magnitude of the range of
fees for such non-audit services, and to consider the independence of the
independent auditors; to review with the independent auditors and with the
internal auditors and management of the Company, the Company's policies and
procedures with respect to internal auditing, accounting, and financial
controls; and to review the financial reporting and accounting standards and
principles of the Company. Messrs. Albertine, Nichols, and Wellington, none of
whom is or has been an officer or employee of the Company, currently serve as
the Audit Committee.
 
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     Compensation Committee; Compensation Committee Interlocks and Insider
Participation.  The Compensation and Stock Option Committee of the Board of
Directors (the "Compensation Committee") held 8 meetings during the fiscal year
ended June 30, 1995. In general, the function of the Compensation Committee is
to administer the executive compensation and incentive compensation and stock
option programs of the Company; to establish the compensation of the chief
executive officer of the Company; to review salary and incentive bonus awards
for other executive officers; and to award stock options.
 
     Ms. Fjeldstad and Messrs. Hatsopoulos and Wellington currently serve on the
Compensation Committee. None of these individuals is or has been an officer or
employee of the Company.
 
     Customer Relationships Committee.  The Board of Directors has a standing
Customer Relationships Committee, the function of which, in general, is to
monitor customer relationship processes, and to evaluate customer satisfaction
criteria. Ms. Fjeldstad and Messrs. Nichols and Wellington currently serve on
the Customer Relationships Committee.
 
     Nominating Committee.  The Board of Directors has not appointed a standing
nominating committee.
 
                 2.  PROPOSAL TO AMEND THE 1986 STOCK INCENTIVE
                      PLAN RELATIVE TO INCREASE IN SHARES
 
GENERAL
 
     For a number of years, the Company has utilized stock options in its
overall compensation program. The most recent option plans in the Company's
option program are the Company's 1983 Stock Option Plan and its 1986 Stock
Incentive Plan (the "1986 Plan"). No further options may be granted under the
Company's 1983 Stock Option Plan. As of September 14, 1995, under the 1983 and
1986 Plans, options to purchase an aggregate of 2,037,872 shares had been
exercised, options to purchase 2,300,500 shares were outstanding and held by an
aggregate of 176 individuals, and 414,774 shares were available on that date for
the grant of future options under the 1986 Plan. Up to 2,181,926 additional
shares could become available for options under the 1986 Plan if those options
outstanding on September 14, 1995 under the 1986 Plan lapse or terminate.
 
     Under current accounting rules, neither the grant nor the exercise of stock
options of the type typically granted by the Company results in a charge against
the Company's earnings. However, the Financial Accounting Standards Board is
considering new accounting rules for the treatment of stock options, which could
require the Company in the future to disclose the cost of stock option
compensation. Under current accounting rules, other types of awards permitted
under the 1986 Plan although not used by the Company to date, including SARs and
performance stock rights, may if used result in charges against the Company's
earnings.
 
PROPOSAL
 
     The Company's shareholders approved and adopted the 1986 Plan at the
Company's 1986 Annual Meeting. The 1986 Plan has been amended, and additional
shares authorized for issuance by action of the shareholders, most recently at
the 1994 Annual Meeting. The 1986 Plan permits the granting to selected key
employees of the Company and its subsidiaries (and, to a limited extent, to
non-employee directors of the Company) and to other key persons, of a variety of
stock and stock based awards (collectively, the "Awards"), including stock
options; automatic stock option grants to non-employee directors; the award of
restricted and unrestricted shares; the granting of rights to receive cash or
shares on a deferred basis or based on performance; the granting of rights to
receive cash or shares in respect of increases in the value of the Common Stock
("SARs"); cash payments (so-called "tax offset payments") sufficient to offset
the Federal income taxes of participants resulting from transactions under the
1986 Plan; loans to participants in connection with awards; and other Common
Stock-based awards, including the sale or award of convertible securities, that
meet the requirements of the 1986 Plan. Under the 1986 Plan as currently in
effect, an aggregate of 3,000,000 shares of Common Stock of the Company is
authorized for issuance. Of these, 150,000 are reserved for issuance under stock
options granted or to be granted to non-employee directors. The
 
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maximum number of shares for which any individual (other than a non-employee
director) may be granted options or stock appreciation rights under the 1986
Plan during the period July 1, 1994 through December 1, 1999 is 750,000. Of the
shares currently authorized for issuance under the 1986 Plan other than for non-
employee directors, 399,864 shares have been issued, and 2,138,962 shares are
subject to outstanding options, leaving 306,174 shares currently available for
option grants other than to non-employee directors. Of the 150,000 shares
currently authorized for issuance under the 1986 Plan for non-employee
directors, 5,000 shares have been issued, and 55,000 shares are subject to
outstanding options, leaving 90,000 shares currently available for option grants
to non-employee directors. No Awards may be made under the 1986 Plan as
currently in effect after December 1, 1999.
 
     The Board of Directors has adopted and is submitting to shareholders for
their approval, an amendment to the 1986 Plan which would increase by 850,000
shares the number of shares of the Company's Common Stock authorized for
issuance in respect of Awards made under the 1986 Plan.
 
     The Company believes that the 1986 Plan is serving its purpose in helping
to attract, retain, and reward key persons, and in strengthening the commonality
of interest between key persons and the shareholders. To continue to meet these
objectives, the Company believes that the availability of additional shares for
Awards under the 1986 Plan is needed.
 
     Except as described with respect to the automatic grants to non-employee
directors, no determination has been made as to which individuals may receive
options or rights under the amended 1986 Plan; as to the number of shares, up to
the maximum limit provided in the 1986 Plan, to be covered by any such options
or rights to a single individual; or as to the number of individuals to whom
such options or rights will be granted. The proceeds received by the Company
from the sale of stock pursuant to the 1986 Plan will be used for the general
purposes of the Company, or in the case of the receipt of payment in shares of
Common Stock, as the Board of Directors may determine, including redelivery of
the shares received upon exercise of options.
 
     Subject to adjustment for stock splits and similar events, the total number
of shares of Common Stock that can be issued under the 1986 Plan, as amended, is
3,850,000 shares, of which a maximum of 150,000 shares will be available for
stock options for non-employee directors. Awards and shares which are forfeited,
reacquired by the Company, satisfied by a cash payment by the Company, or
otherwise satisfied without the issuance of Common Stock, are not counted.
Subject to adjustment for stock splits and similar events, the maximum number of
shares for which options may be awarded to any individual under the 1986 Plan,
during the period July 1, 1994 through December 1, 1999 is 750,000 shares. As
described under the caption "Summary of the 1986 Stock Incentive Plan -- Other
Stock-based Awards", the 1986 Plan would also permit the issuance of debt
securities convertible into Common Stock. The 1986 Plan authorizes the Committee
to issue awards (on such terms and conditions as it deems are appropriate
substitutions) in substitution for awards held by employees of companies or
businesses acquired by the Company. The shares that could be delivered under
such substitute awards would be in addition to the maximum number of shares
authorized under the 1986 Plan but only to the extent that the substitute awards
are both granted to persons whose relationship to the Company does not make (and
is not expected to make) them subject to Section 16(b) of the Securities
Exchange Act of 1934 and are granted in substitution for awards issued under a
plan approved, to the extent then required, under Rule 16b-3 (or any successor
rule under the Securities Exchange Act of 1934), by the stockholders of the
entity which issued such predecessor awards.
 
RECOMMENDATION
 
     The Board believes that the Company's stock option plans have contributed
to the progress of the Company by providing incentives to persons key to its
success. Intense competition among business firms for directors and executives
and other key persons makes it important for the Company to maintain an
effective compensation program in order to continue to attract, motivate, and
retain persons necessary to further the Company's growth. Competing compensation
programs of other companies make it important that the Company's program
continues and has maximum flexibility. The Board believes that the 1986 Plan, as
supplemented with additional shares, will continue to assist the Company in
meeting the competitive situation created by the varied compensation programs of
other companies. Accordingly, the Board believes that the
 
                                        7
   10
 
proposal is in the best interests of the Company and its shareholders and
recommends that the shareholders approve the increase in the number of shares
available under the 1986 Plan.
 
     It is the intention of the persons named as proxies to vote the shares to
which the proxy relates to approve the increase in the number of shares
available under the 1986 Plan as outlined in the proposal under Item 2 and to
authorize the issuance under the 1986 Plan of up to 850,000 additional shares of
Common Stock (making the aggregate 3,850,000), unless instructed to the
contrary. The outlined amendment to the 1986 Plan will not take effect if the
proposal is not approved.
 
     The Board of Directors recommends a vote FOR this proposal.
 
SUMMARY OF THE 1986 PLAN
 
     (The following is a description of certain features of the 1986 Plan, but
is not intended to be a complete description of the terms of the 1986 Plan.)
 
     Administration; Eligible Persons.  The 1986 Plan is administered by a
Committee of the Board of Directors (which currently is the Compensation and
Stock Option Committee) consisting of no fewer than two directors. All members
of the Committee must be "Disinterested Persons" as that term is defined in the
1986 Plan and, to the extent required under Section 162(m) of the Internal
Revenue Code, "outside directors" as that term is used in Section 162(m). All
members of the Committee serve at the pleasure of the Board of Directors.
 
     The Committee has full power to select, from among the persons eligible for
awards, the individuals to whom awards will be granted, to make any combination
of awards to any participants, and to determine the specific terms of each
grant, subject to the provisions of the 1986 Plan. Persons eligible to
participate in the 1986 Plan will be those officers and other full or part-time
key employees of the Company and its subsidiaries (excluding any director who is
not a full-time employee, except as to a fixed number of stock options granted
to each non-employee director) and other key persons, who are responsible for or
contribute to the management, growth, or profitability of the business of the
Company and its subsidiaries, as selected from time to time by the Committee.
 
     Stock Options.  The 1986 Plan permits the granting of non-transferable
stock options that qualify as incentive stock options under Section 422(b) of
the Internal Revenue Code ("incentive options" or "ISOs") and non-transferable
stock options that do not so qualify ("nonstatutory options"). The option
exercise price of each option shall be determined by the Committee in its
discretion but may not be less than the fair market value of the Common Stock on
the date the option is granted in the case of incentive options, and not less
than 50% of such fair market value in the case of nonstatutory options.
 
     The term of each option will be fixed by the Committee but may not exceed
10 years (5 years in certain circumstances) from the date of grant in the case
of an incentive option or 10 years and one day from the date of grant in the
case of a nonstatutory option. On September 14, 1995, the closing price of the
Common Stock on the New York Stock Exchange, as reported in The Wall Street
Journal, was $          . Based on current accounting and reporting standards,
the amount of excess, if any, of the fair market value of the Common Stock on
the date the option is granted over the option price will be accounted for on
the books of the Company, in general, as compensation to the optionee and
generally amortized over the vesting period.
 
     The Committee will determine at what time or times each option may be
exercised. Options may be made exercisable in installments, and the
exercisability of options may be accelerated by the Committee. The Committee may
in its discretion provide that upon exercise of an option, instead of receiving
shares free from restrictions under the 1986 Plan, the participant will receive
shares of Restricted Stock or Deferred Stock.
 
     The option exercise price of options granted under the 1986 Plan must be
paid by check or, if the Committee so determines, by delivery of shares of
unrestricted Common Stock or a combination of payment by check and shares. The
1986 Plan authorizes the Committee to permit "pyramiding", which involves the
exercise of an option in successive stages using as the payment at each stage
shares which have been acquired
 
                                        8
   11
 
under the option in preceding stages. Under current accounting standards,
pyramiding would result in an accounting treatment more like stock appreciation
rights than options, resulting in a charge to earnings.
 
     In the event of termination of employment by reason of normal retirement,
disability, or death, an option may thereafter be exercised (to the extent it
was then exercisable) for a period of up to three years, as determined by the
Committee at or after the grant date, subject to the stated term of the option.
(For this purpose and except as otherwise determined by the Committee at the
time of grant, options will be deemed to have become fully exercisable
immediately prior to death if not already fully exercisable.) If an optionee
terminates employment by reason of normal retirement or disability and
thereafter dies while the option is still exercisable, the option will in
general be exercisable for at least a year following death, subject to the
stated term of the option. The Committee may at or after the grant date provide
for acceleration of the exercisability of an option upon termination of
employment.
 
     If an optionee terminates employment for any reason other than normal
retirement, disability, or death, his or her options will remain exercisable, to
the extent then exercisable, for 60 days (or such longer period up to three
years as the Committee shall determine at or after the grant date) following
termination, subject to the stated term of the option. In the case of optionees
receiving other severance benefits in connection with the termination of
employment, a portion of any options not otherwise exercisable at termination of
employment may be accelerated. The Committee may also provide for the forfeiture
or recision of awards in the event an optionee competes with the Company or its
subsidiaries or discloses confidential information, either before or after
exercise.
 
     The 1986 Plan, until amended at the 1994 Annual Meeting, provided that each
person who is a non-employee director was automatically granted a nonstatutory
option for 10,000 shares of Common Stock, at an option exercise price equal to
the fair market value of the Common Stock on the date of grant. As amended at
the 1994 Annual Meeting, the 1986 Plan now provides that an option to purchase
3,000 shares of Common Stock is to be granted automatically on an annual basis
to each eligible director on the third business day following the date of each
Annual Meeting of Shareholders at which the eligible director is elected or
continues to serve under an unexpired term. The exercise price of each option is
to be equal to the fair market value per share of the Common Stock on the date
the option is granted. Nonstatutory options granted to non-employee directors
are for a term of 5 years and vest in equal annual installments over the first
four years (but see the proposed plan amendments described under Item 3 below).
Non-employee directors are not eligible for stock appreciation rights or other
awards under the 1986 Plan, other than the automatic grants of nonstatutory
options described in this paragraph.
 
     Stock Appreciation Rights.  The Committee may also grant non-transferable
stock appreciation rights entitling the holder upon exercise to receive an
amount in any combination of cash or shares of unrestricted Common Stock,
Restricted Stock, or Deferred Stock (as determined by the Committee), not
greater in value than the increase since the date of grant in the value of the
shares of Common Stock covered by such right. Stock appreciation rights may be
granted separately from or in tandem with the grant of an option. Each tandem
stock appreciation right terminates upon the termination or exercise of any
accompanying option.
 
     In addition to stock appreciation rights exercisable at the discretion of
the holder, the Committee may also determine in its sole discretion that, if so
requested by an option holder, the Company will pay the optionee, in
cancellation of the related option, any combination of cash, unrestricted Common
Stock, Restricted Stock, or Deferred Stock (as determined by the Committee) not
greater in value than the difference between the fair market value of the shares
covered by the option and the exercise price.
 
     The fair market value of a share will generally be the closing sale price
on the date of exercise. However, the 1986 Plan gives the Committee discretion
to establish a uniform "fair market value" that would apply to any rights which
are exercised or requests which are made and honored with respect to officers
(including officers who are directors) of the Company during certain designated
periods, irrespective of the market price of the Common Stock on the particular
day during such period on which such rights are exercised. This authority has
been included in order to eliminate differences in the appreciation payable with
respect to rights exercised by officers who may be subject to potential
liability under Section 16(b) of the Securities Exchange Act of 1934 in respect
of rights settled in cash unless they exercise such rights during certain
limited periods.
 
                                        9
   12
 
At present, such periods consist of four ten-day "window periods" each year
following publication of quarterly or annual earnings results of the Company.
The Committee may not establish for this purpose a "fair market value" for any
period which exceeds the highest closing sale price of the Common Stock reported
on the New York Stock Exchange during such period.
 
     Based on current accounting and reporting standards, there would be a
charge to earnings with respect to any stock appreciation rights which have been
granted, based upon the amount of appreciation, if any, in the market value of
the shares covered under the related options over the option price, and there
would be a credit to earnings, to the extent of previously recognized charges
for appreciation, for decline in the market value of such shares. Based on
current accounting and reporting standards, applicable charges and credits would
commence with the granting of stock appreciation rights, based on market
appreciation or depreciation above or below the option price and would continue
to be recorded quarterly until the exercise, surrender, or termination of the
rights.
 
     Restricted Stock and Unrestricted Stock.  The Committee may also award
shares of Common Stock subject to such conditions and restrictions as the
Committee may determine ("Restricted Stock"). The purchase price, if any, of
shares of Restricted Stock shall be determined by the Committee but if any
purchase price is payable in an amount which exceeds the lesser of the par value
of the shares or 10% of the fair market value of the Common Stock on the award
date, it shall be equal to at least 50% of the fair market value of the Common
Stock on the award date.
 
     Recipients of Restricted Stock must enter into a Restricted Stock award
agreement with the Company, in such form as the Committee determines, setting
forth the restrictions to which the shares are subject and the date or dates on
which the restrictions will lapse. The Committee may at any time waive such
restrictions or accelerate such dates. Shares of Restricted Stock are
non-transferable and except as otherwise provided in an award, if a participant
who holds shares of Restricted Stock terminates employment for any reason
(including death) prior to the lapse or waiver of the restrictions, the Company
will have the right within 60 days following termination of employment to
require the forfeiture or repurchase of the shares in exchange for the amount,
if any, which the participant paid for them. Prior to the lapse of restrictions
on shares of Restricted Stock, the participant will have all rights of a
shareholder with respect to the shares, including voting and dividend rights,
subject only to the conditions and restrictions generally applicable to
Restricted Stock or specifically set forth in the Restricted Stock award
agreement.
 
     The Committee may also grant shares (at no cost or for a purchase price
equal to par value or less) which are free from any restrictions under the 1986
Plan ("Unrestricted Stock"). Unrestricted Stock could be issued in recognition
of past services or in other circumstances where the Committee determines the
grant to be in the best interests of the Company.
 
     Deferred Stock.  The Committee may also make Deferred Stock awards under
the 1986 Plan. These are non-transferable awards entitling the recipient to
receive shares of Common Stock without any payment in one or more installments
at a future date or dates, as determined by the Committee. Receipt of Deferred
Stock may be conditioned on such matters as the Committee shall determine,
including continued employment or attainment of performance goals. A recipient
of a Deferred Stock award must enter into an agreement setting forth the
applicable provisions for deferral and receipt of stock, as determined by the
Committee. Except as otherwise determined by the Committee all such rights will
terminate upon the participant's termination of employment. Any deferral
restrictions under a Deferred Stock award may be waived by the Committee at any
time prior to termination of employment.
 
     Performance Units.  The Committee may also award non-transferable
Performance Units entitling the recipient to receive shares of Common Stock or
cash in such combinations as the Committee may determine. Payment of the award
may be conditioned on achievement of individual or Company performance goals
over a fixed or determinable period and such other conditions as the Committee
shall determine. A recipient of the award must enter into an agreement setting
forth the applicable conditions, as determined by the Committee. Except as
otherwise determined by the Committee, rights under a Performance Unit award
will terminate upon a participant's termination of employment. Any conditions in
an award may be waived or modified by the Committee at any time prior to
termination of employment.
 
                                       10
   13
 
     Performance Units may be awarded independently or in connection with stock
options or other awards under the 1986 Plan. Unless otherwise determined by the
Committee, exercise of Performance Units issued in connection with stock options
shall reduce the number of shares subject to the option on such basis as is
specified in the award agreement.
 
     Other Stock-based Awards.  The Committee may in its discretion grant other
types of awards of, or based on, Common Stock ("Other Stock-based Awards"). Such
awards may include debt securities convertible into or exchangeable for shares
of Common Stock upon such conditions, including attainment of performance goals,
as the Committee shall determine. Subject to the purchase price limitations
described below in this paragraph, such convertible or exchangeable securities
may have such terms and conditions as the Committee may determine at the time of
grant. However, no convertible or exchangeable debt security shall be issued
unless the Committee shall have provided (by Company right of repurchase, right
to require conversion or exchange, or other means deemed appropriate by the
Committee) a means of avoiding any right of the holders of such debt security to
prevent a Company transaction by reason of covenants in such debt security. The
Committee may determine the amount and form of consideration, if any, payable
upon the issuance or exercise of an Other Stock-based Award, except that no
shares of Common Stock (other than Common Stock issued for a price, if any, of
not in excess of the lesser of par value or 10% of fair market value at the time
of sale) shall be issued unless the Company has received payment for the Common
Stock (or for the securities convertible into the Common Stock) equal to at
least 50% of the fair market value of the Common Stock on the grant or effective
date, or the exchange or conversion date, under the award, as determined by the
Committee.
 
     The Committee may prescribe limitations or conditions requiring forfeiture
by the participant, or permitting repurchase by the Company, of Other
Stock-based Awards or related Common Stock or securities, and may at any time
accelerate or waive any such limitations or conditions. Participants receiving
an Other Stock-based Award must enter into Other Stock-based Award agreements
with the Company, setting forth the applicable limitations and conditions.
 
     Other Stock-based Awards may not be sold, assigned, transferred, pledged,
or encumbered except as may be provided in the Other Stock-based Award
agreement, and in no event may be transferred other than by will or by the laws
of descent and distribution or be exercised, during the life of the participant,
other than by the participant or the participant's legal representative.
 
     The recipient of an Other Stock-based Award will have rights of a
shareholder only to the extent, if any, specified by the Committee in the Other
Stock-based Award agreement.
 
     Supplemental Grants.  In connection with awards granted or exercised under
the 1986 Plan, the Committee may authorize loans from the Company to the
participant. Loans, including extensions, may be for up to 10 years and may be
either secured or unsecured. Each loan shall be subject to such terms and
conditions and shall bear such rate of interest, if any, as the Committee shall
determine. However, any such loan shall not be used to pay the par value of any
shares issued to the borrower, and the amount of any such loan shall not exceed
the total exercise or purchase price paid by the borrower under an award or for
related stock plus an amount equal to the cash payment permitted under the next
paragraph. Loans may be made at any time, subject to such limitations as the
Committee shall prescribe.
 
     The Committee may at any time also grant to a participant the right to
receive a cash payment in connection with taxable events (including the lapse of
restrictions) under grants or awards. The amount of such payment will be
determined in relation to the taxable amount recognized in respect of such other
grant or award, on the assumption that the affected participant is subject to
the maximum marginal Federal tax rate (or such lower rate as the Committee may
determine) as in effect at the time such taxable income is recognized. The
amount of any such payment may be up to but may not exceed the amount estimated
to be necessary to cover the Federal income tax so calculated as due with
respect to such other grant or award and with respect to the cash payment
itself.
 
     Dividends and Deferrals; Nature of Company's Obligations Under the
Plan.  The Committee may require or permit the immediate payment or the waiver,
deferral, or investment of (i) dividends paid on
 
                                       11
   14
 
awards under the 1986 Plan, and (ii) amounts equal to dividends which would have
been paid if shares subject to an award had been outstanding. The Committee may
also permit participants to make elections to defer receipt of benefits under
the 1986 Plan. The Committee may also provide for the accrual of interest or
dividends on amounts deferred under the 1986 Plan on such terms as the Committee
may determine. Unless the Committee expressly determines otherwise, participants
in the 1986 Plan will have no rights greater than those of a general creditor of
the Company. The Committee may authorize the creation of trusts and other
arrangements to facilitate or ensure the Company's obligations under the 1986
Plan, provided that such trusts and arrangements are consistent with the
foregoing sentence.
 
     Adjustments for Stock Dividends, Mergers, etc.  The Committee is required
to make appropriate adjustments in connection with outstanding awards to reflect
stock dividends, stock splits, and similar events. In the event of a merger,
liquidation, or similar event, the Committee in its discretion may provide for
substitution or adjustment or may accelerate or, upon payment of other
consideration for the vested portion of any award as the Committee deems
equitable in the circumstances, terminate such awards.
 
     Amendment and Termination.  The Board of Directors may at any time amend or
discontinue the 1986 Plan and the Committee may at any time amend or cancel
awards (or provide substitute awards at the same or reduced exercise or purchase
price, including lower priced awards upon the termination of any then
outstanding awards) for the purpose of satisfying changes in the law or for any
other lawful purpose. However, no such action shall adversely affect any rights
under outstanding awards without the holder's consent. Moreover, any amendment
requiring shareholder approval for purposes of satisfying any then-applicable
incentive stock option rules or the requirements of Rule 16b-3 under the
Securities Exchange Act of 1934 shall be subject to such shareholder approval to
the extent then required. Currently, the incentive stock option regulations
would require shareholder approval for an increase in the maximum number of
shares issuable pursuant to incentive options under the 1986 Plan or a
modification in eligibility requirements under the 1986 Plan. Rule 16b-3 would
currently require such approval if the amendment materially increased benefits
accruing to Company directors and officers under the 1986 Plan, materially
increased the number of securities issuable under the 1986 Plan, or materially
modified eligibility requirements under the 1986 Plan.
 
FEDERAL INCOME TAX CONSEQUENCES
 
     The Company is advised that under the Federal income tax laws as now in
effect, the income tax consequences associated with stock options awarded under
the 1986 Plan are, in summary, as follows:
 
     Incentive Options.  No ordinary taxable income is realized by the optionee
upon the grant or exercise of an ISO. If no disposition of shares issued to an
optionee pursuant to the exercise of an ISO is made by the optionee within two
years from the date of grant or within one year after the transfer of such
shares to the optionee, then (a) upon sale of such shares, any amount realized
in excess of the option price (the amount paid for the shares) will be taxed to
the optionee as a long-term capital gain and any loss sustained will be a
long-term capital loss, and (b) no deduction will be allowed to the Company. The
exercise of an ISO will, however, increase the optionee's alternative minimum
taxable income and may result in alternative minimum tax liability for the
optionee.
 
     If shares of Common Stock acquired upon the exercise of an ISO are disposed
of prior to the expiration of the two-year or one-year holding periods described
above (a "disqualifying disposition"), generally (a) the optionee will realize
ordinary income in the year of disposition in an amount equal to the excess (if
any) of the fair market value of the shares at exercise (or, if less, the amount
realized on a sale of such shares) over the option price thereof, and (b) the
Company will be entitled to deduct such amount. Any further gain realized will
be taxed as short-term or long-term capital gain and will not result in any
deduction by the Company. Special rules may apply where all or a portion of the
exercise price of the ISO is paid by tendering shares of Common Stock. A
disqualifying disposition will eliminate the alternative minimum taxable income
adjustment associated with the exercise of the ISO if it occurs in the same
calendar year in which the adjustment occurred.
 
     If an ISO is exercised at a time when it no longer qualifies for the tax
treatment described above, the option is treated as a nonstatutory option.
Generally, an ISO will not be eligible for the tax treatment
 
                                       12
   15
 
described above if it is exercised more than three months following termination
of employment (one year following termination of employment, in the case of
termination by reason of permanent and total disability), except in certain
cases where the ISO is exercised after the death of the optionee. Options
otherwise qualifying as ISOs will also be treated for federal income tax
purposes as nonstatutory options to the extent they (together with other ISOs
held by the optionee) first become exercisable in any calendar year for shares
having a fair market value, determined at the time of the option grant,
exceeding $100,000.
 
     Nonstatutory Options.  With respect to nonstatutory options under the plan,
no income is realized by the optionee at the time the option is granted.
Generally, (a) at exercise, ordinary income, subject (in the case of options
granted to an employee) to withholding, is realized by the optionee in an amount
equal to the difference between the option price and the fair market value of
the shares on the date of exercise, and the Company, provided it satisfies
applicable reporting requirements, receives a tax deduction for the same amount,
and (b) at disposition, appreciation or depreciation after the date of the
exercise is treated as capital gain or loss, either short-term or long-term
depending on how long the shares have been held.
 
     Certain Limitations.  The Internal Revenue Code limits to $1 million the
deduction a public corporation may claim for remuneration paid to any of its
five top officers, subject to a number of exceptions and special rules. Eligible
performance-based compensation is exempt from this limit. The Company intends
that compensation associated with the exercise of stock options (and stock
appreciation rights) awarded under the 1986 Plan at an option price at least
equal to fair market value will qualify for this performance-based exemption,
although the Internal Revenue Service has not yet issued final regulations
explaining all relevant details of the $1 million deduction limitation.
 
     The Internal Revenue Code also limits the amount of compensation that may
be paid without penalty in connection with a change in control. In general, if
the total of an individual's change-in-control related compensation equals or
exceeds three times his or her average annual taxable compensation over the five
calendar years preceding the change in control, all of the change-in-control
related compensation in excess of that average is nondeductible and subject to
an additional 20% tax. In making these determinations, some portion or all of
the value of options accelerated in connection with a change in control may be
taken into account.
 
     The foregoing discussion is provided for the information of shareholders
and does not purport to be a complete description of the Federal tax
consequences in respect of option transactions under the 1986 Plan, nor does it
describe state or local tax consequences.
 
                 3.  PROPOSAL TO AMEND THE COMPANY'S 1986 PLAN
                   RELATIVE TO NON-EMPLOYEE DIRECTOR OPTIONS
 
PROPOSAL
 
     As stated briefly under Item 2, Section 6(m) of the 1986 Plan ("Section
6(m)") provides for automatic stock option grants to non-employee directors.
Under this provision of the 1986 Plan, 150,000 shares are reserved for issuance
under options for non-employee directors. Subject to such limit, certain
eligible non-employee directors have been granted a non-statutory stock option
for 10,000 shares of stock, at a purchase price equal to the fair market value
of the stock on the date of grant. The options may only be exercised during the
5-year period beginning on the date of grant, and vest in twenty-five percent
annual installments over the first four years of their term. As approved by the
shareholders in 1994, Section 6(m) now also provides that in addition to any
10,000 share option which was outstanding as of 1994, an option to purchase
3,000 shares of Common Stock is granted automatically on an annual basis to each
non-employee director on the third business day following the date of each
Annual Meeting of Shareholders at which the eligible director is elected or
continues to serve under an unexpired term. The exercise price of each option is
to be equal to the fair market value per share of the Common Stock on the date
the option is granted. As with the 10,000 share options, the 3,000 share annual
options may only be exercised during the 5-year period beginning on the date of
grant, and vest in twenty-five percent annual installments over the first four
years of their term. Consistent
 
                                       13
   16
 
with the 1986 Plan, no option may be granted to the non-employee directors under
amended Section 6(m) of the 1986 Plan after December 1, 1999.
 
     The existing Section 6(m) provides that if a non-employee director ceases
to be a Director of the Company for any reason other than death, any option held
by such non-employee director may thereafter be exercised only as to the portion
which was exercisable immediately prior to the date the optionee ceased to be a
Director; if the optionee ceases to be a director as a result of death, however,
all options held by the Director immediately prior to death, whether or not
exercisable, become exercisable and may be exercised within 3 months of the date
of death (but in no event beyond the 5-year term). If approved by the
shareholders, amended Section 6(m) would provide that acceleration of the
exercisability of non-employee director options would automatically happen not
only upon death, but also upon retirement from the Board under the Company's
mandatory retirement policy for directors (currently a Director cannot run for a
term during which the Director would reach his or her 71st birthday) and upon
the occurrence of retirement from the Board as a result of the Director's
long-term disability.
 
     As of September 14, 1995, under Section 6(m) options to purchase an
aggregate of 55,000 shares were outstanding and 90,000 were available on that
date for the grant of future options. Up to 55,000 additional shares could
become available for options under Section 6(m) if those options outstanding on
September 14, 1995 lapse or terminate. Currently, four of the five non-employee
directors of the Company hold options under Section 6(m) to purchase 10,000
shares each, which options are exercisable at prices and expire on dates, as
follows: John M. Albertine -- 10,000 shares at $5.125 per share, expiring
October 21, 1996; George N. Hatsopoulos -- 10,000 shares at $5.125 per share,
expiring October 23, 1995; Andrew L. Nichols -- 10,000 shares at $5.125 per
share, expiring October 21, 1996; and Roger D. Wellington -- 10,000 shares at
$5.125 per share, expiring October 21, 1996. In addition, Directors Albertine,
Fjeldstad, Hatsopoulos, Nichols, and Wellington each hold options on 3,000
shares at $19.375 per share, expiring on November 5, 1999. Pursuant to Section
6(m), Directors Albertine, Fjeldstad, Hatsopoulos, Nichols, and Wellington would
(if serving on that date and otherwise eligible) each be granted options for an
additional 3,000 shares on November 9, 1995, and annually thereafter (if serving
and otherwise eligible).
 
     If the proposal outlined in Item 3 is approved by shareholders, each such
option not then exercisable would be accelerated and become exercisable in whole
not only upon the Director's death, but also upon mandatory retirement by reason
of age or retirement from the Board as a result of long-term disability. For
example, each of Messrs. Hatsopoulos and Wellington are 68 years of age, and
under the Company's mandatory retirement age policy for directors, cannot serve,
in Mr. Hatsopoulos' case, after the 1996 Annual Meeting, and in Mr. Wellington's
case, after the 1997 Annual Meeting. If the proposal outlined in Item 3 is
approved by the shareholders, all options held by Messrs. Hatsopoulos and
Wellington upon their mandatory retirement from the Board because of the
relevant age policy, whether or not vested, will become exercisable.
 
     If the proposal outlined in Item 3 is not approved by the shareholders, the
proposed amendments to Section 6(m) would not become effective and Section 6(m)
would be applied as currently drafted.
 
     Exhibit A to the Proxy Statement contains the text of the existing Section
6(m), together with language, printed in brackets and lined-through, proposed to
be deleted and language, printed with underscoring, proposed to be added,
together constituting the amendments submitted for approval.
 
                                       14
   17
 
AMENDED 1986 PLAN BENEFITS
 
     The table below sets forth information with respect to the stock options
that would automatically be granted to current non-employee directors on
November 9, 1995 under the 1986 Plan, whether or not shareholder approval of the
amendments to Section 6(m) of the 1986 Plan is voted. However, if approval of
the amendments to Section 6(m) is voted, the options to be granted, as well as
existing options held by non-employee directors, will be subject to accelerated
vesting under certain additional circumstances.
 


                                                                 1986 PLAN AS PROPOSED TO BE AMENDED
NAME AND POSITION                                                         NUMBER OF OPTIONS
-----------------                                                -----------------------------------
                                                                           
Non-Executive Officer, Non-Employee Director Group (5
  persons).....................................................               15,000(1)
 
---------------
(1) Number of options to be automatically granted under the 1986 Plan to non-employee directors on November 9, 1995; under the 
    plan, 3,000 options per non-employee director are granted annually on the third business day following the date of each     
    annual meeting, for each non-employee director serving on such date(s).


 
RECOMMENDATION
 
     The Board of Directors believes that Section 6(m) of the 1986 Plan, as
amended, will better provide for the recruitment and retention of highly
qualified outside directors. The Board of Directors believes that the amendments
are in the best interests of the Company and its shareholders and recommends
that the shareholders approve the described amendments.
 
     It is the intention of the persons named as proxies to vote the shares to
which the proxy relates to approve the amendments to Section 6(m) of the 1986
Plan, unless instructed to the contrary.
 
     The Board of Directors recommends a vote FOR this proposal.
 
SUMMARY OF SECTION 6(M) OF THE 1986 PLAN
 
     The full text of Section 6(m), currently in effect and as proposed to be
amended, of the 1986 Plan is set forth in Exhibit A to this Proxy Statement, to
which reference is made, and the following description of Section 6(m) is
qualified in its entirety by that reference.
 
     Section 6(m) provides that non-employee directors (who also currently hold
options previously granted under the 1986 Plan) are each automatically granted a
non-statutory option for 3,000 shares of Common Stock on an annual basis on the
third business day following the date of each Annual Meeting of Shareholders at
which the eligible director is elected or continues to serve under an unexpired
term. The options are at an exercise price equal to the fair market value of the
Common Stock on the date of grant. Individuals who in the future first become
non-employee directors of the Company will likewise be eligible (subject in each
case to availability under the aggregate limit of 150,000 available shares under
the program). Options so granted to non-employee directors are for a term of 5
years and vest in twenty-five percent annual installments over the first four
years of the option. It is proposed to amend the vesting schedule to provide
that not only upon the death of a non-employee director but also upon the
director's mandatory retirement because of age or retirement as a result of
long-term disability, any option held by the individual under the 1986 Plan
would become fully exercisable by the retired director or the deceased
director's representative. Non-employee directors are not eligible for awards
under the 1986 Plan, other than the automatic grants of options described
herein.
 
     Certain other general provisions of the 1986 Plan affect Section 6(m),
including the following: Under the 1986 Plan, the Compensation and Stock Option
Committee of the Board of Directors is required to make appropriate adjustments
in connection with outstanding awards to reflect stock dividends, stock splits,
and similar events. In the event of a merger, liquidation, or similar event, the
Committee in its discretion may provide for substitution or adjustments or may
accelerate or, upon payment of other consideration for the vested portion of any
award as the Committee deems equitable in the circumstances, terminate such
awards (although the 1986 Plan provides that no adjustment shall affect options
under Section 6(m) if the
 
                                       15
   18
 
adjustment would cause non-employee directors to fail to be eligible as
"disinterested persons" under the Securities Exchange Act of 1934).
 
     The Board of Directors may at any time amend or discontinue the 1986 Plan
and the Committee may at any time amend or cancel awards (or provide substitute
awards at the same or reduced exercise or purchase price, including lower-priced
awards upon the termination of any then outstanding awards) for the purpose of
satisfying changes in the law or for any other lawful purpose. However, no such
action shall adversely affect any rights under outstanding awards without the
holder's consent. Moreover, any amendment requiring shareholder approval for
purposes of satisfying any then applicable rules under Federal tax law or the
requirements of Rule 16b-3 under the Securities Exchange Act of 1934 shall be
subject to such shareholder approval to the extent then required. Rule 16b-3
would currently require such approval if the amendment materially increased
benefits, materially increased the number of securities issuable under the 1986
Plan, or materially modified eligibility requirements under the 1986 Plan.
 
     Stock options granted to non-employee directors under Section 6(m) of the
1986 Plan are treated as nonstatutory options for federal income tax purposes.
For a general description of the federal income tax treatment associated with
nonstatutory options granted under the 1986 Plan, see information under the
caption "2. Proposal to Amend the 1986 Stock Incentive Plan Relative to Increase
in Shares -- Federal Income Tax Consequences" above.
 
                     4.  APPROVAL OF AMENDMENT TO RESTATED
                            ARTICLES OF ORGANIZATION
 
GENERAL
 
     The Board of Directors of the Company has approved, and recommends to the
shareholders of the Company, the authorization of an amendment to the Company's
Restated Articles of Organization to change the corporate name from "Bolt
Beranek and Newman Inc." to "BBN Corporation".
 
     "Bolt Beranek and Newman" has been a prominent name in accoustics since the
1948 establishment of a partnership by Dr. Richard Bolt, Dr. Leo Beranek, and
Robert Newman. The Company was organized in 1953 as the successor to that
partnership, and has carried the names of its founders since that time. However,
Mr. Newman died in 1983 and Messrs. Bolt and Beranek have not been active in the
Company for many years. Because of the diversification of the Company beyond its
accoustics origins, the Board believes it is time to adopt a new, more versatile
name for the Company. Recognizing the proud history of the Company and yet
acknowledging the Company's move beyond its business origins, the Board
recommends the adoption of "BBN Corporation" as the Company's new name. The new
name already enjoys recognition in the marketplace. "BBN" has been the Company's
stock exchange ticker symbol since 1970, and has been used by the Company in a
variety of applications. For example, all of the operating subsidiaries of the
Company use "BBN" in their name. Also, the Company has used a logo incorporating
the initials "BBN" for many years. As a result, the Board believes that even
with the change, the general public will continue to distinctively identify the
Company.
 
     If the proposed amendment to the Company's Restated Articles of
Organization is authorized by the shareholders, the change will become effective
when articles of amendment are filed with the Secretary of State of The
Commonwealth of Massachusetts, which would be expected to occur shortly after
shareholder approval of the amendment. Stock certificates of Common Stock would
be retained by shareholders and would not need to be exchanged for certificates
containing the Company's new name.
 
                                       16
   19
 
PROPOSAL
 
     The Board of Directors has approved and is submitting to shareholders for
their authorization, an amendment to Article I of the Company's Restated
Articles of Organization, so that as amended, Article I would read in its
entirety as follows:
 
     "1. The name by which the corporation shall be known is: BBN Corporation"
 
RECOMMENDATION
 
     The Board believes that the proposal is in the best interests of the
Company and its shareholders. It is the intention of the persons named as
proxies to vote the shares to which the proxy relates to authorize the change in
corporate name as provided in the proposal under Item 3. The change will not
take effect if the proposal is not approved.
 
     The Board of Directors recommends a vote FOR this proposal.
 
                           5.  SELECTION OF AUDITORS
 
     The Board of Directors, upon recommendation by its Audit Committee, has
selected Coopers & Lybrand L.L.P. as auditors of the Company for the fiscal year
ending June 30, 1996, subject to ratification by the shareholders. Coopers &
Lybrand has acted as the Company's auditors since 1965. The Company has been
advised by Coopers & Lybrand that neither such firm nor any of its members has
any financial interest in the Company or any of its subsidiaries or has had any
connection during the past three years with the Company or any of its
subsidiaries in the capacity of promoter, underwriter, voting trustee, director,
officer, or employee. Representatives of the firm will attend the Annual
Meeting, where they will have the opportunity to make a statement if they wish
to do so and will be available to respond to appropriate questions from the
shareholders. It is the intention of the persons named as proxies to vote the
shares to which the proxy relates for ratifying the selection of such firm as
auditors of the Company, unless instructed to the contrary. Should the selection
of Coopers & Lybrand L.L.P. as auditors of the Company not be ratified by the
shareholders, the Board of Directors will reconsider the matter.
 
     The Board of Directors recommends a vote FOR this proposal.
 

                   PRINCIPAL HOLDERS OF COMPANY COMMON STOCK
 
     As of September 14, 1995, there were           shares of Common Stock of
the Company outstanding. The Company knows of no person who may be deemed to own
beneficially more than five percent of the outstanding Common Stock, except as
follows:
 

                                                                          AMOUNT
                                          NAME AND ADDRESS OF          BENEFICIALLY    PERCENT
            TITLE OF CLASS                 BENEFICIAL OWNER               OWNED        OF CLASS
            --------------                -------------------          ------------    --------
                                                                              
    Common Stock..................  FMR Corp.                          2,173,600(1)    12.4%(1)
                                    82 Devonshire Street
                                    Boston, MA 02109

    Common Stock..................  Kopp Investment Advisors, Inc.     2,338,980(2)    13.3%(2)
                                    6600 France Avenue South
                                    Suite 672
                                    Edina, MN 55435
 
---------------
(1) FMR Corp., a holding company with affiliates including Fidelity Management & Research Company, a registered investment adviser 
    acting as investment adviser to the Fidelity Funds, and Fidelity Management Trust Company, a bank, has informed the Company, by
    a report dated February 10, 1995 on Schedule 13G, that it holds beneficial interest in 1,017,200 of such shares as a result of
    acting as investment adviser or subadvisor to the Fidelity Funds (with sole power to dispose of such shares, and sole power to
    vote 49,200 of such shares), and in 1,156,400 of such shares as a result of serving as


 
                                                             17
   20
 
    investment manager of institutional accounts (with sole power to dispose of
    such shares, and sole power to vote 1,134,000 of such shares).
 
(2) Kopp Investment Advisors, Inc., a registered investment advisor, has
    informed the Company, by a report dated February 10, 1995 on Schedule 13G,
    that it holds all but 1,000 of such shares for the benefit of investment
    accounts managed by the firm, and as to which accounts it has no voting
    power but has shared investment power; as to 1,000 of such shares, Kopp has
    sole voting and investment power. Kopp further reported that no individual
    account managed by Kopp owned more than 5% of the Company's shares.
 


     As of September 14, 1995, the executive officers and former executive
officers of the Company named in the Summary Compensation Table below and all
directors and executive officers of the Company at that date as a group owned
beneficially shares of Common Stock as follows:
 

                                                                  AMOUNT
  TITLE OF                                                     BENEFICIALLY        PERCENT
    CLASS               NAME OR GROUP                          OWNED(1)(2)       OF CLASS(3)
  --------              -------------                          -----------       -----------
                                                                            
Common Stock   George H. Conrades............................    377,202             2.1%
               Stephen R. Levy...............................    435,991             2.5%
               John T. Kish, Jr..............................         --
               Ralph A. Goldwasser...........................     39,524
               Paul R. Gudonis...............................         --
               William S. Hurley.............................      9,500
               Jonathan C. Crane(4)..........................         --
               All current directors and executive officers
                 as a group
                 (13 persons)(4).............................    959,774(5)(6)       5.3%(5)(6)
                                                                        (7)(8)           (7)(8)
 
---------------
(1) The inclusion herein of any shares deemed beneficially owned under the rules of the Securities and Exchange Commission 
    does not constitute an admission of beneficial ownership of such shares.
 
(2) The shares shown as owned beneficially by the named individuals include 350,000, 202,500, 34,500, and 1,500 shares, 
    respectively, as to which Messrs. Conrades, Levy, Goldwasser, and Hurley have the right to acquire ownership through the
    exercise of those options, held by each under the stock option plans of the Company, which are exercisable within 60 days of
    September 14, 1995. The shares shown as owned beneficially by Mr. Levy also include 32,995 shares held in his participant
    account under the BBN Retirement Trust.
 
(3) If such percentage exceeds 1%.
 
(4) Mr. Crane is no longer an executive officer or in the employ of the Company. Information concerning Mr. Crane has been 
    provided to the Company by Mr. Crane.
 
(5) The shares shown as owned beneficially include 324 shares owned by the spouse of one included director, as to which shares 
    beneficial ownership by the applicable director is disclaimed, and 900 shares owned by a partnership of which a director
    is a general partner and has a 50% beneficial interest. The shares shown as owned beneficially also include an aggregate of
    36,202 shares as to which two directors and one executive officer named in the table share voting and investment power with
    their respective spouses.
 
(6) The shares shown as owned beneficially include 36,049 shares represented by units allocated under the Company's deferred 
    compensation plan for non-employee directors entitling two directors as of July 1, 1995 to receive in the aggregate that number
    of shares of Common Stock on or after their respective deferral termination dates.
 
(7) The shares shown as owned beneficially include an aggregate of 632,250 shares as to which certain directors and current 
    executive officers (including current executive officers named in the table) have the right to acquire ownership through
    the exercise of those options, held by such directors and current executive officers under stock option plans of the Company,
    which are exercisable within 60 days of September 14, 1995.


 
                                                             18
   21
 
(8) The shares shown as owned beneficially include 32,995 shares held in the
    participant account of Mr. Levy under the BBN Retirement Trust.
 
     Information with respect to beneficial ownership of Common Stock by the
directors and nominees is contained in the table and footnotes under the caption
"1 -- Election of Directors -- Biographical Information" above. Information in
the table above and in the table with respect to directors and nominees under
Item 1 does not include options to acquire Common Stock, or to acquire common
stock of subsidiaries, but does include shares of Common Stock which have not
been issued but which are subject to options which either are currently
exercisable or will become exercisable within 60 days of September 14, 1995; no
shares of subsidiaries which are the subject of options are included, since none
of the subsidiary options are currently exercisable.
 
                  COMPENSATION AND CERTAIN OTHER TRANSACTIONS
                          INVOLVING EXECUTIVE OFFICERS
 
     Compensation.  There is set forth below, on an accrual basis, the aggregate
amount of base salary, bonus, and other cash compensation paid by the Company,
and the number of shares of Common Stock of the Company and of common stock of
specified subsidiaries of the Company issuable upon exercise of stock options
granted under the respective company's stock option plans, during the fiscal
years ended June 30, 1995, 1994, and 1993 for services rendered, to the
individual (Mr. Conrades) who served during the fiscal year ended June 30, 1995
as chief executive officer of the Company, to the five other most highly
compensated individuals (Messrs. Levy, Kish, Goldwasser, Gudonis, and Hurley)
who were serving as executive officers of the Company at the end of the 1995
fiscal year, and to another highly compensated individual (Mr. Crane) who
although not currently serving as executive officer, served as an executive
officer during a portion of the 1995 fiscal year. Mr. Crane is no longer in the
employ of the Company. Mr. Hurley has announced his resignation from the employ
of the Company, effective October 6, 1995.
 
                                       19
   22

 
                                      SUMMARY COMPENSATION TABLE
 

                                                                                         LONG-TERM
                                                                                        COMPENSATION
                                                                                       --------------
                                                                                           STOCK
                                                                                         UNDERLYING
                                                      ANNUAL COMPENSATION                 OPTIONS
                                             -------------------------------------       (NUMBER OF
                                    FISCAL                            OTHER ANNUAL       SHARES AND          ALL OTHER
   NAME AND PRINCIPAL POSITION       YEAR     SALARY         BONUS    COMPENSATION      COMPANY(1))       COMPENSATION(2)
   ---------------------------      ------   --------      ---------  ------------     --------------     ---------------
                                                                                        
George H. Conrades................   1995    $400,000              0    $155,687(3)     100,000 (PLT)        $  14,860(4)
  President and                                                                         100,000 (HRK)
  Chief Executive Officer            1994     206,154(5)           0      87,900(6)     800,000 (BBN)                0
                                                                                        100,000 (LSC)(7)
                                                                                        100,000 (SPC)
Stephen R. Levy...................   1995     337,500              0                     25,000 (BBN)           17,548(4)
  Chairman of the Board                                                                  50,000 (PLT)
                                                                                         50,000 (HRK)
                                     1994     337,500              0                     50,000 (LSC)(7)        17,127
                                                                                         50,000 (SPC)
                                     1993     359,375              0                          0                 17,165
John T. Kish, Jr..................   1995     225,000      $ 125,000     177,015(8)      65,000 (BBN)                0
  Vice President                                                                          5,000 (PLT)
                                                                                          5,000 (HRK)
                                     1994       7,786(9)           0                    300,000 (SPC)                0
Ralph A. Goldwasser...............   1995     182,500         25,000                     40,000 (BBN)           15,423(4)
  Senior Vice President and                                                              30,000 (PLT)
  Chief Financial Officer                                                                10,000 (HRK)
                                     1994     172,500              0                     25,000 (BBN)           12,527
                                                                                          7,000 (LSC)(7)
                                                                                          7,000 (SPC)
                                     1993     165,000              0                          0                 12,375
Paul Gudonis......................   1995     125,000(10)    138,500                     50,000 (BBN)                0
  Vice President                                                                        350,000 (PLT)
                                                                                          5,000 (SPC)
                                                                                          5,000 (HRK)
William S. Hurley.................   1995     155,625          5,000                          0                 11,110
  Vice President and                 1994     147,976              0                     10,000 (BBN)           11,076
  Controller(11)                     1993     145,000              0                          0                  2,719
Jonathan C. Crane.................   1995     256,931         50,000     132,222(12)          0                500,250(13)
  formerly Vice President            1994      94,711              0      16,355(12)     50,000 (BBN)(14)            0
                                                                                        300,000 (LSC)(1)
 
---------------
 (1) In addition to options granted to purchase Common Stock of the Company (designated in the table as "BBN"), certain executive 
     officers of the Company have been granted options to purchase common stock of specified subsidiaries of the Company, as
     compensation for their services related to the subsidiary. Options were granted during the fiscal years ended June 30, 1995 and
     June 30, 1994 to the specified executive officers in the following subsidiaries of the Company: LightStream Corporation
     (designated in the table as "LSC"), a majority owned subsidiary of BBN, BBN Planet Corporation (designated in the table as 
     "PLT"), a majority-owned subsidiary of BBN, BBN Software Products Corporation (designated in the table as "SPC"), a
     wholly-owned subsidiary of BBN, and BBN HARK Systems Corporation (designated in the table as "HRK"), a wholly-owned subsidiary
     of BBN. In January 1995, the Company's majority-owned subsidiary LightStream Corporation sold substantially all of its assets
     for approximately $120,000,000 in cash. In connection with that transaction, stock options held in LightStream by Messrs.
     Conrades, Levy, and Goldwasser and certain other executive officers of the Company were cancelled by agreement, without payment
     to the individuals. Stock options held by LightStream employees, including Mr. Crane, were, in general, exchanged in that
     transaction for a cash payment from LightStream. In this connection, Mr. Crane received a cash payment of $500,250 in exchange
     for his options in LightStream.
 
 (2) Except as otherwise noted, indicated amounts are the Company's contribution to the BBN Retirement Trust, the tax-qualified 
     defined contribution retirement plan of the Company and its subsidiaries, for the benefit of the indicated individual.


 
                                                              20
   23
 
 (3) Amount represents expenses incurred by the Company in connection with the
     sale of Mr. Conrades' former residence, assumed by the Company by agreement
     in connection with Mr. Conrades' relocation to Massachusetts.
 
 (4) The Company established effective April 1, 1995 a non-qualified deferred
     compensation plan for certain key executives. In general, participation in
     the Deferred Compensation Plan is limited to executives selected from among
     those with annual base salary in excess of $150,000. Under the Deferred
     Compensation Plan, a participant may defer base salary in excess of the
     $150,000 limit, plus bonuses; in addition, the Company can make
     discretionary retirement contributions. Deferred amounts are payable at a
     fixed future date selected in advance by the participant, upon termination
     of employment, or in the case of certain hardships. Accounts are adjusted
     for notional investment earnings based on participant choices from among
     the same range of investment funds (other than Company stock) as are
     available under the Company's tax-qualified BBN Retirement Trust. The
     Company, although not obligated to do so under the terms of the Deferred
     Compensation Plan, has established a trust to help meet future payment
     obligations under the Deferred Compensation Plan. Obligations under the
     Deferred Compensation Plan are general obligations of the Company, and the
     rights of participants to benefits remain those of general creditors of the
     Company. In the event of certain changes in control of the Company,
     participants would be entitled to reimbursement for certain costs incurred
     in enforcing rights under the Deferred Compensation Plan. For the year
     ended June 30, 1995, the Company credited amounts designed to make up for
     certain limitations imposed by the Internal Revenue Code on contributions
     to the BBN Retirement Trust to the accounts of the following individuals:
     $3,750, $6,438, and $4,313, respectively, for Messrs. Conrades, Levy, and
     Goldwasser.
 
 (5) Payments primarily constituting six months salary, at an annualized rate of
     $400,000 per year.
 
 (6) Amount includes interim local living expenses prior to Mr. Conrades'
     relocation to Massachusetts paid, and tax reimbursement for interim local
     living expenses, in the fiscal year, aggregating $50,400. Amount also
     includes $37,500, the amount of the difference between the price paid by
     Mr. Conrades for 20,202 shares of Common Stock of the Company purchased
     from the Company upon Mr. Conrades joining the employ of the Company, and
     the fair market value of such shares on the date of purchase.
 
 (7) Canceled by agreement, without compensation to the individual, upon sale of
     the business of LightStream.
 
 (8) Amount represents relocation expenses related to Mr. Kish's relocation to
     Massachusetts and related tax reimbursement paid, and estimated tax
     reimbursement accrued, in the fiscal year, aggregating $121,888, and
     expenses incurred by the Company in connection with the sale of Mr. Kish's
     former residence, assumed by the Company by agreement in connection with
     Mr. Kish's relocation to Massachusetts, aggregating $55,127.
 
 (9) Mr. Kish joined the employ of the Company in June 1994.
 
(10) Payments consisting of seven and one-half months of salary, at an
     annualized rate of $200,000 per year.
 
(11) Mr. Hurley has announced his resignation from the employ of the Company,
     effective October 6, 1995.
 
(12) Amount represents interim local living expenses prior to Mr. Crane's
     relocation to Massachusetts paid, and tax reimbursement for interim local
     living expenses paid or accrued, in the respective fiscal year.
 
(13) The amount represents $500,250 paid to Mr. Crane in exchange for his
     options in LightStream (see footnote 1 above).
 
(14) Option was unvested at, and terminated upon, Mr. Crane leaving the employ
     of the Company in June 1995.
 
     The aggregate incremental cost of personal benefits provided by the Company
in each of fiscal 1995, 1994, and 1993 to each of the individuals named in the
Summary Compensation Table (other than to Messrs. Conrades, Kish, and Crane),
did not exceed the lesser of $50,000 or 10% of the indicated amount of total
annual salary and bonus reported for the named individual in the Summary
Compensation Table.
 
                                       21
   24
 
  Employment Agreements, Loans, and Separation Pay Arrangements.
 
     The agreement with Mr. Conrades provides that if his employment is
terminated by the Company without cause, the Company will pay him an amount
equal to one year's base salary, as full termination benefits. In addition, in
the event that he leaves BBN's employ voluntarily during the second year of his
employment, he is responsible for reimbursing one-half of any relocation
expenses and related tax expenses paid to him.
 
     In connection with his relocation to Massachusetts to join the employ of
the Company, John T. Kish, Jr., a Vice President of the Company and President of
BBN Software Products Corporation, a subsidiary of the Company, borrowed from
the Company in August 1994 an aggregate of $150,000 to bridge the purchase of a
house in Massachusetts pending the sale of his previous home in California. The
borrowing is represented by a term note, due in two equal installments on August
1, 1995 and 1996, given by Mr. Kish, which note bears simple interest at 8% per
annum. The note also becomes due and payable upon termination of employment. The
principal amount currently outstanding is $75,000.
 
     Mr. Kish's agreement with the Company provides that in the event that he
leaves BBN's employ voluntarily during the second year of his employment, he is
responsible for reimbursing one-half of any relocation expenses and related tax
expenses paid to him.
 
     As part of the bonus payments made to Mr. Gudonis in the 1995 fiscal year,
$88,500 was paid to him to reimburse him for forfeitures under a bonus plan at
his former employer. Mr. Gudonis' agreement with the Company provides that in
the event that he resigns from BBN during the first four years of employment, he
is responsible for reimbursing a prorata share of this payment made to him.
 
     Stock Option Grants.  The table below sets forth information with respect
to stock options granted in fiscal year 1995 to the individuals named in the
Summary Compensation Table above; the options listed below are reflected in the
Summary Compensation Table. Information presented in the table below is with
respect to employee stock option plans; neither the Summary Compensation Table
above nor the tables on option grants and option exercises below includes
information related to the Company's employee stock purchase plan, which is
generally available to employees of the Company.
 

                                  OPTION GRANTS IN LAST FISCAL YEAR
 

                                                INDIVIDUAL GRANTS                              POTENTIAL REALIZABLE
                      ----------------------------------------------------------------------     VALUE AT ASSUMED
                          NUMBER OF SHARES                                                     ANNUAL RATES OF STOCK
                         UNDERLYING OPTIONS                                                     PRICE APPRECIATION
                        GRANTED TO PURCHASE        % OF TOTAL                                           FOR
                          COMMON STOCK OF        OPTIONS GRANTED   EXERCISE                       OPTION TERM(7)
                          BBN OR SPECIFIED       TO EMPLOYEES IN     PRICE      EXPIRATION     ---------------------
NAME                  SUBSIDIARIES(1)(2)(3)(4)   FISCAL YEAR(5)    ($/SH)(6)   DATE(2)(3)(4)      5%          10%
----                  ------------------------   ---------------   ---------   -------------   --------     --------
                                                                                          
George H.
  Conrades..........         100,000(HRK)              8.2%         $ 1.00      1/20/05        $ 62,890     $159,374
                             100,000(PLT)              6.2%           2.00      1/25/05         125,778      318,748
Stephen R. Levy.....          25,000(BBN)              4.2%          18.125     6/13/02         184,467      429,887
                              50,000(HRK)              4.1%           1.00      1/20/05          31,445       79,687
                              50,000(PLT)              3.1%           2.00      1/25/05          62,889      159,374
John T. Kish, Jr....          50,000(BBN)              8.4%          14.125     8/17/01         287,515      670,031
                              15,000(BBN)              2.5%          18.125     6/13/02         110,680      257,933
                               5,000(HRK)              0.4%           1.00       2/7/05           3,144        7,969
                               5,000(PLT)              0.3%           2.00       2/7/05           6,288       15,937
Ralph A. Goldwasse..          40,000(BBN)              6.5%          18.125     6/13/02         295,148      687,820
                              10,000(HRK)              0.8%           1.00      1/20/05           6,289       15,937
                              10,000(PLT)              0.6%           2.00      1/25/05          12,578       31,875
                              20,000(PLT)              1.2%           3.00       6/8/05          37,734       95,625

 
                                                            22
   25
 


                                                INDIVIDUAL GRANTS                              POTENTIAL REALIZABLE
                      ----------------------------------------------------------------------     VALUE AT ASSUMED
                          NUMBER OF SHARES                                                     ANNUAL RATES OF STOCK
                         UNDERLYING OPTIONS                                                     PRICE APPRECIATION
                        GRANTED TO PURCHASE        % OF TOTAL                                           FOR
                          COMMON STOCK OF        OPTIONS GRANTED   EXERCISE                       OPTION TERM(7)
                          BBN OR SPECIFIED       TO EMPLOYEES IN     PRICE      EXPIRATION     ---------------------
NAME                  SUBSIDIARIES(1)(2)(3)(4)   FISCAL YEAR(5)    ($/SH)(6)   DATE(2)(3)(4)      5%          10%
----                  ------------------------   ---------------   ---------   -------------   --------     --------
                                                                                           
Paul R. Gudonis.....          50,000(BBN)              8.4%          18.875     11/16/01        384,145      895,202
                               5,000(HRK)              0.4%           1.00       2/7/05           3,144        7,969
                             300,000(PLT)             18.6%           2.00      11/16/04        377,337      956,245
                              50,000(PLT)              3.1%           3.00       6/8/05          94,334      239,061
                               5,000(SPC)              1.0%           3.50       2/7/05          11,005       27,890
 
---------------
(1) Bolt Beranek and Newman Inc. is designated in the table as "BBN"; BBN HARK Systems Corporation, a wholly-owned subsidiary of 
    BBN, is designated in the table as "HRK"; BBN Planet Corporation, a majority-owned subsidiary of BBN, is designated in the
    table as "PLT"; and BBN Software Products Corporation, a wholly-owned subsidiary of BBN, is designated in the table as "SPC".
 
(2) The 50,000 share options for BBN shares granted to Messrs. Kish and Gudonis were granted under the Company's 1986 Stock 
    Incentive Plan. These BBN stock options are exercisable as to 30% after two years from grant, an additional 30% after three
    years, and the remainder after four years from grant, if the optionee is employed at the respective date. The options were
    granted for a term of 7 years.
 
(3) All other BBN options granted in fiscal 1995 to named individuals vest 25% after one year from grant, an additional 25% after 
    two years, an additional 25% after three years, and the remainder after four years from grant, if the optionee is employed
    at the respective date. These options were each granted for terms of 7 years. In general, all BBN options, including the options
    to Messrs. Kish and Gudonis, are subject to termination 60 days following termination of the optionee's employment (180 days, in
    the event of death). All BBN options were granted at fair market value (closing price of the Company's Common Stock on the New
    York Stock Exchange) at date of grant. The exercise price and tax withholding obligations related to exercise may be paid by
    delivery of already-owned shares or by offset of the underlying shares, subject to certain conditions.
 
(4) All subsidiary options granted in fiscal 1995 vest as to 25% after one year from grant, an additional 25% after two years, an 
    additional 25% after three years, and the remainder after four years from grant, if the optionee is employed at the respective
    date. None of the options are exercisable until 90 days after the respective company's stock becomes publicly traded. The
    options were each granted for terms of 10 years, subject to termination 60 days following termination of the optionee's
    employment (180 days, in the event of death), or if later, 90 days after the company's stock becomes publicly traded. In
    general, options were granted at the estimated fair value of the company's stock at the date of grant. The exercise price and
    tax withholding obligations relating to exercise may be paid by delivery of already owned shares or by offset of the underlying
    shares, subject to certain conditions.
 
(5) Percentage figure is of the total options of shares of the respective company granted in the fiscal year.
 
(6) Under the terms of the company's stock option plans, the Committee or the respective board retains the discretion, subject to 
    plan limits, to modify the terms of outstanding options and to reprice the options.
 
(7) Gains are calculated net of the option exercise price, but before taxes associated with exercise. These amounts represent 
    certain assumed rates of appreciation only. Actual gains, if any, in stock option exercises are dependent upon the future
    performance of the respective common stock, as well as the optionee's continued employment through the vesting period, and for
    subsidiary options, on the respective company's stock becoming publicly traded during the option period. The amounts reflected
    in these columns may not necessarily be achieved.
 


     Stock Option Exercises and Options Outstanding.  The table below sets forth
information with respect to stock options exercised by the individuals named in
the Summary Compensation Table in fiscal year 1995, and the number and value of
unexercised options held by such persons on June 30, 1995.
 
                                       23
   26

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

                                                                COMPANY AND NUMBER OF SHARES        VALUE OF UNEXERCISED
                                                             UNDERLYING UNEXERCISED OPTIONS AT      IN-THE-MONEY OPTIONS
                                                                       JUNE 30, 1995                  AT JUNE 30, 1995
                                                             ----------------------------------  ---------------------------
                                      SHARES
                                    ACQUIRED ON    VALUE                      EXERCISABLE/              EXERCISABLE/
NAME                                 EXERCISE     REALIZED   COMPANY(1)       UNEXERCISABLE             UNEXERCISABLE
----                                -----------   --------   ----------   ---------------------  ---------------------------
                                                                                             
George H. Conrades................       -0-        --          BBN       350,000       450,000  $5,250,000(2)    $6,750,000(2)
                                                                HRK             0       100,000           0                 (3)
                                                                PLT             0       100,000           0                 (3)
                                                                SPC             0(4)    100,000           0(4)              (3)
Steven R. Levy....................       -0-        --          BBN       154,500        73,000   3,456,938(2)     1,305,250(2)
                                                                HRK             0        50,000           0                 (3)
                                                                PLT             0        50,000           0                 (3)
                                                                SPC             0(4)     50,000           0(4)              (3)
John Kish.........................       -0-        --          BBN             0        65,000           0          801,250(2)
                                                                HRK             0         5,000           0                 (3)
                                                                PLT             0         5,000           0                 (3)
                                                                SPC             0(4)    300,000           0(4)              (3)
Ralph A. Goldwasser...............     5,000      $67,500       BBN        24,000        71,000     537,000(2)       914,250(2)
                                                                HRK             0        10,000           0                 (3)
                                                                PLT             0        30,000           0                 (3)
                                                                SPC             0(4)      7,000           0(4)              (3)
Paul R. Gudonis...................       -0-        --          BBN             0        50,000           0          425,000(2)
                                                                HRK             0         5,000           0                 (3)
                                                                PLT             0       350,000           0                 (3)
                                                                SPC             0         5,000           0                 (3)
William Hurley....................       -0-        --          BBN         6,000(5)     14,000     129,750(2)(5)    247,750
 
---------------
(1) Bolt Beranek and Newman Inc. is designated in the table as "BBN"; BBN HARK Systems Corporation, a wholly-owned subsidiary of 
    BBN, is designated in the table as "HRK"; BBN Planet Corporation, a majority-owned subsidiary of BBN, is designated in the
    table as "PLT"; and BBN Software Products Corporation, a wholly-owned subsidiary of BBN, is designated in the table as "SPC".
 
(2) Represents the difference between the closing price of the Company's Common Stock on June 30, 1995 and the exercise price of 
    the options.

(3) All of these options are unexercisable until following public trading of the related common stock, and no public market 
    currently exists for the shares underlying these options. Accordingly, no value in excess of the exercise price has been
    attributed to these options.
 
(4) Options are 25% vested, but are not exercisable until following public trading of the related common stock, and no public 
    market currently exists for the shares underlying these options.
        
(5) These options were exercised by Mr. Hurley in August 1995, with a value realized of $175,500.


 
     Change-of-Control Arrangements.  The Company has termination agreements
with the individuals named in the Summary Compensation Table above (other than
Messrs. Hurley and Crane), which agreements obligate the respective employee to
remain in the employ of the Company during the pendency of any change-of-control
proposal. In consideration for such agreement, the Company agrees to pay
severance benefits to each such individual, consisting of payment of
approximately three times his then most recent five-year average annual salary
and cash bonus, together with certain other benefits (including the acceleration
of the exercisability of outstanding stock options and continued participation
for 1 year in accident and health insurance) and payment of an amount equal to a
"gross-up" payment with respect to any excise taxes payable by the individual as
a result of the severance benefits. The benefits are payable in the cases of
Messrs. Conrades and Levy only if his employment terminates (including a
voluntary termination on his part) for any reason other than death, disability,
normal retirement, or as the result of commission by him of a felony; the
benefits are payable in the case of each of the other named individuals only if
his employment is terminated by the Company for any reason other than for
"cause" or is terminated by such individual as the result of specified
justification, in all cases during a period of two years following a "change of
control" of the Company. A change of control is defined to include the
acquisition of 30% or more of the Company's then-outstanding stock, and other
changes of control as determined by regulatory authorities. Such severance
payments would not be reduced for compensation received by the individual from
any new employment. The
 
                                       24
   27
 
agreements provide that after five years, the change-of-control payment rights
may be canceled by the Company by notice given more than 30 days prior to the
change of control. The five-year period has run for each of Messrs. Levy and
Goldwasser. Under the agreements, based upon the average annual compensation
paid by the Company to the individual with respect to the last five calendar
years or shorter period he has been with the Company (and assuming no gross-up
payment), change-of-control cash severance payments would, if payable, be
approximately $1,200,000, $1,110,000, $1,050,000, $495,000, and $750,000,
respectively, for Messrs. Conrades, Levy, Kish, Goldwasser, and Gudonis.
 
               REPORT OF COMPENSATION AND STOCK OPTION COMMITTEE
                        ON ANNUAL EXECUTIVE COMPENSATION
 
     (The following Report of the Compensation and Stock Option Committee on
Annual Executive Compensation shall not be deemed incorporated by reference by
any general statement incorporating by reference this proxy statement into any
filing under the Securities Act of 1933 or under the Securities Exchange Act of
1934.)
 
     Report.  The Compensation and Stock Option Committee of the Board of
Directors (the "Committee") was composed in fiscal 1995 of three outside
directors, none of whom was an officer or employee of the Company.
 
     The Committee is responsible for setting and administering policies which
relate to executive compensation and to the incentive compensation and stock
ownership programs of the Company, and in that regard, the Committee on an
annual basis reviews and evaluates the Company's executive compensation
programs. The Company's executive compensation is also subject to periodic
review, and approval as to reasonableness, by an audit agency of the Department
of Defense.
 
     The objectives of the Company's executive compensation program are to
attract and retain the highest caliber of executive talent, to motivate the
individual to achieve the goals inherent in the Company's business strategies,
to link executive and stockholder interests through incentive and equity-based
plans, and to provide a compensation package that recognizes individual
contributions as well as the financial results of operations. The executive
bonus and BBN stock option portions of the Company's executive compensation
package are designed to correlate individual performance with operating income
and stockholder value, and represent in the aggregate a compensation strategy
under which a significant portion of executive compensation (depending on the
bonus and option awards) may be predicated upon achievement of specified
financial goals. The subsidiary option portion of the executive compensation
package is designed to encourage an entrepreneurial interest of the executive
in, and a collaboration among executives in, the developing subsidiaries of the
Company, aligning management's interest in the successful development of the
subsidiaries to the overall, long-term interests of the Company's stockholders.
 
     The key elements of the Company's executive compensation package are base
salary, incentive bonus, and stock options. The Committee establishes the base
salary of Mr. Conrades and approves the salaries of the other executive
officers, including the executive officers named in the Summary Compensation
Table; the Committee establishes the performance-based bonus plan for Mr.
Conrades; the Committee at the end of the fiscal year reviews incentive bonus
awards proposed by Mr. Conrades under the general bonus program for all of the
executive officers other than Mr. Conrades (the Committee and Mr. Conrades
jointly reviewed the individual performances of each executive officer other
than Mr. Conrades, and the Committee gave significant consideration to Mr.
Conrades' views on the performance of each such executive officer); and the
Committee during the fiscal year, but not on a fixed schedule, awards all BBN
stock options, and reviews all stock options granted by subsidiaries. The
Committee's policies with respect to each of these elements, including the basis
for the compensation awards to Mr. Conrades, are discussed below.
 
     Base Salaries.  The base salary for Mr. Conrades was determined by direct
negotiations with Mr. Conrades at the time of his hiring in December of 1993,
with reference to the then-existing marketplace for executive ability and
experience comparable to Mr. Conrades'. The base salary amount, as established
in 1993, was continued for fiscal year 1995. In determining what the Committee
was willing to approve as a base
 
                                       25
   28
 
salary for Mr. Conrades, the Committee focused on the subjective factor of the
importance to the Company of having a chief executive officer with an
outstanding business and marketing history who could provide the leadership
necessary to improve the Company's performance. (Mr. Conrades also received in
fiscal 1994 and fiscal 1995 relocation expenses reimbursement and other
non-recurring benefits in connection with his hiring and relocation.)
 
     Base salaries for other executive officers of the Company are determined by
evaluating subjective factors, including the responsibilities of the position
and the experience of the individual, and by referring to the marketplace for
executive talent, including a comparison to base salaries for comparable
positions with other corporations. In this latter connection, the Committee
avails itself of internal, Company-prepared reports, which are based upon major
published surveys on salaries (including the American Electronics Association
Executive Compensation Survey, the Sibson & Company, Inc. Management
Compensation Survey, certain William M. Mercer, Incorporated industry surveys,
and the Towers, Perrin Executive Compensation Survey), comparing the Company's
executive salaries to survey information on compensation for like positions in
public (primarily high technology) corporations of similar size. The Company
believes that to be competitive, the mid-point of the salary range for each of
the Company's executive categories should be at or near the 50th percentile of
the surveyed companies. (The companies in the surveys include some of, but are
not the same as, the companies in the peer group index in the Comparison of
Five-Year Cumulative Total Return graph included elsewhere in this Proxy
Statement.)
 
     Annual salary adjustments, if any, are determined by the subjective
evaluation of each executive officer's performance, with consideration given to
the performance of the Company for the preceding year, the responsibilities of
the individual, and in the case of officers with responsibility for operating
units, the perceived strategic importance of the unit to the future performance
of the Company.
 
     Incentive Compensation Plans.  Provisions have been made since 1970 to pay
bonuses pursuant to bonus plans of the Company. The general bonus program in
effect for fiscal 1995 provided for cash bonuses, in varying amounts, to be paid
out of separate bonus pools for the staffs of the operating units of the Company
(BBN Systems and Technologies Division, BBN Software Products Corporation, BBN
Planet Corporation, and BBN HARK Systems Corporation), for the staff of the
Corporate Services unit, and for the members of the executive management staff
of the Company (including the CEO) not covered by one of the other plans. The
operating units plans provide for separate bonus pools equal to specific
percentages of the respective operating unit's operating income (as defined)
over fixed targeted amounts; the corporate staff plan provides for a pool equal
to a fixed percentage (7.5%) of the aggregate total bonus pools of the operating
units of the Company; and the executive management staff plan provides for a
bonus pool equal to 10% of the amount by which operating income (as defined) of
the Company for the fiscal year exceeds 12.5% of the average shareholders'
equity (as defined) for the fiscal year. The determination of operating income
and average shareholders' equity may be adjusted by the Committee to exclude the
effect of transactions which, in the Committee's judgment, do not reflect the
operations of the Company. (Notwithstanding the formulas, the bonus program
provides for maximum limits on the bonus pools, and provides a mechanism for the
Board of Directors to establish a discretionary pool, when a formula would
otherwise result in a more limited bonus pool or no bonuses.) The amount awarded
to any individual for a fiscal year may not exceed 100% of the employee's base
salary for the fiscal year.
 
     Within the bonus pools under the Company's general bonus program,
individual bonuses to executive officers are determined by the subjective
evaluation of the individual's contribution to the specific unit's performance
for the year. No bonus was paid to Mr. Conrades, or to any other executive
officer of the Company other than Messrs. Goldwasser, Hurley, and Crane, for
fiscal 1995 under the general bonus program of the Company.
 
     Upon his hiring, the Committee established an incentive bonus plan for Mr.
Conrades under which he is eligible to receive an annual bonus equal to $100,000
if the Company achieves a positive net income (after tax, and after taking into
account such bonus) on a quarterly basis; an additional $100,000 if the Company
achieves a positive net income of at least $0.25 per share on a quarterly basis;
and an additional $200,000 if the Company achieves a positive net income of at
least $0.50 per share on a quarterly basis, in each case for a
 
                                       26
   29
 
number of consecutive quarters that would indicate that it would be reasonable
to expect the respective earnings would continue. The bonus level achieved for
each fiscal year, as well as the number of quarters to be taken into account in
each determination under the plan, is to be made by the Committee. No bonus was
paid under this plan to Mr. Conrades for fiscal 1995.
 
     Messrs. Kish and Gudonis had guaranteed bonuses ($125,000 and $50,000 per
year, respectively) for fiscal 1995 provided as part of their compensation
package agreed to at the time of their employment. In addition, each had
performance bonus provisions for fiscal 1995 as part of their compensation
package, but no additional amounts were payable under these provisions.
 
     Stock Option Plans.  Under the BBN stock option plans, stock options are
granted from time to time but not on a fixed schedule to key persons, including
executive officers of the Company. The Committee selects the option recipients
and sets the size of stock option awards based upon subjective factors,
including primarily the perceived importance of the individual's contribution to
the success of the Company, similar to the subjective factors considered in
setting base salary, and upon the amount of and value of options currently held
by the individual. The Committee also takes into consideration in granting
options to executive officers the relationship of the number of options held by
each of the executive officers to a subjective rating of the degree of
responsibility of the position held by each officer compared to that of the
other executive officers. While not having a target ownership level of Common
Stock by executive officers, the Committee has endeavored to motivate executives
by granting options at levels that present executives with an opportunity for
significant gains, commensurate with gains in stockholder value.
 
     Stock options are designed to align the interests of the recipients with
those of the stockholders of the Company. Stock options are typically granted by
the Company with an exercise price equal to the market price of the Company's
Common Stock on the date of grant. The options generally vest over four years.
Accordingly, the full benefit of the options is realized when stock price
appreciation occurs over an extended period.
 
     The Company, as majority shareholder of BBN Planet Corporation and as sole
shareholder of BBN Software Products Corporation and BBN HARK Systems
Corporation, has approved stock option plans of those subsidiaries, under which
options for shares of the subsidiary's common stock are granted to employees of
the subsidiary or of the Company, including executive officers of the Company,
and to the presidents of the other subsidiaries of the Company. The Committee
reviews the aggregate number of options granted by each subsidiary's board of
directors, and reviews individually options granted by each such board to
executive officers of the Company and to the presidents of other subsidiaries.
The Committee's review of the option recipients and the size of subsidiary stock
options awarded to executive officers of the Company is premised upon subjective
factors, including primarily the anticipated support to be provided to the
subsidiary by the executive officer and the perceived importance of the
individual's contribution to the success of the subsidiary's development. The
Committee's review of the size of subsidiary stock options awarded to the
presidents of other subsidiaries is premised upon subjective factors, including
primarily the desire to encourage collaboration among the subsidiaries and with
the Company, for the benefit of the Company as a whole. While the subsidiary
options generally vest over four years, they are not exercisable until after the
subsidiary's stock becomes publicly traded. Accordingly, the Committee believes
that the benefit of the option is not realizable by the executive officer until
the subsidiary has become public and the Company and its stockholders have
realized the benefits of that event. Under the current subsidiary option
programs, stock of the Company's participating subsidiaries reserved for
issuance under option awards is approximately 8% to 12% of the respective
subsidiary's currently outstanding stock. It is anticipated by the Committee
that subsidiary stock option programs (which may be similar to, or different
from, the current programs) would be instituted in the future for new
subsidiaries of the Company, as appropriate and with terms in each case
depending on subjective factors such as the size of the subsidiary and its stage
of development.
 
     In connection with the hiring by the Company of Mr. Conrades in fiscal
1994, and based upon what the Committee deemed necessary and appropriate for the
hiring of a person of the capability and experience of Mr. Conrades, he received
options for 800,000 shares of BBN Common Stock and 100,000 shares of BBN
Software Products Corporation common stock and 100,000 shares of common stock of
LightStream
 
                                       27
   30
 
Corporation. Since his hiring, Mr. Conrades has received options for 100,0000
shares of each of BBN Planet Corporation and BBN HARK Systems Corporation. Mr.
Conrades is chairman of the board of each of the Company's operating
subsidiaries. The grant of subsidiary options to Mr. Conrades was based upon the
subjective view of the contributions to the operations of the subsidiaries
expected to be provided by Mr. Conrades. At June 30, 1995, Mr. Conrades owned
27,202 shares of Common Stock of the Company, exclusive of exercisable stock
options, and had options granting him the right to acquire an additional 800,000
shares of Common Stock of the Company, which options are exercisable in full by
December 1997; and 100,000 shares of common stock of BBN Software Products
Corporation, 100,000 shares of common stock of BBN Planet Corporation, and
100,000 shares of common stock of BBN HARK Systems Corporation, which subsidiary
options vest over periods ending not later than in January 1999, but are not
exercisable until after the subsidiary's common stock becomes publicly traded.
In addition, Mr. Conrades owns $50,000 principal amount of the Company's 6%
Convertible Subordinated Debentures due 2012.
 
     In January 1995, the Company's majority-owned subsidiary LightStream
Corporation sold substantially all of its assets for approximately $120,000,000
in cash. In connection with that transaction, stock options held in LightStream
by Mr. Conrades and certain other executive officers of the Company were
canceled by agreement, without payment to the individuals. Stock options held by
LightStream employees were, in general, exchanged in that transaction for a cash
payment from LightStream.
 
     Section 162(m) of the Internal Revenue Code.  Internal Revenue Code Section
162(m), enacted in 1993, precludes a public corporation from taking a deduction,
for the tax year beginning in 1994 or subsequent years, for compensation in
excess of $1 million for its chief executive officer or any of its four other
highest-paid executive officers in office on the last day of the tax year.
Certain performance-based compensation, however, is specifically exempted from
the deduction limit. In late 1993, the Internal Revenue Service issued proposed
regulations implementing this legislation. These regulations have been amended
in proposed form but have not been finalized.
 
     The fiscal 1995 cash compensation paid by the Company did not, and the
fiscal 1996 cash compensation to be paid to the specified individual executive
officers of the Company is not expected to, exceed in any case the $1 million
figure. Further, stock options and any stock appreciation rights granted under
the Company's 1986 Stock Incentive Plan are intended to qualify as
performance-based compensation, with the intended result that option and SAR
exercises under the 1986 Plan not be affected by the deduction limit as it may
apply in the future. The Committee will continue to assess the implications of
the new legislation on executive compensation to determine what action, if any,
may be appropriate in the Company's case. In adopting and administering
executive compensation plans and arrangements, the Committee will consider
whether the deductibility of such compensation will be limited under Section
162(m) of the Internal Revenue Code and, in appropriate cases, will strive to
structure such compensation so that any such limitation will not apply.
 
     Conclusion.  The programs described above are intended to link a
significant portion of the Company's executive compensation to individual
performance and to corporate performance and stock price appreciation. The
Committee intends to continue the policy of linking executive compensation to
corporate performance and improvement in stockholder value, recognizing that
economic factors beyond management's control may result in imbalances for
particular periods, but that consistent improvement in corporate performance
over the long term would inure to the mutual benefit of the Company's executives
and its stockholders.
 
     The foregoing report has been furnished by the members of the Committee
during fiscal 1995, Ms. Fjeldstad and Messrs. Hatsopoulos and Wellington.
 
                                       28
   31
 
                         COMPARATIVE STOCK PERFORMANCE
 
     (The Stock Price Performance Graph below shall not be deemed incorporated
by reference by any general statement incorporating by reference this proxy
statement into any filing under the Securities Act of 1933 or under the
Securities Exchange Act of 1934.)
 
     Set forth below is a line graph comparing the performance of the Company's
Common Stock against the S&P Composite -- 500 Stock Index, and the S&P High
Technology Composite Index for the five-year period commencing July 1, 1990 and
ending June 30, 1995.
 

                COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
 
                   BBN'S COMMON STOCK, S&P COMPOSITE 500, AND
                     S&P HIGH TECHNOLOGY COMPOSITE INDICES
 

      MEASUREMENT PERIOD
    (FISCAL YEAR COVERED)            BBN            S&P 500      S&P HIGH TECH
                                                           
6/30/90                             100.00          100.00          100.00
6/30/91                             146.45          107.40           94.11
6/30/92                              94.32          121.80           99.90
6/30/93                             164.23          138.40          116.68
6/30/94                             246.35          140.35          126.36
6/30/95                             561.99          176.94          205.59

 
* Assumes that the value of the investment in the Company's Common Stock and
  each index was $100 on June 30, 1990; also assumes the reinvestment of any
  dividends. Composite figures are weighted, based upon the average of month-end
  market capitalization.


 
                                       29
   32
 
                             SHAREHOLDER PROPOSALS
 
     In order for any proposal which a shareholder intends to present at the
1996 Annual Meeting of the Company to be eligible for inclusion in the Company's
proxy material for that meeting, it must be received by the Clerk of the Company
at the Company's office in Cambridge, Massachusetts no later than May 31, 1996.
 
                                    GENERAL
 
     The Board of Directors does not know of any business to be presented for
action by the shareholders at the Annual Meeting additional to that referred to
in the accompanying notice (other than procedural matters, including waiver of
the reading of the notice and of the minutes of the prior annual meeting).
However, if any additional matters properly come before the Annual Meeting,
including rules for the conduct of the meeting, it is the intention of the
persons named as proxies to vote the shares to which the proxy relates in
accordance with their judgment on such matters, unless instructed to the
contrary.
 
     The expenses of soliciting proxies will be borne by the Company. Officers
and regular employees of the Company (who will receive no compensation therefor
in addition to their regular salaries) may communicate directly or by mail,
telephone, or other communication methods with shareholders to solicit proxies.
The Company will also reimburse brokers and other persons for their reasonable
charges and expenses in forwarding solicitation material to their principals.
The Company has retained D. F. King & Co., Inc. to assist in the solicitation of
proxies, and will pay that firm a fee of approximately $5,000 plus expenses.
 
                                       30
   33
 
                                                                       EXHIBIT A
 
                              SECTION 6(M) OF THE
                          BOLT BERANEK AND NEWMAN INC.
                           1986 STOCK INCENTIVE PLAN1
 
     Section 6(m) of the Bolt Beranek and Newman Inc. 1986 Stock Incentive Plan,
as existing and as proposed to be amended, is as follows:
 
m. Options Granted to Non-employee Directors.  Subject to the limits and
   adjustment provisions set forth in Section 3, each Non-employee Director
   serving in such position on the third business day following the date of each
   annual meeting of the stockholders of the Company (such third day being
   hereinafter referred to as the "determination date") shall be granted
   effective as of the determination date a Non-Qualified Stock Option covering
   3,000 shares of Stock. The option price under such Stock Option shall be the
   fair market value of the Stock on the determination date. If, on account of
   the limit set forth in the second sentence of Section 3(a), there are
   insufficient shares as of any determination date to permit the grant of a
   Stock Option covering 3,000 shares (as adjusted) to each Non-employee
   Director then eligible for a grant, the number of shares available for grant
   shall be allocated evenly (disregarding any fractional shares) among the
   Non-employee Directors then eligible for a grant (an "incomplete grant"), and
   if additional shares later become available under said limit while any such
   Non-employee Director who received an incomplete grant remains a Non-employee
   Director and during the terms of the Plan, such Non-employee Director shall
   be granted automatically upon such availability a supplemental Non-Qualified
   Stock Option covering a number of shares equal to the lesser of (a) 3,000
   shares (appropriately adjusted pursuant to Section 3) less the number of
   shares (as so adjusted) covered by the incomplete grant, or (b) the number of
   shares then available under Section 3, subject to allocation among
   Non-employee Directors in accordance with the preceding provisions of this
   paragraph. The option price of any supplemental Stock Option shall be the
   fair market value of the Stock on the date of grant (i.e., the date of the
   availability of additional shares).
 
   Each Stock Option granted under this subsection (m) may be exercised as
   follows:
 
   (1) (A) 25% of the shares subject to such Stock Option may be purchased
           commencing one year after the date of grant, and
 
       (B) an additional 25% of such shares may be purchased commencing on the
           second, third, and fourth anniversaries of the date of grant; and
 
   (2) subject to (1) above, such Stock Option may only be exercised during the
   five-year period beginning on the date the Stock Option is granted.
 
   To the extent that a Stock Option granted hereunder to a Non-employee
   Director is not exercised when it initially becomes exercisable, it shall be
   carried forward and be exercisable until the expiration of the term of such
   Stock Option as described in (2) above; provided, that if the Non-employee
   Director ceases to be a Director for any reason other than death, 
   mandatory retirement by reason of age, or Disability, any Stock Option held 
   ----------------------------------------------------- 
   by such Non-employee Director may thereafter be exercised, as to that 
   portion of the Stock Option which was exercisable immediately prior to the 
   date the optionee ceased to be a Director, only within the three-month 
   period beginning from such date (but in no event beyond the five-year term 
   described in (2) above); and further provided, that if a Non-employee 
   Director ceases to be a Director by reason of death, mandatory retirement 
                                                        --------------------
   by reason of age, or Disability, any Stock Option held by such Non-employee 
   --------------------------------
   Director immediately prior to [death] his or her so ceasing to be a 
                                         -----------------------------
   Director, whether or not then exercisable exercisable, shall be in whole or 
   ---------
   in part at any time within the three-month period beginning
 
 
1Language in brackets, lined through [--] is proposed to be deleted; language
underscored is proposed to be added.
----------- 
                                       A-1
   34
 
from the date [of death] on which the individual so ceased to be a Director (but
                         --------------------------------------------------
in no event beyond the five-year term described in (2) above) and then shall
terminate.
 
All options granted under this subsection (m) may be exercised by delivery of
cash and/or Stock.
 
Non-employee Directors shall not be granted any Award or Grant under this Plan
(including any Stock Appreciation Right or Supplemental Grant) other than Stock
   Options as specifically provided hereunder.
 
                                       A-2
   35
                          BOLT BERANEK AND NEWMAN INC.
                           1986 STOCK INCENTIVE PLAN*

SECTION 1.  General Purpose of the Plan; Definitions.

         The name of the plan is the Bolt Beranek and Newman Inc. 1986 Stock
Incentive Plan (the "Plan"). The purpose of the Plan is to secure for Bolt
Beranek and Newman Inc. (the "Company") and its stockholders the benefit of the
incentives of Common Stock ownership and the receipt of incentive awards by
directors of the Company and by selected key employees of the Company and its
subsidiaries, and by other key persons and entities, who contribute to and will
be responsible for continued long-term growth of the Company. The Plan is
intended to stimulate the efforts of such persons by providing an opportunity
for capital appreciation and giving suitable recognition for services which
contribute materially to the success of the Company.

         The following terms shall be defined as set forth below:

         a. "Act" means the Securities Exchange Act of 1934.

         b. "Award" or "Awards" except where referring to a particular category
of grant under the Plan shall include Incentive Stock Options, Non-Qualified
Stock Options, Stock Appreciation Rights, Restricted Stock Awards, Unrestricted
Stock Awards, Deferred Stock Awards, Performance Unit Awards, and Other
Stock-based Awards.

         c. "Board" means the Board of Directors of the Company.

         d. "Code" means the Internal Revenue Code of 1986, as amended, and any
successor Code, and related rules, regulations, and interpretations.

         e. "Committee" means the Committee referred to in Section 2. If at any
time no Committee shall be in office, the functions of the Committee shall be
exercised by the Board.

         f. "Deferred Stock Award" is defined in Section 9(a).

         g. "Disability" means disability as determined in accordance with
standards and procedures similar to those used under the Company's long-term
disability program.

         h. "Disinterested Person" shall have the meaning set forth in Rule
16b-3(d)(3) promulgated under the Act, or any successor definition under the
Act.

* As proposed to be amended


   36

         i. "Fair Market Value" on any given date means the last sale price
regular way at which Stock is traded on such date as reflected in the New York
Stock Exchange-Composite Transactions Index or, where applicable, the value of a
share of Stock as determined by the Committee in accordance with the applicable
provisions of the Code.

         j. "Incentive Stock Option" means any Stock Option intended to be and
designated as an "incentive stock option" as defined in the Code.

         k. "Non-employee Director" means an individual who is a director of the
Company but who is not a full-time employee of the Company or a Subsidiary.

         l. "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.

         m. "Normal Retirement" means retirement from active employment with the
Company and its Subsidiaries on or after the normal retirement date specified in
the Bolt Beranek and Newman Inc. Retirement Trust Agreement.

         n. "Other Stock-based Award" is defined in Section 11(a).

         o. "Performance Unit Award" is defined in Section 10(a).

         p. "Restricted Stock Award" is defined in Section 8(a).

         q. "Stock" means the Common Stock, $1.00 par value, of the Company,
subject to adjustments pursuant to Section 3.

         r. "Stock Appreciation Right" means a right described in Section 7(a)
and granted, either independently of other Awards or in tandem with the grant of
a Stock Option.

         s. "Stock Option" means any option to purchase shares of Stock granted
pursuant to Section 6.

         t. "Subsidiary" means any corporation or other entity (other than the
Company) in an unbroken chain beginning with the Company if each of the entities
(other than the last entity in the unbroken chain) owns stock or other interests
possessing 50% or more of the total combined voting power of all classes of
stock or other interest in one of the other corporations in the chain.

         u. "Unrestricted Stock Award" is defined in Section 8(f).

                                       A-2


   37



         SECTION 2. Committee Authority to Select Participants and Determine
                    Awards, Etc.

         The Plan shall be administered by a Committee of Directors who are both
Disinterested Persons and "outside directors" within the meaning of Section
162(m)(4)(C)(i) of the Code (as construed and applied consistent with proposed
or final rules issued thereunder). The Committee shall be appointed by the Board
and shall serve at the pleasure of the Board.

         The Committee shall have the power and authority to grant Awards
consistent with the terms of the Plan, including the power and authority:

                 i.       to select from among the eligible persons and entities
                          described in Section 4 those to whom Awards may from
                          time to time be granted;

                 ii.      to determine the time or times of grant, and the
                          extent, if any, of Incentive Stock Options,
                          Non-Qualified Stock Options, Stock Appreciation
                          Rights, Restricted Stock, Unrestricted Stock, Deferred
                          Stock, Performance Units, and any Other Stock-based
                          Awards, or any combination of the foregoing, granted
                          to any one or more participants;

                 iii.     to determine the number of shares to be covered by any
                          Award;

                 iv.      to determine the terms and conditions, including
                          restrictions, not inconsistent with the terms of the
                          Plan, of any Award, which terms and conditions may
                          differ among individual Awards and participants;

                 v.       to determine whether, to what extent, and under what
                          circumstances Stock and other amounts payable with
                          respect to an Award shall be deferred either
                          automatically or at the election of the participant
                          and whether and to what extent the Company shall pay
                          or credit amounts equal to interest (at rates
                          determined by the Committee) or dividends or deemed
                          dividends on such deferrals; and

                 vi.      to adopt, alter, and repeal such rules, guidelines and
                          practices for administration of the Plan and for its
                          own acts and proceedings as it shall deem advisable;
                          to interpret the terms and provisions of the Plan and
                          any Award (including related Award Agreements); to
                          make all determinations it deems advisable for the
                          administration of the Plan; to decide all disputes
                          arising in connection with the Plan; and to otherwise
                          supervise the administration of the Plan.

         All decisions and interpretations of the Committee shall be binding on
all persons, including the Company and Plan participants.

                                       A-3


   38




SECTION 3.  Shares Issuable Under the Plan; Mergers; Substitution

         a.               Shares Issuable.  The maximum number of shares of 
                 Stock reserved and available for issuance under the Plan shall
                 be 3,850,000, including shares issued in lieu of or upon
                 reinvestment of dividends arising from Awards. Of this number,
                 150,000 are reserved and available for issuance under stock
                 options granted to Non-employee Directors under Section 6(m).
                 For purposes of the foregoing limitations and to the maximum
                 extent consistent with continued qualification of the Plan
                 under Section 422 of the Code and Rule 16b-3 promulgated under
                 the Act, Awards and Stock which are forfeited, reacquired by
                 the Company, or satisfied without the issuance of Stock shall
                 not be counted. Subject to such overall limitation, shares may
                 be issued up to such maximum pursuant to any type or types of
                 Award, including Incentive Stock Options. Shares issued under
                 the Plan may be authorized but unissued shares or shares
                 reacquired by the Company.

                 The maximum number of shares of Stock for which any individual
                 (other than a Non-employee Director) may be issued Stock
                 Options under the Plan during the limitation period shall be
                 750,000 shares. The maximum number of shares of Stock as to
                 which any individual may be issued Stock Appreciation Rights
                 under the Plan during the limitation period shall likewise be
                 750,000 shares. For purposes of the two preceding sentences,
                 (i) the limitation period shall be the period beginning January
                 1, 1994 and ending December 1, 1999, and (ii) Stock Options
                 granted prior to January 1, 1994 but subject to shareholder
                 approval occurring after January 1, 1994 shall be treated as
                 having been granted during the limitation period. The
                 limitations described in this paragraph shall be construed and
                 applied in accordance with Section 162(m) of the Code and the
                 regulations thereunder. Subject to the foregoing, a Stock
                 Option or Stock Appreciation Right that is canceled and
                 reissued, or repriced, shall be treated as a new Award, and
                 both the old Award and the new Award shall count against the
                 applicable limit described in this paragraph.

         b.               Stock Dividends, Mergers, etc.  In the event of a 
                 stock dividend, stock split, or similar change in
                 capitalization affecting the Stock, the Committee shall make
                 appropriate adjustments in (i) the number and kind of shares of
                 stock or securities on which Awards may thereafter be granted,
                 (ii) the number and kind of shares remaining subject to
                 outstanding Awards, and (iii) the option or purchase price in
                 respect of such shares. In the event of any merger,
                 consolidation, dissolution, or liquidation of the Company, the
                 Committee in its sole discretion may, as to any outstanding
                 Awards, make such substitution or adjustment in the aggregate
                 number of shares reserved for issuance under the Plan and in
                 the number and purchase price (if any) of shares subject to
                 such Awards as it may determine, or accelerate, amend, or
                 terminate such Awards upon such terms and conditions as it
                 shall



                                       A-4


   39



                 provide (which, in the case of the termination of the vested
                 portion of any Award, shall require payment or other
                 consideration which the Committee deems equitable in the
                 circumstances); provided, however, that no adjustment pursuant
                 to this sentence shall affect options granted under subsection
                 (m) of Section 6 of the Plan if the effect of such adjustment
                 shall cause the members of the Committee to fail to be
                 disinterested persons under Section 16(b) of the Act.

         c.               Substitute Awards.  The Company may grant Awards under
                 the Plan in substitution for stock and stock based awards held
                 by employees of or other persons providing services to another
                 corporation who concurrently become employees of or providers
                 of service to the Company or a Subsidiary as the result of a
                 merger or consolidation of the employing corporation with the
                 Company or a Subsidiary or the acquisition by the Company or a
                 Subsidiary of property or stock of the employing corporation.
                 The Committee may direct that the substitute awards be granted
                 on such terms and conditions as the Committee considers
                 appropriate in the circumstances. The shares which may be
                 delivered under such substitute Awards shall be in addition to
                 the maximum number of shares provided for in the first
                 paragraph of Section 3(a) only to the extent that the
                 substitute Awards are both granted to persons whose
                 relationship to the Company does not make (and is not expected
                 to make) them subject to Section 16(b) of the Act and are
                 granted in substitution for awards issued under a plan
                 approved, to the extent then required under Rule 16b-3 (or any
                 successor rule under the Act) by the stockholders of the entity
                 which issued such predecessor awards.

SECTION 4.  Eligibility.

         Participants in the Plan will be such full or part time officers and
other key employees of the Company and its Subsidiaries ("Employees") and other
persons or entities who are responsible for or contribute to the management,
growth, or profitability of the Company and its Subsidiaries and who are
selected from time to time by the Committee. Notwithstanding the foregoing,
persons who are directors of the Company, other than any such person who is a
full time employee, shall not be eligible for awards under the Plan except as
provided in Section 6(m).

SECTION 5.  Limitations on Term and Dates of Awards.

         a.               Duration of Awards. Subject to Sections 15(a), 15(c),
                 and 15(d) below, no restrictions or limitations on Awards shall
                 extend beyond 10 years (or 10 years and one day in the case of
                 Non-Qualified Stock Options) from the grant date, except that
                 deferrals, elected by participants, of the receipt of Stock or
                 other benefits under the Plan may extend beyond such date.

                                       A-5


   40

         b.               Latest Grant Date. No Award shall be granted after
                 December 1, 1999, but then-outstanding Awards may extend beyond
                 such date.

SECTION 6.  Stock Options.

         Any stock option granted under the Plan shall be in such form as the
Committee may from time to time approve.

         Stock Options granted under the Plan may be either Incentive Stock
Options or Non-Qualified Stock Options. To the extent that any option does not
qualify as an Incentive Stock Option, it shall constitute a Non-Qualified Stock
Option. Incentive Stock Options may be granted only to Employees.

         Anything in the Plan to the contrary notwithstanding, no term of this
Plan relating to Incentive Stock Options shall be interpreted, amended, or
altered, nor shall any discretion or authority granted to the Committee under
the Plan be so exercised, so as to disqualify the Plan or, without the consent
of the optionee, any Incentive Stock Option under Section 422 of the Code.

         Stock Options granted under the Plan shall be subject to the following
terms and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable.

         a.               Option Price. The option price per share of Stock
                 purchasable under a Stock Option shall be determined by the
                 Committee at the time of grant but shall be, in the case of
                 Incentive Stock Options, not less than 100% of Fair Market
                 Value on the date of grant and, in the case of Non-Qualified
                 Stock Options, not less than 50% of Fair Market Value on the
                 date of grant. If an employee owns or is deemed to own (by
                 reason of the attribution rules applicable under Section 424(d)
                 of the Code) more than 10% of the combined voting power of all
                 classes of stock of the Company or any Subsidiary or parent
                 corporation and an Incentive Stock Option is granted to such
                 employee, the option price shall be no less than 110% of Fair
                 Market Value on the date of grant.

         b.               Option Term. The term of each Stock Option shall be
                 fixed by the Committee, but no Incentive Stock Option shall be
                 exercisable more than 10 years after the date the option is
                 granted and no Non-Qualified Stock Option shall be exercisable
                 more than 10 years and one day after the date the option is
                 granted. If an employee owns or is deemed to own (by reason of
                 the attribution rules of Section 424(d) of the Code) more than
                 10% of the combined voting power of all classes of stock of the
                 Company or any Subsidiary or parent corporation and an

                                       A-6


   41

                 Incentive Stock Option is granted to such employee, the term of
                 such option shall be no more than five years from the date of
                 grant.

         c.               Exercisability. Stock Options shall be exercisable at
                 such future time or times, whether or not in installments, as
                 shall be determined by the Committee at or after the date of
                 grant. The Committee may at any time accelerate the
                 exercisability of all or any portion of any Stock Option.

         d.               [Intentionally left blank.]

         e.               Method of Exercise. Stock Options may be exercised in
                 whole or in part, by giving written notice of exercise to the
                 Company specifying the number of shares to be purchased. Such
                 notice shall be accompanied by payment in full of the purchase
                 price, either by certified or bank check or other instrument
                 acceptable to the Committee. As determined by the Committee, in
                 its discretion, at (or, in the case of Non-Qualified Stock
                 Options, at or after) the time of grant, payment in full or in
                 part may also be made in the form of shares of Stock not then
                 subject to restrictions under any Company plan (but which may
                 include shares the disposition of which constitutes a
                 disqualifying disposition for purposes of obtaining incentive
                 stock option treatment for federal tax purposes), unless the
                 Board should in any case determine otherwise. Such surrendered
                 shares shall be valued at Fair Market Value on the exercise
                 date. An optionee shall have the rights of a shareholder only
                 as to shares acquired upon the exercise of a Stock Option and
                 not as to unexercised Stock Options.

         f.               Non-transferability of Options. No Stock Option shall
                 be transferable by the optionee otherwise than by will or by
                 the laws of descent and distribution, and all Stock Options
                 shall be exercisable, during the optionee's lifetime, only by
                 the optionee.

         g.               Termination by Death. If an optionee's employment by
                 or other service relationship with the Company and its
                 Subsidiaries terminates by reason of death, the Stock Option
                 may thereafter be exercised, both as to that portion which was
                 exercisable by the optionee immediately prior to death and,
                 except as otherwise determined by the Committee, as to any
                 remaining portion, by the legal representative or legatee of
                 the optionee, for a period of three years (or such other
                 period, not to exceed three years, as the Committee shall
                 specify at or after the time of grant) from the date of death
                 or until the expiration of the stated term of the option, if
                 earlier.

         h.               Termination by Reason of Disability. Any Stock Option
                 held by an optionee whose employment by or whose service
                 relationship with the Company

                                       A-7


   42



                 and its Subsidiaries has terminated, or who has been designated
                 an inactive employee, by reason of Disability may thereafter be
                 exercised to the extent it was exercisable at the time of the
                 earlier of such termination or such designation (or on such
                 accelerated basis as the Committee shall at any time determine
                 prior to such termination or designation) for a period of three
                 years (or such other period, not to exceed three years, as the
                 Committee shall specify at or after the time of grant) from the
                 date of such termination of employment or other service
                 relationship or designation or until the expiration of the
                 stated term of the option, if earlier. Except as otherwise
                 provided by the Committee at the time of grant, the death of an
                 optionee during the final year of such exercise period shall
                 extend such period for one year following death, or until the
                 expiration of the stated term of the option, if earlier. The
                 Committee shall have the authority to determine whether a
                 participant has been terminated or designated an inactive
                 employee by reason of Disability.

         i.               Termination by Reason of Normal Retirement. If an
                 optionee's employment by the Company and its Subsidiaries
                 terminates by reason of Normal Retirement, any Stock Option
                 held by such optionee may thereafter be exercised to the extent
                 that it was then exercisable (or on such accelerated basis as
                 the Committee shall at any time determine) for a period of
                 three years (or such other period, not to exceed three years,
                 as the Committee shall specify at or after the time of grant)
                 from the date of Normal Retirement or until the expiration of
                 the stated term of the option, if earlier. Except as otherwise
                 provided by the Committee at the time of grant, the death of an
                 optionee during the final year of such exercise period shall
                 extend such period for one year following death, or until the
                 expiration of the stated term of the option, if earlier.

         j.               Other Termination. Unless otherwise determined by the
                 Committee, if an optionee's employment by or other service
                 relationship with the Company or its Subsidiaries terminates
                 for any reason other than death, Disability or Normal
                 Retirement, any Stock Option held by such optionee may
                 thereafter be exercised to the extent it was exercisable on the
                 date of termination of employment or other termination of the
                 service relationship (or on such accelerated basis as the
                 Committee shall determine at or after the time of grant) for a
                 period of sixty (60) days (or such longer period up to three
                 years as the Committee shall specify at or after the time of
                 grant) from the date of termination of employment or other
                 termination of the service relationship or until the expiration
                 of the stated term of the option, if earlier, provided, that if
                 the optionee's employment or other service relationship is
                 terminated for "cause" as a result of the optionee's misconduct
                 which, in the judgment of the Committee, casts discredit on him
                 or her, or is otherwise harmful to the business, interests or
                 reputation of the Company, its parent, or a Subsidiary, all
                 Stock Options shall terminate immediately.


                                       A-8


   43

                 For purposes of the preceding paragraph, if an optionee's
                 employment by the Company or its Subsidiaries is terminated
                 under circumstances entitling the optionee to cash severance
                 pay under any written severance plan, program, policy, or
                 agreement of the Company or its Subsidiaries in force at the
                 time of such termination of employment (a "Severance Program"),
                 then except as otherwise determined by the Committee any Stock
                 Option held by the optionee at termination of employment shall
                 be treated as "exercisable on the date of termination of
                 employment" as to those shares for which it was in fact
                 exercisable immediately prior to termination of employment plus
                 any additional shares for which it would have become
                 exercisable during the severance period (as hereinafter
                 defined) had the optionee remained employed by the Company or
                 its Subsidiaries. For purposes of the preceding sentence, the
                 severance period in the case of any terminated employee
                 entitled to severance under a Severance Program shall be the
                 period of weeks over which his or her cash severance, if paid
                 as salary continuation, would have been paid (whether or not
                 such severance is in fact so paid in such form).

         k.               Incentive Stock Options. Notwithstanding any
                 designation of a Stock Option as an Incentive Stock Option,
                 such Stock Option shall be treated for tax purposes as a
                 Non-Qualified Stock Option to the extent prescribed under
                 Section 422(d) of the Code.

         l.               Form of Settlement. Subject to Sections 15(a), 15(c),
                 and 15(d) below, shares of Stock issued upon exercise of a
                 Stock Option shall be free of all restrictions under the Plan,
                 except as provided in the following sentence. The Committee may
                 provide at time of grant that the shares to be issued upon the
                 exercise of a Stock Option shall be in the form of Restricted
                 Stock or Deferred Stock, or may reserve the right to so provide
                 after time of grant.

         m.               Options Granted to Non-employee Directors. Subject to
                 the limits and adjustment provisions set forth in Section 3,
                 each Non-employee Director serving in such position on the
                 third business day following the date of each annual meeting of
                 the stockholders of the Company (such third day being
                 hereinafter referred to as the "determination date") shall be
                 granted effective as of the determination date a Non-Qualified
                 Stock Option covering 3,000 shares of Stock. The option price
                 under such Stock Option shall be the fair market value of the
                 Stock on the determination date. If, on account of the limit
                 set forth in the second sentence of Section 3(a), there are
                 insufficient shares as of any determination date to permit the
                 grant of a Stock Option covering 3,000 shares (as adjusted) to
                 each Non-employee Director then eligible for a grant, the
                 number of shares available for grant shall be allocated evenly
                 (disregarding any fractional shares) among the Non-employee
                 Directors then eligible for a grant (an "incomplete grant"),
                 and if additional shares later become available under said
                 limit while any such Non- 


                                       A-9


   44
                 employee Director who received an incomplete grant remains a
                 Non-employee Director and during the terms of the Plan, such
                 Non- employee Director shall be granted automatically upon such
                 availability a supplemental Non-Qualified Stock Option covering
                 a number of shares equal to the lesser of (a) 3,000 shares
                 (appropriately adjusted pursuant to Section 3) less the number
                 of shares (as so adjusted) covered by the incomplete grant, or
                 (b) the number of shares then available under Section 3,
                 subject to allocation among Non-employee Directors in
                 accordance with the preceding provisions of this paragraph. The
                 option price of any supplemental Stock Option shall be the fair
                 market value of the Stock on the date of grant (i.e., the date
                 of the availability of additional shares).

                 Each Stock Option granted under this subsection (m) may be
                 exercised as follows:

                 (1)      (A) 25% of the shares subject to such Stock Option may
                 be purchased commencing one year after the date of grant, and

                          (B) an additional 25% of such shares may be purchased
                 commencing on the second, third, and fourth anniversaries of
                 the date of grant; and

                 (2) subject to (1) above, such Stock Option may only be
                 exercised during the five-year period beginning on the date the
                 Stock Option is granted.

                 To the extent that a Stock Option granted hereunder to a
                 Non-employee Director is not exercised when it initially
                 becomes exercisable, it shall be carried forward and be
                 exercisable until the expiration of the term of such Stock
                 Option as described in (2) above; provided, that if the
                 Non-employee Director ceases to be a Director for any reason
                 other than death, mandatory retirement by reason of age, or
                 Disability, any Stock Option held by such Non-employee Director
                 may thereafter be exercised, as to that portion of the Stock
                 Option which was exercisable immediately prior to the date the
                 optionee ceased to be a Director, only within the three-month
                 period beginning from such date (but in no event beyond the
                 five-year term described in (2) above); and further provided,
                 that if a Non-employee Director ceases to be a Director by
                 reason of death, mandatory retirement by reason of age, or
                 Disability, any Stock Option held by such Non-employee Director
                 immediately prior to his or her so ceasing to be a Director,
                 whether or not then exercisable, shall be exercisable in whole
                 or in part at any time within the three-month period beginning
                 from the date on which the individual so ceased to be a
                 Director (but in no event beyond the five-year term described
                 in (2) above) and then shall terminate.

                 All options granted under this subsection (m) may be exercised
                 by delivery of cash and/or Stock.

                                      A-10


   45

                 Non-employee Directors shall not be granted any Award or Grant
                 under this Plan (including any Stock Appreciation Right or
                 Supplemental Grant) other than Stock Options as specifically
                 provided hereunder.

SECTION 7.  Stock Appreciation Rights; Discretionary Payments.

         a.               Nature of Stock Appreciation Right. A Stock
                 Appreciation Right is an Award entitling the recipient to
                 receive an amount in cash or shares of Stock (or forms of
                 payment permitted under paragraph (e) below) or a combination
                 thereof having a value equal to (or if the Committee shall so
                 determine at time of grant, less than) the excess of the Fair
                 Market Value of a share of Stock on the date of exercise over
                 the Fair Market Value of a share of Stock on the date of grant
                 (or over the option exercise price, if the Stock Appreciation
                 Right was granted in tandem with a Stock Option) multiplied by
                 the number of shares with respect to which the Stock
                 Appreciation Right shall have been exercised, with the
                 Committee having the right to determine the form of payment.

         b.               Grant and Exercise of Stock Appreciation Rights. Stock
                 Appreciation Rights may be granted in tandem with, or
                 independently of, any Stock Option granted under the Plan. In
                 the case of a Stock Appreciation Right granted in tandem with a
                 Non-Qualified Stock Option, such Right may be granted either at
                 or after the time of the grant of such option. In the case of a
                 Stock Appreciation Right granted in tandem with an Incentive
                 Stock Option, such Right may be granted only at the time of the
                 grant of the option.

                 A Stock Appreciation Right or applicable portion thereof
                 granted in tandem with a given Stock Option shall terminate and
                 no longer be exercisable upon the termination or exercise of
                 the related Stock Option, except that a Stock Appreciation
                 Right granted with respect to less than the full number of
                 shares covered by a related Stock Option shall not be reduced
                 until the exercise or termination of the related Stock Option
                 exceeds the number of shares not covered by the Stock
                 Appreciation Right.

         c.               Terms and Conditions of Stock Appreciation Rights.
                 Stock Appreciation Rights shall be subject to such terms and
                 conditions as shall be determined from time to time by the
                 Committee, subject to the following:

                 i.       Stock Appreciation Rights granted in tandem with Stock
                          Options shall be exercisable only at such time or
                          times and to the extent that the related Stock Options
                          shall be exercisable.

                                      A-11


   46


                 ii.      Upon the exercise of a Stock Appreciation Right, the
                          applicable portion of any related Stock Option shall
                          be surrendered.

                 iii.     Stock Appreciation Rights granted in tandem with a
                          Stock Option shall be transferable only with such
                          Stock Option. Stock Appreciation Rights shall not be
                          transferable otherwise than by will or the laws of
                          descent and distribution. All Stock Appreciation
                          Rights shall be exercisable during the participant's
                          lifetime only by the participant or the participant's
                          legal representative.

                 iv.      A Stock Appreciation Right granted in tandem with an
                          Incentive Stock Option may be exercised only when the
                          market price of the Stock subject to the Incentive
                          Stock Option exceeds the exercise price of such
                          option.

         d.               Discretionary Payments. Notwithstanding that a Stock
                 Option at the time of exercise shall not be accompanied by a
                 related Stock Appreciation Right, if the market price of the
                 shares subject to such Stock Option exceeds the exercise price
                 of such Stock Option at the time of its exercise, the Committee
                 may, in its discretion, cancel such Stock Option, in which
                 event the Company shall pay to the person exercising such Stock
                 Option an amount equal to the difference between the Fair
                 Market Value of the Stock to have been purchased pursuant to
                 such exercise of such Stock Option (determined on the date the
                 Stock Option is canceled) and the aggregate consideration to
                 have been paid by such person upon such exercise. Such payment
                 shall be by check or in Stock (or in a form of payment
                 permitted under paragraph (e) below) having a Fair Market Value
                 (determined on the date the payment is to be made) equal to the
                 amount of such payments or any combination thereof, as
                 determined by the Committee. The Committee may exercise its
                 discretion under the first sentence of this paragraph (d) only
                 in the event of a written request of the person exercising the
                 option, which request shall not be binding on the Committee.

         e.               Settlement in the Form of Restricted Shares or Rights
                 to Receive Deferred Stock. Subject to Sections 15(a), 15(c),
                 and 15(d) below, shares of Stock issued upon exercise of a
                 Stock Appreciation Right or as a Discretionary Payment shall be
                 free of all restrictions under the Plan, except as provided in
                 the following sentence. The Committee may provide at time of
                 grant in the case of a Stock Appreciation Right (and at the
                 time of payment in the case of a Discretionary Payment) that
                 such shares shall be in the form of shares of Restricted Stock
                 or rights to acquire Deferred Stock, or in the case of a Stock
                 Appreciation Right may reserve the right to so provide at any
                 time after the time of grant. Any such shares and any shares
                 subject to rights to acquire Deferred Stock shall be valued at
                 Fair


                                      A-12


   47

                 Market Value on the date of exercise of the Stock Appreciation
                 Right or the date the Stock Option is canceled in the case of
                 Discretionary Payments.

         f.               Rules Relating to Exercise. In the case of a
                 participant subject to the restrictions of Section 16(b) of the
                 Act, no stock appreciation right (as referred to in Rule
                 16b-3(e) or any successor Rule under the Act) shall be
                 exercised (and no request or payment under paragraph (d) above
                 shall be honored or made) except in compliance with any
                 applicable requirements of Rule 16b-3(e) or any successor rule.
                 Notwithstanding paragraph (a) above, in the event of such
                 exercise (or request and payment) during an exercise period
                 currently prescribed by such rule, the Committee may prescribe,
                 by rule of general application, such other measure of value as
                 it may determine but not in excess of the highest per share
                 closing sale price of the Common Stock reported on the New York
                 Stock Exchange Composite Transactions Index during such period
                 and, where a Stock Appreciation Right relates to an Incentive
                 Stock Option, not in excess of an amount consistent with the
                 qualification of such Stock Option as an "incentive stock
                 option" under Section 422 of the Code.

SECTION 8.  Restricted Stock; Unrestricted Stock.

         a.               Nature of Restricted Stock Award. A Restricted Stock
                 Award is an Award entitling the recipient to acquire shares of
                 Stock for a purchase price (which may be zero), subject to such
                 conditions, including a Company right during a specified period
                 or periods to repurchase such shares at their original purchase
                 price (or to require forfeiture of such shares, if the purchase
                 price was zero) upon the participant's termination of
                 employment or other service relationship, as the Committee may
                 determine at the time of grant. The original purchase price, if
                 any, shall be determined by the Committee, but if any purchase
                 price is payable in an amount which exceeds the lesser of the
                 par value of the shares or 10% of the fair market value of the
                 Common Stock on the award date, it shall be equal to at least
                 50% of the fair market value of the Common Stock on the award
                 date.

         b.               Award Agreement. A participant who is granted a
                 Restricted Stock Award shall have no rights with respect to
                 such Award unless the participant shall have accepted the Award
                 within 60 days (or such shorter date as the Committee may
                 specify) following the award date by making payment to the
                 Company by certified or bank check or other instrument
                 acceptable to the Committee in an amount equal to the specified
                 purchase price, if any, of the shares covered by the Award and
                 by executing and delivering to the Company a Restricted Stock
                 Award Agreement in such form as the Committee shall determine.

                                      A-13

   48

         c.               Rights as a Shareholder. Upon complying with paragraph
                 (b) above, a participant shall have all the rights of a
                 shareholder with respect to the Restricted Stock including
                 voting and dividend rights, subject to nontransferability
                 restrictions and Company repurchase or forfeiture rights
                 described in this Section and subject to any other conditions
                 contained in the Award Agreement. Unless the Committee shall
                 otherwise determine, certificates evidencing shares of
                 Restricted Stock shall remain in the possession of the Company
                 until such shares are free of any restrictions under the Plan.

         d.               Restrictions. Shares of Restricted Stock may not be
                 sold, assigned, transferred, pledged, or otherwise encumbered
                 or disposed of except as specifically provided herein. In the
                 event of termination of employment or other service
                 relationship of the participant with the Company and its
                 Subsidiaries for any reason, such shares shall be resold to the
                 Company at their purchase price, or forfeited to the Company if
                 the purchase price was zero, except as set forth below.

                 i.       The Committee at the time of grant shall specify the
                          date or dates (which may depend upon or be related to
                          the attainment of performance goals and other
                          conditions) on which the nontransferability of the
                          Restricted Stock and the obligation to resell such
                          shares to the Company shall lapse. The Committee at
                          any time may accelerate such date or dates and
                          otherwise waive or, subject to Section 13, amend any
                          conditions of the Award.

                 ii.      Except as may otherwise be provided in the Award
                          Agreement, in the event of termination of employment
                          or other service relationship of a participant with
                          the Company and its Subsidiaries for any reason
                          (including death), the participant or the
                          participant's legal representative shall offer to
                          resell to the Company, at the price paid therefor, all
                          Restricted Stock, and the Company shall have the right
                          to purchase the same at such price, or if the price
                          was zero to require forfeiture of the same, provided
                          that except as provided in the Award Agreement, the
                          Company must exercise such right of repurchase or
                          forfeiture not later than the 60th day following such
                          termination of employment or other service
                          relationship.

         e.               Waiver, Deferral, and Investment of Dividends. The
                 Restricted Stock Award Agreement may require or permit the
                 immediate payment, waiver, deferral, or investment of dividends
                 paid on the Restricted Stock.

         f.               Unrestricted Stock. The Committee may, in its sole
                 discretion, grant (or sell at a purchase price not to exceed
                 the lesser of the par value of the shares or 10% of the fair
                 market value of the Common Stock at the time of sale) to any
                 participant shares of Stock free of restrictions under the Plan
                 ("Unrestricted

                                      A-14


   49

                 Stock"). Shares of Unrestricted Stock may be granted or sold as
                 described in the preceding sentence in respect of past services
                 or other valid consideration. Any sale of Unrestricted Stock
                 must take place within 60 days after the time of grant of the
                 right to purchase such shares.

SECTION 9.  Deferred Stock Awards.

         a.      Nature of Deferred Stock Award. A Deferred Stock Award is an
                 award entitling the recipient to acquire shares of Stock
                 without payment in one or more installments at a future date or
                 dates, all as determined by the Committee. The Committee may
                 also condition such acquisition on the attainment of specified
                 performance goals.

         b.      Award Agreement. A participant who is granted a Deferred Stock
                 Award shall have no rights with respect to a such Award unless
                 within 60 days of the grant of such Award or such shorter
                 period as the Committee may specify, the participant shall have
                 accepted the Award by executing and delivering to the Company a
                 Deferred Stock Award Agreement.

         c.               Restrictions on Transfer. Deferred Stock Awards and
                 all rights with respect to such Awards may not be sold,
                 assigned, transferred, pledged, or otherwise encumbered. Rights
                 with respect to such Awards shall be exercisable during the
                 participant's lifetime only by the participant or the
                 participant's legal representative.

         d.      Rights as a Shareholder. A participant receiving a Deferred
                 Stock Award will have rights of a shareholder only as to shares
                 actually received by the participant under the Plan and not
                 with respect to shares subject to the Award but not actually
                 received by the participant. A participant shall be entitled to
                 receive a stock certificate for shares of Deferred Stock only
                 upon satisfaction of all conditions therefor specified in the
                 Deferred Stock Award Agreement.

         e.               Termination. Except as may otherwise be provided in
                 the Award Agreement, a participant's rights in all Deferred
                 Stock Awards shall automatically terminate upon the
                 participant's termination of employment by or other service
                 relationship with the Company and its Subsidiaries for any
                 reason (including death).

         f.               Acceleration, Waiver, etc. At any time prior to the
                 participant's termination of employment or other service
                 relationship the Committee may in its discretion accelerate,
                 waive, or, subject to Section 13, amend any or all of the
                 restrictions or conditions imposed under any Deferred Stock
                 Award.

                                      A-15


   50

         g.               Payments in Respect of Deferred Stock. Without
                 limiting the right of the Committee to specify different terms,
                 the Deferred Stock Award Agreement may either make no
                 provisions for, or may require or permit the immediate payment,
                 deferral, or investment of amounts equal to, or less than, any
                 cash dividends which would have been payable on the Deferred
                 Stock had such stock been outstanding, all as determined by the
                 Committee in its sole discretion.

SECTION 10.   Performance Unit Awards.

         a.               Nature of Performance Units. A Performance Unit Award
                 is an award entitling the recipient to acquire cash or shares
                 of Stock, or a combination of cash and Stock, upon the
                 attainment of specified performance goals. The Committee in its
                 sole discretion shall determine whether and to whom Performance
                 Unit Awards shall be made, the performance goals applicable
                 under each such Award, the periods during which performance is
                 to be measured, and all other limitations and conditions
                 applicable to the awarded Performance Unit. Performance Units
                 may be awarded independent of or in connection with the
                 granting of any other Award under the Plan.

         b.               Award Agreement. A participant shall have no rights
                 with respect to a Performance Unit Award unless within 60 days
                 of the grant of such Award or such shorter period as the
                 Committee may specify, the participant shall have accepted the
                 Award by executing and delivering to the Company a Performance
                 Unit Award Agreement.

         c.               Restrictions on Transfer. Performance Unit Awards and
                 all rights with respect to such Awards may not be sold,
                 assigned, transferred, pledged, or otherwise encumbered, and if
                 exercisable over a specified period, shall be exercisable
                 during the participant's lifetime only by the participant or
                 the participant's legal representative.

         d.               Rights as a Shareholder. A participant receiving a
                 Performance Unit Award will have rights of a shareholder only
                 as to shares actually received by the participant under the
                 Plan and not with respect to shares subject to the Award but
                 not actually received by the participant. A participant shall
                 be entitled to receive a stock certificate evidencing the
                 acquisition of shares of Stock under a Performance Unit Award
                 only upon satisfaction of all conditions therefor specified in
                 the Performance Unit Award Agreement.

         e.               Termination. Except as may otherwise be provided by
                 the Committee at any time prior to termination of employment or
                 other service relationship, a participant's rights in all
                 Performance Unit Awards shall automatically terminate

                                      A-16


   51



                 upon the participant's termination of employment by or other
                 service relationship with the Company and its Subsidiaries for
                 any reason (including death).

         f.               Acceleration, Waiver, etc. At any time prior to the
                 participant's termination of employment by or other service
                 relationship with the Company and its Subsidiaries, the
                 Committee may in its sole discretion accelerate, waive, or,
                 subject to Section 13, amend any or all of the goals,
                 restrictions, or conditions imposed under any Performance Unit
                 Award.

         g.               Exercise. The Committee in its sole discretion shall
                 establish procedures to be followed in exercising any
                 Performance Unit, which procedures shall be set forth in the
                 Performance Unit Award Agreement. The Committee may at any time
                 provide that payment under a Performance Unit shall be made,
                 upon satisfaction of the applicable performance goals, without
                 exercise by the participant. Except as otherwise specified by
                 the Committee, (i) a Performance Unit granted in tandem with a
                 Stock Option may be exercised only while the Stock Option is
                 exercisable, and (ii) the exercise of a Performance Unit
                 granted in tandem with any Award shall reduce the number of
                 shares subject to the related Award on such basis as is
                 specified in the Performance Unit Award Agreement.

SECTION 11.  Other Stock-Based Awards; Supplemental Grants.

         a.               Nature of Awards. The Committee may grant other Awards
                 under which Stock is or may in the future be acquired ("Other
                 Stock-based Awards"). Such awards may include, without
                 limitation, debt securities convertible into or exchangeable
                 for shares of Stock upon such conditions, including attainment
                 of performance goals, as the Committee shall determine. Subject
                 to the purchase price limitations in paragraph (b) below, such
                 convertible or exchangeable securities may have such terms and
                 conditions as the Committee may determine at the time of grant.
                 However, no convertible or exchangeable debt shall be issued
                 unless the Committee shall have provided (by Company right of
                 repurchase, right to require conversion or exchange, or other
                 means deemed appropriate by the Committee) a means of avoiding
                 any right of the holders of such debt to prevent a Company
                 transaction by reason of covenants in such debt.

         b.               Purchase Price; Form of Payment. The Committee may
                 determine the consideration, if any, payable upon the issuance
                 or exercise of an Other Stock-based Award. However, no shares
                 of Stock (whether acquired by purchase, conversion, or exchange
                 or otherwise) shall be issued unless (i) issued at no cost to
                 the recipient (or for a purchase price not in excess of the
                 lesser of the par value of the Shares or 10% of the Fair Market
                 Value of the Stock as of the time of sale), or (ii) sold,
                 exchanged, or converted by the Company, and the Company shall
                 have

                                      A-17


   52



                 received payment for such Stock or securities so sold,
                 exchanged, or converted equal to at least 50% of Fair Market
                 Value of the Stock on the grant or effective date, or the
                 exchange or conversion date, under the Award, as specified by
                 the Committee. The Committee may permit payment by certified
                 check or bank check or other instrument acceptable to the
                 Committee or by surrender of other shares of Stock (excluding
                 shares then subject to restrictions under the Plan).

         c.               Forfeiture of Awards; Repurchase of Stock;
                 Acceleration or Waiver of Restrictions. The Committee may
                 determine the conditions under which an Other Stock-based Award
                 shall be forfeited or, in the case of an Award involving a
                 payment by the recipient, the conditions under which the
                 Company may or must repurchase such Award or related Stock. At
                 any time the Committee may in its sole discretion accelerate,
                 waive, or, subject to Section 13, amend any or all of the
                 limitations or conditions imposed under any Other Stock-based
                 Award.

         d.               Award Agreements. A participant shall have no rights
                 with respect to any Other Stock-based Award unless within 60
                 days after the grant of such Award (or such shorter period as
                 the Committee may specify) the participant shall have accepted
                 the Award by executing and delivering to the Company an Other
                 Stock-based Award Agreement.

         e.               Nontransferability. Other Stock-based Awards may not
                 be sold, assigned, transferred, pledged, or encumbered except
                 as may be provided in the Other Stock-based Award Agreement.
                 However, in no event shall any Other Stock-based Award be
                 transferred other than by will or by the laws of descent and
                 distribution or be exercisable during the participant's
                 lifetime by other than the participant or the participant's
                 legal representative.

         f.               Rights as a Shareholder. A recipient of any Other
                 Stock-based Award will have rights of a shareholder only at the
                 time and to the extent, if any, specified by the Committee in
                 the Other Stock-based Award Agreement.

         g.               Deemed Dividend Payments; Deferrals. Without limiting
                 the right of the Committee to specify different terms, an Other
                 Stock-based Award Agreement may require or permit the immediate
                 payment, waiver, deferral, or investment of dividends or deemed
                 dividends payable or deemed payable on Stock subject to the
                 Award.

         h.               Supplemental Grants. The Company may in its sole
                 discretion make a loan to the recipient of an Award hereunder,
                 either on or after the date of grant of such Award. Such loans
                 may be made either in connection with the exercise of a Stock
                 Option, a Stock Appreciation Right, or an Other Stock-based
                 Award, in connection

                                      A-18


   53

                 with the purchase of shares under any Award, or in connection
                 with the payment of any federal income tax in respect of income
                 recognized under an Award. The Committee shall have full
                 authority to decide whether to make a loan hereunder and to
                 determine the amount, term, and provisions of any such loan,
                 including the interest rate (which may be zero) charged in
                 respect of any such loan, whether the loan is to be secured or
                 unsecured, the terms on which the loan is to be repaid and the
                 conditions, if any, under which it may be forgiven. However, no
                 loan hereunder shall provide or reimburse to the borrower the
                 amount used by him for the payment of the par value of any
                 shares of Common Stock issued, have a term (including
                 extensions) exceeding ten years in duration, or be in an amount
                 exceeding the total exercise or purchase price paid by the
                 borrower under an Award or for related Stock under the Plan
                 plus an amount equal to the cash payment permitted in the
                 following paragraph.

                 The Committee may at any time authorize a cash payment, in
                 respect of the grant or exercise of an Award under the Plan or
                 the lapse or waiver of restrictions under an Award which shall
                 not exceed the amount which would be required in order to pay
                 in full the federal income tax due as a result of income
                 recognized by the recipient under both the Award and such cash
                 payment, in each case assuming that such income is taxed at the
                 regular maximum marginal rate applicable to individuals under
                 the Code as in effect at the time such income is includable in
                 the recipient's income. Subject to the foregoing, the Committee
                 shall have complete authority to decide whether to make such
                 cash payments in any case, to make provision for such payments
                 either simultaneously with or after the grant of the associated
                 Award, and to determine the amount of each such payment.

SECTION 12.  Transfer, Leave of Absence, Etc.

         For purposes of the Plan, the following events shall not be deemed a
termination of employment:

         a.               a transfer to the employment of the Company from a
                 Subsidiary or from the Company to a Subsidiary, or from one
                 Subsidiary to another; or

         b.               an approved leave of absence for military service or
                 sickness, or for any other purpose approved by the Company, if
                 the employee's right to reemployment is guaranteed either by a
                 statute or by contract or under the policy pursuant to which
                 the leave of absence was granted or if the Committee otherwise
                 so provides in writing.

                 For purposes of Section 6(j), Section 8(a), Section 8(d),
                 Section 9(e), Section 9(f), Section 10(e) and Section 10(f),
                 except as otherwise determined by the Committee

                                      A-19


   54



                 an optionee employed as an employee by the Company and its
                 Subsidiaries shall be treated as having incurred a termination
                 of employment by or other service relationship with the Company
                 and its Subsidiaries on the date he or she ceases to be an
                 employee, whether or not he or she continues to provide
                 services to the Company or its Subsidiaries on some other
                 basis.

SECTION 13.   Amendments and Termination.

         The Board may at any time amend or discontinue the Plan and the
Committee may at any time amend or cancel any outstanding Award (or provide
substitute Awards at the same or reduced exercise or purchase price or with no
exercise or purchase price, but such price, if any, must satisfy the
requirements which would apply to the substitute or amended Award if it were
then initially granted under this Plan) for the purpose of satisfying changes in
law or for any other lawful purpose, but no such action shall adversely affect
rights under any outstanding Award without the holder's consent. However, no
such amendment, unless approved by stockholders, shall be effective if it would
cause the Plan to fail to satisfy the incentive stock option requirements of the
Code or the requirements of Rule 16b-3 or any successor rule under the Act as in
effect on the date of such amendment.

SECTION 14.  Status of Plan.

         With respect to the portion of any Award which has not been exercised
and any payments in cash, stock, or other consideration not received by a
participant, a participant shall have no rights greater than those of a general
creditor of the Company unless the Committee shall otherwise expressly determine
in connection with any Award or Awards. In its sole discretion, the Committee
may authorize the creation of trusts or other arrangements to meet the Company's
obligations to deliver Stock or make payments with respect to awards hereunder,
provided that the existence of such trusts or other arrangements is consistent
with the provision of the foregoing sentence.

SECTION 15.  General Provisions.

         a.               No Distribution; Compliance with Legal Requirements,
                 etc. The Committee may require each person acquiring shares
                 pursuant to an Award to represent to and agree with the Company
                 in writing that such person is acquiring the shares without a
                 view to distribution thereof.

                 No shares of Stock shall be issued pursuant to an Award until
                 all applicable securities laws and other legal and stock
                 exchange requirements have been satisfied. The Committee may
                 require the placing of such stop-orders and restrictive legends
                 on certificates for Stock and Awards as it deems appropriate.

                                      A-20


   55


         b.               Other Compensation Arrangements; No Employment Rights.
                 Nothing contained in this Plan shall prevent the Board of
                 Directors from adopting other or additional compensation
                 arrangements, subject to stockholder approval if such approval
                 is required; and such arrangements may be either generally
                 applicable or applicable only in specific cases. The adoption
                 of the Plan does not confer upon any employee or other person
                 any right to continued employment or the continuation of any
                 service relationship with the Company or a Subsidiary, nor does
                 it interfere in any way with the right of the Company or a
                 Subsidiary to terminate the employment or other service
                 relationship that may exist between it and any person.

         c.               Tax Withholding, etc. Each participant shall, no later
                 than the date as of which the value of an Award or of any Stock
                 or other amounts received thereunder first becomes includable
                 in the gross income of the participant for Federal income tax
                 purposes, pay to the Company, or make arrangements satisfactory
                 to the Committee regarding payment of, any Federal, state, or
                 local taxes of any kind required by law to be withheld with
                 respect to such income. The Company and its Subsidiaries shall,
                 to the extent permitted by law, have the right to deduct any
                 such taxes from any payment of any kind otherwise due to the
                 participant.

         d.               Cancellation of Awards. The Committee may provide,
                 with respect to any Award, that the Award shall be cancelled or
                 rescinded and any associated shares forfeited, and that the
                 participant be obligated to pay to the Company any gain
                 received upon exercise or vesting, in the event that the
                 participant competes with the Company or its Subsidiaries,
                 discloses confidential information of the Company or its
                 Subsidiaries, or otherwise is not in compliance with any
                 provision of the Award, in each case on such terms and
                 conditions as the Committee considers appropriate in the
                 circumstances.

SECTION 16.  Effective Date of Plan.

         The Plan shall not become effective unless approved by the vote of the
holders of a majority of the shares of capital stock of the Company represented
at a meeting of stockholders. Subject to such effectiveness, and to the
requirement that no Stock may be issued hereunder prior to such approval,
Options and other Awards may be granted hereunder on and after adoption of the
Plan by the Board.

                                      A-21
   56
                          BOLT BERANEK AND NEWMAN INC.

                       ANNUAL MEETING - NOVEMBER 6, 1995

P
R             The undersigned hereby appoints George H. Conrades and Nancy J.
O    Nitikman as proxies and each or either of them as proxy with full power of
X    substitution to each, to vote and act at the Annual Meeting of Shareholders
Y    of Bolt Beranek and Newman Inc. (notice and proxy statement in respect of
     which have been received by the undersigned) and at any and all
     adjournments thereof, upon and in respect of all shares of Common Stock as
     to which the undersigned may be entitled to vote or act, with all powers
     the undersigned would possess if personally present.  The proxies are
     hereby instructed upon the matters specified in the notice of the meeting
     as indicated on the reverse side.  The proxies are hereby instructed to
     vote in their discretion upon such other business as may properly come
     before the meeting.


              THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.  THE
     SHARES REPRESENTED HEREBY WILL BE VOTED IN ACCORDANCE WITH INSTRUCTIONS
     INDICATED, AND IF NO INSTRUCTION IS INDICATED, WILL BE VOTED FOR ELECTING
     DIRECTORS AS SET FORTH IN ITEM (1), AND FOR PROPOSALS (2), (3), (4), AND
     (5).



                                                                SEE REVERSE SIDE

                   CONTINUED AND TO BE SIGNED ON REVERSE SIDE

   57

/X/  Please mark
     votes as in
     this example


1.       Electing all the nominees listed
         below (or if any nominee is not
         available for election, such
         substitute as the Directors may
         designate).


NOMINEES: as Class III Directors:  Lucie J.
Fjeldstad, Andrew L. Nichols

         FOR              WITHHOLD
         BOTH             FROM BOTH
         NOMINEES         NOMINEES

           / /              / /


/ /
    ------------------------------------------------
    For both nominees except as noted above


                                                   FOR      AGAINST      ABSTAIN

2.      Authorizing amendment to the               / /        / /          / /
        Company's 1986 Stock Incentive Plan
        relating to an increase in number of
        shares available.

                                                   FOR      AGAINST      ABSTAIN

3.      Authorizing amendments to the              / /        / /          / /
        Company's 1986 Stock Incentive Plan
        relating to options for non-employee
        Directors.

                                                   FOR      AGAINST      ABSTAIN

4.      Authorizing amendment to the               / /        / /          / / 
        Company's Restated Articles of
        Organization to change the corporate  
        name.

                                                   FOR      AGAINST      ABSTAIN

5.      Ratifying the selection of Coopers &       / /        / /          / /
        Lybrand L.L.P. as auditors of the
        Company.



                 MARK HERE
                 FOR ADDRESS                       DISCONTINUE
                 CHANGE AND                        MULTIPLE
                 NOTE AT LEFT    / /               MAILINGS    / /


Please sign exactly as your name appears.  If acting as attorney, executor,
trustee, or in other representative capacity, sign name and title.

Signature:                                       Date
           -------------------------------            --------------------
Signature:                                       Date
           -------------------------------            --------------------


   58

VOTING INSTRUCTIONS                                          VOTING INSTRUCTIONS

                 BOLT BERANEK AND NEWMAN INC. RETIREMENT TRUST
                                 BBN STOCK FUND

P
R             Please return this card in the enclosed postage paid envelope to
O    The First National Bank of Boston, P.O. Box 1628, Boston, Massachusetts
X    02105.
Y
              The undersigned directs the Trustees of the Bolt Beranek and
     Newman Inc. Retirement Trust to vote the shares of BBN Common Stock,
     represented by the undersigned's fractional interest in the Trust's BBN
     Stock Fund, at the Annual Meeting of Shareholders of Bolt Beranek and
     Newman Inc. to be held in the Enterprise Room, 5th Floor, State Street Bank
     Building, 225 Franklin Street, Boston, Massachusetts, on Monday, November
     6, 1995, at 10:30 a.m.  The Trustees are further authorized to vote such
     shares upon the matters specified in the notice of the meeting as indicated
     on the reverse side and, in their discretion, upon such other business as
     may properly come before the meeting or any adjournment thereof.  The
     Trustees are authorized to vote such shares in person or by proxy.

              THESE VOTING INSTRUCTIONS ARE SOLICITED ON BEHALF OF THE BOARD OF
     DIRECTORS OF THE COMPANY BY THE TRUSTEES.  SHARES OF BBN COMMON STOCK HELD
     IN THE BBN STOCK FUND FOR WHICH NO DIRECTIONS ARE TIMELY RECEIVED WILL BE
     VOTED BY THE TRUSTEES IN PROPORTION TO THOSE SHARES FOR WHICH THEY DO
     RECEIVE TIMELY VOTING INSTRUCTIONS.




                                                                SEE REVERSE SIDE

                   CONTINUED AND TO BE SIGNED ON REVERSE SIDE

   59
/X/  Please mark
     votes as in
     this example


1.       Electing all the nominees listed
         below (or if any nominee is not
         available for election, such
         substitute as the Directors may
         designate).


NOMINEES: as Class III Directors:  Lucie J.
Fjeldstad, Andrew L. Nichols

         FOR              WITHHOLD
         BOTH             FROM BOTH
         NOMINEES         NOMINEES

           / /              / /


/ /
    ------------------------------------------------
    For both nominees except as noted above


                                                   FOR      AGAINST      ABSTAIN

2.      Authorizing amendment to the               / /        / /          / /
        Company's 1986 Stock Incentive Plan
        relating to an increase in number of
        shares available.

                                                   FOR      AGAINST      ABSTAIN

3.      Authorizing amendments to the              / /        / /          / /
        Company's 1986 Stock Incentive Plan
        relating to options for non-employee
        Directors.

                                                   FOR      AGAINST      ABSTAIN

4.      Authorizing amendment to the               / /        / /          / / 
        Company's Restated Articles of
        Organization to change the corporate 
        name.

                                                   FOR      AGAINST      ABSTAIN

5.      Ratifying the selection of Coopers &       / /        / /          / /
        Lybrand L.L.P. as auditors of the
        Company.



                 MARK HERE
                 FOR ADDRESS                       DISCONTINUE
                 CHANGE AND                        MULTIPLE
                 NOTE AT LEFT    / /               MAILINGS    / /


Please sign exactly as your name appears.  If acting as attorney, executor,
trustee, or in other representative capacity, sign name and title.

Signature:                                       Date
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Signature:                                       Date
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