BBN CORP, DEF 14A, 1996-10-04

BBN CORP
DEF 14A, 1996-10-04
COMPUTER INTEGRATED SYSTEMS DESIGN

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<PAGE> 1

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934

FILED BY REGISTRANT /X/ FILED BY A PARTY OTHER THAN THE REGISTRANT / /

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

Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to [Section]240.14a-11(c) or
[Section]240.14a-12

BBN CORPORATION
(Name of Registrant as Specified In Its Charter)

/ /

(Name of Other Person(s) Filing Proxy Statement)

PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

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

2) Aggregate number of securities to which transaction applies:

3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act
Rule 0-11:

4) Proposed maximum aggregate value of transaction:

5) Total fee paid:

/ / Fee paid previously with preliminary materials.

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

1) Amount Previously Paid:

2) Form, Schedule or Registration Statement No.:

3) Filing Party:

4) Date Filed:

- - --------------------------------------------------------------------------------
<PAGE> 2

BBN CORPORATION
150 CAMBRIDGEPARK DRIVE
CAMBRIDGE, MASSACHUSETTS 02140

October 2, 1996

Dear Shareholder:

You are cordially invited to attend the 1996 Annual Meeting of Shareholders
of BBN Corporation. The Annual Meeting will be held in the Enterprise Room, 5th
floor, State Street Bank Building, 225 Franklin Street, Boston, Massachusetts,
on Wednesday, November 6, 1996, 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. 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
Chairman of the Board, President,
and Chief Executive Officer
<PAGE> 3

BBN CORPORATION

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

NOVEMBER 6, 1996

To the Shareholders of
BBN CORPORATION

NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of BBN
Corporation will be held in the Enterprise Room, 5th floor, State Street Bank
Building, 225 Franklin Street, Boston, Massachusetts on Wednesday, November 6,
1996, 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 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 3,850,000 shares to
4,700,000 shares; and to authorize the issuance of the additional
shares of Common Stock under the Plan.

3. 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, 1997.

4. 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 17,
1996 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
October 2, 1996
<PAGE> 4

PROXY STATEMENT

The enclosed form of proxy is solicited on behalf of the Board of Directors
of BBN Corporation (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
Wednesday, November 6, 1996, 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 October 2, 1996.

In the absence of contrary instructions, the persons named as proxies will
vote in accordance with the intentions stated below. As of September 17, 1996,
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 20,962,734 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), 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 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 the 1997 fiscal year (Item 3
of the accompanying Notice). The Company will count the total number of votes
cast "for" approval of Items 2 and 3 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 Items 2 and 3 of the accompanying Notice, even though persons
analyzing the results of the voting on those Items may interpret the results
differently.

The Annual Report of the Company, including consolidated financial
statements for the year ended June 30, 1996, is being mailed to the Company's
shareholders with this Proxy Statement. The Annual Report is not a part of the
proxy soliciting material.

2
<PAGE> 5

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 1995 Annual Meeting, the Board consisted of seven directors,
three with terms expiring in 1996, two with terms expiring in 1997, and two with
terms expiring in 1998. In April 1996, the Board expanded the number of
directors to nine, and appointed Max D. Hopper as a director with a term
expiring in 1997, and Regis McKenna as a director with a term expiring in 1998.
Dr. George N. Hatsopoulos, who has served as a director of the Company since
1989, is currently serving as a director with a term expiring in 1996. Under the
Company's mandatory retirement age policy for directors, Dr. Hatsopoulos will
retire from the Board and will not be a candidate for election to the Board at
the 1996 Annual Meeting, and his term as a director and as a member of all
committees of the Board upon which he serves will expire on the date of the
Annual Meeting.

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 eight. As a
result, two directors are to be elected at the Annual Meeting as Class I
directors, with terms which expire at the annual meeting to be held in 1999. The
Board has nominated George H. Conrades and Stephen R. Levy for election as Class
I directors, as listed below.

The current terms of office of the Class II and Class III directors do not
expire this year, and each of the directors in these classes continues in
office. Such directors' current terms expire in 1997 and 1998, 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 I 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.

3
<PAGE> 6

BIOGRAPHICAL INFORMATION

<TABLE>
The biographical information that follows includes (1) the name and age of each nominee as a
Class I 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 17, 1996, 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 I director
is currently a director of the Company, in Mr. Conrades' case upon election in December 1993 by
action of the Board upon his employ by the Company as its chief executive officer, and in Mr. Levy's
case upon election most recently by the shareholders at the 1993 Annual Meeting.

<CAPTION>
SHARES OF COMMON
STOCK BENEFICIALLY
TERM OWNED AS OF
DIRECTOR EXPIRES/ SEPTEMBER 17, 1996;
NAME AND PRINCIPAL OCCUPATION AGE SINCE CLASS PERCENT OF CLASS
----------------------------- --- -------- -------- -------------------
<S> <C> <C> <C> <C>
NOMINEES FOR DIRECTOR:
George H. Conrades....................... 57 1993 1999/ 553,452(2)(3)
President and Chief Executive I 2.6%
Officer(1)
Stephen R. Levy.......................... 56 1973 1999/ 72,227(5)
Consultant and Private Investor(4) I
DIRECTORS CONTINUING IN OFFICE:
+ John M. Albertine....................... 52 1986 1997/ 36,617(3)(8)
Chairman of the Board and Chief II
Executive Officer of Albertine Enterprises,
Inc.(6)(7)
*Lucie J. Fjeldstad....................... 52 1994 1998/ 3,250(10)
President of the multimedia business III
unit of Tektronix Inc. (9)
Max D. Hopper............................ 61 1996 1997/ 6,875(3)(12)
Consultant (11) II
Regis McKenna............................ 56 1996 1998/ 5,854(3)(14)
Chairman of Gemini-McKenna, High Tech III
Strategies (13)
+Andrew L. Nichols........................ 60 1978 1998/ 15,150(16)
Partner of Choate, Hall & Stewart (15) III
*+Roger D. Wellington...................... 69 1981 1997/ 38,077(18)
Consultant (17) II
<FN>
- - ---------------
+ Member of the Audit Committee of the Board of Directors.
* Member of the Compensation and Stock Option Committee of the Board of Directors.

(1) 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, with responsibility
for all of that company's customer-related operations in the United States. Mr. Conrades retired from IBM
in March 1992, and after 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
</TABLE>
4
<PAGE> 7

Company. Mr. Conrades is a director of Westinghouse Electric Corporation,
Cubist Pharmaceuticals Corporation, and CRA Managed Care, Inc.

(2) The shares shown as owned beneficially by Mr. Conrades include 32,202
shares owned jointly with his spouse, as to which shares Mr. Conrades and
his spouse share voting and investment power, and 506,250 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 17, 1996. Mr. Conrades
also owns $50,000 principal amount of the Company's 6% Convertible
Subordinated Debentures due 2012.

(3) The shares shown as owned beneficially by Messrs. Conrades, Albertine,
Hopper, and McKenna include 15,000, 1,000, 5,000, and 3,729 shares,
respectively, sold to the director under the Company's 1996 Restricted
Stock Plan at 75% of the fair market value of the shares on the date of
sale. The shares are restricted as to transfer and the individual is
required to offer the shares back to the Company at the price paid if the
individual terminates his service relationship with the Company within 2
years of the date of acquisition.

(4) Mr. Levy is Chairman of the Board Emeritus of the Company. Since his
retirement as an employee of the Company in 1995, he has consulted for
start-up ventures, in certain of which he has made private investments. Mr.
Levy was an officer of the Company from 1970 to 1995, 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 in 1994 and 1995. Mr. Levy is a director of Thermo Optek, Inc. and
OneWave Inc.

(5) The shares shown as owned beneficially by Mr. Levy include 32,995 shares
held in his participant account under the BBN Retirement Trust.

(6) 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 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.

(7) 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.

(8) 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 2,250 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 17, 1996. The shares shown as owned
beneficially also include 17,509 shares represented by units allocated
under the Company's deferred compensation plan for non-employee directors
entitling Dr. Albertine as of July 1, 1996 to receive that number of shares
on or after his deferral termination date.

(9) 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.

5
<PAGE> 8

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).

(10) The shares shown as owned beneficially by Ms. Fjeldstad include 2,250
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 17, 1996.

(11) Mr. Hopper serves as president and is the principal owner of Max D. Hopper
Associates, Inc., an advanced information technologies consulting firm he
founded in 1995. Prior to that time, Mr. Hopper had been chairman of The
SABRE Group (a technology services group) of AMR Corporation since 1993,
and a senior vice president of AMR (the parent of American Airlines) since
1985. Mr. Hopper is a director of Centura Software Corporation, Computer
Language Research Inc., Gartner Group Inc., Scopus Technology Corporation,
USData Corp., VTEL Corp., and Worldtalk Corporation.

(12) The shares shown as owned beneficially by Mr. Hopper include 1,875 shares
as to which Mr. Hopper 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 17, 1996.

(13) Mr. McKenna is chairman of Gemini McKenna, High Tech Strategies, a
management and marketing consulting firm. Gemini McKenna is a venture
formed in 1995 by Regis McKenna Inc., a marketing strategy company formed
by Mr. McKenna in 1970, and Gemini Consulting, Inc. Mr. McKenna is also a
venture partner of the venture capital firm of Kleiner Perkins Caufield &
Byers, and is a director of Radius Inc.

(14) The shares shown as owned beneficially by Mr. McKenna include 1,875 shares
as to which Mr. McKenna 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 17, 1996. The
shares shown as owned beneficially also include 250 shares represented by
units allocated under the Company's deferred compensation plan for
non-employee directors entitling Mr. McKenna as of July 1, 1996 to receive
that number of shares on or after his deferral termination date.

(15) Mr. Nichols has been a partner of the law firm of Choate, Hall & Stewart,
Boston, Massachusetts, since 1969. Choate, Hall & Stewart served as a
counsel to the Company in fiscal 1996 and is expected to serve in such
capacity in fiscal 1997.

(16) 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 12,250 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 17, 1996.

(17) 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.

(18) The shares shown as owned beneficially by Mr. Wellington include 12,250
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 17,
1996.

6
<PAGE> 9

The shares shown as owned beneficially also include 19,827 shares represented by
units allocated under the Company's deferred compensation plan for non-employee
directors entitling Mr. Wellington as of July 1, 1996 to receive that number of
shares on or after his deferral termination date.

BOARD OF DIRECTORS AND COMMITTEE ORGANIZATION

Compensation and Other Transactions. During the Company's fiscal year
ended June 30, 1996, the Board of Directors of the Company held a total of 16
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 the individual during the year and for each date
(other than the date of a meeting of the Board) on which the individual attended
one or more meetings of committees of the Board, plus $375 for each date of a
meeting of the Board on which the individual 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 or she was a member held during the fiscal year ended June 30, 1996.

Under the Company's deferred compensation plan for non-employee directors,
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 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 McKenna
currently participate in this plan; until January 1, 1996, Mr. Wellington also
participated in the plan. At July 1, 1996, the three individuals had units under
the plan entitling them to an aggregate of 37,586 shares of Common Stock.

The Company's 1986 Stock Incentive Plan provides that 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
equal to the fair market value per share of the Common Stock on the date the
option is granted. Options granted to non-employee directors are for a term of 5
years, and vest in equal annual installments over the first four years (subject
to acceleration in the event of the director's death, mandatory retirement from
the Board by reason of age, or retirement by reason of disability).

Dr. Albertine has served as a member of the Company's Board of Visitors
since November 1995. The Board of Visitors is a business development group
organized by the Company to seek out new opportunities for government business.
Dr. Albertine has elected to defer his compensation as a member of the Board of
Visitors (currently $2,000 per meeting attended) and to receive the deferred
amounts in shares of Common Stock under the Company's deferred compensation plan
for non-employee directors.

Mr. McKenna provided consulting services relating to marketing and business
communications to the Company and its subsidiaries from September 1994 to
December 1995, for which services he received fees aggregating approximately
$175,000. Mr. McKenna's consulting arrangement with the Company has concluded,
and he became a director of the Company in April of 1996.

Mr. Hopper provided consulting services relating to strategic marketing to
the Company and its subsidiaries from March 1995 to March 1996, for which
services he received fees aggregating approximately $50,000. Mr. Hopper's
consulting arrangement with the Company has concluded, and he became a director
of the Company in April of 1996.

7
<PAGE> 10

BBN, received a replacement option for 3,750 shares of BBN Common Stock in
January 1996 in exchange for the termination of BBN Planet options owned by him.
Also in connection with termination of the subsidiary option programs in BBN
Planet Corporation and BBN HARK Systems Corporation, Mr. Conrades received
replacement options as set forth in the table on Option Grants in Last Fiscal
Year under the Caption "Compensation and Certain Other Transactions Involving
Executive Officers" below, and Mr. Levy received a cash payment aggregating
$79,688.

In August and September 1996, each of Messrs. Albertine, Conrades, Hopper,
and McKenna purchased 1,000, 15,000, 5,000, and 3,729 shares of Common Stock,
respectively, from the Company under the Company's 1996 Restricted Stock Plan at
75% of the fair market value of the shares on the date of sale. The shares are
restricted as to transfer and the individual is required to offer the shares
back to the Company at the price paid if the individual terminates his service
relationship with the Company within 2 years of the date of acquisition.

Audit Committee. The Audit Committee of the Board of Directors held 4
meetings during the fiscal year ended June 30, 1996. 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.

Compensation Committee; Compensation Committee Interlocks and Insider
Participation. The Compensation and Stock Option Committee of the Board of
Directors (the "Compensation Committee") held 13 meetings during the fiscal year
ended June 30, 1996. 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. Hopper, McKenna, 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
standard 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 17, 1996, under the 1983
and 1986 Plans, options to purchase an aggregate of 2,482,242 shares had been
exercised, options to purchase 2,844,765 shares were outstanding and held by an
aggregate of 706 individuals, and 271,589 shares were available on that date for
the grant of future options under the 1986 Plan. Up to 2,834,165 additional
shares could become available for

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<PAGE> 11

options under the 1986 Plan if those options outstanding on September 17, 1996
under the 1986 Plan lapse or terminate.

In addition to the options outstanding and available under the 1983 and
1986 Plans, as of September 17, 1996 there were an aggregate of 767,852 shares
of Common Stock subject to outstanding options under the Company's 1996 Stock
Incentive Plan, which plan was approved by the Company's directors in connection
with a reorganization program and was not submitted to shareholders. It is not
intended that additional shares would become available for options under this
plan if those options outstanding on September 17, 1996 under the plan lapse or
terminate. For information concerning the Company's 1996 Stock Incentive Plan,
see the last paragraph under "Proposal" below.

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, certain of the options granted under the 1986
Plan and under the Company's 1996 Stock Incentive Plan resulted in a charge
against the Company's earnings (see the last paragraph under "Proposal" below).
In October 1995, the Financial Accounting Standards Board issued new accounting
rules for the treatment of stock options, effective for the Company's fiscal
year 1997 financial statements. Under the new rules, the Company expects to make
pro forma disclosure in the financial footnotes of the cost of stock option
compensation, which will not impact the Company's financial position or the
results of operations.

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, several times,
most recently at the 1995 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 3,850,000 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 maximum number of shares for which any individual 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, 719,246
shares have been issued, and 2,784,165 shares are subject to outstanding
options, leaving 196,589 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, 25,000 shares have been
issued, and 50,000 shares are subject to outstanding options, leaving 75,000
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.

Of the 850,000 additional shares proposed to be made available for awards
under the amended 1986 Plan, options for 40,000 shares were granted to David
Campbell, Senior Vice President of the Company, in May

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<PAGE> 12

1996, under the 1986 Plan as proposed to be amended but subject to shareholder
approval of the plan amendment. Such provisional options were granted at a price
of $27.50 per share, and would expire on May 6, 2003. In the event that the
shareholders do not approve the amendment to the 1986 Plan as proposed in this
Item 2, the 40,000 share option to Mr. Campbell will be void and of no effect.

Except as described with respect to Mr. Campbell, no determination has been
made as to which individuals may in the future 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
4,700,000 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.

In fiscal 1996 the Company undertook a reorganization program to combine
its Internet and internetworking services operations, and to focus its business
principally on a range of Internet capabilities. A corollary of this focus was
the elimination or sale of subsidiaries. In this connection, the portion of the
Company's compensation program related to subsidiary stock options has been
largely terminated, replaced for those employees covered previously by
subsidiary options who remained or became employees of BBN by a replacement
option program for shares in BBN. In this connection, the Company's Board
adopted a 1996 Stock Incentive Plan (the "Replacement Plan") to provide
replacement options to employees (other than certain executive officers, who
were granted replacement options under the Company's 1986 Plan) previously
covered by the option programs of certain former subsidiaries and to provide
options to individuals (other than executive officers, to whom additional
options, if any, were granted under the 1986 Plan) undertaking additional or
changed responsibilities as a result of the reorganization. Replacement options
for BBN shares have been awarded to recipients of options under the plans of BBN
Planet and BBN HARK, in general to the effect that for every 100 shares of stock
of BBN Planet covered by a replaced option, the individual received a BBN option
for 12.5 shares of BBN stock at an exercise price of $18.125 per share, as to
which 50% would vest after 6 months and an additional 50% would vest after 12
months, and that for every 100 shares of stock of

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<PAGE> 13

BBN HARK covered by a replaced option, the individual received a BBN option for
1 share of BBN stock at an exercise price of $28.875 per share, as to which 25%
would vest after 1 year and an additional 25% would vest annually thereafter.
The replacement of the BBN Planet options resulted in the grant of options for
222,920 BBN shares (of which 156,670 shares were under the Replacement Plan and
66,250 shares were under the 1986 Plan) at an option exercise price which was
below the market value of BBN shares at the date of grant in an aggregate amount
of $2,400,000, which amount will be charged to expense as compensation paid by
the Company over the vesting period of such options; $1,800,000 of such charge
was recorded in the Company's 1996 fiscal year. The replacement of the BBN HARK
options resulted in the grant of options for 5,833 BBN shares (of which 3,983
shares were under the Replacement Plan and 1,850 shares were under the 1986
Plan) at an option exercise price equal to the market value of BBN shares at the
date of grant. In addition to the subsidiary replacement options, options were
granted under the Replacement Plan as a result of the reorganization for an
aggregate of 607,199 shares to 324 individuals; such options generally were at
option prices equal to the market value of BBN shares at the dates of grant.
Options for employees of BBN Domain were reformulated upon the recapitalization
of BBN Domain and the sale by the Company of the majority of the stock of that
company in July 1996, and are obligations of that company. Following the
recapitalization and sale, stock options in BBN Domain held by Messrs. Conrades,
Campbell, Gudonis, and Goldwasser and certain other executive officers of the
Company who held options but did not become employees of BBN Domain and stock
options in BBN Domain held by Mr. Levy, remain outstanding, to the extent vested
at the time of the sale, at a reformulated price of $0.61 per share.

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 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 this Item 2 and
to authorize the issuance under the 1986 Plan of up to 850,000 additional shares
of Common Stock (making the aggregate 4,700,000), 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

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<PAGE> 14

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 25, 1996, the closing price of the
Common Stock on the New York Stock Exchange, as reported in The Wall Street
Journal, was $18.00. 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 expense 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 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 provides that an option to purchase 3,000 shares of Common
Stock is to be granted automatically on an annual basis to each non-employee
director of the Company, 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

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<PAGE> 15

value per share of the Common Stock on the date the option is granted. Options
granted to non-employee directors are for a term of 5 years, and vest in equal
annual installments over the first four years (subject to acceleration in the
event of the director's death, mandatory retirement from the Board by reason of
age, or retirement by reason of disability). Non-employee directors are not
eligible for 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.

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 rights, 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 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.

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<PAGE> 16

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.

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, 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.

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<PAGE> 17

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 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 does
not currently require shareholder approval.

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

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<PAGE> 18

paid for the shares) will be taxed to the optionee as a long-term capital gain
and any loss allocable for tax purposes 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 by the optionee 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 as the 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 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 1986
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) any gain or loss recognized upon a later sale is treated as capital gain
or loss, either short-term or long-term depending on the applicable holding
period for the sale.

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.

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 annual 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 required to 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.

16
<PAGE> 19

AMENDED 1986 PLAN BENEFITS

<TABLE>
The table below sets forth information with respect to the stock options
granted to date under the 1986 Plan as proposed to be amended, conditioned upon
shareholder approval of the plan amendment.

<CAPTION>
1986 PLAN AS PROPOSED TO BE AMENDED
NAME AND POSITION NUMBER OF PROVISIONAL OPTIONS
- - ----------------- -----------------------------------
<S> <C>
David N. Campbell, Senior Vice President.............. 40,000
Executive Officer Group (1 person).................... 40,000
</TABLE>

3. 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, 1997, 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. A representative of the firm is expected to attend the
Annual Meeting, where the representative will have the opportunity to make a
statement if he or she wishes 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

<TABLE>
As of September 17, 1996, there were 20,962,734 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:

<CAPTION>
AMOUNT
NAME AND ADDRESS OF BENEFICIALLY PERCENT
TITLE OF CLASS BENEFICIAL OWNER OWNED OF CLASS
- - -------------- ------------------- ------------ --------
<S> <C> <C> <C>
Common Stock..................... Kopp Investment Advisors, Inc. 2,960,705(1) 14.1%(1)
6600 France Avenue South
Edina, MN 55435
<FN>
- - ---------------
(1) Kopp Investment Advisors, Inc., a registered investment advisor, has informed the Company, by a
report dated February 5, 1996 on Schedule 13G, that at that time, it exercised investment
discretion with respect to such shares for the benefit of investment accounts managed by the firm,
and as to which accounts it had no voting power but had shared investment power. Kopp further
reported that at that time no individual account managed by Kopp owned more than 5% of the Company's
shares.
</TABLE>
17
<PAGE> 20

As of September 17, 1996, 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:

<TABLE>
<CAPTION>
AMOUNT
BENEFICIALLY PERCENT OF
TITLE OF CLASS NAME OR GROUP OWNED(1)(2) CLASS(3)
- - --------------------------- ---------------------------- ----------- ----------
<S> <C> <C> <C>
Common Stock............... George H. Conrades(4) 553,452 2.6%
David N. Campbell 54,375
John T. Kish, Jr.(5) 19,063
Paul R. Gudonis (4) 46,875
Ralph A. Goldwasser 35,623
All current directors and
executive officers as a
group 905,051(4)(6)(7) 4.2%(4)(6)(7)
(14 persons)(5) (8)(9) (8)(9)
</TABLE>

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

(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
506,250, 39,375, 19,063, 36,875, and 25,375 shares, respectively, as to
which Messrs. Conrades, Campbell, Kish, Gudonis, and Goldwasser 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 17, 1996.

(3) If such percentage exceeds 1%.

(4) The shares shown as owned beneficially include 15,000 and 10,000 shares
shown as owned by Messrs. Conrades and Gudonis, respectively, and an
aggregate of 9,729 shares owned by three other included directors, sold in
August and September 1996 to the individual under the Company's 1996
Restricted Stock Plan at 75% of the fair market value of the shares on the
date of sale. The shares are restricted as to transfer and the individual is
required to offer the shares back to the Company at the price paid if the
individual terminates his service relationship with the Company within 2
years of the date of acquisition.

(5) Mr. Kish is no longer an executive officer or in the employ of the Company.
Where included, information concerning Mr. Kish has been provided to the
Company by Mr. Kish.

(6) 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 37,202
shares as to which two directors (one of whom is also an executive officer
named in the table) share voting and investment power with their respective
spouses.

(7) The shares shown as owned beneficially include 37,586 shares represented by
units allocated under the Company's deferred compensation plan for
non-employee directors entitling three directors as of July 1, 1996 to
receive in the aggregate that number of shares of Common Stock on or after
their respective deferral termination dates.

(8) The shares shown as owned beneficially include an aggregate of 658,313
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 17, 1996. The
shares shown as owned beneficially also include 3,750 shares issuable upon
exercise of a stock option, the exercisability of which will be accelerated
to become immediately exercisable by one current director upon his
retirement from the Board on November 6, 1996 by reason of the Company's
mandatory retirement age policy for directors.

(9) The shares shown as owned beneficially include 32,995 shares held in the
participant account of one included director under the BBN Retirement Trust.

18
<PAGE> 21

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 17, 1996; 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, 1996, 1995, and 1994 for services rendered, to the
individual (Mr. Conrades) who served during the fiscal year ended June 30, 1996
as chief executive officer of the Company, and to the four other most highly
compensated individuals (Messrs. Campbell, Kish, Gudonis, and Goldwasser) who
were serving as executive officers of the Company at the end of the 1996 fiscal
year. Mr. Kish is no longer in the employ of the Company.

<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG-TERM
COMPENSATION
----------------
ANNUAL COMPENSATION STOCK UNDERLYING
----------------------------------- OPTIONS (NUMBER
FISCAL OTHER ANNUAL OF SHARES ALL OTHER
NAME AND PRINCIPAL POSITIONS YEAR SALARY BONUS COMPENSATION AND COMPANY(1)) COMPENSATION(2)
- - ---------------------------- ------ ------ ----- ------------ ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
George H. Conrades, President and 1996 $400,000 0 $270,928(3) 13,500(BBN)(4) $17,688(5)
Chief Executive Officer 1995 400,000 0 176,871(6) 100,000(PLT)(4) 14,860(5)
100,000(HRK)(4)
1994 206,154(7) 0 88,800(8) 800,000(BBN) 0
100,000(LSC)(9)
100,000(DC)(10)
David N. Campbell, Senior Vice 1996 284,230 $150,000 79,600(11) 194,050(BBN)(4)(12) 0
President
30,000(PLT)(4)
30,000(HRK)(4)
30,000(DC)(10)
John T. Kish, Jr., Vice President 1996 270,000 10,241(13) 675(BBN)(4)(14) 4,500
1995 225,000 125,000 170,874(15) 65,000(BBN)(16) 0
5,000(PLT)(4)
5,000(HRK)(4)
1994 786(17) 0 300,000(DC)(18) 0
Paul R. Gudonis, Vice President 1996 220,833 50,000 153,800(BBN)(4) 5,625(5)
1995 125,000(19) 138,500 50,000(BBN) 0
350,000(PLT)(4)
5,000(DC)(10)
5,000(HRK)(4)
Ralph A. Goldwasser, Senior Vice 1996 210,000 50,000 42,500(BBN)(4) 17,688(5)
President and Chief Financial 20,000(HRK)(4)
Officer 23,000(DC)(10)
1995 182,500 25,000 40,000(BBN) 15,423(5)
30,000(PLT)(4)
10,000(HRK)(4)
1994 172,500 0 25,000(BBN) 12,527
7,000(LSC)(9)
7,000(DC)(10)
<FN>
- - ---------------
(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 in the past been granted options to purchase
</TABLE>

19
<PAGE> 22

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, 1996, June 30, 1995, and June 30, 1994 to the
specified executive officers in one or more of 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"), formerly a majority-owned subsidiary of BBN; BBN
Domain Corporation, formerly known as BBN Software Products Corporation
(designated in the table as "DC"), formerly a wholly-owned subsidiary of
BBN; and BBN HARK Systems Corporation (designated in the table as "HRK"),
formerly a wholly-owned subsidiary of BBN. In January 1995, 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 and Goldwasser 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. In fiscal 1996, BBN HARK Systems Corporation was merged into
the Company. In connection with that transaction, stock options held in BBN
HARK by Messrs. Conrades, Campbell, Kish, Gudonis, and Goldwasser and
certain other executive officers of the Company were replaced by options in
the Company's stock under the Company's 1986 Stock Incentive Plan. In
fiscal 1996, in connection with the reorganization of the Company's
Internet and internetworking activities, stock options held in BBN Planet
Corporation by Messrs. Conrades, Campbell, Kish, Gudonis, and Goldwasser
and certain other executive officers of the Company were replaced by
options in the Company's stock under the Company's 1986 Stock Incentive
Plan. BBN Planet has since been merged into the Company. In July 1996, BBN
Domain Corporation was recapitalized and the majority of the Company's
stock ownership in BBN Domain was sold; in connection with the
recapitalization and sale, stock options held in BBN Domain by Messrs.
Conrades, Campbell, Gudonis, and Goldwasser and certain other executive
officers of the Company who held options but did not become employees of
BBN Domain remain outstanding, to the extent vested at the time of sale, at
a reformulated price of $0.61 per share. Mr. Kish, who left the employ of
the Company in connection with the sale and remains the president of BBN
Domain (now called Domain Solutions Corporation), continues in his options
of Domain Solutions Corporation at the reformulated price of $0.61 per
share.

(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.

(3) Amount represents expenses paid by the Company in connection with the
carrying expenses of Mr. Conrades' former residence, assumed by the Company
by agreement in connection with Mr. Conrades' relocation to Massachusetts,
and tax reimbursement for such expenses paid, in the fiscal year.

(4) In fiscal 1996 the Company undertook a program to combine its Internet and
internetworking services operations, and to focus its business principally
on a range of Internet capabilities. A corollary of this focus was the
elimination or sale of subsidiaries. In this connection, the portion of the
executive compensation package related to subsidiary stock options has been
largely terminated, replaced for those employees covered previously by
subsidiary options who remained or became employees of BBN by a replacement
option program for shares in BBN. Replacement options for BBN shares have
been awarded to recipients of options under the plans of BBN Planet and BBN
HARK, in general to the effect that for every 100 shares of stock of BBN
Planet covered by a replaced option, the individual received a BBN option
for 12.5 shares of BBN stock at an exercise price of $18.125 per share, as
to which 50% would vest after 6 months and an additional 50% would vest
after 12 months, and that for every 100 shares of stock of BBN HARK covered
by a replaced option, the individual received a BBN option for 1 share of
BBN stock at an exercise price of $28.875 per share, as to which 25% would
vest after 1 year and an additional 25% would vest annually thereafter. As
a result, BBN Planet and BBN HARK options have been canceled, unexercised;
replacement options for BBN shares are included in fiscal 1996 figures.

20
<PAGE> 23

(5) Includes amounts credited by the Company to the account of the individual
under the Company's non-qualified deferred compensation plan for certain
key executives, established effective April 1, 1995. 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. To make up for
certain limitations imposed by the Internal Revenue Code on contributions
to the BBN Retirement Trust the Company credited the following amounts: for
the year ended June 30, 1995, $3,750 and $4,313, respectively, for Messrs.
Conrades and Goldwasser; for the year ended June 30, 1996, $6,438, $1,125,
and $6,438, respectively, for Messrs. Conrades, Gudonis, and Goldwasser.

(6) Amount includes 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, aggregating
$170,346. Amount also includes interim local living expenses prior to Mr.
Conrades' relocation to Massachusetts paid, and tax reimbursement for
interim local living expenses paid, in the fiscal year, aggregating $6,525.

(7) Payments primarily constituting six months salary, at an annualized rate of
$400,000 per year.

(8) Amount includes interim local living expenses prior to Mr. Conrades'
relocation to Massachusetts paid, and tax reimbursement for interim local
living expenses paid, in the fiscal year, aggregating $51,300. 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.

(9) Canceled by agreement, without compensation to the individual, upon sale of
the business of LightStream Corporation.

(10) Options for employees of BBN Domain were reformulated upon the
recapitalization and sale by BBN of the majority of the stock of that
company in July 1996. Following the sale, stock options in BBN Domain held
by certain executive officers of BBN who held options but did not become
employees of BBN Domain, remain outstanding, to the extent vested at the
time of the sale, at a reformulated price of $0.61 per share.

(11) Amount represents relocation expenses related to Mr. Campbell's relocation
to Massachusetts paid in the fiscal year, aggregating $41,000, and expenses
incurred by the Company in connection with the sale of Mr. Campbell's
former residence, assumed by the Company by agreement in connection with
Mr. Campbell's relocation to Massachusetts, aggregating $38,600.

(12) Included are options for 40,000 shares which were conditionally granted
under a proposed amendment to the Company's 1986 Stock Incentive Plan,
subject to stockholder approval at the 1996 Annual Meeting.

(13) Amount represents relocation expenses related to Mr. Kish's relocation to
Massachusetts and related tax reimbursement paid in the fiscal year.

21
<PAGE> 24

(14) Options for 362 of such shares were unvested at, and terminated upon, Mr.
Kish's leaving the employ of the Company in July 1996.

(15) Amount represents relocation expenses related to Mr. Kish's relocation to
Massachusetts and related tax reimbursement paid in the fiscal year,
aggregating $115,747, 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.

(16) Options for 46,250 of such shares were unvested at, and terminated upon,
Mr. Kish's leaving the employ of the Company in July 1996.

(17) Mr. Kish joined the employ of the Company in June 1994.

(18) In connection with the recapitalization and sale of a majority of the stock
of BBN Domain Corporation by the Company in July 1996, option was continued
at a reformulated price of $0.61 per share.

(19) Payments consisting of seven and one-half months of salary, at an
annualized rate of $200,000 per year.

The aggregate incremental cost of personal benefits provided by the Company
in each of fiscal 1996, 1995, and 1994, to each of the individuals named in the
Summary Compensation Table (other than to Messrs. Conrades, Campbell, and Kish),
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.

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 connection with the sale by the Company of the majority of the stock of
BBN Domain Corporation, of which Mr. Kish serves as president, Mr. Kish left the
employ of the Company on July 31, 1996, after 2 years of service. At that time
Mr. Kish received $135,000 in incentive pay and the Company agreed that in the
event his employment with BBN Domain (the name of which has been changed in
connection with the sale to Domain Solutions Corporation) is involuntarily
terminated for any reason other than cause within 1 year following July 31,
1996, and if the total severance package paid to him in connection with such
termination has a value of less than $270,000, BBN will pay Mr. Kish at the time
of such termination the difference between such value and $270,000. In addition,
the exercisability of options held by Mr. Kish for 15,000 shares of Common Stock
of the Company granted in August 1994 was accelerated to become exercisable
through the period ending September 29, 1996. BBN also agreed with Domain
Solutions Corporation to sell to Domain Solutions Corporation, at the exercise
price of $0.61 per share, a portion of its shares of Domain Solutions
Corporation necessary to fund the exercise by Mr. Kish of the outstanding and
vested options for 150,000 shares of common stock of Domain Solutions
Corporation held by Mr. Kish at the date of termination, as well as for a
supplemental grant to Mr. Kish by Domain Solutions Corporation, if made, for
25,000 shares.

In connection with his relocation to Massachusetts to join the employ of
the Company, Mr. Kish 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 was represented by a term note,
due in two equal installments on August 1, 1995 and 1996, given by Mr. Kish,
which note carried simple interest at 8% per annum. The principal amount of
$75,000 outstanding at July 31, 1996, together with accrued interest, was
forgiven by the Company following the termination of employment with BBN of Mr.
Kish.

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 pro-rata share of this payment made to him.

22
<PAGE> 25

<TABLE>
Stock Option Grants. The table below sets forth information with respect to stock options granted in fiscal year 1996 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
<CAPTION>
INDIVIDUAL GRANTS
- - ---------------------------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
UNDERLYING POTENTIAL REALIZABLE
OPTIONS % OF TOTAL VALUE AT ASSUMED
GRANTED TO OPTIONS ANNUAL RATES OF STOCK
PURCHASE COMMON GRANTED TO PRICE APPRECIATION
STOCK OF BBN EMPLOYEES EXERCISE MARKET EXPIRATION FOR OPTION TERM(9)
OR SPECIFIED IN FISCAL PRICE PRICE DATE -------------------------------
NAME SUBSIDIARIES(1)(4)(5) YEAR(6) ($/SH)(7) ($/SH)(8) (2)(3)(4)(5) 0% 5% 10%
---- --------------------- ---------- --------- --------- ------------ -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
George H.
Conrades 1,000(BBN)(2) 0.05% $28.875 1/17/01 $ 7,978 $ 17,628
12,500(BBN)(3) 0.6 18.125 $28.875 1/17/00 $134,375 212,159 301,886
David N.
Campbell 150,000(BBN) 7.7 35.75 7/24/02 2,183,074 5,087,457
30,000(PLT)(10) 11.1 8.00 7/27/05 (10) (10)
30,000(HRK)(11) 17.2 1.00 8/4/05 (11) (11)
30,000(DC)(12) 9.0 3.50 8/7/05 66,033(12) 167,339(12)
300(BBN)(2) 0.0 28.875 1/17/01 2,393 5,288
3,750(BBN)(3) 0.2 18.125 28.875 1/17/00 40,312 63,648 90,565
40,000(BBN)(13) 2.1 27.50 5/6/03 447,810 1,043,581
John T. Kish,
Jr. 50(BBN)(2) 0.0 28.875 1/17/01 399 881
625(BBN)(3) 0.0 18.125 28.875 1/17/00 6,718 10,608 15,094
Paul R.
Gudonis 50(BBN)(2) 0.0 28.875 1/17/01 399 881
43,750(BBN)(3) 2.2 18.125 28.875 1/17/00 470,312 742,558 1,056,601
110,000(BBN) 5.7 28.875 1/17/03 1,293,053 3,013,363
Ralph A.
Goldwasser 20,000(HRK)(11) 11.4 1.00 8/4/05 (11) (11)
23,000(DC)(12) 6.9 3.50 8/7/05 50,626(12) 128,293(12)
300(BBN)(2) 0.0 28.875 1/17/01 2,393 5,288
3,750(BBN)(3) 0.2 18.125 28.875 1/17/00 40,312 63,648 90,565
38,450(BBN) 2.0 27.50 5/6/03 430,457 1,003,142
<FN>
- - ---------------

(1) BBN Corporation is designated in the table as "BBN"; BBN HARK Systems Corporation, formerly a wholly-owned subsidiary of BBN,
is designated in the table as "HRK"; BBN Planet Corporation, formerly a majority-owned subsidiary of BBN, is designated in the
table as "PLT"; and BBN Domain Corporation, formerly a wholly-owned subsidiary of BBN, is designated in the table as "DC".

(2) These options for BBN shares were granted under the Company's 1986 Stock Incentive Plan replacing options previously granted
under the subsidiary option plan for BBN HARK Systems Corporation. These BBN stock options are exercisable 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 by BBN at the respective date. These options were granted for a term of 5 years.

(3) These options for BBN shares were granted under the Company's 1986 Stock Incentive Plan replacing options previously granted
under the subsidiary option plan for BBN Planet Corporation. These BBN stock options are exercisable as to 50% after 6 months
from grant, and the remainder after 12 months from grant, if the optionee is employed by BBN at the respective date. These
options were granted for a term of 4 years. The fair market value of the BBN Common Stock on the date of grant was $28.875.

(4) All BBN options (other than the BBN Planet replacement options) granted in fiscal 1996 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 by BBN at the respective date. All BBN options (other than the BBN Planet and BBN HARK
replacement options)
</TABLE>
23
<PAGE> 26

were each granted for terms of 7 years. In general, all BBN options,
including the BBN Planet and BBN HARK replacement options granted to
Messrs. Conrades, Campbell, Kish, Gudonis, and Goldwasser, are subject
to termination 60 days following termination of the optionee's employment
(180 days, in the event of death). All BBN options (other than the BBN
Planet replacement 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 BBN options replacing options previously granted under
the subsidiary option plan of BBN Planet were granted at a reduced price
from fair market value, which took into consideration the spread in the
estimated BBN Planet stock value and the replaced option's exercise
price. The exercise price and tax withholding obligations related to
exercise of all BBN options may be paid by delivery of already-owned
shares or by offset of the underlying shares, subject to certain
conditions.

(5) All subsidiary options granted in fiscal 1996 vested 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
was employed at the respective date. None of the options was 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 could be paid by delivery
of already owned shares or by offset of the underlying shares, subject to
certain conditions.

(6) Percentage figure is of the total options of shares of the respective
company granted in the fiscal year.

(7) 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.

(8) Market price of the underlying security on the date of grant, if in excess
of the exercise price.

(9) 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.

(10) These options have been replaced by options for BBN shares. See footnote 3
above.

(11) These options have been replaced by options for BBN shares. See footnote 2
above.

(12) In connection with the recapitalization of BBN Domain Corporation and the
July 31, 1996 sale by the Company of the majority of the stock of that
company, options for 25% of the optioned shares, at a reformulated price of
$0.61 per share, were vested; the remainder were unvested, and were
canceled upon the termination of the service relationship of the individual
with BBN Domain Corporation.

(13) Options were conditionally granted under a proposed amendment to the
Company's 1986 Stock Incentive Plan, subject to stockholder approval at the
1996 Annual Meeting.

24
<PAGE> 27

<TABLE>
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 1996, and the number and value of unexercised
options held by such persons on June 30, 1996.

OPTION EXERCISES IN FISCAL YEAR 1996 AND YEAR-END OPTION VALUES

<CAPTION>
COMPANY AND
NUMBER OF SHARES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT JUNE 30, 1996 AT JUNE 30, 1996
ACQUIRED ON VALUE -------------------------------------- -------------------------
NAME EXERCISE REALIZED COMPANY(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ----------- -------- ---------- ------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
George H. Conrades.... -0- -- BBN 500,000 313,500 $4,687,500(2) $2,857,813(2)
DC 0 100,000(4) (3) (3)(4)
David N. Campbell..... -0- -- BBN 0 194,050(5) 0 13,594(2)
DC 0 30,000(4) 0 (3)(4)
John Kish............. -0- -- BBN 3,750 61,925(6) 13,594(2) 424,297(2)(6)
DC 0 300,000 (3) (3)
Paul R. Gudonis....... -0- -- BBN 0 203,800 0 302,344(2)
DC 0 5,000(4) (3) (3)(4)
Ralph A. Goldwasser... 28,500 $779,625 BBN 19,000 90,000 164,125(2) 310,906(2)
DC 0 30,000(4) (3) (3)(4)
<FN>
(1) BBN Corporation is designated in the table as "BBN"; and BBN Domain Corporation, formerly a wholly-owned subsidiary of BBN, is
designated in the table as "DC".

(2) Represents the excess, if any, between the closing price of the Company's Common Stock on June 28, 1996 and the exercise price
of the options.

(3) These options were vested as to 50,000 shares, 0 shares, 150,000 shares, 1,250 shares, and 3,500 shares, respectively, for each
of Messrs. Conrades, Campbell, Kish, Gudonis, and Goldwasser at June 30, 1996 but 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) Option amounts in excess of the then-vested portion (vested as to 50,000 shares, 7,500 shares, 1,250 shares, and 9,250 shares,
respectively, for each of Messrs. Conrades, Campbell, Gudonis, and Goldwasser) were canceled, unexercised under the terms of the
options following the sale by BBN of the majority of the stock of BBN Domain Corporation in July 1996.

(5) Included are options for 40,000 shares which were conditionally granted under a proposed amendment to the Company's 1986 Stock
Incentive Plan, subject to stockholder approval at the 1996 Annual Meeting (see information under the caption "2. Proposal to
Amend the 1986 Stock Incentive Plan Relative to Increase in Shares" above).

(6) The exercisability of the options to the extent of 15,000 shares was accelerated upon Mr. Kish leaving the employ of the Company
in July 1996, and the remaining unvested options were terminated at that time. The vested options held by Mr. Kish (aggregating
19,063 shares) may be exercised through the period ending September 27, 1996.
</TABLE>

Change-of-Control Arrangements. The Company has termination agreements
with the individuals named in the Summary Compensation Table above, 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

25
<PAGE> 28

options and continued participation for one 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 case of Mr. Conrades 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 agreements provide that five years after commencement,
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 Mr. 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, $900,000, $900,000, $800,000, and $515,000,
respectively, for Messrs. Conrades, Campbell, Kish, Gudonis, and Goldwasser. The
agreement with Mr. Kish has terminated as a result of his termination of
employment with the Company effective July 31, 1996.

26
<PAGE> 29

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 1996 of three outside
directors, none of whom is or has been 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
individuals 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
incentive 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
cash incentive and option awards) may be predicated upon achievement of
specified financial goals. The subsidiary option portion of the executive
compensation package was 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; however, in fiscal 1996 the Company undertook a program
to combine its Internet and internetworking services operations, and to focus
its business principally on a range of Internet capabilities. A corollary of
this focus was the elimination or sale of subsidiaries. In this connection, the
subsidiary option portion of the executive compensation package has been
terminated, replaced for those employees covered previously by subsidiary
options who remained or became employees of BBN by a replacement option program
for shares in BBN.

The key elements of the Company's executive compensation package are base
salary, performance-based cash incentives, 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 cash
incentive plan for Mr. Conrades; the Committee at the end of the fiscal year
reviews cash incentive awards proposed by Mr. Conrades under the incentive
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 in the past has reviewed all stock options
granted by subsidiaries. In fiscal 1996, the Committee also reviewed and
approved the awards of BBN stock options in connection with the reorganization
of the Internet and internetworking activities of the Company's business,
including replacing stock options previously granted by certain 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 1996 without change. In determining what
the Committee was willing to approve as a base salary for Mr. Conrades, the
Committee focused on the subjective factor of the importance to the

27
<PAGE> 30

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 has received relocation expenses
reimbursement and other non-recurring benefits in connection with his hiring and
relocation, as specified in the Summary Compensation Table provided above.)

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
Top Management Survey, the Radford Management Survey, The Mercer Finance,
Accounting, and Legal Survey, The Mercer Telecommunications Survey, and SC Chips
Executive Alliance Top Management 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 cash incentive plans of the Company. The general bonus
program in effect for fiscal 1996 provided for cash incentives, in varying
amounts, to be paid out of separate pools for the staffs of the operating units
of the Company (BBN Systems and Technologies Division, BBN Domain, BBN Planet,
and BBN HARK), 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 for the fiscal year
provided for separate pools equal to specific amounts to be awarded in whole or
in part based upon the level of attainment of the respective operating unit's
operating income and revenue objectives; the corporate staff plan provided for a
pool equal to a fixed percentage (10%) of the aggregate total bonus pools of the
operating units of the Company, and the executive management staff plan provided
for a bonus pool of up to $376,000, in each case payable in whole or in part
based upon the level of attainment of operating income and revenue targets for
the Company. (Notwithstanding the formulas, the incentive program provided for
maximum limits on the 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 pool or no bonuses.) In addition, each of the operating units had
at the start of the fiscal year a predetermined pool which, at the discretion of
the head of the operating unit, could have been awarded to individuals for
notable achievements. Bonuses from this pool were payable at any time during the
year.

Within the pools under the Company's general incentive 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 for fiscal 1996 under the general bonus program
of the Company. Bonuses totaling $287,500 were paid to the other executive
officers of the Company for the fiscal year.

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 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

28
<PAGE> 31

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 1996.

Included in the $287,500 paid in bonuses to the executive officers of the
Company for the fiscal year was a bonus to Mr. Campbell, $75,000 of which was
guaranteed for fiscal 1996 as part of his compensation package agreed to at the
time of his employment in 1995.

Stock Option Plans. Under the standard 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
otherwise 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 Domain Corporation and BBN HARK Systems Corporation, had
previously approved, by action of the Board, stock option programs of those
subsidiaries, under which options for shares of the subsidiary's common stock
were granted to employees of the subsidiary or of the Company, including certain
executive officers of the Company, and to the presidents of the other
subsidiaries of the Company. The Committee reviewed the aggregate number of
options granted by each subsidiary's board of directors, and reviewed
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 was 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 was 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 vested over four years, they were not exercisable until after the
subsidiary's stock became publicly traded. Under the subsidiary option programs,
stock of the Company's participating subsidiaries reserved for issuance under
option awards was approximately 7% to 12% of the respective subsidiary's
outstanding stock.

In fiscal 1996 the Company undertook a reorganization program to combine
its Internet and internetworking services operations, and to focus its business
principally on a range of Internet capabilities. A corollary of this focus was
the elimination or sale of subsidiaries. In this connection, the portion of the
executive compensation package related to subsidiary stock options has been
largely terminated, replaced for those employees covered previously by
subsidiary options who remained or became employees of BBN by a replacement
option program for shares in BBN. In this connection, the Company's Board
adopted a 1996 Stock Incentive Plan to provide replacement options to employees
(other than certain executive officers, who were granted replacement options
under the Company's 1986 Stock Incentive Plan) previously covered by the option
programs of certain former subsidiaries and to provide options to individuals
(other than executive officers, to whom additional options, if any, were granted
under the 1986 Plan) undertaking additional or changed responsibilities as a
result of the reorganization. Replacement options for BBN shares have been
awarded to recipients of options under the plans of BBN Planet and BBN HARK, in
general to the effect that

29
<PAGE> 32

for every 100 shares of stock of BBN Planet covered by a replaced option, the
individual received a BBN option for 12.5 shares of BBN stock at an exercise
price of $18.125 per share, as to which 50% would vest after 6 months and an
additional 50% would vest after 12 months, and that for every 100 shares of
stock of BBN HARK covered by a replaced option, the individual received a BBN
option for 1 share of BBN stock at an exercise price of $28.875 per share, as to
which 25% would vest after 1 year and an additional 25% would vest annually
thereafter. The replacement of the BBN Planet options resulted in the grant of
options for 222,920 BBN shares (of which 156,670 shares were under the
Replacement Plan and 66,250 shares were under the 1986 Stock Incentive Plan) at
an option exercise price which was below the market value of BBN shares at the
date of grant in an aggregate amount of $2,400,000, which amount will be charged
to expense as compensation paid by the Company over the vesting period of such
options; $1,800,000 of such charge was recorded in the Company's 1996 fiscal
year. The replacement of the BBN HARK options resulted in the grant of options
for 5,833 BBN shares (of which 3,983 shares were under the Replacement Plan and
1,850 shares were under the 1986 Stock Incentive Plan) at an option exercise
price equal to the market value of BBN shares at the date of grant. In addition
to the subsidiary replacement options, options were granted under the
Replacement Plan as a result of the reorganization for an aggregate of 607,199
shares to 324 individuals; such options were at option prices equal to the
market value of BBN shares at the dates of grant. Options for employees of BBN
Domain were reformulated upon the recapitalization of BBN Domain and the sale by
the Company of the majority of the stock of that company in July 1996. Following
the recapitalization and sale, stock options in BBN Domain held by Mr. Conrades
and certain other executive officers of the Company who held options but did not
become employees of BBN Domain, remain outstanding, to the extent vested at the
time of the sale, at a reformulated price of $0.61 per share. The reformulated
price, effected in connection with the recapitalization, equally affected all
holders of the class of securities underlying the options.

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 Domain
common stock and 100,000 shares of common stock of LightStream Corporation.
Following his hiring, Mr. Conrades received options for 100,000 shares of each
of BBN Planet and BBN HARK. The grant of subsidiary options to Mr. Conrades was
based upon the Committee's subjective view of the contributions to the
operations of the subsidiaries expected to be provided by Mr. Conrades.

At June 30, 1996, Mr. Conrades owned 32,202 shares of Common Stock of the
Company, exclusive of exercisable stock options. He also has 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 options for
13,500 shares of Common Stock of the Company (of which 6,250 are vested and
exercisable) received in replacement of options held by Mr. Conrades in BBN
Planet and BBN HARK. He also has options granting him the right to acquire
50,000 shares of the common stock of BBN Domain (now called Domain Solutions
Corporation) which are vested although not currently exercisable. Options in
LightStream held by Mr. Conrades were canceled by agreement, without payment to
Mr. Conrades, upon the sale by the Company of the assets of that subsidiary. In
addition, Mr. Conrades owns $50,000 principal amount of the Company's 6%
Convertible Subordinated Debentures due 2012.

Section 162(m) of the Internal Revenue Code. Subject to specific
exemptions for certain performance-based compensation, Internal Revenue Code
Section 162(m) precludes a public corporation from taking a tax deduction 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 a
tax year.

The Section 162(m) limits did not affect the Company's tax deductions with
respect to compensation paid in the 1996 fiscal year. The fiscal 1996 cash
compensation paid by the Company did not, and the fiscal 1997 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, it is believed
that stock options exercises in fiscal 1996 qualified as performance-based
compensation. In general, stock options granted at an exercise price equal to
the underlying stock's fair market value under the Company's 1986 Stock
Incentive Plan are intended to qualify as performance-based compensation, with
the intended result that the deduction of compensation resulting from the
exercises of such options would not be affected by the Section 162(m)

30
<PAGE> 33

deduction limit as it may apply in the future. However, during fiscal 1996
certain stock options were granted to the specified individual officers at an
exercise price below fair market value of the underlying shares on the date of
grant, in replacement of options held by the individuals in BBN Planet; such
options were not intended to qualify for exemption from the Section 162(m)
limits and consequently the deductibility of any compensation arising by reason
of exercises of such options could be affected in the year of exercise by the $1
million deduction limit.

The Committee will continue to assess the implications of the 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) 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 1996, Ms. Fjeldstad and Messrs. Hatsopoulos and Wellington.

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<PAGE> 34

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.)

<TABLE>
Set forth below is a line graph comparing the market price 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,
1991 and ending June 30, 1996.

COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*

BBN'S COMMON STOCK, S&P COMPOSITE 500, AND
S&P HIGH TECHNOLOGY COMPOSITE INDICES

[LINE GRAPH]

<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) BBN S&P 500 S&P HIGH TECH
<S> <C> <C> <C>
6/30/91 100.00 100.00 100.00
6/30/92 64.40 113.41 106.15
6/30/93 112.14 128.87 123.98
6/30/94 168.21 130.68 134.27
6/30/95 383.74 164.75 218.46
6/30/96 304.89 207.59 260.30

<FN>
* Assumes that the value of the investment in the Company's Common Stock and
each index was $100 on June 30, 1991; also assumes the reinvestment of any
dividends. Composite figures are weighted, based upon the average of month-end
market capitalization.
</TABLE>
32
<PAGE> 35

SHAREHOLDER PROPOSALS

In order for any proposal which a shareholder intends to present at the
1997 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 June 3, 1997.

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.

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<PAGE> 36

BBN CORPORATION
1986 STOCK INCENTIVE PLAN

SECTION 1. General Purpose of the Plan; Definitions.

The name of the plan is the BBN Corporation 1986 Stock Incentive Plan
(formerly the Bolt Beranek and Newman Inc. 1986 Stock Incentive Plan, the
"Plan"). The purpose of the Plan is to secure for BBN Corporation (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.

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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 Company's tax-qualified 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).

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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.

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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 4,700,000,
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

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Awards as it may determine, or accelerate, amend, or terminate such
Awards upon such terms and conditions as it shall 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

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date, except that deferrals, elected by participants, of the receipt
of Stock or other benefits under the Plan may extend beyond such date.

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

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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 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.

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

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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.

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

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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

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death, mandatory retirement by reason of age, or Disability, any Stock
Option held by such Non-employee Director immediately prior to his or
her 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.

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.

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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.

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

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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 Market Value on the date of exercise of
the Stock Appreciation Right or the date the Stock Option is cancelled
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.

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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.

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

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<PAGE> 50

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 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

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<PAGE> 51

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.

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

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<PAGE> 52

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 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

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<PAGE> 53

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 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.

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<PAGE> 54

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 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

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<PAGE> 55

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 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.

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<PAGE> 56

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.

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

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<PAGE> 57

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.

A-22

<PAGE> 58
BBN CORPORATION

ANNUAL MEETING - NOVEMBER 6, 1996
P
R
O The undersigned hereby appoints George H. Conrades and Nancy J.
X Nitikman as proxies and each or either of them as proxy with full power of
Y substitution to each, to vote and act at the Annual Meeting of Shareholders
of BBN Corporation (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) AND (3).

-----------
SEE REVERSE
SIDE
CONTINUED AND TO BE SIGNED ON REVERSE SIDE -----------
<PAGE> 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 I Directors: George H.
Conrades, Stephen R. Levy

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. 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
------------------------------------------------- ---------------
<PAGE> 60
VOTING INSTRUCTIONS VOTING INSTRUCTIONS

BBN CORPORATION RETIREMENT TRUST
BBN STOCK FUND

Please return this card in the enclosed postage paid envelope to the
First National Bank of Boston, P.O. Box 1628, Boston, Massachusetts 02105.

The undersigned directs the Trustees of the BBN Corporation 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 BBN Corporation to be held in the Enterprise Room, 5th Floor,
State Street Bank Building, 225 Franklin Street, Boston, Massachusetts, on
Wednesday, November 6, 1996, at 10:30 a.m. The Trustees are fully 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 BBN CORPORATION 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 -----------

<PAGE> 61
/X/ Please mark
votes as in
this example