TECHNICAL COMMUNICATIONS CORP, PRER14A, 1998-07-01

TECHNICAL COMMUNICATIONS CORP
PRER14A, 1998-07-01
RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT

Previous: LEXINGTON STRATEGIC INVESTMENTS FUND INC, 497, 1998-07-01

Next: TEXACO INC, 8-K, 1998-07-01

<PAGE>
SCHEDULE 14A

(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934

Filed by registrant |X|

Filed by a party other than the registrant |_|

Check the appropriate box:

|X| Preliminary proxy statement

|_| Definitive proxy statement

|_| Confidential, for use of the Commission only (as permitted by Rule
14a-6(e)(2))

|_| Definitive additional materials

|_| Soliciting material pursuant to Rule 14a-11(c)
or Rule 14a-12

TECHNICAL COMMUNICATIONS CORPORATION
-----------------------------------------
(Name of Registrant as Specified in Its Charter)

---------------------------------------------------------------------------
(Name of Person[s] Filing Proxy Statement, if other than the Registrant)

Payment of filing fee (Check the appropriate box):

|X| No fee required

|_| Fee computed on table below per Exchange Act Rules 14a-(6)(i)(1) and
0-11.

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

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

(2) Aggregate number of securities to which transactions applies:

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

(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:(1)

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

(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:

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

- - ----------
(1) Set forth the amount on which the filing fee is calculated and state how it
was determined.
<PAGE>

Technical Communications Corporation
[Letterhead]

July ___, 1998
Dear TCC Stockholder:

You are cordially invited to attend the Annual Meeting of Stockholders to be
held at the Company's offices in Concord, Massachusetts on _______, July __,
1998 at 10:00 A.M., Eastern Daylight Time. The meeting is for the purpose of (i)
electing seven (7) directors, each to serve for a one (1) year term; provided,
however, that in the event that a continuing dispute relating to whether the
Board members shall serve staggered terms (the "Dispute") is resolved in the
Company's favor, the Company's Board would be staggered, with directors serving
different terms, and the proxies named herein shall vote to elect the two (2)
Class I Directors named herein, each to serve for a term of three (3) years,
(ii) ratifying the election of the Company's independent auditors and (iii)
conducting any other business that may be brought before the meeting. In
addition, you will be asked to consider one stockholder proposal at the meeting.

PLEASE NOTE THAT THIS YEAR'S ANNUAL MEETING OF STOCKHOLDERS IS CRITICALLY
IMPORTANT AND WE URGE YOU TO READ THOROUGHLY THE ACCOMPANYING NOTICE OF ANNUAL
MEETING AND PROXY STATEMENT. M. Mahmud Awan, Philip Phalon, Robert B. Bregman
and William Martindale, Jr. (collectively, the "Group"), who together hold
approximately 17.2% of the Company's shares according to their filings with the
Securities and Exchange Commission, are soliciting proxies for the election of
five (5) nominees in opposition to those nominated by the Company. YOU SHOULD
KNOW that this Group is pursuing a lawsuit against the Company and its
directors, including its new independent directors, based on innuendo and
intentional or reckless falsehoods. YOU SHOULD KNOW THAT MESSRS. PHALON AND
AWAN-- FORCED TO TESTIFY UNDER OATH - NOW ADMIT that many allegations in their
complaint, were unfounded and unsubstantiated, and that some were included in
the complaint based on information provided to them by persons they cannot now
remember or identify, and others based on pure guesswork. Their success in court
to date has been based in large part on these false allegations and the Company
is continuing its efforts through legal channels. YOUR VOTE IS IMPORTANT AND
WILL DETERMINE WHETHER THIS GROUP OF FOUR STOCKHOLDERS WILL GAIN MAJORITY
CONTROL OF YOUR BOARD AND THUS DIRECT THE COMPANY'S ASSETS AND RESOURCES. For
the reasons described herein, the Company's Board of Directors urges you to vote
AGAINST the Group's nominees and AGAINST the stockholder proposal that is
described in the Proxy Statement.

The seven (7) candidates receiving the greatest number of votes will be elected
at the Meeting. In the event that the Dispute is resolved in the Company's
favor, the Company's Board would be staggered, with directors serving different
terms, and the proxies named herein shall vote to elect the two (2) Class I
Directors named herein. In such event, the two (2) candidates receiving the
greatest number of votes will be elected at the Meeting.

Detailed information relating to the Company's activities and operating
performance during fiscal 1997 is contained in the Company's Annual Report to
stockholders furnished to you with this proxy.
<PAGE>

It is important that your shares be represented at the meeting. Accordingly,
please promptly complete, date, sign and return the enclosed WHITE proxy card in
the enclosed postage-paid return envelope.

Whether or not you expect to attend the Meeting, please sign, date and return
the enclosed WHITE proxy in the enclosed envelope at your earliest convenience.
If you return your WHITE proxy, you may nevertheless attend the Meeting, revoke
your proxy, and vote your Shares in person.

IMPORTANT

1. REGARDLESS OF HOW MANY SHARES YOU OWN, YOUR VOTE IS VERY IMPORTANT. PLEASE
SIGN, DATE AND MAIL THE ENCLOSED WHITE PROXY CARD.

PLEASE VOTE EACH WHITE PROXY CARD YOU RECEIVE SINCE EACH ACCOUNT MUST BE
VOTED SEPARATELY. ONLY YOUR LATEST DATED PROXY COUNTS.

2. WE URGE YOU NOT TO SIGN ANY GOLD PROXY CARDS SENT TO YOU BY THE GROUP.

3. EVEN IF YOU HAVE SENT A GOLD PROXY CARD TO THE GROUP, YOU HAVE EVERY RIGHT
TO CHANGE YOUR VOTE. YOU MAY REVOKE THAT PROXY, AND VOTE FOR THE BOARD'S
NOMINEES BY SIGNING, DATING AND MAILING THE ENCLOSED WHITE PROXY CARD IN
THE ENCLOSED ENVELOPE.

4. IF YOUR SHARES ARE HELD IN THE NAME OF THE BANK, BROKER OR OTHER NOMINEE,
PLEASE DIRECT THE PARTY RESPONSIBLE FOR YOUR ACCOUNT TO VOTE THE WHITE
PROXY CARD AS RECOMMENDED BY YOUR BOARD OF DIRECTORS.

IF YOU HAVE ANY QUESTIONS OR DESIRE ASSISTANCE IN VOTING YOUR PROXY, PLEASE
CONTACT EITHER ME (COLLECT) AT (978) 287-5100 OR RAYMOND PRYOR AT SHAREHOLDER
COMMUNICATIONS CORPORATION AT (212) 422-0430 OR 1 (800) ____________________.

On behalf of the Board of Directors, thank you for your continued support.

Sincerely,

Carl H. Guild, Jr.
Chairman and
Chief Executive Officer
<PAGE>

TECHNICAL COMMUNICATIONS CORPORATION

Notice of 1998 Annual Meeting of Stockholders
To Be Held July __, 1998

To our Stockholders:

Notice is hereby given that the 1998 Annual Meeting of Stockholders (the
"Meeting") of Technical Communications Corporation, a Massachusetts corporation
(the "Company"), will be held at the Company's offices, 100 Domino Drive,
Concord, Massachusetts 01742-2892 at 10:00 a.m. on _________, July __, 1998:

1. To elect seven (7) directors, each to serve for a one (1) year term
or until their respective successors have been duly elected and
qualified; provided, however, that in the event that a continuing
dispute relating to whether the Board members shall have staggered
terms (the "Dispute") is resolved in the Company's favor, the
Company's Board would be staggered, with directors serving different
terms, and the proxies named herein shall vote to elect the two (2)
Class I Directors named herein, each to serve for a term of three
(3) years or until their respective successors have been duly
elected and qualified;

2. To ratify the selection of the firm of Arthur Andersen LLP as
auditors for the Company for the fiscal year ending October 3, 1998;

3. To act upon a stockholder proposal as described in the accompanying
proxy statement; and

4. To consider and act upon such other business and matters or
proposals as may properly come before the Meeting or any
adjournments thereof.

THE COMPANY REQUESTS THAT ALL STOCKHOLDERS READ THOROUGHLY THE ACCOMPANYING
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT. M. Mahmud Awan, Philip Phalon,
Robert B. Bregman and William Martindale, Jr. (collectively, the "Group") are
soliciting proxies for the election of five (5) nominees in opposition to those
nominated by the Company. If the Group is able to elect five (5) directors to
the Board, then the Group would control a majority of the Board of Directors.
YOU SHOULD KNOW that this Group is pursuing a lawsuit against the Company and
its directors, including its new independent directors, based on innuendo and
intentional or reckless falsehoods. YOU SHOULD KNOW THAT MESSRS. PHALON AND
AWAN-- FORCED TO TESTIFY UNDER OATH - NOW ADMIT that many allegations in their
complaint, were unfounded and unsubstantiated, and that some were included in
the complaint based on information provided to them by persons they cannot now
remember or identify, and others based on pure guesswork. Their success in court
to date has been based in large part on these false allegations and the Company
is continuing its efforts through legal channels. For the reasons described
herein, the Company's Board of Directors urges you to vote AGAINST the Group's
nominees and AGAINST the stockholder proposal that is described in the Proxy
Statement.

the two (2) Class I Directors named herein. In such event, the two (2)
candidates receiving the greatest number of votes will be elected at the
Meeting.

Stockholders of record on the books of the Company at the close of business on
May 29, 1998, are entitled to notice of and to vote at the Meeting.

IMPORTANT

1. REGARDLESS OF HOW MANY SHARES YOU OWN, YOUR VOTE IS VERY IMPORTANT. PLEASE
SIGN, DATE AND MAIL THE ENCLOSED WHITE PROXY CARD.

PLEASE VOTE EACH WHITE PROXY CARD YOU RECEIVE SINCE EACH ACCOUNT MUST BE
VOTED SEPARATELY. ONLY YOUR LATEST DATED PROXY COUNTS.

2. WE URGE YOU NOT TO SIGN ANY GOLD PROXY CARDS SENT TO YOU BY THE GROUP.

All stockholders are cordially invited to attend the Meeting.

By Order of the Board of Directors,

Edward E. Hicks, Clerk
Concord, Massachusetts
July ____, 1998

It is important that your shares be represented at the Meeting. Whether or not
you plan to attend the Meeting, please sign, date and mail the enclosed proxy in
the enclosed envelope, which requires no postage if mailed in the United States.
<PAGE>

TECHNICAL COMMUNICATIONS CORPORATION

PROXY STATEMENT
FOR
1998 ANNUAL MEETING OF STOCKHOLDERS

July __, 1998

Proxies enclosed with this proxy statement are solicited by and on behalf of
the Board of Directors (the "Board of Directors") of Technical Communications
Corporation, a Massachusetts corporation (the "Company"), for use at the 1998
Annual Meeting of Stockholders (the "Meeting") to be held at the Company's
offices, 100 Domino Drive, Concord, Massachusetts, at 10:00 a.m. on _______,
July __, 1998, and at any adjournments thereof. M. Mahmud Awan, Philip A.
Phalon, Robert B. Bregman and William C. Martindale, Jr. (collectively, the
"Group") have filed a proxy statement (the "Group Proxy") under the
provisions of Regulation 14A of the Securities Exchange Act of 1934 with the
Securities and Exchange Commission (the "SEC" or the "Commission"). Under the
Group Proxy, the Group is soliciting proxies for the election of five (5)
nominees in opposition to the individuals nominated by the Company's Board of
Directors at the Meeting. The individuals named in the Group Proxy and their
backgrounds, together with the reasons for the Board's opposition to their
election, are described herein. In the event that a continuing dispute
relating to whether the Board members shall have staggered terms (the
"Dispute") is resolved in the Company's favor, the Company's Board would be
staggered, with directors serving different terms, and the proxies named
herein shall vote to elect the two (2) Class I Directors named herein, each
to serve for a term of three (3) years. YOUR VOTE IS IMPORTANT AND WILL
DETERMINE WHETHER A SMALL GROUP OF FOUR STOCKHOLDERS WILL GAIN MAJORITY
CONTROL OF YOUR BOARD AND THUS DIRECT THE COMPANY'S ASSETS AND RESOURCES. YOU
SHOULD KNOW that this Group is pursuing a lawsuit against the Company and its
directors, including its new independent directors, based on innuendo and
intentional or reckless falsehoods. YOU SHOULD KNOW THAT MESSRS. PHALON AND
AWAN-- FORCED TO TESTIFY UNDER OATH - NOW ADMIT that many allegations in
their complaint, were unfounded and unsubstantiated, and that some were
included in the complaint based on information provided to them by persons
they cannot now remember or identify and others based on pure guesswork.
Their success in court to date has been based in large part on these false
allegations and the Company is continuing its efforts through legal channels.
For the reasons described herein, your Board of Directors urges you to vote
AGAINST the Group's nominees and AGAINST the stockholder proposal described
in this Proxy Statement.

IF YOU HAVE ANY QUESTIONS OR DESIRE ASSISTANCE IN VOTING YOUR PROXY, PLEASE
CONTACT EITHER CARL H. GUILD, JR. (COLLECT) AT (978) 287-5100 OR:

SHAREHOLDER COMMUNICATIONS CORPORATION
26 BROADWAY, ROOM 1640
NEW YORK, NY 10004

ATTN: RAYMOND PRYOR

(212) 422-0430
(800) _______

SHARES OUTSTANDING AND VOTING PROCEDURES

Only holders of record of outstanding shares of the Company's Common Stock as of
the close of business on May 29, 1998, are entitled to notice of and to vote at
the Meeting.

1
<PAGE>

As of May 29, 1998, there are 1,283,238 shares of the Company's Common Stock
outstanding of which 1,247,505 are entitled to vote. The shares of Common Stock
are the only voting securities of the Company. Stockholders are entitled to cast
one vote for each share held of record.

Although the Technical Communications Corporation Employees' Stock Ownership
Plan (the "ESOP") was terminated October 1, 1997, until vested shares are
distributed, participants who execute proxies will have the shares allocated to
their accounts voted by the Trustees of the ESOP as they direct. The ESOP also
provides that the Trustees shall vote any shares allocated to participants'
accounts as to which they have not received voting instructions in the same
proportion as shares in participants' accounts as to which voting instructions
are received. The Trustee of the ESOP has indicated that he intends to follow
these pass-through voting provisions of the ESOP unless doing so would conflict
with the requirements of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), including but not limited to the prudence requirements of
ERISA. Participants in the ESOP will receive proxies applicable to their
holdings in the ESOP on which they are to indicate their voting instructions to
the Trustee.

If the enclosed WHITE proxy is properly marked, signed, and returned in time to
be voted at the Meeting, and is not subsequently revoked, the shares represented
by proxy will be voted in accordance with the instructions marked thereon. The
proxy is in ballot form so that a specification may be made (i) to grant or
withhold authority to vote for the election of Directors, (ii) to vote for or
against, or abstain from voting on, the ratification of the firm of Arthur
Andersen LLP as the Company's auditors, and (iii) to vote for or against, or
abstain from voting on the stockholder proposal. SIGNED PROXIES RETURNED TO THE
COMPANY AND NOT MARKED TO THE CONTRARY WILL BE VOTED IN FAVOR OF THE ELECTION OF
THE SEVEN (7) DIRECTORS NOMINATED FOR ELECTION BY THE BOARD AND IN FAVOR OF THE
RATIFICATION OF ARTHUR ANDERSEN LLP AS INDEPENDENT AUDITORS AND AGAINST THE
STOCKHOLDER PROPOSAL. If the Dispute is resolved in the Company's favor, the
Company's Board would be staggered, with directors serving different terms, and
the proxies named herein shall vote to elect the two (2) Class I Directors named
herein, each to serve for a term of three (3) years, and in such event SIGNED
PROXIES RETURNED TO THE COMPANY AND NOT MARKED TO THE CONTRARY WILL BE VOTED IN
FAVOR OF THE ELECTION OF THE TWO (2) CLASS I DIRECTORS NOMINATED BY THE BOARD
AND IN FAVOR OF THE RATIFICATION OF ARTHUR ANDERSEN LLP AS INDEPENDENT AUDITORS
AND AGAINST THE STOCKHOLDER PROPOSAL. Any stockholder may revoke a proxy at any
time prior to its exercise by filing a later-dated proxy or a written notice of
revocation with the Clerk of the Company. Stockholders attending the Meeting may
also revoke their proxies by voting in person at the Meeting.

YOUR VOTE IS IMPORTANT AND WILL DETERMINE WHETHER A SMALL GROUP OF FOUR
STOCKHOLDERS WILL GAIN MAJORITY CONTROL OF YOUR BOARD AND THUS DIRECT THE
COMPANY'S ASSETS AND RESOURCES. In the event that a quorum cannot be achieved,
including both votes being cast in person and by proxy, it may be necessary to
adjourn the Meeting until such later date as when quorum may be achieved, at
additional cost and expense to the Company.

2
<PAGE>

Other than as described herein, the Board of Directors knows of no other matter
to be presented at the Meeting. If any other matter should be presented at the
Meeting upon which a vote may be properly taken, shares represented by all
proxies received by Management of the Company will be voted with respect thereto
in accordance with the judgment of the persons named as attorneys in the
proxies.

It is expected that this proxy statement and the accompanying proxy, and an
Annual Report to Stockholders, containing financial statements for the fiscal
year ended September 27, 1997, will be mailed to stockholders on or about
July ___, 1998.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table shows, as of May 29, 1998, the ownership of Common Stock of
the Company by any person or group who is known to the Company to be the
beneficial owner of more than 5% of the Company's Common Stock outstanding and
entitled to vote as of such date:

Amount and Nature of
Beneficial Ownership Percent of
Name and Address (Number of Shares)(1) Class (1)
---------------- --------------------- ---------

Herbert A. Lerner, Trustee 97,762 (2) 7.8% (2)
Technical Communications
Corporation Employees' Stock
Ownership Trust
100 Domino Drive
Concord, MA 01742-2892

Martindale Andres & Company, Inc. 77,000 (3) 6.2% (3)
200 Four Falls Corporate Center
Suite 200
West Conshohocken, PA 19428

Quest Advisory Corporation 127,200 (4) 10.2% (4)
c/o Charles M. Royce
1414 Avenue of the Americas
New York, NY 10019

M. Mahmud Awan 131,978 (3) 10.6% (3)
c/o TechMan International
Corporation
240 Sturbridge Road
Charlton City, MA 01506

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

(1) Unless otherwise indicated, each of the persons named in the table
has sole voting and investment power with respect to the shares set
forth opposite such person's name. Information with respect to
beneficial ownership is based upon information furnished by each
stockholder.

(2) Held as Trustee for the ESOP and represents shares that are
allocated to the participants. Until vested shares of the terminated
plan are distributed, each participant may direct the Trustee as to
the manner in which shares allocated to his or her account shall be
voted. The ESOP provides that the Trustee shall vote any shares
allocated to participants' accounts as to which they have not
received voting

3
<PAGE>

instructions in the same proportion as shares in participants'
accounts as to which voting instructions are received. Mr. Lerner
disclaims beneficial ownership of these 97,762 shares.

(3) The nature of ownership of Mr. Awan and Martindale Andres & Company
("MAC") as set forth herein is based upon their Schedule 13D, as
amended, on file with the SEC. The Schedule 13D was filed on behalf
of a "group" (as defined in Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended) consisting of Mr. Awan, Philip A.
Phalon, Robert B. Bregman and William C. Martindale, Jr., principal
of MAC. The beneficial ownership of each member of the group is as
follows: Mr. Awan has beneficial ownership of 131,978 shares (10.6%
of Class), Mr. Phalon has beneficial ownership of 2,250 shares (0.2%
of Class), Mr. Bregman has beneficial ownership of 2,700 shares
(0.2% of Class) and Mr. Martindale in his capacity as investment
advisor may be deemed to have beneficial ownership of 77,000 shares
(6.2% of Class), which shares are owned by numerous clients of MAC.
Of the 77,000 shares, Mr. Martindale has sole dispositive and voting
power over 10,000 shares and shared dispositive and voting power
over 67,000 shares.

(4) The nature of ownership of Quest Advisory Corporation ("Quest") as
set forth herein is based upon their Schedule 13G on file with the
SEC. Quest in its capacity as investment advisor may be deemed the
beneficial owner of the 127,200 shares indicated in the above table,
which shares are owned by numerous clients of Quest. Mr. Royce
disclaims beneficial ownership of the 127,200 shares owned by Quest.

I. ELECTION OF DIRECTORS

THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "FOR" THE ELECTION AS
DIRECTORS OF THE NOMINEES LISTED BELOW.

A. Number of and Nominees for Directors

The Company's stockholders are being asked to elect members of the Board of
Directors.

Currently, the Board of Directors is composed of eight (8) directors, each of
whom are serving for a one (1) year term which shall expire at the Meeting or
when their successors are duly elected and qualified or when he sooner dies,
resigns, is removed, or becomes disqualified. On April 30, 1998 and again on
June 24, 1998, the Board of Directors, after careful consideration of past
management deficiencies and performance, established specific goals to move the
Company forward in terms of market share, technological innovation and revenue
growth. To these ends, on April 30, 1998 and again on June 24, 1998, the Board
acted to enlarge the size of the Board, to add qualified, experienced and
independent new board members, and to opt into the protections provided by
Massachusetts state law under M.G.L. c.156B, Section 50A, which provides for the
continuity and efficiencies of a staggered board. On June 10, 1998, the Court,
by way of the Order (as defined herein), enjoined the first vote of the Board
which staggered the Board of Directors in accordance with Section 50A. The
Company's appeal of the Order (as defined herein) has, to date, been
unsuccessful. The status of the June 24 vote, however, is in dispute. In any
event, whether the Company nominates at the Meeting seven (7) directors for one
(1) year terms or two (2) Class I Directors for three (3) year terms, all of the
Company's nominees are committed to enhancing long term stockholder value.

4
<PAGE>

If the current dispute surrounding the June 24 vote is resolved in the Company's
favor, the Company's Board would be staggered, with directors serving different
terms, and the proxies named herein shall vote to elect the two (2) Class I
Directors named herein, each to serve for a term of three (3) years. In such
event, the Board of Directors shall be constituted as follows: The term of
office of those of the first class ("Class I Directors"), which consists of two
(2) directors, shall expire at the Meeting or when their successors are duly
elected and qualified or when he sooner dies, resigns, is removed, or becomes
disqualified; the term of office of those of the second class ("Class II
Directors"), which consists of three (3) directors, shall expire at the 1999
Annual Meeting of Stockholders or when their successors are duly elected and
qualified or when he sooner dies, resigns, is removed, or becomes disqualified;
and the term of office of those of the third class ("Class III Directors"),
which consists of three (3) directors, shall expire at the 2000 Annual Meeting
of Stockholders or when their successors are duly elected and qualified or when
he sooner dies, resigns, is removed, or becomes disqualified. At each Annual
Meeting of Stockholders, Directors chosen to succeed those whose terms then
expire shall be elected for a full term of office expiring at the third
succeeding Annual Meeting of Stockholders after their election or until their
successors are duly elected and qualified or until he sooner dies, resigns, is
removed, or becomes disqualified. Vacancies and newly created directorships,
resulting from any reason, may be filled solely by the affirmative vote of a
majority of the remaining directors then in office.

Stockholders should note however, that on May 22, 1998, one of the Company's
Directors, Philip Phalon, joined an individual named M. Mahmud Awan in a lawsuit
against the Company and its directors (other than Mr. Phalon), filed in
Massachusetts Superior Court, Middlesex County (the "Court"), entitled Philip A.
Phalon and M. Mahmud Awan v. Technical Communications Corporation, Arnold
McCalmont, Herbert A. Lerner, Robert T. Lessard, Carl H. Guild, Mitchell B.
Briskin, Donald Lake and Thomas E. Peoples, Civil Action No. 98-2553 (the "Group
Lawsuit"). In the action, the plaintiffs, which include Mr. Phalon, a long-time
director and former acting President of the Company, allege a breach of
fiduciary duty by directors relating to actions of the Board including improper
denial of access to stockholder information. Forced to testify under oath, Mr.
Awan and Mr. Phalon now admit that many allegations in the complaint, were
unfounded and unsubstantiated, and that Mr. Phalon certified to them for the
complaint based either on information provided to him by persons he cannot now
remember or identify, or on pure guesswork. The Board believes that the false
allegations were included in the complaint not on the basis of fact, but instead
as part of an intentional strategy of innuendo and deception aimed at painting
the Company's Board, including its the new independent directors as "cronies"
involved in a "coverup" scheme. The complaint also challenges the effectiveness
of certain actions taken by the Board of Directors on April 30, 1998 in creating
staggered terms for the Board. On June 10, 1998, on the basis of the allegations
made by Messrs. Phalon and Awan, the Court issued a decision and order (the
"Order"). The Court denied the plaintiffs' request for stockholder information,
but ordered the Company to distribute plaintiffs' proxy materials, but only at
plaintiffs' expense. The status of the June 24 vote in which the new independent
directors voted to create staggered terms for the Board is still in dispute.

5
<PAGE>

IF THE DISPUTE IS RESOLVED IN THE COMPANY'S FAVOR, THEN THE COMPANY'S BOARD
WOULD BE STAGGERED, WITH DIRECTORS SERVING DIFFERENT TERMS, AND THE PROXIES
NAMED HEREIN SHALL VOTE TO ELECT THE TWO (2) CLASS I DIRECTORS NAMED HEREIN,
EACH TO SERVE FOR A TERM OF THREE (3) YEARS. THESE INDIVIDUALS INCLUDE MESSRS.
BRISKIN AND RESNICK. MR. ARNOLD MCCALMONT, CURRENTLY A DIRECTOR, HAS INDICATED
THAT HE WILL NOT STAND FOR REELECTION AS A DIRECTOR IF THE DISPUTE IS NOT
RESOLVED IN THE COMPANY'S FAVOR. IF THE DISPUTE IS RESOLVED IN THE COMPANY'S
FAVOR, MR. MCCALMONT HAS INDICATED THAT HE WILL RESIGN AS A DIRECTOR IMMEDIATELY
FOLLOWING THE MEETING AND BEFORE ANY MEETING OF THE NEWLY ELECTED NOMINEES TO
THE BOARD OF DIRECTORS.

Philip Phalon, a current director who is suing the Company, advised the
Company on January 26, 1998 that he will not seek another term on a slate
that includes the Company's current Board members. His decision arises from
his disagreement with Company policies and procedures in several respects.
First, he believes that the Board of Directors has failed to manage the
Company appropriately. His view arises from his disagreement with certain
transactions and from his perception that the Board caused Company management
to be inefficient or unproductive. Second, he believes that the recently
concluded independent internal review of certain foreign transactions should
have lead the Company to seek restitution of investigation costs. Finally, he
disagrees with any action by the Board that would render the Company subject
to the provisions of Massachusetts law c.156B, ss. 50A ("50A") which creates
staggered terms for, or "classifies," the Board of Directors.

Rather than work with the current Board, which now includes three new
independent members, to develop objectives for enhancing stockholder value,
Mr. Phalon has aligned himself with three other individuals and has sued the
Company to facilitate the Group's attempt to gain majority control of the
Board and thus direct the Company's assets and resources. The Board of
Directors concurs that the prior management was deficient in several
respects. The current Board, however, believes that it has appropriately
supervised the operations of the Company, and notes that for some period of
time Mr. Phalon himself was acting President. The Board has made a considered
review of the results of the internal review and believes its response -
including the termination of all relationships with James McCalmont, a former
director and employee, and disclosure to relevant governmental agencies - was
appropriate and prudent. Further, the Board also notes that although no
specific amounts were allocated to restitution, it did satisfactorily resolve
all financial issues, including the waiver of substantial sales commissions
that are or may be due to James McCalmont. In addition, the Board has elected
three new independent directors with no previous ties to the Company.
Finally, the Board believes that bringing the Company within the scope of
Massachusetts law c.156B, ss. 50A is appropriate to preserve and enhance the
long-term value at the Company to its stockholders.

Section 50A, which was passed by the Massachusetts legislature in 1990 to
protect Norton Company and other Massachusetts public companies from hostile
bidders or costly proxy battles, requires that Massachusetts public companies
classify or stagger the terms of their board members. This classification
prevents the wholesale precipitous change of the entire board in any one year,
promoting stability in corporate affairs and effectively requiring that any
hostile

6
<PAGE>

bidder or group deal with a majority of then-current board members, which board
members are obligated to represent all stockholders -- instead of a completely
new slate of directors owing their allegiance to the small group that elected
them. In addition, the Company believes that a staggered Board of Directors
facilitates continuity and stability of leadership and corporate policy by
permitting new directors to become familiar with the business of the Company and
to benefit from the experience of the continuing directors.

The Board agrees with the policy advanced by the Massachusetts legislature and
believes that -- for now -- bringing the Company within the scope of
Massachusetts law, ss. 50A, is appropriate and that continuity at the Board
level will preserve and enhance the long-term value of the Company and its
stockholders as described above. The Board notes that ss. 50A provides that the
Company can "opt out" of its statutory protections by a Board vote or by a 2/3
stockholder vote. Moreover, Board members organized into classes also can be
removed for cause, as defined in the statute. Finally, the Board believes that
opting in to the protections of ss. 50A, like any decision to implement a
takeover defensive mechanism, is not permanent and in fact must be reassessed
periodically to ensure that the interests of all stockholders can be served in
light of any negotiated transaction or proxy contest.

The Board notes that the election of directors by classes is a common practice
that has been adopted by many large companies and that it is specifically
permitted by the laws of many states, including Massachusetts, the Company's
state of incorporation.

At the Meeting, unless the pending dispute surrounding the June 24 vote is
resolved in the Company's favor and the Board of Directors is deemed to be
staggered as set forth above, it will be the intention of the persons named as
proxies to vote the proxies, unless authority to vote is specifically withheld,
to elect the seven (7) individuals nominated by the Company, such individuals to
include Messrs. Briskin, Guild, Lake, Lerner, Lessard, Peoples and Resnick. In
such an event, the directors so elected shall serve until the 1999 Annual
Meeting of Stockholders or until their successors are duly elected and qualified
or until he sooner dies, resigns, is removed, or becomes disqualified. Mr.
Arnold McCalmont, currently a Director, has indicated that he will not stand for
reelection as a director if the Dispute is not resolved in the Company's favor,
and if the Dispute is resolved in the Company's favor, Mr. McCalmont has
indicated that he will resign as a director immediately following the Meeting
and before any meeting of the newly elected nominees to the Board of Directors.
If the Dispute is resolved in the Company's favor, the terms of the Class I
Directors, which would consist of Philip A. Phalon and Mitchell B. Briskin,
shall expire at the Meeting and the Company's Board would be staggered, with
directors serving different terms, and the proxies named herein shall, unless
authority to vote is specifically withheld, vote to elect as the two (2) Class I
Directors Mr. Briskin and Mr. Resnick, each to serve for a term of three (3)
years or until their successors are duly elected and qualified or until he
sooner dies, resigns, is removed, or becomes disqualified.

The following table sets forth the year each director first became a director,
the position currently held by each director (or director nominee) with the
Company, the principal occupation of each of the directors during the past five
years, any other directorships held by such person in any company subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended, or in
any company registered as an investment company under the Investment

7
<PAGE>

Company Act of 1940, as amended, the age of each director (or director nominee),
the current business address of each director, the class of directors to which
the director would be belong to should the Dispute is resolved in the Company's
favor, and the number of shares and percentage of Common Stock outstanding and
entitled to vote of the Company beneficially owned by each director (or director
nominee) and by all directors, director nominees and officers as a group, as of
May 15, 1998.

The following table also sets forth the names of all executive officers of the
Company, the year each first became an executive officer, the position currently
held by each officer of the Company, the principal occupation of each officer
during the past five years, the age of each officer, and the number of shares
and percentage of Common Stock outstanding and entitled to vote of the Company
beneficially owned by each officer as of May 15, 1998.

<TABLE>
<CAPTION>
Director's and Officer's Amount and Nature
Name and Year Positions and of Beneficial
First Became a Director or Offices with Ownership Percent of
Officer(2)(3) the Company Age (# of shares)(1) Class (1)
------------- ----------- --- ---------------- ---------

<S> <C> <C> <C> <C>
Mitchell B. Briskin (4) Director 39 0 0%
100 Main Street, Suite 320
Concord, MA 01742
1998 - Class I

Bernard Resnick (5) Director nominee 72 0 0%
11 Black Oak Road
Wayland, MA 01778
(director nominee)- Class I

Herbert A. Lerner (6) Director, 71 3,936(7) 0.3%
Technical Communications Treasurer, CFO
Corporation
100 Domino Drive
Concord, MA 01742-2892
1961 - Class II

Robert T. Lessard (8) Director 57 0 0%
2417 Beechnut Place
Odenton, MD 21113
1997 - Class II

Arnold M. McCalmont (9) Director 68 11,007(10) 0.9%
1 Powers Road
Hollis, NH 03049
1961 - Class II
</TABLE>

8
<PAGE>

<TABLE>
<S> <C> <C> <C> <C>
Carl H. Guild, Jr. (11) Director, 54 24,000(12) 1.9%
Technical Communications Chairman of the
Corporation Board of
100 Domino Drive Directors, CEO
Concord, MA 01742-2892
1997 - Class III

Donald Lake (13) Director 53 0 0%
19570 Top O The Moor Drive
East
Monument, CO 80132
1998 - Class III

Thomas E. Peoples (14) Director 49 0 0%
1025 Connecticut Avenue
Suite 501
Washington, DC 20036
1998 - Class III

Non-Director Officers
- - ---------------------

John I. Gill (15) Executive Vice 59 19,551(16) 1.6%
1985 President

Dale G. Peterson (17) President 35 20,000(18) 1.6%
1998

All directors, director
nominees and officers
as a group (10 persons) 78,494(19) 6.3%
</TABLE>

- - ----------
(1) Unless otherwise indicated, each of the persons named in the table
has sole voting and investment powers with respect to the shares set
forth opposite such person's name. With respect to each person or
group, percentages are calculated based on the number of shares
beneficially owned plus shares that may be acquired by such person
or group within sixty days upon the exercise of stock options.
Unless otherwise indicated herein, none of the persons named in this
table is, or was within the past year, a party to any contract,
arrangements or understandings with any person with respect to any
securities of the Company, including, but not limited to, joint
ventures, loan or option arrangements, puts or calls, guarantees
against loss or guarantees against loss or guarantees of profit,
division of losses or profits, or the giving or withholding of
proxies.

9
<PAGE>

(2) Roland Gerard resigned from the Board on February 13, 1998. Prior to
that time he served as the President and Chief Executive Officer.
James A. McCalmont resigned from the Board on January 13, 1998. On
April 30, 1998, Mr. Briskin, Mr. Lake and Mr. Peoples were all
elected by the Board to fill vacancies on the Board resulting from
resignations.

(3) Philip A. Phalon will not be continuing as a Director of the Company
following the Meeting. Mr. Phalon was Senior Vice-President for
Corporate Marketing for Raytheon Company from 1983 through September
1990. From May 1994 through June 1995, Mr. Phalon was the Company's
Acting President.

(4) Mitchell Briskin is a principal at Concord Investment Partners in
Concord, Massachusetts. In this capacity, he is responsible for all
aspects of private equity investing with a focus on creating value
in middle market companies through operational improvements. From
1990 until 1995, Mr. Briskin was General Manager at General Chemical
Corporation. In this role he managed operations and sales which
included full P&L responsibility, and he substantially improved the
Company's financial performance through expansions, turnaround
strategies and operating management. Prior to this, Mr. Briskin was
a lawyer with Patterson, Belknap, Webb & Tyler in New York City. He
holds a Masters in Business Administration from Harvard University
Graduate School of Business Administration. He was also awarded a
Juris Doctor degree from New York University School of Law, and a
B.A. from Wesleyan University.

(5) Bernard Resnick has 43 years experience in the communications
products industry. Most recently from 1986 to 1993, Mr. Resnick was
Vice President and General Manager of the Mobile Subscriber
Equipment (MSE) Division of GTE Government Systems. In this role, he
was responsible for a multi-billion dollar communications program
awarded by the U.S. Army, as well as the worldwide marketing,
logistics, training and management of the division's communications
business. He was awarded several government awards as a result of
the success of the program including the Bronze Medal of the Dispute
of Mercury. Prior to this, Mr. Resnick was Director of Engineering
for the Electronic Systems Group at GTE-Eastern Division. Mr.
Resnick was employed at GTE from 1958 to 1993 and then retired. Mr.
Resnick holds a BSEE from Northeastern University and a MSEE from
Yale University.

(6) Herbert A. Lerner has been a director of the Company since 1961, and
employed as Treasurer since 1961, with the exception of 1987. Mr.
Lerner has been serving as the Chief Financial Officer of the
Company since the termination of Graham R. Briggs on January 14,
1998. From 1990 until June 1, 1992, he was a Programs Business
Manager with Raytheon Company. In addition to his duties at the
Company, Mr. Lerner is currently an independent consultant.

(7) Includes 3,750 shares that may be acquired by Mr. Lerner within
sixty (60) days upon exercise of stock options. Excludes 97,762
shares held by the ESOP, which

10
<PAGE>

Mr. Lerner, as a trustee of the ESOP, may be deemed to own
beneficially. Mr. Lerner disclaims beneficial ownership of these
shares. With respect to shares now owned by him, Mr. Lerner shares
the voting and investment powers with his wife.

(8) Robert T. Lessard was employed in a variety of management positions
from 1966 through December 1995 at the U.S. National Security Agency
("NSA"), Department of Defense. During his final two years at NSA,
Mr. Lessard was the Group Chief in the Operations Directorate
responsible for communications and cryptographic technology. Since
his retirement in December 1995, he has represented the Director of
the National Security Agency on several special projects.

(9) Arnold M. McCalmont has been a director since 1961, and was
President of the Company from 1961 through August 22, 1993. Mr.
McCalmont served as Chairman of the Board from 1961 until 1998. Mr.
McCalmont retired as an employee of the Company in March 1998. Mr.
McCalmont has indicated that he will not stand for reelection as a
director if the Dispute is not resolved in the Company's favor,
and if the Dispute is resolved in the Company's favor,
Mr. McCalmont has indicated that he will resign as a director
immediately following the Meeting and before any meeting of the
newly elected nominees to the Board of Directors.

(10) The 11,007 shares are allocated to Arnold M. McCalmont under the
Company's ESOP.

(11) Carl H. Guild, Jr. was elected to the Board on May 1, 1997. Upon Mr.
Gerard's resignation from the Board on February 13, 1998, Mr. Guild
replaced Mr. Gerard as Chief Executive Officer and was elected
Chairman of the Board of Directors. From 1993 to 1997, he was a
Senior Vice President with Raytheon Engineers and Constructors,
Inc., a unit of Raytheon Company. Mr. Guild had been an independent
consultant to the Company from May 1, 1997 until February 13, 1998.

(12) Includes 24,000 shares that may be acquired by Mr. Guild within
sixty (60) days upon exercise of stock options.

(13) Donald Lake has been a financial consultant to various federal
government agencies since 1991. Before initiating his consulting
practice, from 1990 to 1991, Mr. Lake served as Director of the
International Banking Services Division of the American Security
Bank in Washington, D.C. Prior to this, Mr. Lake was the Managing
Director of the Maryland Bank International S.A. in Luxembourg. Mr.
Lake holds an M.S. from Texas Christian University and a B.A. from
the University of Illinois. He is currently a Ph.D. candidate at
George Washington University.

(14) Thomas E. Peoples is the Vice President for International and
Washington Operations of Aerojet, a privately held aerospace and
defense contractor and has

11
<PAGE>

been employed by that company since 1992. Prior to his employment
with Aerojet, Mr. Peoples served as Manager of Business Development
for Smart Munitions Programs at Raytheon Company. Prior to this, Mr.
Peoples served as Special Assistant to the Assistant Secretary of
Defense for Acquisition. Mr. Peoples holds an M.S. from Troy State
University and a B.A. from Benedictine College.

(15) John I. Gill has been employed by the Company since August 1983.

(16) Includes 9,551 shares currently allocated to Mr. Gill under the
ESOP.

(17) Dale G. Peterson has been employed as President of the Company since
his re-employment in February, 1998. From 1996 to 1998, Mr. Peterson
served as Director of Business Development, Network Security, for
Racal Data Group, a subsidiary of Racal Electronics Plc, a public
company engaged in the production of telecommunications, defense
electronics and data products. Prior to this, Mr. Peterson was
employed by the Company in various sales and marketing roles from
1990 to 1996. Prior to this, Mr. Peterson was employed by the
National Security Agency from 1984 to 1990. Mr. Peterson holds a
B.S. from the University of Illinois.

(18) Includes 20,000 shares that may be acquired by Mr. Peterson within
sixty (60) days upon exercise of stock options.

(19) Includes 47,750 shares that the directors and officers have the
right to acquire within sixty (60) days of May 15, 1998, by the
exercise of stock options. Also includes an aggregate of 20,558
shares that are allocated to the accounts of officers under the
ESOP. For a discussion of the voting and investment powers with
respect to such shares, see page 2 and footnote (1) on page 3.

A quorum being present, the seven (7) candidates receiving the greatest number
of votes will be elected at the Meeting. In the event that the Dispute is
resolved in the Company's favor, the Company's Board would be staggered, with
directors serving different terms, and the proxies named herein shall vote to
elect the two (2) Class I Directors named herein. In such event, the two (2)
candidates receiving the greatest number of votes will be elected at the
Meeting. Thus, abstention or broker non-votes will not be included in the totals
and will have no effect on the outcome of the vote.

B. Meetings of the Board of Directors and Committees

The Board of Directors held five (5) meetings during the twelve months ended
September 27, 1997 ("Fiscal Year 1997"). Each of the directors attended at least
75% of the aggregate of (a) the total number of meetings of the Board of
Directors he was eligible to attend, and (b) the total number of meetings of all
committees of the Board of Directors on which he served which were held during
Fiscal Year 1997.

12
<PAGE>

The Audit Committee of the Board, of which Messrs. Guild, Lerner, and Phalon
were members, held seven (7) meetings during Fiscal Year 1997. The Audit
Committee oversees the accounting and tax functions of the Company, recommends
to the Board the engagement of independent auditors for the year subject to the
approval by the stockholders of the Company, reviews with management and the
auditors the plan and scope of the audit engagement, reviews the annual
financial statements of the Company and any recommended changes or modifications
to control procedures and accounting practices and policies, and monitors with
management and the auditors the Company's systems of internal controls and its
accounting and reporting practices.

The Compensation Committee of the Board, of which Messrs. Lerner and Lessard
were members and of which James A. McCalmont was a member until January 13,
1998, held two (2) meetings during Fiscal Year 1997. The Compensation Committee
reviews and recommends to the Board compensation for the President, the Chairman
of the Board and outside directors. It also reviews and recommends the adoption,
amendment and implementation of incentive compensation plans, stock option plans
and other employee benefit plans and programs for the Company and officers and
directors of the Company.

C. Compensation of Directors

Directors who are not regular employees of the Company received a fee of $1,000
for attendance at the November 1996 Board of Directors meeting, and $1,200 for
all meetings attended thereafter during Fiscal Year 1997. In addition, beginning
with its Annual Meeting held in February 1997, each outside director is
authorized an annual retainer of $2,800 paid in arrears in quarterly increments
of $700 starting February 1, 1997. During Fiscal Year 1997, outside directors
also received a fee of $500 for each meeting of a committee of the Board of
Directors they attended. Mr. Lerner, who as the Treasurer of the Company and a
part-time Company employee, was also authorized to receive the retainer and fees
for attendance at meetings.

In addition, pursuant to the 1990 Non-Employee Director Stock Option Plan,
adopted by the Board of Directors in August 1990 and approved by the
stockholders at the 1991 Annual Meeting, each director who was not then an
employee, who attended at least 75% of Board Meetings held during the previous
fiscal year, and who was not otherwise ineligible, received on the date of each
Annual Meeting of Stockholders during the term of said plan an option to
purchase 750 shares of Common Stock at an exercise price of one hundred percent
(100%) of the fair market value of the Common Stock on the date the option was
granted. Each option had a term of five (5) years from the date of grant and was
exercisable in full or in part at any time or times after the date of grant
until the earlier of the expiration of such term or sixty days after the
optionee ceased to serve as a director of the Company. Mr. Phalon, the then
currently eligible director under the 1990 Non-Employee Director Stock Option
Plan, received an option to purchase 750 shares following the 1997 Annual
Meeting. The 1990 Non-Employee Director Stock Option Plan was subsequently
terminated by the Board in February 1997.

In February 1997, the Board approved additional director compensation that will
grant 1,000 share stock options under the Company's 1991 Stock Option Plan to
all directors effective as of the meeting of the Board of Directors which will
follow the Meeting. These shares will have a term of five (5) years from the
date of the grant and will have an exercise price equal to 85% of

13
<PAGE>

the fair market value as of that date. In addition, all directors are to receive
a grant of 500 shares of Company stock at the meeting of the Board of Directors
which will follow the Meeting.

D. Certain Relationships and Related Transactions

On November 17, 1989, the Company established the Technical Communications
Corporation Employees' Stock Ownership Trust (the "Trust") for the benefit of
its employees. The Trust purchased 190,350 shares of the Company's Common Stock
with borrowed funds, and the Company served as guarantor of the bank loans.
During Fiscal Year 1997, the Company provided two loans to the Trust in order to
pay off the bank loans. At its August 27, 1997 meeting, the Board of Directors
voted to terminate the ESOP, effective October 1, 1997.

Herbert A. Lerner, Company director, Chief Financial Officer and Treasurer, is
the Trustee of the Technical Communications Corporation Employees' Stock
Ownership Trust.

Edward E. Hicks, Esq., the Company's Secretary and Clerk, is a member of a law
firm that provides legal services to the Company.

Lawrence A. Kletter, Esq., who resigned as a director during Fiscal Year 1997,
is a member of a law firm that provided legal services to the Company.

Carl H. Guild, Jr., elected to the Board of Directors effective May 1, 1997,
served as a consultant for the Board during Fiscal Year 1997, earning $52,500 in
this capacity during that time.

During Fiscal Years 1997 and 1996, the Company incurred expenses of $116,038 and
$96,360, respectively, to FutureComms, Inc., a privately held telecommunications
software consulting services company. FutureComms is owned and operated by
Michelle D. Gerard, the wife of the Company's former President and Chief
Executive Officer. FutureComms' work ended on August 29, 1997.

On June 27, 1995, the Company invested $250,800 for a minority interest in
Series B Preferred Stock of Net2Net Corporation ("Net2Net"), a privately held
company involved in the development of high performance management and analysis
systems for Asynchronous Transfer Mode (ATM) networks. The Company also paid a
deposit for inventory, purchased at a discounted price, valued at $244,200 as
well as entered into an eighteen month distribution agreement with Net2Net that
gave the Company the exclusive right to sell Net2Net products to certain U.S.
Government departments. As of September 27, 1997, $144,283 of the inventory had
been sold and the remaining amount of $99,917 has been either written-down or
fully reserved. On May 15, 1998, a wholly owned subsidiary of Visual Networks,
Inc. ("Visual"), a public company, merged with and into Net2Net. Under the terms
of the merger, all outstanding shares of Net2Net were exchanged for an aggregate
of 2,250,000 shares of Visual common stock. Net2Net's president was Stephen
McCalmont, son of Arnold M. McCalmont, and brother to former director James A.
McCalmont. Arnold and James McCalmont, as well as Herbert A. Lerner, also were
investors in Net2Net Corporation. This investment, which represented less than a
5% interest, was accounted for using the cost method.

14
<PAGE>

E. The Group's Nominees

The Group has nominated Mr. Phalon, Mr. Awan, Joseph J. Hansen, Ernest R. Fenton
and David A.B. Brown for election as directors. Listed below are the names and
ages of the Group's nominees, their business experience during the last five
years and ownership of Company stock. The information set forth below relating
to the Group's nominees is taken from the Group Proxy and has not been
independently verified or confirmed by the Company.

Group Nominee Beneficial Ownership Background and
Name, Age and of Shares Present Occupation
Business Address

Philip A. Phalon (69) 2,250 (1) Self-employed
40 Salem Street international marketing
Lynnfield, MA 01940 and business consultant
and private investor from
October 1990 to the
present. Interim
President of the Company
from May 1994 to March
1995. Director of the
Company from August 1994
to the present.

M. Mahmud Awan (46) 138,387 (2) Chairman and Chief
240 Sturbridge Road Executive Officer of
Charlton City, MA 01506 TechMan International
Corporation, a
manufacturer of fiber
optic medical devices and
communications systems,
from September 1982 to the
present.

Joseph J. Hansen (64) 0 (3) President of Lexington
221 Follen Road Strategic Associates, a
Lexington, MA 02173-5502 strategic management
consulting firm, from
October 1992 to the
present; Senior Lecturer
in mathematics at
Northeastern University
from 1986 to the present.

Ernest R. Fenton (51) 0 Self-employed business
4 Johns Lane consultant specializing in
Lexington, MA 02173 turnaround of
underperforming
international businesses,
from 1992 to the present.

David A.B. Brown (54) 0 President of the Windsor
One Boston Place Group, Inc., a business
Boston, MA 02108 consulting firm focused on
the

15
<PAGE>

oil industry and
international operations,
from 1984 to the present.
Mr. Brown is a director of
BTU International, Inc.
(thermal processing
equipment and controls),
EMCOR Group, Inc.
(electrical and mechanical
engineering) and The
Marine Drilling Companies
(owner and operator of
offshore drilling rigs).

(1) Mr. Phalon beneficially owns 2,250 shares of Common Stock of which 500
shares are owned directly by Mr. Phalon; 1,750 shares are issuable upon exercise
of stock options which are currently exercisable.

(2) Mr. Awan owns 138,378 shares of Common Stock (of which 78,000 are owned by
Mr. Awan directly and 60,378 of which are owned of record by TechMan
International Corporation, which is wholly owned by Mr. Awan).

(3) Mr. Hansen holds a revocable proxy to vote 50 shares of Common Stock owned
of record by Frederick A. Kinch, a former employee of the Company.

F. Board of Directors Response to The Group's Nominees

On April 30, 1998, the Board of Directors, after careful consideration of
past management deficiencies and performance, established specific goals to
move the Company forward in terms of market share, technological innovation
and revenue growth. To these ends, on April 30, 1998 the Board acted to
enlarge the size of the Board, to add qualified, experienced and independent
new board members, and to opt into the protections provided by Massachusetts
state law under M.G.L. c.156B, Section 50A, which provides for the continuity
and efficiencies of a staggered board. On June 10, 1998, the Court, by way of
the Order, enjoined the April 30, 1998 vote of the Board that staggered the
Board of Directors in accordance with Section 50A. On June 24, 1998, the new
independent Board members again voted to opt into the protections provided by
Section 50A. The status of this June 24 vote is still in dispute. The
Company's initial appeal of the Order has, to date, been unsuccessful,
however the Company is continuing its efforts to resolve the dispute. In any
event, whether the Company nominates at the Meeting seven (7) directors for
one (1) year terms or two (2) Class I directors for three (3) year terms, all
of the Company's nominees are committed to enhancing long term stockholder
value.

The Company's nominees have consulted with the Company's current management and
have agreed that the Company's Board must take immediate action to return the
Company to profitability and enhance stockholder value. Their contribution is
expected to include -- on a regular basis -- a commitment to overseeing and
advising the Company's management with respect to actions that currently are
expected to include: (i) a focus of product development

16
<PAGE>

efforts on those products that have near-term marketability and offer a chance
to increase the Company's revenue and market share, (ii) the launching of new
and technologically innovative encryption products aimed at the financial
market, (iii) an intensification of sales efforts on current products to
increase revenues, (iv) the completion and on-time delivery of custom designed
secure network equipment for a key international government customer, (v) the
control and reduction of the cost of operations, and (vi) a strengthening of
engineering resources to align product cycles with market opportunities.

YOUR BOARD OF DIRECTORS DOES NOT BELIEVE THAT THE BEST INTERESTS OF THE COMPANY
OR ITS STOCKHOLDERS WOULD BE SERVED BY ELECTING ANY OF MESSRS. PHALON, AWAN,
HANSEN, FENTON OR BROWN, ALL OF WHOM ARE NOMINEES OF A SMALL GROUP OF
STOCKHOLDERS ATTEMPTING TO GAIN MAJORITY CONTROL OF YOUR BOARD OF DIRECTORS AND
THUS DIRECT THE COMPANY'S ASSETS AND RESOURCES.

The Company believes that the Group's course of action and nomination of its own
slate of directors may be motivated by a personal agenda that may not be aligned
with the interests of the stockholders as a whole.

The Company believes that Mr. Phalon is using the proxy contest to secure
himself the position of Chairman of the Board of Directors, a position likely
unavailable to him by vote of the new outside members of the Board of Directors.
Prior to the formation of the Group of which he is a member, in December 1997
and January 1998, Mr. Phalon advised his fellow Board members that he wished to
be Chairman of the Board. A deposition under oath of Mr. Phalon in the lawsuit
against the Company filed in Massachusetts Superior Court, Middlesex County has
revealed the following:

1. In late January 1998, after outside counsel had completed an internal
investigation of certain historical contracts, finding that certain approval and
control procedures had not been followed with respect to those contracts, Mr.
Phalon and other Board members voted to (i) direct counsel to report the results
of the investigation to the Commission and to the Company's auditors and (ii)
make all required filings under the federal securities laws. Simultaneously, the
Board authorized the issuance of a press release on these matters.

2. Instead of conveying any concerns that he had about the internal
investigation or the press release to the Commission, the Company's auditors, or
any other authority, Mr. Phalon chose to convey his own review and analysis of
the internal investigation to a small group of persons who then began purchasing
stock of the Company. In early April, this small group entered into a formal
agreement that, in the event that a member of the group desires to sell his
shares of Company stock to an outsider, each other member of this small group
has a right of first refusal with respect to the purchase of that stock.

3. In late April, the Company's Board moved to elect three new outside
directors, each with significant industry or investment banking experience and
no prior contractual or other ties to the Company or any of its directors. The
Board also voted to classify the terms of its members, in accordance with
Massachusetts law, c. 156B, ss.50A. In May 1998, Mr. Phalon and M. Mahmud

17
<PAGE>

Awan, a stockholder who had purchased Company stock on the basis of information
provided by Mr. Phalon, filed a lawsuit against the Company, Mr. Phalon's fellow
directors and the three new outside directors, including in their complaint many
allegations that Mr. Phalon and Mr. Awan now admit were unfounded and
unsubstantiated. The complaint in the Group Lawsuit asserts that the Company's
directors engaged in a "coverup" and self-dealing transactions. In support, the
complaint includes admittedly false allegations to the effect that: (i) the
three new independent directors elected to the Board in April 1998 were
"cronies" of director Arnold McCalmont, (ii) new director Briskin was a
stockholder in Net2Net Corporation, a privately held company of which Mr.
McCalmont's son was the president, (iii) new director Lake is a banker that
previously handled personal banking and financial matters for Arnold McCalmont
and his family, and (iv) director McCalmont has entered into a secret consulting
arrangement with the Company. ACCORDING TO SWORN AFFIDAVITS, NONE OF THESE
ALLEGATIONS ARE TRUE. In June 1998, Mr. Phalon and Mr. Awan obtained an
injunction against the Board's opting into the provisions of ss.50A, largely on
the basis of the allegations in their complaint.

In point of fact, the Board believes that the "coverup" alleged by Mr. Phalon
and his colleague Mahmud Awan does not exist. The Company -- through counsel --
has reported in detail the content and nature of the internal investigation to
both the Securities and Exchange Commission and the Company's auditors. (In
addition, the Company has reported the stock purchasing activity surrounding Mr.
Phalon's release of non-public information to his small group of colleagues to
the Securities and Exchange Commission's Boston office.) In addition, contrary
to the allegations leveled by Mr. Phalon and Mr. Awan, none of the new directors
knew Arnold McCalmont prior to joining the Board in April 1998, nor did any of
the new independent directors have any previous relationship with the Company.
Mr. Briskin is not and never has been a stockholder (of record, beneficial or
otherwise) of Net2Net. Mr. Lake has never handled any banking or financial
matters for Arnold McCalmont or the Company. The Company has not entered into
any current consulting or employment relationship with Arnold McCalmont. Mr.
Phalon has stated under oath that he has no direct knowledge that any of these
allegations set forth in the complaint are true and that he certified to them
for the complaint based on information provided to him by persons he cannot now
remember or identify. Forced to testify under oath, Mr. Awan and Mr. Phalon now
admit that many allegations in the complaint, were unfounded and
unsubstantiated, and that Mr. Phalon certified to them for the complaint based
either on information provided to him by persons he cannot now remember or
identify, or on pure guesswork. The Board believes that the false allegations
were included in the complaint not on the basis of fact, but instead as part of
an intentional strategy of innuendo and deception aimed at painting the
Company's Board, including its the new independent directors as "cronies"
involved in a "coverup" scheme.

4. In addition, only after Messrs. Awan and Phalon were forced to admit under
oath that (i) their earlier proxy statement filings with the Securities and
Exchange Commission omitted significant information in that they failed to
disclose certain business dealings that Mr. Awan had conducted with the Company
in Fiscal Year 1997 and (ii) Mr. Awan's stock purchases had been described
inaccurately as the acquisition of "put options," did they amend their
Securities and Exchange Commission filings for distribution to the Company's
stockholders.

18
<PAGE>

5. Mr. Phalon also has contacted and identified several former Company
employee/stockholders of his choosing about employment positions at the Company
if his group should prevail in the proxy contest.

On the basis of the above, the Company believes that Mr. Phalon is using the
proxy contest to secure himself the position of Chairman of the Board of
Directors, a position likely unavailable to him by vote of the new outside
members of the Board of Directors.

FOR THE REASONS STATED ABOVE, THE BOARD OF DIRECTORS BELIEVES THAT THE ELECTION
OF THE GROUP'S NOMINEES IS NOT IN THE BEST INTERESTS OF THE COMPANY AND ITS
STOCKHOLDERS. ACCORDINGLY, THE BOARD RECOMMENDS THAT YOU VOTE FOR MESSRS.
BRISKIN, GUILD, LAKE, LERNER, LESSARD, PEOPLES AND RESNICK AS DIRECTORS BY
EXECUTING THE ENCLOSED WHITE PROXY CARD. IF THE DISPUTE IS RESOLVED IN THE
COMPANY'S FAVOR, THE COMPANY'S BOARD WOULD BE STAGGERED, WITH DIRECTORS SERVING
DIFFERENT TERMS, AND THE PROXIES NAMED HEREIN SHALL VOTE TO ELECT THE TWO (2)
CLASS I DIRECTORS NAMED HEREIN, EACH TO SERVE FOR A TERM OF THREE (3) YEARS. IN
SUCH EVENT, THE BOARD WOULD RECOMMEND THAT YOU VOTE FOR MESSRS. BRISKIN AND
RESNICK AS CLASS I DIRECTORS BY EXECUTING THE WHITE PROXY CARD. WE URGE YOU NOT
TO SIGN ANY PROXY CARD FROM THE GROUP OR ANY MEMBER OF THE GROUP. If you have
mistakenly executed and delivered a proxy card received from the Group and wish
to vote for the slate of directors recommended by the Company, you may revoke
such proxy at any time prior to its exercise by executing a later-dated WHITE
proxy card and returning it to the Company. Stockholders attending the Meeting
may also revoke their proxies by voting in person at the Meeting.

G. Executive Compensation and Other Information

Summary of Cash and Certain Other Compensation. The following tables set forth
certain summary information concerning compensation paid or accrued by the
Company during Fiscal Year 1997 to its Chief Executive Officer and the other
executive officers of the Company whose annual compensation during Fiscal Year
1997 exceeded $100,000 (hereafter referred to as the "named executive
officers"):

SUMMARY COMPENSATION TABLE

Fiscal Year 1997 Compensation

<TABLE>
<CAPTION>
Fiscal All Other
Name and Principal Position Year Salary Bonus Compensation
- - --------------------------- ---- ------ ----- ------------

<S> <C> <C> <C> <C>
Graham R. Briggs (1) 1997 $ 96,324 $ 11,171 (2) $ --
Vice President Finance 1996 $ 85,865 $ 1,500 (2) $ 1,747 (3)
1995 $ 87,233 $ 200 (2) $ 1,366 (3)

Roland S. Gerard (4) 1997 $ 158,708 $ 45,171 (5) $ 1,173 (6)
President and Chief 1996 $ 125,862 $ 15,000 (5) $ 4,233 (7)
Executive Officer 1995 $ 35,600 $ -- $ 25,644 (8)
</TABLE>

19
<PAGE>

<TABLE>
<S> <C> <C> <C> <C>
John I. Gill 1997 $ 116,325 $ 18,171 (9) $ --
Executive Vice President 1996 $ 108,953 $ 1,500 (9) $ 2,209 (3)
1995 $ 111,660 $ 200 (9) $ 1,948 (3)
</TABLE>

- - ----------
(1) Mr. Briggs was employed by the Company until January 14, 1998. Mr.
Lerner is currently performing the duties of the Vice President of
Finance in his capacity as Treasurer and Chief Financial Officer of
the Company.

(2) These amounts of $11,171, $1,500, and $200 were paid to Mr. Briggs
for services rendered in fiscal years 1996, 1995, and 1994,
respectively.

(3) Represents the Company's contribution for the account of the
respective executive officer under the Company's Profit-Sharing
Plan, a plan qualified under Section 401(k) of the Internal Revenue
Code of 1986, as amended (the "Code"). The contribution is
determined by the Board of Directors in its sole discretion, but may
not exceed 15% of the Company's net profits before taxes for any
given Plan year, nor certain limits imposed by the Internal Revenue
Code.

(4) Mr. Gerard was employed by the Company as President from June 12,
1995 until February 13, 1998. Mr. Guild is currently serving as
Chief Executive Officer and Mr. Peterson is currently serving as
President.

(5) These amounts of $45,171, and $15,000 were paid to Mr. Gerard for
services rendered in Fiscal Years 1996 and 1995, respectively.

(6) Represents the personal use portion of Mr. Gerard's automobile
allowance.

(7) Represents the Company's $3,625 contribution to Mr. Gerard under the
Company's Profit-Sharing Plan as described in note (3) above, plus
$608 for the personal use portion of Mr. Gerard's automobile
allowance.

(8) Consists entirely of relocation expenses.

(9) These amounts of $18,171, $1,500, and $200 were paid to Mr. Gill for
services rendered in fiscal years 1996, 1995, and 1994,
respectively.

Stock Options. No stock options were granted to the named executive officers
during Fiscal Year 1997. The unexercised options held as of September 27, 1997
by the named executive officers are as follows:

AGGREGATED FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money Options
Options at Fiscal Year-End at Fiscal Year-End (1)
-------------------------- ----------------------

Name Exercisable Not Exercisable Exercisable Not Exercisable
- - ---- ----------- --------------- ----------- ---------------

<S> <C> <C> <C> <C>
Roland S. Gerard (2) 40,000 (3) 60,000 -- --
Graham R. Briggs (4) 6,800 (5) -- -- --
</TABLE>

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

20
<PAGE>

(1) Value is based on the difference between the option exercise price
and the fair market value at September 27, 1997 ($6.75 per share)
multiplied by the number of shares underlying the in-the-money
portion of the option.

(2) Mr. Gerard was employed by Company as President from June 12, 1995
until February 13, 1998. Mr. Guild is currently serving as Chief
Executive Officer and Mr. Peterson is currently serving as
President.

(3) This option has subsequently expired due to the termination of Mr.
Gerard's employment with the Company.

(4) Mr. Briggs was employed by the Company until January 14, 1998. Mr.
Lerner is currently performing the duties of the Vice President of
Finance in his capacity as Treasurer and Chief Financial Officer of
the Company.

(5) This option has subsequently expired due to the termination of Mr.
Briggs' employment with the Company.

Compliance with Section 16(a) of the Securities Exchange Act. Section 16(a) of
the Securities Exchange Act of 1934, as amended, requires the Company's officers
and directors, and persons who beneficially own more than ten percent (10%) of
the Company's stock, to file initial reports of ownership on Form 3 and reports
of changes in ownership on Form 4, and annual statements of beneficial ownership
on Form 5 with the SEC and any national securities exchange on which the
Company's securities are registered. Executive officers, directors and greater
than ten percent (10%) beneficial owners are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file.

Based solely on a review of the copies of such forms furnished to the Company
and written representations from the executive officers and directors that no
other reports were required, the Company believes that during Fiscal Year 1997,
its executive officers, directors and greater than ten percent (10%) beneficial
owners complied with all applicable Section 16(a) filings.

II. RATIFICATION OF SELECTION OF AUDITORS

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE SELECTION
OF ARTHUR ANDERSEN LLP AS AUDITORS.

The Board of Directors has selected the firm of Arthur Andersen LLP, independent
certified public accountants, to serve as auditors for the fiscal year ending
October 3, 1998. Arthur Andersen LLP served as the Company's auditors for Fiscal
Year 1997. A quorum being present, the affirmative vote of the holders of a
majority of the shares of Common Stock voting in person or by proxy on the
appointment of the auditors shall be required for approval. Thus, abstentions or
broker non-votes will not be included in the totals and will have no effect on
the outcome of the vote.

21
<PAGE>

A member of the firm of Arthur Andersen LLP will be present at the Meeting and
will be available to respond to appropriate questions and will have the
opportunity to make a statement on behalf of Arthur Andersen LLP.

III. STOCKHOLDER PROPOSAL

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST" THE STOCKHOLDER PROPOSAL.

Mr. Graham R. Briggs, 45 Hoover Road, Needham, MA 02194, formerly employed by
the Company as its Vice President-Finance until his termination earlier this
year, who states that he beneficially owns 5,461 shares of Common Stock,
submitted the following proposal (the "Proposal"):

"That the actions taken on April 30, 1998 by the Company's Board of
Directors to classify the Board into three (3) classes having staggered terms be
revoked."

STATEMENT OF MR. BRIGGS IN SUPPORT OF HIS PROPOSAL:

Pursuant to the Massachusetts Business Corporation Law and the Company's
by-laws, an annual meeting of stockholders for the year beginning September 28,
1997 should have occurred no later than March 31, 1998. In prior years, such
annual meeting has been held in February. On April 3, 1998, a group of
investors, including one Director of the Company, beneficially owning an
aggregate of 197,228 shares or approximately 15.4% of the outstanding shares of
Common Stock, filed a Schedule 13D stating that their shared purpose included
considering the costs and benefits of conducting a proxy contest to replace at
least a majority of the Board. Still, no annual meeting was scheduled. On
Wednesday, April 29, 1998, Philip A. Phalon and Dr. M. Mahmud Awan, two of the
members of such group, sent a written demand to the Company to set a record date
and conduct an annual meeting, as required by law. At its April 30, 1998
meeting, the Board finally established a record date and a meeting date for the
annual meeting. However, at the same time, the majority of the incumbent Board
members took action to entrench themselves (i) by adopting a by-law amendment
increasing from 10% to 40% the percentage of outstanding shares necessary to
call a special meeting of stockholders and (ii) by "opting in" to a staggered
board scheme previously eschewed by the Company even though it has been
available by statute to Massachusetts public companies since 1990.

Under Massachusetts law and the by-laws of the Company, a simple majority of the
stockholders voting at the annual meeting could have approved the adoption of
the by-law amendment creating a staggered Board. However, under statute,
removing a validly adopted by-law provision creating a staggered Board requires
two-thirds of the stockholders voting at a meeting. By amending the by-laws
without waiting for a stockholder vote, the Board extended the terms of the
majority of the directors already serving by five years in the aggregate and
elected two out of three new Directors to serve an aggregate of over four years.
This presumptive action, taken ten weeks before the next annual meeting, usurps
the role of the stockholders, imposes a majority of Directors not subject to
re-election for an extended period and, in the view of the proponent, breaches
the duty of the Directors to the stockholders. The actions taken on April 30,
1998 by

22
<PAGE>

the Company's Board of Directors to classify the Board into three (3) classes
having staggered terms should be revoked, so that all Directors remain
accountable to the stockholders.

THE COMPANY'S STATEMENT IN OPPOSITION:

Your Board recommends that you vote against the Proposal. The Board agrees
with the policy advanced by the Massachusetts legislature and believes that
- - -- for now -- bringing the Company within the scope of Massachusetts law, c.
156B, ss. 50A, is appropriate and that continuity at the Board level will
preserve and enhance the long-term value of the company and its stockholders.
Moreover, the Board believes that the proponent's use of the term "revoke"
makes the effect of the Proposal, if passed, unclear. The Company believes
that Massachusetts corporate law does not allow stockholders to "revoke"
actions lawfully taken by the Board of Directors. Rather, in this instance,
the Company may "opt out" of the protections of ss. 50A by a specific board
vote or a specific 2/3 stockholder vote. The Proposal does not call for
either alternative, nor does it suggest that passage would be mandatory or
non-binding as a directive to the Board, nor does it state what percentage of
stockholders must vote to "revoke" an action of the Board under Massachusetts
law. In short, this lack of clarity and vagueness combined with what we
believe is the plain language of Section 50A provides little guidance to the
thoughtful stockholder who might ask "what am I voting on" and "what does my
vote mean?"

Additionally, the Proposal refers to Board action taken on April 30, 1998. This
action has since been superseded. On June 24, 1998, the Company's new
independent directors reexamined the April 30 Board action and voted to stagger
the terms of the Board of Directors. The Proposal no longer refers to an
effective Board action.

Moreover, your Board of Directors believes that a staggered board WOULD PREVENT
A SMALL GROUP OF STOCKHOLDERS FROM IMMEDIATELY GAINING MAJORITY CONTROL OVER
YOUR BOARD OF DIRECTORS AND THUS DIRECTING THE COMPANY'S ASSETS AND RESOURCES to
suit their own personal agendas, motives and ends. In short, a staggered board,
in conjunction with a 40% stock ownership requirement to call a special meeting
of the stockholders, could prevent precisely the kind of inappropriate pressure
tactics currently being used by the Group because such a group could not obtain
immediate control of your entire Board in any one election. These tactics have
included the intentional and reckless use of unfounded and unsubstantiated
allegations in a complaint against the Company and its directors in what the
Company believes to be an attempt by the Group to smear the new independent
directors as "co-conspirators" in a "coverup" scheme.

On April 30, 1998 and again on June 24, 1998, the Board of Directors, after
careful consideration of past management deficiencies and performance,
established specific goals to move the Company forward in terms of market
share, technological innovation and revenue growth. To these ends, the Board
acted to enlarge the size of the Board, to add qualified, experienced and
independent new board members, and to opt into the protections provided by
Massachusetts state law under M.G.L. c.156B, Section 50A, which provides for
the continuity and efficiencies of a staggered board. These actions were not
undertaken for the purposes of "entrenchment," but instead with the intent of
bringing in outsiders whose independence, experience and judgment would serve
the interests of ALL STOCKHOLDERS - INSTEAD OF THE UNSTATED PERSONAL AGENDA
OF A SMALL GROUP.

23
<PAGE>

In the opinion of the Board of Directors, a staggered Board of Directors serves
the best interests of a vast majority of the Company's stockholders. A staggered
Board of Directors facilitates continuity and stability of leadership and
corporate policy by permitting new directors to become familiar with the
business of the Company and to benefit from the experience of the continuing
directors. Dramatic shifts in the composition of the board of directors of a
corporation often lead to disarray at the board level since the directors do not
possess a clear and unified vision of future of the corporation, nor do they
comprehend the steps necessary to achieve the desired goals.

Further, the Board of Directors believes that a staggered Board of Directors
would encourage any person or group seeking to acquire control of the Company to
do so through arm's-length negotiations with management and the Board of
Directors, who are in a position to protect stockholder value and negotiate a
transaction that is fair to all stockholders. Corporations which do not have
staggered boards present easy targets for those seeking control of a company
without paying a negotiated premium over market value. The Board notes that the
election of directors by classes is a common practice that has been adopted by
many large companies and that it is specifically permitted by the laws of many
states, including Massachusetts, the Company's state of incorporation.

In summary, without a staggered board, the Board of Directors believes that the
Company is subject to inappropriate pressure tactics from hostile groups
interested in obtaining control of the Company's resources to suit their own
ends. The Group's activities have incorporated these tactics, including the
intentional use of unfounded and unsubstantiated allegations in a complaint
against the Company and its directors. In fact, you should know that the subject
of the Proposal, which is put forth by a former and now disgruntled employee who
has made demands upon the Company for severance payments to which he is not
entitled, is also at issue in ongoing litigation filed by the Group. In fact,
Mr. Phalon has testified under oath that he has spoken to the proponent
regarding employment opportunities at the Company should the Group prevail.

As your Board, we are committed to using all available resources of the Company
to enhance long term stockholder value. We believe that a staggered board will
serve you as we attempt to reach that overall goal. WE ALSO BELIEVE THAT THE
PROPOSAL IS LIKELY UNENFORCEABLE AS A LEGAL MATTER, AND MORE IMPORTANTLY, WOULD
SEND THE WRONG MESSAGE TO HOSTILE GROUPS ATTEMPTING TO TAKEOVER THE COMPANY OR
USE ITS RESOURCES TO SERVE THEIR OWN PERSONAL MOTIVES. WE URGE YOU TO VOTE
"AGAINST" THE PROPOSAL.

IV. OTHER MATTERS

The Board of Directors of the Company is not aware of any matter, other than
those described above, that may come before the meeting. However, if any matters
are properly presented to the meeting for action, it is intended that the
persons named in the enclosed proxy will vote on such matters in accordance with
their best judgment.

24
<PAGE>

PROPOSALS OF STOCKHOLDERS

It is currently contemplated that the 1999 Annual Meeting of Stockholders will
be held on February 22, 1999. Proposals of stockholders intended to be present
at that annual meeting of stockholders must be received by the Company at its
principal executive offices no later than September 2, 1998, for inclusion in
the Proxy Statement and Form of Proxy relating to that meeting and must comply
with the applicable requirements of federal securities laws. The Company
suggests that proponents submit their proposals by certified mail, return
receipt requested, to the General Counsel of the Company. All proposals must
comply with applicable SEC rules and regulations.

EXPENSES AND SOLICITATION OF PROXIES

The cost of the solicitation of proxies will be borne by the Company. Such costs
shall include the cost of engaging Shareholder Communications Corporation, a
proxy solicitation firm, anticipated to be $7,000 plus certain expenses. In
light of the proxy contest necessitated by the Group Proxy, the estimated costs
including fees for attorneys, advertising, printing and other costs incidental
to the solicitation are estimated to be approximately $_____________. To date,
the Company has spent approximately $10,000 in connection with the solicitation
of proxies. Proxies will be solicited principally through the mails or by
telephone. Further solicitation of proxies from some stockholders may be made by
directors, officers, and regular employees of the Company, personally, by
telephone, telegraph, or special letter. No additional compensation, except for
reimbursement of reasonable out-of-pocket expenses, will be paid for any such
further solicitation. In addition, the Company may request banks, brokers and
their custodians, nominees and fiduciaries to solicit customers of theirs who
have shares of the Company registered in the name of a nominee. The Company will
reimburse any such persons for their reasonable out-of-pocket costs.

TO AVOID THE NEED TO ADJOURN OR POSTPONE THE MEETING TO ALLOW TIME TO SOLICIT
ADDITIONAL PROXIES FOR A QUORUM, WHICH COULD RESULT IN ADDITIONAL COST AND
EXPENSE TO THE COMPANY, WE URGE ALL STOCKHOLDERS TO VOTE THEIR WHITE PROXY AS
SOON AS POSSIBLE.

ADDITIONAL INFORMATION

The Company will provide, without charge to each stockholder entitled to vote at
the meeting, a copy of the Company's Annual Report to the SEC on Form 10-K for
the fiscal year ending September 27, 1997. A request for copies of such report
should be addressed to the Company at 100 Domino Drive, Concord, Massachusetts
01742-2892, Attention: Investor Relations.

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

25
<PAGE>

TECHNICAL COMMUNICATIONS CORPORATION
100 Domino Drive
Concord, Massachusetts 01742-2892
Telephone: (978) 287-5100

NOTICE OF

ANNUAL MEETING

OF STOCKHOLDERS AND

PROXY STATEMENT

1998
Annual Meeting
of Stockholders

July __, 1998

26
<PAGE>

TECHNICAL COMMUNICATIONS CORPORATION

Proxy for Annual Meeting of Stockholders - July 17, 1998

The undersigned hereby appoints CARL H. GUILD, JR. and EDWARD E. HICKS, or
either of them, the action of both of them voting to be controlling, attorneys
of the undersigned, with full powers of substitution, with all the powers the
undersigned would possess if personally present, to vote the stock of the
undersigned in TECHNICAL COMMUNICATIONS CORPORATION at the Annual Meeting of
Stockholders to be held at 10:00 a.m. on July 17, 1998 and at any adjournments
thereof.

This proxy, if properly executed, will be voted in the manner directed herein by
the undersigned stockholder. If no direction is made, the proxy will be voted
FOR items 1 and 2 and AGAINST item 3.

Please vote, date and sign on the reverse side, and promptly return in the
enclosed envelope.

THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS. IT WILL BE VOTED AS DIRECTED
AND IF NO CHOICE IS INDICATED IT WILL BE VOTED FOR ITEMS 1 AND 2 AND AGAINST
ITEM 3:

1. The Board of Directors recommends you vote FOR the election of the seven (7)
nominees listed below:

Election of directors: Nominees: Mitchell B. Briskin, Carl H. Guild, Jr., Donald
Lake, Robert T. Lessard, Herbert A. Lerner, Thomas E. Peoples and Bernard
Resnick

|_| FOR all nominees |_| WITHHOLD from the following
nominee(s):______________

In the event that the Order is modified or otherwise revised in the
Company's favor and the Board of Directors is staggered into three (3) classes,
then the Board of Directors recommends you vote FOR the election of the two (2)
nominees for Class I Directors listed below:

Election of directors: Nominees: Mitchell B. Briskin and Bernard Resnick

|_| FOR all nominees |_| WITHHOLD from the following
nominee(s):______________

2. The Board of Directors recommends you vote FOR the ratification of Arthur
Andersen LLP.

To ratify the selection of the firm of Arthur Andersen LLP as the Company's
auditors.

|_| FOR |_| AGAINST |_| ABSTAIN

3. The Board of Directors recommends you vote AGAINST the Stockholder
Proposal.

To approve the Stockholder Proposal

|_| FOR |_| AGAINST |_| ABSTAIN

4. In their direction, the proxies are authorized to vote upon such other
business as may properly come before the meeting.

Please sign exactly as the name appears stenciled on this Proxy. When signing as
attorney, executors, administrators, trustee or guardian, please set forth your
full title. If the stockholder is a corporation, the signature should be that of
an authorized officer who should indicate his or her title.

Date: ________________, 1998

----------------------------
(Signature)