SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )

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Check the appropriate box:

[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-2.

STONE & WEBSTER, INCORPORATED
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
STONE & WEBSTER, INCORPORATED
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than 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)(4) and 0-12.

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

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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):

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[ ] 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:

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STONE & WEBSTER, INCORPORATED
LOGO
245 Summer Street

Boston, Massachusetts 02210

March 28, 1997

Dear SHAREHOLDER:

We cordially invite our Shareholders to attend the 1997 Annual Meeting of
Shareholders of Stone & Webster, Incorporated which will be held at the Stone &
Webster Building at 245 Summer Street, Boston, Massachusetts on Thursday, May 8,
1997, at 2:00 P.M. We ask Shareholders who plan to attend the Annual Meeting to
mark the appropriate box on the enclosed proxy card.

As more fully described in the accompanying Proxy Statement, the Board of
Directors recommends that you vote FOR the election of Directors and FOR the
ratification of the selection of independent accountants.

It is important that your shares be represented at the meeting whether or
not you are personally present. Accordingly, we ask that you sign, date and mail
the enclosed proxy promptly.

As in past years, members of management will review the performance and
prospects of the Corporation and will be available to answer questions during
and after the meeting.

Sincerely,

KENT F. HANSEN H. KERNER SMITH
Chairman of the President and
Board Chief Executive Officer

STONE & WEBSTER, INCORPORATED
245 Summer Street
Boston, Massachusetts 02210

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

NOTICE OF MEETING
------------------------

March 28, 1997

To the Shareholders of
STONE & WEBSTER, INCORPORATED:

Notice is hereby given that the 1997 Annual Meeting of Shareholders of
Stone & Webster, Incorporated (the Corporation) will be held at the Stone &
Webster Building at 245 Summer Street, Boston, Massachusetts, on Thursday, May
8, 1997, at 2:00 P.M., Boston time, for the purpose of considering and acting
upon the following:

1. The election of four Directors for a term of three years and until their
successors are duly elected and qualified.

2. The ratification of the selection by the Corporation's Board of Directors of
the firm of Coopers & Lybrand L.L.P., independent accountants, as auditor of
the Corporation and its subsidiaries for the year 1997.

3. Any and all other business that may properly come before the meeting.

Only Shareholders of record at the close of business on March 10, 1997 will
be entitled to vote at the meeting or any adjournment or postponement thereof.

IF YOU WILL NOT BE PRESENT IN PERSON AT THE MEETING, YOU ARE REQUESTED TO
SIGN AND DATE THE ENCLOSED PROXY AND TO RETURN IT PROMPTLY.

By order of the Board of Directors,
PETER F. DURNING
Secretary
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STONE & WEBSTER, INCORPORATED
245 Summer Street
Boston, Massachusetts 02210

PROXY STATEMENT

The following information is furnished to each shareholder (the
Shareholder) of Stone & Webster, Incorporated (the Corporation) in connection
with the foregoing notice of the 1997 Annual Meeting of the Shareholders of the
Corporation (the Annual Meeting) to be held on Thursday, May 8, 1997, and the
enclosed proxy for use at the Annual Meeting and any adjournments or
postponements thereof. This Proxy Statement and the form of the proxy are being
mailed to Shareholders commencing on or about March 28, 1997.

The enclosed proxy is being solicited by and on behalf of the Board of
Directors of the Corporation. A proxy executed on the enclosed form may be
revoked by the Shareholder at any time before the shares are voted by filing
with the Secretary of the Corporation an instrument revoking such proxy or a
duly executed proxy bearing a later date or by attending the Annual Meeting and
electing to vote in person. If a Shareholder is a participant in the
Corporation's Dividend Reinvestment Plan, the proxy represents the shares in the
Shareholder's plan account in addition to the shares registered in the
Shareholder's name. If the Shareholder is a participant in the Employee
Investment Plan, Employee Stock Ownership Plan or Payroll-based Employee Stock
Ownership Plan of Stone & Webster, Incorporated and Participating Subsidiaries,
the proxy will constitute voting instructions to the trustees under those plans
directing how the shares in the participant's accounts in the plans are to be
voted. The shares of the Corporation's Common Stock represented by all proxies
which are received by the Corporation, or voting instructions received by the
trustees under the plans, will be voted as specified. If no specification is
made, the shares represented thereby will be voted:

(1) FOR the election of the Board's nominees as Directors; and

(2) FOR the ratification of the selection of Coopers & Lybrand L.L.P.,
independent accountants, as auditor of the Corporation and its
subsidiaries for the year 1997.

CONFIDENTIALITY; VOTING

The Board of Directors has adopted a policy of confidentiality regarding
the voting of shares by Shareholders. Under this policy, all Shareholder votes
by proxy or ballot will be kept permanently confidential and will not be
disclosed to the Corporation or third parties unless disclosure is required by
law or the Shareholder consents to or requests disclosure, or in the case of a
contested election or other matter, where the contesting proponent does not
agree in writing to comply with the same policy. Voting

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instructions given to the trustees by a participant in the Employee Investment
Plan, Employee Stock Ownership Plan or Payroll-based Employee Stock Ownership
Plan of Stone & Webster, Incorporated and Participating Subsidiaries will be
mailed directly to the trustees (or their representatives) and will be kept
permanently confidential and will not be disclosed to the Corporation or third
parties unless disclosure is required by law or the participant consents to or
requests disclosure.

Votes cast by proxy or in person at the Annual Meeting will be counted by
the persons appointed by the Corporation to act as inspectors of election for
the meeting. The inspectors of election will treat shares of Common Stock
represented by proxies that specify abstentions as shares that are present and
entitled to vote for purposes of determining the presence of a quorum. However,
abstentions will be treated as negative votes for purposes of determining the
outcome of any matter submitted to Shareholders which requires the approval of a
majority of votes entitled to be cast on such matters.

The inspectors of election will treat shares represented by proxies for
shares held by brokers or nominees as to which instructions have not been
received from the beneficial owners or persons entitled to vote and which the
broker or nominee does not have discretionary power to vote on a particular
matter (sometimes referred to as "broker non-votes") as shares that are present
and entitled to vote for purposes of determining the presence of a quorum.
However, for the purposes of determining the outcome of any matter as to which
the broker has physically indicated on the proxy that it does not have
discretionary authority to vote, those shares will be treated as not present and
not entitled to vote with respect to that matter (even though those shares are
considered entitled to vote for quorum purposes and may be entitled to vote on
other matters).

The expenses in connection with the solicitation of proxies, including the
cost of preparing, assembling and mailing proxy material, and also the payment
or reimbursement of charges of brokerage houses and other institutions, nominees
and fiduciaries in forwarding the Corporation's proxy material to beneficial
owners, will be borne by the Corporation. In addition to solicitations by mail,
some of the officers and regular employees of the Corporation and its
subsidiaries may solicit proxies personally or by telephone, facsimile or
telegraph. The Corporation has also retained D. F. King & Co., Inc. to assist in
the solicitation of proxies by the methods referred to above at an estimated
cost of $10,000 plus out-of-pocket expenses.

SHARE OWNERSHIP

The Corporation had outstanding, as of March 10, 1997, 12,798,738 shares of
Common Stock (excluding 4,932,750 shares held in the treasury), each share of
which is entitled to one vote. Only Shareholders of record at the close of
business on March 10, 1997 will be entitled to vote at the Annual Meeting or any
adjournments or postponements thereof.

As of March 10, 1997, the institutional trustees under the following
employee benefit plans held of record more than 5% of the outstanding Common
Stock of the Corporation:

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The Employee Investment Plan of Stone & Webster, Incorporated and
Participating Subsidiaries (the Employee Investment Plan) -- 1,637,469
shares (approximately 12.8%)

and

The Employee Stock Ownership Plan of Stone & Webster, Incorporated and
Participating Subsidiaries (ESOP) (including PAYSOP shares referred to
below) -- 2,726,492 shares (approximately 21.3%).

The Committee under the Employee Investment Plan (the Plan Committee) may
be considered a beneficial owner of the shares held under the Employee
Investment Plan by reason of the definition of beneficial ownership contained in
Rule 13d-3 of the Securities and Exchange Commission (the Commission)
promulgated under the Securities Exchange Act of 1934, as amended (the Exchange
Act). The Employee Investment Plan provides that shares allocated to the
investment accounts of participants will be voted as the participants direct,
and shares as to which participants have not given directions will be voted in
accordance with the direction of the Plan Committee. To the extent that the Plan
Committee shares voting power as aforesaid, the Plan Committee may be considered
a beneficial owner under the Commission definition. The Plan Committee is
presently composed of Donna Fitzpatrick Bethell, Chairman, J. Angus McKee, H.
Kerner Smith, Edward J. Walsh, and Peter M. Wood, a majority of whom are
non-employee Directors of the Corporation. Pursuant to the ESOP, shares
allocated to the accounts of participants are voted as the participants direct,
and allocated shares as to which participants have not given directions and all
unallocated shares are voted in the proportions the allocated shares are voted
by the participants. Shares held under the ESOP may not be transferred by the
trustee of that plan, other than to meet distribution requirements of the ESOP
or in connection with a statutory reclassification of the Corporation's Common
Stock or a statutory merger, consolidation or sale of assets or in certain
limited circumstances, upon the direction of the participants.

As of March 10, 1997, the Payroll-based Employee Stock Ownership Plan
(PAYSOP) trust (which was merged into, but held in a separate account within,
the ESOP trust effective as of January 1, 1995) held 70,247 shares
(approximately 0.5%) of Common Stock. Shares allocated to the accounts of
participants from the PAYSOP are voted as the participants direct, and allocated
shares as to which no participant directions are given will not be voted.

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In addition to the foregoing, the following table sets forth information
concerning beneficial owners of more than 5% of the outstanding Common Stock of
the Corporation:

PERCENTAGE OF
NUMBER OF OUTSTANDING
NAME AND ADDRESS SHARES COMMON STOCK
--------------------------------------------- --------- -------------

Frank J. A. Cilluffo(1)...................... 1,319,071 10.3%
Cilluffo Associates, L.P.
160 Broadway, East Building
New York, New York 10038
FMR Corp.(2)................................. 1,076,800 8.4%
82 Devonshire Street
Boston, Massachusetts 02109

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(1) Frank J. A. Cilluffo, a Director of the Corporation, reporting for himself
and Cilluffo Associates, L.P., Zenith Associates, L.P., Frank and Irja
Cilluffo Foundation, and Edward C. Meyer, has furnished information to the
Corporation which disclosed that as of March 10, 1997, such individuals and
entities beneficially owned, taken together, 1,309,071 shares. Mr. Cilluffo
disclaims beneficial ownership of the 1,184,800 shares held by Cilluffo
Associates, L.P. and the 105,800 shares held by Zenith Associates, L.P.
except to the extent of his pecuniary interest in the securities. He also
disclaims beneficial ownership of 10,000 shares held by the Frank and Irja
Cilluffo Foundation. Mr. Cilluffo also has options to purchase 3,000 shares
issued under the Corporation's 1995 Stock Option Plan which are currently
exercisable.

(2) FMR Corp., reporting for itself and Edward C. Johnson 3d and Abigail P.
Johnson have furnished information to the Corporation which disclosed that
as of December 31, 1996 they and affiliated entities exercised investment
discretion with respect to 1,076,800 shares which were owned by their
accounts and investment advisory clients.

To the knowledge of the Corporation, as of March 10, 1997 no other person
beneficially owned more than 5% of the outstanding Common Stock of the
Corporation.

I. ELECTION OF DIRECTORS

(PROXY ITEM NO. 1)

In accordance with the Corporation's By-Laws, the Board of Directors will
consist of eleven members and is divided into three classes. The four Directors
to be elected at this Annual Meeting will be elected to serve until the 2000
Annual Meeting of the Shareholders, and until their successors are duly elected
and qualified. The vote of a majority of all votes entitled to be cast at the
Annual Meeting shall be sufficient to elect a Director. The Board recommends
that Shareholders vote FOR each of the nominees listed below. It is intended
that proxies and voting instructions which are executed without specification
(other than broker non-votes) will be voted for the election of the nominees
listed below, all of whom are now Directors of the Corporation:

DONNA FITZPATRICK BETHELL, KENT F. HANSEN, ELVIN R. HEIBERG III AND H. KERNER
SMITH

The employment agreement with Mr. Smith, as discussed below in "Employment
and Change of Control Agreements", also sets forth the intention of the Board to
elect Mr. Smith as Chairman of the Board of Directors at the Board of Directors
meeting immediately following the Annual Meeting of Shareholders on May 8, 1997.

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Certain information, as reported to the Corporation, respecting such
persons and other persons whose term of office as Director will continue after
the Annual Meeting, and information relating to the beneficial ownership of
Common Stock of the Corporation of other Named Executives (as hereinafter
defined) who are not Directors of the Corporation, is set forth below:

SHARES OF
COMMON STOCK
OF THE
CORPORATION
BENEFICIALLY
BUSINESS EXPERIENCE OWNED ON
DIRECTORS AND NOMINEES FOR THE PAST FIVE YEARS, DIRECTOR MARCH 10,
AND EXECUTIVE OFFICERS AGE AND OTHER INFORMATION SINCE 1997(A)
- --------------------------- ------------------------------------- -------- ------------

NOMINEES FOR TERMS EXPIRING IN 2000
Donna Fitzpatrick
Bethell.................. President and Chief Executive 1994 571(B)
Officer, Radiance Services Company
(Microelectronics cleaning
technology) (48).
Kent F. Hansen............. Chairman of the Board of the 1988 671(B)
Corporation. Professor of Nuclear
Engineering, Massachusetts
Institute of Technology (Education)
(65). Also Director of EG&G, Inc.
Elvin R. Heiberg III....... President, Heiberg Associates, Inc. 1994 571(B)
Retired Chief of Engineers, U.S.
Army Corps of Engineers
(Engineering Consulting) (65).
H. Kerner Smith............ President and Chief Executive Officer 1996 9,000(C)
of the Corporation. Former Managing
Director of Deutsche Babcock AG and
President and Chief Executive
Officer of Deutsche Babcock
Technologies, Inc., and former
President and Chief Executive
Officer of Riley Consolidated, Inc.
(52).

DIRECTORS WHOSE TERMS EXPIRE IN 1998

Frank J. A. Cilluffo....... Managing Partner, Cilluffo 1994 1,309,071(B)(D)
Associates, L.P. (Private investment
partnership) (53). Also Director of
GRC International, Inc.
David N. McCammon.......... Retired Vice President-Finance, Ford 1996 936(B)
Motor Company (Automobile
manufacturing) (62). Also Director
of McDonald & Co. Investments Inc.

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J. Angus McKee............. Chairman, Gulfstream Resources Canada 1984 1,370(B)
Ltd. (Oil and gas) (61).
Edward J. Walsh............ Executive Vice President of the 1995 2,235(E)
Corporation (45).

DIRECTORS WHOSE TERMS EXPIRE IN 1999
John P. Merrill, Jr........ Chairman, Merrill International, Ltd. 1996 2,276(B)
(International project development)
President of Wing-Merrill Group
from 1991 to 1993 (53).
Bernard W. Reznicek........ National Director-Utility Marketing, 1995 1,963(B)
Central States Indemnity Co. of
Omaha; former Chairman, President
and Chief Executive Officer, Boston
Edison Company. (Insurance; Public
utilities) (60). Also Director of
State Street Boston Corporation,
CSG Systems International,
CalEnergy Company and Guarantee
Life Company.
Peter M. Wood.............. Former Managing Director, J.P. Morgan 1996 476(B)
& Co. Incorporated ((Finance) (58).
Also Director of First Alert, Inc.
and Middlesex Mutual Assurance
Company.
OTHER NAMED EXECUTIVES OF THE CORPORATION WHO ARE NOT DIRECTORS OR NOMINEES
Jeremiah P. Cronin......... Executive Vice President (53). -- 8,361(E)
Daniel P. Levy............. Corporate Controller (48). -- 1,733(E)
Robert C. Wiesel........... Executive Vice President (46) -- 5,942(E)

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(A) The information contained in this column reflects the definition of
beneficial ownership for the purposes of the proxy rules of the Securities
and Exchange Commission. The nature of beneficial ownership for shares shown
in this column is sole voting and investment power, except to the extent set
forth in footnotes (B) through (E).

(B) Shares shown do not include 3,000 shares issuable upon exercise of stock
options issued to each non-employee Director under the Corporation's 1995
Stock Option Plan which are currently

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exercisable. Under the Rules of the Commission, such shares are considered
to be beneficially owned for the purpose of this Proxy Statement. For the
purpose of calculating percentage ownership, such shares were also
considered to be outstanding.

(C) Shares shown do not include: 100,000 shares issuable upon exercise of a
stock option issued under the Corporation's 1995 Stock Option Plan which are
exercisable during the ten year term of the option granted on February 12,
1996; or 37,000 shares issuable upon exercise of a stock option issued April
16, 1996 for a ten year term under the Corporation's 1995 Stock Option Plan
which vest in four equal annual installments beginning on April 16, 1997.
Under the Rules of the Commission, such shares issuable under currently
exercisable options are considered to be beneficially owned for the purpose
of this Proxy Statement. For the purpose of calculating percentage
ownership, such shares were also considered to be outstanding.

(D) Includes 1,309,071 shares held by Mr. Cilluffo and his associates as
previously set forth in this Proxy Statement, but excludes 10,000 shares
held by the Frank and Irja Cilluffo Foundation, Inc. Mr. Cilluffo disclaims
beneficial ownership of the shares held by Cilluffo Associates, L.P. and by
Zenith Associates, L.P. except to the extent of his pecuniary interest in
such securities.

(E) Includes (i) shares allocated under the Employee Investment Plan and which
are subject to its terms and provisions with respect to termination and
withdrawal and, in limited circumstances, to forfeiture, and held as of
December 31, 1996 by Putnam Fiduciary Trust Company, trustee under the plan
(with respect to such shares, voting power and investment power are
determined in accordance with the provisions of the plan); (ii) shares
allocated under the ESOP and which are subject to its terms with respect to
forfeiture and held as of December 31, 1996 by The Chase Manhattan Bank,
N.A., trustee under the plan; (iii) shares allocated under the PAYSOP and
which are subject to its terms and held as of December 31, 1996 by The Chase
Manhattan Bank, N.A., trustee; and (iv) shares awarded under the
Corporation's Restricted Stock Plan and which are subject to its terms with
respect to forfeiture. Shares held in accounts of employees in the Employee
Investment Plan, ESOP and PAYSOP, including Messrs. Walsh, Wiesel, Cronin
and Levy, are voted by the trustees of such plans in accordance with the
instructions of the employees; in the absence of such instructions, such
shares are voted by the trustees in accordance with the terms of such plans.

As of March 10, 1997, the Directors and officers of the Corporation, as a
group, beneficially owned 1,476,511 shares or approximately 11.4% of the
Corporation's outstanding Common Stock, including shares allocated under the
Employee Investment Plan, the ESOP and the PAYSOP. The nature of beneficial
ownership for said shares was sole voting and investment power, except (1) as
referred to in footnotes (B) through (E) above, and (2) 3,886 shares were held
under the Employee Investment Plan and hence voting power was shared as
described on page 3 of this Proxy Statement. Except for Mr. Cilluffo, no
Director or officer beneficially owned as much as 1% of the outstanding Common
Stock of the Corporation.

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SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires the Corporation's Directors, its
executive officers, and persons holding (as defined in the regulations of the
Commission) more than 10% of a registered class of the Corporation's equity
securities, to file reports of ownership and reports of changes in ownership
with the Commission and the New York Stock Exchange. Directors, executive
officers, and greater than 10% Shareholders are also required by Commission
regulations to furnish the Corporation with copies of all such reports that they
file. Based solely on its review of the copies of such reports received by it
and written representations from certain reporting persons, the Corporation
believes that all filing requirements applicable to its Directors, executive
officers, and greater than 10% Shareholders were complied with during the fiscal
year ended December 31, 1996.

CERTAIN COMMITTEES, ATTENDANCE, AND COMPENSATION OF DIRECTORS

The Board has appointed an Audit Committee, a Governance Committee
(formerly called the Nominating Committee), and a Compensation Committee whose
report appears below. All of the members of these committees are non-employee
Directors, except for Mr. Smith who is a member of the Governance Committee.

The Audit Committee consists of David N. McCammon (Chairman), Frank J. A.
Cilluffo, Donna Fitzpatrick Bethell, Kent F. Hansen and J. Angus McKee. The
Audit Committee, which met three (3) times during 1996, among other things,
considers and recommends to the full Board the selection of the independent
auditor; reviews the performance of the audit function; and reviews with the
independent and the internal auditors the scope and results of the Corporation's
internal auditing procedures and the adequacy of internal accounting controls.

The Governance Committee (formerly the Nominating Committee) consists of
Kent F. Hansen (Chairman), Elvin R. Heiberg, III, John P. Merrill, Jr., Bernard
W. Reznicek, H. Kerner Smith and Peter M. Wood. The Governance Committee, which
met eleven (11) times during 1996, considers and makes recommendations to the
Board of Directors as to corporate governance policies and procedures and
criteria for Board composition and membership, the names of persons whom it
concludes should be considered for Board membership, and governance guidelines
for consideration by the full Board. The Governance Committee will consider
nominees recommended by Shareholders. Such recommendations should be submitted
to the attention of the Corporate Secretary, Stone & Webster, Incorporated, 245
Summer Street, 8th Floor, Boston, Massachusetts 02210.

The Compensation Committee consists of Bernard W. Reznicek (Chairman),
Frank J. A. Cilluffo, Elvin R. Heiberg III, David N. McCammon, and John P.
Merrill, Jr. The Compensation Committee met nine (9) times during 1996. The
Compensation Committee reviews and approves the compensation and/or method of
determining compensation of the principal officers and employees of the
Corporation and its subsidiaries, considers compensation plans which are
subsequently presented to the full Board, authorizes the grant of awards of
Common Stock under the Restricted Stock Plan, and determines the

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award of stock options under the 1995 Stock Option Plan. For additional
information regarding the policies and mission of the Compensation Committee,
see "Report of the Compensation Committee" below. There are no compensation
committee interlocks or insider participation relationships on the Compensation
Committee.

The Board of Directors met thirteen (13) times during 1996. In 1996, each
of the Directors attended at least 75% of the total number of meetings of the
Board and of the committees of the Board on which the Director served. During
1996, Directors who were not employees of the Corporation received an annual
retainer of $8,000, all of which was paid in shares of Common Stock of the
Corporation (Common Stock), and a fee of $2,000 for each Board meeting attended
and $1,000 for each committee meeting attended, except that the Chairman of the
Audit Committee received a committee meeting fee of $2,000 and the Chairman of
each other committee received a committee meeting fee of $1,500. In 1996, each
Director who was not an employee of the Corporation received a fee of $3,000 for
attendance at a series of meetings on corporate governance issues held over a
three day period. The 1995 Stock Plan For Non-Employee Directors of Stone &
Webster, Incorporated, which was in effect during 1996, provided that Directors
who are not officers or employees of the Corporation receive all of the annual
retainer of $8,000 in the form of shares of Common Stock, and permits such
Directors to elect to receive all or a portion of Board and Committee meeting
fees in Common Stock in lieu of cash. In order to make Common Stock a more
significant portion of the Directors' compensation, effective as of January 1997
the 1997 Stock Plan for Non-Employee Directors of Stone & Webster, Incorporated
provides that Directors who, among other things, are not officers or employees
of the Corporation receive an annual retainer consisting of 400 shares of Common
Stock and $8,000 in cash, and permits such Directors to elect to receive all or
a portion of Board and Committee meeting fees in Common Stock in lieu of cash.
In 1997, the Chairman of each Committee will receive a committee meeting fee of
$2,000. The 1995 Stock Option Plan permits the grant of nonqualified options to
purchase 2,000 shares initially, and 1,000 shares annually thereafter, of Common
Stock to each Director who is not an officer or employee of the Corporation.
Directors are reimbursed for expenses incurred in performing services as a
Director, including expenses for attending Board, committee and other meetings.

In addition to the foregoing standard arrangements relating to the
compensation of Directors, Dr. Hansen received an annual payment of $50,000,
payable on a quarterly basis, in consideration of his additional duties and
responsibilities as a non-executive Chairman of the Board during 1996. This
arrangement became effective as of his election as Chairman on August 15, 1995.
Mr. McKee received $6,000 (Canadian) in fees, plus travel expenses, in 1996 from
Stone & Webster Canada Limited for services as a Director of that subsidiary of
the Corporation.

REPORT OF THE COMPENSATION COMMITTEE

Under the direction of the Compensation Committee (the Committee), the
Corporation has developed and implemented compensation plans and programs which
are designed to enhance the long term growth and profitability of the
Corporation and to increase Shareholder value. The Committee is comprised of
five directors none of whom has ever been an officer or employee of the
Corporation or its

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subsidiaries. The following is a report of the Corporation's compensation
philosophy and practices, as directed by the Committee.

The Committee's fundamental approach is to compensate the Named Executives
(included in the Summary Compensation Table of this Proxy Statement) and other
key executives at a level commensurate with their responsibilities, while
providing compensation opportunities that are directly linked to the performance
of the Corporation. The objectives of the Corporation's executive compensation
programs are to attract and retain very highly competent individuals, to
encourage them to achieve and surpass the Corporation's challenging business
goals and to ensure that the interests of the Corporation's executives are well
aligned with the interests of Shareholders.

The Corporation, through its operating subsidiaries, is primarily engaged
in providing engineering and construction services. These businesses tend to be
cyclical in nature, driven both by general business cycles and by activity in
our clients' industries. Due to this cyclical nature, it is important to keep
our overhead costs low, while ensuring that the Corporation is able to provide
the specialized technical expertise expected by our clients. As a result, the
Committee recognizes the need to balance limited fixed compensation costs with
the ability to attract and retain highly competent professionals and to reward
them for improving the performance of the Corporation and providing a return to
Shareholders.

Accordingly, the philosophy of the Corporation has been to provide the
Named Executives and the professional and supervisory staff with base salaries
that are relatively modest, while making the balance of compensation contingent
upon the achievement of the Corporation's financial objectives.

In 1996, the Committee retained an outside consulting firm to assist the
Corporation in ensuring that its executive compensation programs provide
competitive compensation opportunities with incentives based on improving the
financial performance of the Corporation. In analyzing competitive compensation,
the firm relied upon compensation information from a broader group of companies
than are included in the performance graph of this Proxy Statement to better
reflect the Corporation's relevant market for attracting and retaining executive
talent.

1996 Compensation Programs

Base Salary

Based on the Committee's assessment of competitive market conditions, base
salary increases were awarded to four of the Named Executives in 1996. These
adjustments were, on average, approximately 6% of base salary. It is the
Committee's understanding that these base salaries are competitive given the
external market.

Annual Incentives

In 1996, the Committee undertook an in-depth analysis of the incentives
offered to key executives of the Corporation and subsequently in 1997 developed
the Executive Management Incentive Compensa-

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tion Plan designed to ensure that executives' interests are strongly aligned
with interests of Shareholders and the financial success of the Corporation.
Under this plan, performance will be measured primarily based on the
Corporation's Earnings per Share and Return on Shareholders' Equity, as well as
Business Division and Individual performance. No incentive payments will be made
for 1997 if the Corporation does not attain at least 70% of its targeted
Earnings per Share.

Awards under the plan are to be made 50% in cash and 50% in restricted
stock to help retain executives and to ensure that they are motivated to
increase Shareholder value through increases in the Corporation's share price.
The Committee believes that this new plan will encourage the Corporation's
management to accomplish annual objectives, while also focusing executives on
the achievement of long term goals that will result in share price appreciation.

Under the 1997 Plan, Named Executives other than the CEO are eligible to
receive payments ranging from 0% to 70% of base salary. Based on its competitive
assessment of the marketplace, the Committee believes that these award levels
are competitive by industry standards.

For 1996, awards were evaluated based on the Corporation's 1996 incentive
compensation plan. Awards under this plan were determined based on the financial
performance of the Corporation as measured primarily by after-tax earnings.
Awards were as set forth in the Summary Compensation Table and paid out in
March, 1997.

Stock Option Awards

Under the Corporation's 1995 Stock Option Plan, the Committee may make
awards of stock options to key employees in order to motivate and reward them
for increases in Shareholder value. In 1996, based on recommendations from the
outside consulting firm, the Committee granted stock options to the Named
Executives as shown in the Summary Compensation Table, as well as to other key
employees. The Committee believes that these options are an effective way to
encourage executives since they are rewarded only if the Corporation's share
price increases.

Chief Executive Officer Compensation

At the beginning of 1996, the Corporation entered into an employment
agreement with the Corporation's new Chief Executive Officer, Mr. H. Kerner
Smith. All aspects of his 1996 compensation were made in accordance with this
agreement. Going forward, Mr. Smith will participate in the Corporation's new
incentive plan and his compensation will be determined based on the philosophies
discussed in this report and the terms of his employment agreement as amended
January 15, 1997, as described below.

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Deductibility of Executive Compensation

The Corporation believes that it is important that all of its executive
compensation be deductible and fall within the regulations of the Internal
Revenue Code Section 162(m) $1 million limit on deductible compensation. The
Corporation has reviewed its compensation policies with respect to its covered
executives and has determined that Section 162(m) had no impact on the
Corporation's compensation policies in 1996.

THE COMPENSATION COMMITTEE

Bernard W. Reznicek (Chairman)
Frank J. A. Cilluffo
Elvin R. Heiberg III
David N. McCammon
John P. Merrill, Jr.

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EXECUTIVE COMPENSATION

The following table sets forth information concerning compensation awarded
to, earned by or paid to any person serving as the Corporation's Chief Executive
Officer (or any person acting in a similar capacity during the last completed
fiscal year), and each of the four most highly compensated executive officers of
the Corporation (collectively, the Named Executives), for services rendered to
the Corporation in all capacities during each of the last three fiscal years in
which such person was an executive officer of the Corporation.

SUMMARY COMPENSATION TABLE

LONG TERM COMPENSATION
----------------------------------
ANNUAL COMPENSATION(1) AWARDS(4)
------------------------------- ------------------------
OTHER SECURITIES PAYOUTS ALL
ANNUAL RESTRICTED UNDER- ------- OTHER
NAME AND COMPEN- STOCK LYING LTIP COMPEN-
PRINCIPAL (2) (2) SATION AWARD(S) OPTIONS/ PAYOUTS SATION
POSITION YEAR SALARY($) BONUS($) (3)($) ($) SARS(#) ($) ($)(5)
- ----------------------------- ---- --------- -------- ------- ---------- ----------- ------- -------

H. Kerner Smith(6)........... 1996 342,460 250,000 0 0 137,000 0 0
President and Chief 1995 - - - - - - -
Executive Officer 1994 - - - - - - -
Edward J. Walsh(7)........... 1996 267,600 40,000 0 0 18,000 0 4,006
Executive Vice President 1995 191,418 50,000 0 0 5,000 0 4,420
1994 - - - - - - -
Robert C. Wiesel(8).......... 1996 275,700 40,000 0 0 18,000 0 4,002
Executive Vice President 1995 - - - - - - -
1994 - - - - - - -
Jeremiah P. Cronin(9)........ 1996 286,650 40,000 0 0 18,000 0 4,014
Executive Vice President 1995 229,167 40,044 0 198,750 15,000 0 0
1994 - - - - - - -
Daniel P. Levy(10)........... 1996 179,375 15,842 0 0 5,000 0 4,014
Corporate Controller 1995 83,013 5,977 0 0 0 0 0
1994 - - - - - - -

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

(1) Salaries for the years 1994, 1995 and 1996 were paid to certain employees
of the Corporation, including the Named Executives, under plans adopted for
each of those years for compensating the individuals selected, in part by a
fixed amount ("Salary" in the table above) and in part by a contingent
incentive amount ("Bonus"), the latter amount being measured by a
percentage, as determined by the Compensation Committee in each individual
case (other than for Mr. Smith in 1996 whose compensation was governed by
his employment agreement described below), of the Corporation's Adjusted
Consolidated Net Earnings determined as provided in the plan and subject to
certain limitations including a percentage limitation on the total
contingent amounts which may be paid. For 1997, the Compensation Committee
has developed and the Board of Directors has adopted a new executive
management incentive compensation plan for the compensation of

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certain executives of the Corporation and its subsidiaries in which the
Named Executives are among those selected to participate. Under the proxy
regulations of the Commission, the second column under "Annual
Compensation" is required to be labeled "Bonus"; these amounts would more
accurately be described as "Contingent Payments" because the amounts paid
are dependent on the Corporation's performance during the year, and there
is no assurance that any such amounts would be paid, as was the case for
1994 when no such payments were made. The "Bonus" payments shown in the
table above with respect to 1995 and 1996 were actually paid in February,
1996 and March, 1997, respectively. See also the Report of the Compensation
Committee.

(2) Includes amounts deferred by the Named Executives under provisions of the
Employee Investment Plan pursuant to Section 401(k) of the Internal Revenue
Code.

(3) Perquisites and personal benefits paid to each Named Executive during 1994,
1995 and 1996 in each instance aggregated less than $50,000 or 10% of the
total annual salary and contingent payment set forth in the columns
entitled "Salary" and "Bonus" and, accordingly, are omitted from the table
as permitted by the rules of the Commission.

(4) Restrictions on shares awarded pursuant to the Restricted Stock Plan lapse
in five equal annual installments commencing on the first anniversary date
of each award. No Named Executive holds any shares of restricted stock
which have not fully vested under the terms of the Restricted Stock Plan,
except that, as of December 31, 1996, Mr. Cronin held 5,544 shares of
Common Stock with a market value of $174,636, which were awarded in 1995 as
reflected in the table above. Dividends are payable on restricted stock
awards directly to the holder of restricted stock. The Corporation did not
have any plans which provide compensation in the form of stock appreciation
rights (SAR's) during the years covered by this table. A Stock Option Plan
was first adopted in 1995, as discussed below.

(5) Includes contributions made by the Corporation under the Employee
Investment Plan during 1996 on behalf of Messrs. Walsh, Wiesel, Cronin, and
Levy in the amount of $1,867, $1,863, $1,875, and $1,875, respectively, and
contributions made by the Corporation under the ESOP during 1996 of $2,139,
$2,139, $2,139, and $2,139, respectively. Under the terms of the Employee
Investment Plan and the ESOP, Mr. Smith did not become eligible to
participate in those plans until January 1, 1997 with respect to the
Employee Investment Plan and February 12, 1997 with respect to the ESOP, at
which dates he began to participate in the plans.

(6) Mr. Smith was first employed by the Corporation on February 12, 1996 in the
capacity of President and Chief Executive Officer of the Corporation.

(7) On August 15, 1995, Mr. Walsh was elected Acting President and Chief
Executive Officer, and an Executive Vice President. He was elected a
Director on August 31, 1995. He relinquished the positions of Acting
President and Chief Executive Officer on February 12, 1996 and continues to
be Executive Vice President and a Director. Data with respect to his
compensation for 1994 is not

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included in the table above because he was not an Executive Officer of the
Corporation during 1994.

(8) On December 17, 1996, Mr. Wiesel was elected an Executive Vice President.
He had been Chief Executive Officer of Stone & Webster Engineering
Corporation, a subsidiary of the Corporation. Data with respect to his
compensation for 1994 and 1995 is not included in the table above because
he was not an Executive Officer of the Corporation during 1994 and 1995.

(9) Mr. Cronin was first employed by the Corporation on March 1, 1995 in the
capacity of Executive Vice President. He is also Chief Financial Officer of
the Corporation.

(10) Mr. Levy was first employed by the Corporation on July 10, 1995 and was
appointed Corporate Controller effective July 19, 1995.

STOCK OPTIONS

OPTION GRANTS IN LAST FISCAL YEAR

The following table shows all individual grants of stock options under the
Corporation's 1995 Stock Option Plan to the Named Executives of the Company
during the fiscal year ended December 31, 1996.

POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------------------------- ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM($)(3)
OPTIONS EMPLOYEES IN EXERCISE OR BASE EXPIRATION ----------------------
NAME GRANTED(#)(1) FISCAL YEAR PRICE($/SH)(2) DATE 5% 10%
(A) (B) (C) (D) (E) (F) (G)
- ------------------------------ ------------- ------------- ---------------- ---------- ---------- ----------

H. K. Smith................... 100,000 28.05 34.875 2/12/2006 2,193,257 5,558,168
37,000 10.38 32.875 4/16/2006 764,967 1,938,585
E. J. Walsh................... 18,000 5.05 32.875 4/16/2006 372,146 943,095
R. C. Wiesel.................. 18,000 5.05 32.875 4/16/2006 372,146 943,095
J. P. Cronin.................. 18,000 5.05 32.875 4/16/2006 372,146 943,095
D. P. Levy.................... 5,000 1.40 32.875 4/16/2006 103,373 261,971

- ---------------
(1) The option granted to Mr. Smith with respect to 100,000 shares of Common
Stock was exercisable as of the date of the grant. All other options become
exercisable with respect to 25% of the shares as of the first anniversary
of the date of grant and with respect to an additional 25% of the shares as
of each of the second, third and fourth anniversaries of the date of grant.
All options expire ten years from the date of grant, subject to earlier
termination in certain events related to termination of employment, death,
retirement or disability. Upon a change of control, all outstanding options
become exercisable.

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(2) The initial exercise price for the options granted in 1996 is determined as
set forth in the 1995 Stock Option Plan to be the fair market value of a
share of Common Stock as of the date of the grant. The exercise price may
be paid in cash, by the delivery of previously owned shares of Common
Stock, or by such other method as may be permitted by the Committee.

(3) As required by the rules of the Commission, potential values stated are
based on the prescribed assumption that the Corporation's Common Stock will
appreciate in value from the date of the grant to the end of the option
term (ten years from the date of grant) at annualized rates of 5% and 10%
(total appreciation of 63% and 159%), respectively, and therefore are not
intended to forecast future appreciation, if any, in the price of the
Corporation's Common Stock. These dollar amounts are also calculated based
on the assumption that the options are exercised at the end of the full ten
year term of the option. The options would have no value to the option
holders if the price of the Common Stock does not increase above the
exercise price of the options. As an alternative to the assumed potential
realizable values stated in Columns (f) and (g), Commission rules would
permit stating the present value of such options at the date of the grant.
Methods of computing present value suggested by different authorities can
produce significantly different results. Moreover, since stock options
granted by the Corporation are not transferrable, there are no objective
criteria by which any computation of present value can be verified.
Consequently, the Corporation's management does not believe there is a
reliable method of computing the present value of such stock options.

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AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES

The following table provides information concerning each option exercised
during the last fiscal year by each of the Named Executives and the value of
unexercised options held by such executive officers at the end of the fiscal
year.

NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
FISCAL YEAR END (#) FISCAL YEAR END ($)(1)
SHARES ACQUIRED --------------------------- ---------------------------
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
(A) (B) (C) (D) (E)
- ------------------ --------------- ------------ --------------------------- ---------------------------

H. K. Smith....... 0 $0 100,000 37,000 0 0
E. J. Walsh....... 0 0 0 23,000 0 2,500
R. C. Wiesel...... 0 0 0 28,000 0 5,000
J. P. Cronin...... 0 0 0 33,000 0 7,500
D. P. Levy........ 0 0 0 5,000 0 0

- ---------------
(1) Values stated are based on the closing price of $31.50 per share of the
Corporation's Common Stock as listed in the New York Stock Exchange
Composite Transactions on December 31, 1996, and are calculated by
subtracting the option exercise price from said closing price.

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PERFORMANCE GRAPH

The following graph compares the five year cumulative total Shareholder
return (assuming the reinvestment of dividends) on the Corporation's Common
Stock against the cumulative total return of the Standard & Poor's 500 Stock
Index (S&P 500) and the Dow Jones Heavy Construction Group Index. The graph
assumes an initial investment of $100 on December 31, 1991 in the Corporation's
Common Stock or in the underlying securities which comprise each of those market
indices.

COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN AMONG
STONE & WEBSTER, INCORPORATED, S&P 500 AND THE
DOW JONES HEAVY CONSTRUCTION GROUP INDEX

MEASUREMENT PERIOD DJ HEAVY CON-
(FISCAL YEAR COVERED) STONE & WEBSTER S&P 500 STRUCTION

DEC91 100.00 100.00 100.00
DEC92 86.00 108.00 97.00
DEC93 97.00 118.00 102.00
DEC94 119.00 120.00 98.00
DEC95 130.00 165.00 137.00
DEC96 116.00 203.00 130.00

RESTRICTED STOCK PLAN

Under the provisions of the Restricted Stock Plan approved by the
Shareholders in 1976, and amendments to the plan approved by the Shareholders in
1983 and 1988, shares of the Corporation's Common Stock have been awarded by the
Compensation Committee, subject to forfeiture provisions, to

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a limited number of selected key employees. As approved by the Shareholders at
the 1988 Annual Meeting of Shareholders, the plan was amended to increase the
number of shares available for restricted stock awards to 2,400,000 shares and
to extend the termination date of the plan to June 1, 1998. Restrictions on
awarded shares lapse in five equal annual increments commencing on the first
anniversary date of each award. Restrictions on certain shares lapse in 1997
through 2001 on the anniversary dates of awards. Shares subject to restrictions
may not be sold or otherwise disposed of and must be returned to the Corporation
if the employee's employment is terminated for any reason other than death or
disability occurring more than one year after the date of the award. The 1983
amendments to the plan approved by the Shareholders also provide that
restrictions on the sale or transfer of Common Stock of the Corporation awarded
pursuant to the plan will lapse upon and simultaneously with any change in
control of the Corporation occurring without the prior approval of the incumbent
Board of Directors prior to the change in control. Such a change in control
would be deemed to have taken place if (i) a third person, including a "group"
as defined in Section 13d-3 of the Exchange Act, acquires shares of the
Corporation having 20% or more of the total number of votes that may be cast for
the election of directors of the Corporation, or (ii) as the result of any cash
tender or exchange offer, merger, consolidation, sale of assets or other similar
transaction, the persons who were Directors before such transaction shall cease
to constitute a majority of the Board or any successor to the Corporation. In
the event of such a change in control, the lapse of restrictions on shares
awarded under the plan to some or all of the Named Executives might be deemed to
constitute payments received from the Corporation.

Upon approval by the Shareholders of the Corporation of the 1995 Stock
Option Plan at the 1995 Annual Meeting of Shareholders, the number of shares of
Common Stock available for future awards under the Restricted Stock Plan was
reduced to 250,000 shares.

EMPLOYEE RETIREMENT PLAN

The Corporation's Employee Retirement Plan is a trusteed, non-contributory,
defined benefit plan which applies to all eligible employees of the Corporation.
Benefits are based upon the length of credited service and the amounts of annual
compensation (as defined in the plan) received during that period of service.
Normal retirement age is the employee's Social Security Retirement Age. The
formula for computing benefits provides that, for employees under the plan who
had not attained their retirement date prior to January 1, 1992, annual
retirement benefits are equal to the sum of (a) 0.75% of average annual
compensation for the years 1989, 1990 and 1991 up to $21,000 plus 1.35% of such
compensation in excess of $21,000, multiplied by the years and months of
credited service before January 1, 1992 for up to 35 years, plus (b) 1% of such
annual compensation for the years and months of credited service before January
1, 1992 in excess of 35 years, plus (c) for each year of credited service after
January 1, 1992, 1% of annual compensation up to an indexed amount (which was
$47,250 for 1995) equal to 1.75 times the "Social Security Covered Compensation"
(a 35-year average Social Security earnings base), plus 1.45% of such annual
compensation in excess of such amount; provided that employees with more than 35
years of service at retirement will be credited with a flat 1.33% of annual
compensation for each year of service after the 35th year. With respect to the
Named Executives,

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compensation, for purposes of calculating retirement benefits, includes both the
fixed and contingent portions of salaries shown in the Summary Compensation
Table under the Salary and Bonus headings, respectively. As of January 1, 1997,
the number of full credited years of service for Messrs. Walsh, Wiesel, Cronin,
and Levy is 23, 24, 1 and 1 years, respectively, and the estimated annual
benefit payable to them upon retirement at normal retirement age and assuming
the continuance of current rates of compensation for each until normal
retirement age is $103,071, $117,918, $60,333, and $45,594, respectively. Mr.
Smith had less than one year of service with the Corporation as of January 1,
1997 and was not yet eligible to participate in the plan; see "Employment and
Change of Control Agreements" below. These amounts do not reflect any
limitations on annual benefits which may be paid from a tax-qualified retirement
plan at the time of retirement imposed by Section 415 of the Internal Revenue
Code, as amended from time to time, nor do they reflect any limitations imposed
by Section 401(a)(17) of the Internal Revenue Code on the amount of compensation
upon which benefits may be determined. The Board of Directors has adopted a
Supplemental Retirement Program, which was amended in 1989, under which a trust
has been established to fund the payment of any benefits calculated under the
provisions of the Employee Retirement Plan which would be in excess of the
limitations imposed by Sections 415 and 401(a)(17) of the Internal Revenue Code.

EMPLOYMENT AND CHANGE OF CONTROL AGREEMENTS

The Corporation entered into a three-year employment agreement with Mr.
Smith on February 12, 1996 under which Mr. Smith is to serve as President and
Chief Executive Officer of the Corporation. The agreement provides Mr. Smith
with: an annual base salary of $500,000, with increases subject to annual
review; an annual performance bonus for 1996 of $250,000 or such larger amount
based upon performance and at the discretion of the Board, and with such amounts
in years after 1996 to be based upon a long-term performance-based compensation
plan to be adopted by the Board; severance arrangements providing for three (3)
times annual compensation if employment is terminated, or deemed to be
terminated, without cause; a supplemental retirement benefit designed to provide
Mr. Smith a monthly retirement income benefit, commencing at age 60, from all of
the Corporation's pension plans equivalent to 25% of Mr. Smith's average last
three year's total compensation, with an equal benefit to be paid to Mr. Smith's
wife for her life if she survives Mr. Smith; and a 10-year stock option for
100,000 shares of Common Stock with an exercise price of $34.875 (with the
exercise price being the market price on the trading day immediately prior to
the grant date in accordance with the Corporation's 1995 Stock Option Plan). The
agreement also sets forth the intention of the Board to elect Mr. Smith as
Chairman of the Board of Directors at the Board of Directors meeting immediately
following the Annual Meeting of Shareholders in 1997. In January 1997, the
agreement was amended to provide, among other matters, that on the first
anniversary date of the commencement of the agreement, and on each subsequent
anniversary date, the term of the agreement will be extended by one year, unless
sooner terminated by either party; the amendment also provides for the payment
to Mr. Smith of an annual bonus of 50% of his base salary for each of 1997 and
1998 if the amount payable under the new Executive Management Incentive
Compensation Plan and/or the long-term performance-based compensation plan to be
adopted by the Board would be less than such amount.

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Each of Messrs. Smith, Walsh, Wiesel, Cronin, and Levy has entered into a
special Change of Control Agreement, which was amended in February 1997,
providing for severance pay and a continuation of certain benefits should a
"Change of Control" occur. Entry into these agreements as amended was
unanimously approved by the independent members of the Board of Directors. In
order to receive benefits under these special agreements, a "Change of Control"
must have occurred as a result of any of the following circumstances:

a. Accumulation by any individual, entity or group of 20% or more of
the outstanding voting stock of the Corporation;

b. A change in the make up of a majority of the persons serving as
Directors of the Corporation from the majority currently in office (with
such majority including those replacements or additions subsequently
approved by a majority of Directors currently in place);

c. A merger or other business combination resulting in persons other
than current shareholders of the Corporation owning more than 50% of the
resulting entity;

d. Approval of a liquidation or dissolution of the Corporation.

In order for severance benefits to be payable under these agreements, in
addition to the Change of Control, the executive's employment must be terminated
either involuntarily without cause (actual or "constructive") or if, after a
Change of Control, the executive remains in the employ of the Corporation for a
one year period, the executive may, for a thirty day period subject to the terms
of such agreements, voluntarily terminate his employment and receive the
severance benefits in a lump sum.

Under the special Change of Control Agreements, severance payments would
equal, in the case of Messrs. Smith, Walsh, Wiesel, and Cronin, an amount equal
to three times, and in the case of Mr. Levy, an amount equal to two times, the
executive's most recent annual base salary and most recent highest bonus. In
addition, medical, life and disability benefits would be provided at the expense
of the Corporation for the applicable period of three years or, in the case of
Mr. Levy, two years. In addition, the executive would receive an amount equal to
the actuarial equivalent of the benefit that such executive would have received
under the Corporation's qualified defined benefit retirement plan assuming that
the executive had remained in the employ of the Corporation during the
three-year, or in the case of the Mr. Levy two-year, period following the right
to receive benefits under these agreements. In addition, all options outstanding
on the date of a change of control would become immediately and fully
exercisable and all restrictions upon any restricted shares would lapse and
immediately all such shares would become fully vested.

Payments to executives under these Change of Control Agreements may be
subject to the imposition of the excise tax required by Section 4999 of the
Internal Revenue Code of 1986 as amended, if payments under these agreements are
deemed to be an "excess parachute payment" pursuant to Section 280G of said
Code. Under the agreements as amended, such payments can be increased so that
the employee is in the same after-tax position as if there was no excise tax.
However, in order to avoid

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excessive costs to the employer while providing little after-tax benefit to the
executive, the amendment requires a minimum after-tax benefit to be delivered to
the executive before the gross-up is operative.

II. SELECTION OF INDEPENDENT ACCOUNTANTS

(PROXY ITEM NO. 2)

The Shareholders will be asked to ratify the selection, on the
recommendation of the Audit Committee, by the Corporation's Board of Directors
of the firm of Coopers & Lybrand L.L.P., independent accountants, as auditor of
the Corporation and its subsidiaries for the year 1997. A representative of said
firm is expected to be present at the Annual Meeting and will have the
opportunity to make a statement if he or she desires to do so and to respond to
appropriate questions raised at the Annual Meeting.

THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE RATIFICATION OF THE
APPOINTMENT OF COOPERS & LYBRAND L.L.P. AS THE CORPORATION'S INDEPENDENT
ACCOUNTANTS FOR 1997. PROXIES AND VOTING INSTRUCTIONS WILL BE VOTED IN FAVOR OF
THE RATIFICATION UNLESS THE SHAREHOLDER SPECIFIES OTHERWISE.

III. AS TO OTHER MATTERS THAT MAY COME BEFORE THE ANNUAL MEETING

(PROXY ITEM NO. 3)

Management knows of no business which will be presented to the Annual
Meeting other than as set forth in the accompanying Notice of Meeting. However,
if any other matters properly come before the Annual Meeting or any adjournments
or postponements thereof, it is intended that the persons named in the enclosed
form of proxy, or their respective substitutes, shall have authority to vote
said proxy in accordance with their judgment on such matters. In the event that
one or more of the nominees for election as Directors should become unavailable
for election for any reason, it is intended that the persons named in said
proxy, or their respective substitutes, shall have authority to vote according
to their judgment for other persons in lieu thereof. Management has no present
knowledge that any of the nominees for election as a Director will be
unavailable to serve.

IV. LAST DATE TO SUBMIT SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING

November 29, 1997 is the date by which proposals of Shareholders intended
to be presented at the 1998 Annual Meeting of Shareholders must be received by
the Corporation to the attention of the Corporate Secretary, Stone & Webster,
Incorporated, 245 Summer Street, 8th Floor, Boston, Massachusetts 02210, in
order to be considered for inclusion in the Corporation's Proxy Statement and
form of proxy relating to that meeting.

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- --------------------------------------------------------------------------------
A COPY OF THE CORPORATION'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1996, INCLUDING FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULE BUT WITHOUT EXHIBITS, WILL BE FURNISHED UPON REQUEST WITHOUT CHARGE TO
ANY PERSON WHO WAS A BENEFICIAL OWNER OF COMMON STOCK OF THE CORPORATION AS OF
MARCH 10, 1997, THE RECORD DATE FOR THE 1997 ANNUAL MEETING OF SHAREHOLDERS. ALL
REQUESTS SHOULD BE DIRECTED TO THE CORPORATION TO THE ATTENTION OF THE CORPORATE
SECRETARY, STONE & WEBSTER, INCORPORATED, 245 SUMMER STREET, 8TH FLOOR, BOSTON,
MASSACHUSETTS 02210.
- --------------------------------------------------------------------------------
IN KEEPING WITH OUR CONCERN FOR THE ENVIRONMENT,
THIS PROXY STATEMENT IS PRINTED ON RECYCLED PAPER.
(LOGO)
27

STONE & WEBSTER, INCORPORATED
LOGO
245 Summer Street

Boston, Massachusetts 02210

March 28, 1997

To Participants in the Employee Investment Plan,
Employee Stock Ownership Plan (ESOP), and
Payroll-based Employee Stock Ownership
Plan (PAYSOP) of Stone & Webster, Incorporated and
Participating Subsidiaries

VOTING RIGHTS

As a participant in the Employee Investment Plan and/or the Employee Stock
Ownership Plan (which includes the Payroll-based Employee Stock Ownership Plan),
you may instruct Putnam Fiduciary Trust Company (Trustee under the Employee
Investment Plan) and The Chase Manhattan Bank, N.A. (Trustee under the ESOP and
PAYSOP) to vote the shares of Stone & Webster, Incorporated standing to your
credit under the Plans at the Annual Shareholders' Meeting of the Corporation to
be held May 8, 1997.

Enclosed for your information and use are:

1. Combined Notice and Proxy Statement.

2. A form of Voting Instructions to Trustee card.

3. A postage-paid, pre-addressed envelope to return your card directly
to the Trustee in care of its tabulator of Voting Instructions.

To give voting instructions, please mark and sign the enclosed Voting
Instructions card and return it to the Trustees in the enclosed envelope.

Voting rights with respect to shares in the Employee Investment Plan Trust
as to which voting instructions are not given by participants will be exercised
by the Trustee in accordance with the directions of the Committee under the
Employee Investment Plan. With respect to shares in the Employee Stock Ownership
Plan Trust, shares allocated to the accounts of participants are voted as the
participants direct, and allocated shares as to which voting instructions are
not given by the participants and all unallocated shares are voted in the
proportions the allocated shares are directed by the participants. Allocated
shares in the Payroll-based Employee Stock Ownership Plan Trust are voted as the
participants direct, and allocated shares as to which voting instructions are
not given by participants will not be voted.

A copy of the Corporation's 1996 Annual Report to Shareholders has been
furnished to you.

PLEASE NOTE: THE CORPORATION HAS ALWAYS HAD AND CONTINUES TO MAINTAIN A
STRICT POLICY OF PERMANENT CONFIDENTIALITY REGARDING THE VOTING INSTRUCTIONS AND
VOTING OF SHARES IN THESE THREE EMPLOYEE BENEFIT PLANS. NO EMPLOYEE OF THE STONE
& WEBSTER ORGANIZATION HAS ACCESS TO THE VOTING INSTRUCTIONS OF ANY PLAN
PARTICIPANT, WHICH ARE AVAILABLE ONLY TO THE TRUSTEES AND THEIR INDEPENDENT
VOTING INSTRUCTIONS TABULATOR. DISCLOSURE TO THE CORPORATION OR TO THIRD PARTIES
IS NOT PERMITTED UNLESS REQUIRED BY LAW OR THE PARTICIPANT REQUESTS OR CONSENTS
TO DISCLOSURE.

Employee Benefits Committee
Stone & Webster, Incorporated
28
- --------------------------------------------------------------------------------
Please mark
your votes as
indicated in
this example /X/

THESE VOTING INSTRUCTIONS WILL BE VOTED FOR ITEMS 1 AND 2 UNLESS A
CONTRARY CHOICE IS SPECIFIED

THE BOARD RECOMMENDS A VOTE FOR ITEMS 1 AND 2.

1. The election of Donna Fitzpatrick Bethell, Kent F. Hansen, Elvin R.
Heiberg III and H. Kerner Smith as Directors to serve until the 2000
Annual Meeting of Shareholders.

FOR WITHHOLD AUTHORITY
/ / / /

You may withhold authority to vote for any nominee by writing the
nominee's name on the line below.

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

2. The ratification of the selection of Coopers & Lybrand L.L.P.,
independent accountants, as auditor for the year 1997.

FOR AGAINST ABSTAIN
/ / / / / /

3. In accordance with the recommendation of management of Stone & Webster,
Incorporated upon all such other matters as may properly come before the
meeting.

You may instruct the Trustees to abstain from voting or to vote against
any management recommendation on such other matters by writing Abstain
or Against on the line below.

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

Please mark this box if you plan to attend the meeting. / /

SIGNATURE DATE , 1997
--------------------------------------------- -----------
NOTE: PLEASE SIGN AS NAME APPEARS HEREON.
- --------------------------------------------------------------------------------

STONE & WEBSTER EMPLOYEE INVESTMENT PLAN TRUST
STONE & WEBSTER EMPLOYEE STOCK OWNERSHIP PLAN TRUST
STONE & WEBSTER PAYROLL-BASED EMPLOYEE STOCK OWNERSHIP PLAN TRUST

VOTING INSTRUCTIONS TO TRUSTEES

THESE VOTING INSTRUCTIONS ARE SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

To the Trustees:

In accordance with provisions of the Employee Investment Plan, the
Employee Stock Ownership Plan, and the Payroll-based Employee Stock Ownership
Plan of Stone & Webster, Incorporated and Participating Subsidiaries, I hereby
instruct you, Putnam Fiduciary Trust Company and The Chase Manhattan Bank,
N.A., as Trustees, to vote or cause to be voted at the Annual Meeting of
Shareholders of Stone & Webster, Incorporated to be held on May 8, 1997 and at
any and all adjournments and postponements thereof, all shares in said
Corporation standing to my credit in each of the trusts under the foregoing
Plans in which I may be a participant and which I am entitled to direct the
vote at such meeting as follows:

(continued and to be SIGNED on the Reverse Side)
- --------------------------------------------------------------------------------
29
- --------------------------------------------------------------------------------
Please mark
your votes as
indicated in
this example /X/

THESE VOTING INSTRUCTIONS WILL BE VOTED FOR ITEMS 1 AND 2 UNLESS A
CONTRARY CHOICE IS SPECIFIED

THE BOARD RECOMMENDS A VOTE FOR ITEMS 1 AND 2.

1. The election of Donna Fitzpatrick Bethell, Kent F. Hansen, Elvin R.
Heiberg III and H. Kerner Smith as Directors to serve until the 2000
Annual Meeting of Shareholders.

FOR WITHHOLD AUTHORITY
/ / / /

You may withhold authority to vote for any nominee by writing the
nominee's name on the line below.

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

2. The ratification of the selection of Coopers & Lybrand L.L.P.,
independent accountants, as auditor for the year 1997.

FOR AGAINST ABSTAIN
/ / / / / /

3. Upon all such other matters as may properly come before the meeting.

Please mark this box if you plan to attend the meeting. / /

SIGNATURE(S) DATE , 1997
------------------------------------------ -----------
NOTE: PLEASE SIGN AS NAME APPEARS HEREON. JOINT OWNERS SHOULD EACH SIGN. WHEN
SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE
FULL TITLE AS SUCH.
- --------------------------------------------------------------------------------

STONE & WEBSTER INCORPORATED

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby appoints H. KERNER SMITH, JEREMIAH P. CRONIN and
PETER F. DURNING, or any one of them, as attorneys, with full power of
substitution, for and in the name of the undersigned, to vote, or withhold from
voting, all shares of the undersigned in Stone & Webster, Incorporated at the
Annual Meeting of its Shareholders to be held, in accordance with notice and
proxy statement received, in Boston, Massachusetts, on May 8, 1997, and at any
and all adjournments and postponements thereof:

(continued and to be SIGNED on the Reverse Side)
- --------------------------------------------------------------------------------