OPENROUTE NETWORKS INC, DEF 14A, 1999-04-13

OPENROUTE NETWORKS INC
DEF 14A, 1999-04-13
COMPUTER COMMUNICATIONS EQUIPMENT

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<PAGE> 1

SCHEDULE 14A INFORMATION

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

FILED BY THE REGISTRANT [X] FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]

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

Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))

OPENROUTE NETWORKS, INC.
(Name of Registrant as Specified In Its Charter)

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 0-11.

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

2) Aggregate number of securities to which transaction applies:

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

4) Proposed maximum aggregate value of transaction:

5) Total fee paid:

[ ] Fee paid previously with preliminary materials.

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

1) Amount Previously Paid:

2) Form, Schedule or Registration Statement No.:

3) Filing Party:

4) Date Filed:

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

OpenROUTE Networks Logo

April 21, 1999

Dear Shareholder:

You are cordially invited to attend the 1999 Annual Meeting of Shareholders
of OpenROUTE Networks, Inc. (the "Company") at 10:00 a.m. on Wednesday, May 26,
1999, at the offices of OpenROUTE Networks, Inc., 9 Technology Drive,
Westborough, Massachusetts (the "Meeting").

At the Meeting you will be asked to consider and vote upon the following:

1. the election of six (6) directors to hold office until the 2000 Annual
Meeting of Shareholders and until their successors are duly elected and
qualified;

2. an amendment to the Company's 1991 Restated Stock Option Plan which
would increase by 500,000 the number of shares reserved for issuance
upon exercise of options granted under the 1991 Restated Stock Option
Plan;

3. an amendment to the Company's Employee Stock Purchase Plan which would
increase by 100,000 the number of shares reserved for issuance in
respect of purchases made by employees pursuant to the Employee Stock
Purchase Plan; and

4. such other business as may properly come before the Meeting or any
postponement(s) or adjournment(s) thereof, including any motion to
adjourn the Meeting to a later date to permit further solicitation of
proxies.

The Board of Directors recommends the election of the six (6) nominees
named in the enclosed Proxy Statement and the approval of the proposed
amendments to the Company's 1991 Restated Stock Option Plan and to the Company's
Employee Stock Purchase Plan.

Whether or not you plan to attend the Meeting, it is important that you
promptly sign, date and return the enclosed proxy card in accordance with the
instructions pertaining to the card. This will ensure your proper representation
at the Meeting.

Sincerely,
\s\ BRYAN R. HOLLEY
BRYAN R. HOLLEY
President and Chief
Executive Officer

YOUR VOTE IS IMPORTANT. PLEASE RETURN YOUR PROXY PROMPTLY.
<PAGE> 3

OPENROUTE NETWORKS, INC.
9 TECHNOLOGY DRIVE
WESTBOROUGH, MA 01581

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD ON WEDNESDAY, MAY 26, 1999

To Shareholders of OpenROUTE Networks, Inc.:

Notice is hereby given that the 1999 Annual Meeting of Shareholders of
OpenROUTE Networks, Inc. ("OpenROUTE Networks" or the "Company") will be held at
the offices of OpenROUTE Networks, 9 Technology Drive, Westborough,
Massachusetts, on Wednesday, May 26, 1999, at 10:00 a.m. local time (the
"Meeting") for the following purposes:

1. To elect six (6) directors to hold office until the 2000 Annual Meeting
of Shareholders and until their successors are duly elected and
qualified.

2. To consider and act upon an amendment to the Company's 1991 Restated
Stock Option Plan which would increase by 500,000 the number of shares
reserved for issuance upon exercise of options granted under the 1991
Restated Stock Option Plan.

3. To consider and act upon an amendment to the Company's Employee Stock
Purchase Plan which would increase by 100,000 the number of shares
reserved for issuance in respect of purchases made by employees
pursuant to the Employee Stock Purchase Plan.

4. To transact such other business as may properly come before the Meeting
or any postponement(s) or adjournment(s) thereof, including any motion
to adjourn the Meeting to a later date to permit further solicitation
of proxies.

Only shareholders of record at the close of business on March 31, 1999,
will be entitled to receive notice of, and to vote at, the Meeting or any
adjournment(s) thereof. The transfer books will not be closed.

You are cordially invited to attend the Meeting in person. Whether or not
you plan to attend the Meeting, please fill out, sign and date the enclosed
Proxy and return it in the envelope enclosed for this purpose. The Proxy is
revocable by the person giving it at any time prior to the exercise thereof by
written notice received by the Company, by delivery of a duly executed Proxy
bearing a later date or by attending the Meeting and voting in person.

By Order of the Board of Directors,
/s/ Steven T. Shedd
STEVEN T. SHEDD
Clerk and Secretary

April 21, 1999
<PAGE> 4

OPENROUTE NETWORKS, INC.
9 TECHNOLOGY DRIVE
WESTBOROUGH, MA 01581

ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON WEDNESDAY, MAY 26, 1999

PROXY STATEMENT

GENERAL INFORMATION

Date, Time and Place. This Proxy Statement is furnished to the
shareholders of OpenROUTE Networks, Inc. ("OpenROUTE Networks" or the "Company")
in connection with the solicitation by and on behalf of the Board of Directors
of proxies for use at the Annual Meeting of Shareholders of the Company to be
held at the offices of OpenROUTE Networks, 9 Technology Drive, Westborough,
Massachusetts, on Wednesday, May 26, 1999, at 10:00 a.m. local time and at any
postponement(s) or adjournment(s) thereof (the "Meeting"). This Proxy Statement,
together with the enclosed form of Proxy and the Annual Report to Shareholders
for the fiscal year ended December 31, 1998, is being mailed to shareholders on
or about April 21, 1999. The Annual Report does not constitute any part of this
Proxy Statement.

Action to be Taken Under the Proxy. SHARES WILL BE VOTED AS INSTRUCTED IN
THE ACCOMPANYING PROXY ON EACH MATTER SUBMITTED TO THE VOTE OF SHAREHOLDERS. IF
ANY DULY EXECUTED PROXY IS RETURNED WITHOUT VOTING INSTRUCTIONS, THE PERSONS
NAMED AS PROXIES THEREON INTEND TO VOTE ALL SHARES REPRESENTED BY SUCH PROXY AS
FOLLOWS:

1. FOR the election of the six (6) directors nominated by the Board of
Directors for the ensuing year and until their successors are duly
elected and qualified;

2. FOR the proposal to amend the Company's 1991 Restated Stock Option Plan
("Stock Option Plan") by increasing by 500,000 the number of shares
reserved for issuance upon exercise of options granted under the Stock
Option Plan;

3. FOR the proposal to amend the Company's Employee Stock Purchase Plan by
increasing by 100,000 the number of shares reserved for issuance in
respect of purchases made by employees pursuant to the Employee Stock
Purchase Plan; and

4. at the discretion of the proxy holders with regard to any other
business that may properly come before the Meeting. The directors do
not know of any such other matters or business at this time.

Revocability of Proxies. Any Proxy given pursuant to this solicitation may
be revoked by the person giving it at any time before its exercise by delivering
to the Company a written notice of revocation or a duly executed Proxy bearing a
later date, or by attending the Meeting and voting in person.

Dissenters' Rights of Appraisal. With respect to each of the matters to be
acted on at the Meeting, shareholders are not entitled to dissenters' rights of
appraisal or other dissenters' rights by law or otherwise.

Cost of Solicitation. The entire cost of this solicitation will be borne
by the Company. The Company may reimburse brokerage firms and other persons
representing beneficial owners of shares for their reasonable expenses in
forwarding solicitation material and the Annual Report to such beneficial
owners. Solicitation of proxies by mail may be supplemented by telephone,
facsimile and personal solicitation by directors, officers or employees of the
Company.
<PAGE> 5

Record Date, Outstanding Shares and Quorum. Only shareholders of record of
the Company's 15,430,168 shares of Common Stock, $.01 par value per share (the
"Common Stock"), outstanding as of the close of business on March 31, 1999 (the
"Record Date") will be entitled to notice of, and to vote at, the Meeting. Every
shareholder is entitled, for each share of Common Stock held, to one vote on
each proposal or item that comes before the Meeting. The presence, in person or
by proxy, of the holders of a majority of the outstanding shares of Common Stock
entitled to vote is necessary to constitute a quorum at the Meeting. Abstentions
and broker non-votes are counted for purposes of determining the presence or
absence of a quorum.

Voting. The election of director nominees requires the favorable vote of a
plurality of all votes cast by the shareholders at a meeting at which a quorum
is present. Unless authority to vote is withheld, proxies will be voted for the
election of each of the nominees named herein as directors of the Company. There
are no cumulative voting rights. All other action proposed may be taken upon the
affirmative vote of a majority of the votes cast by the shareholders present and
entitled to vote on the matter. With respect to the tabulation of votes on the
proposals to amend the Stock Option Plan and the Employee Stock Purchase Plan,
abstentions and broker non-votes will have no effect on the vote.

Market Value of Common Stock. On April 1, 1999, the closing market price
of the Company's Common Stock was $2.156 per share as reported by the NASDAQ
National Stock Market.

PROPOSAL 1: ELECTION OF DIRECTORS

At the Meeting, six (6) directors will be elected until the 2000 Annual
Meeting of Shareholders and until their successors have been duly elected and
qualified or until their earlier resignation or removal.

The enclosed Proxy, unless authority to vote is withheld, will be voted for
the election of each of the nominees named herein as directors of the Company.
The Board of Directors has no reason to believe that any nominee will become
unavailable. However, in the event any one or more of such nominees shall
unexpectedly become unavailable for election, votes will be cast, pursuant to
authority granted by the enclosed Proxy, for such person or persons as may be
designated by the Board of Directors.

Vote Required. Directors are elected by a plurality of the votes cast by
the shares entitled to vote in the election at a meeting of the shareholders at
which a quorum is present. The six (6) nominees receiving the highest number of
affirmative votes of the shares entitled to be voted shall be elected to the
Board of Directors. Each outstanding share of Common Stock is entitled to one
vote in the election.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF THE
NOMINEES NAMED HEREIN AS A DIRECTOR. UNLESS INDICATED OTHERWISE BY YOUR PROXY
VOTE, THE SHARES WILL BE VOTED FOR THE ELECTION AS DIRECTORS OF SUCH NOMINEES.

2
<PAGE> 6

The following information sets forth as of the Record Date, the name, age,
principal occupation or employment during the last five years and directorships
in other publicly held companies of each of the nominees:

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION DURING
NAME AGE THE PAST FIVE YEARS; OTHER DIRECTORSHIPS
---- --- ----------------------------------------
<S> <C> <C>
Bryan R. Holley........................ 37 Mr. Holley joined the Company as Chief Executive
Officer and President on July 7, 1998. Prior to
joining the Company, Mr. Holley was President and
Chief Executive Officer of ITK Telecommunications Inc.
("ITK") from 1997 to 1998. Prior to his position with
ITK, Mr. Holley held several key executive positions
including President of Riverbend Press from 1995 to
1997 and Senior Vice President of Summagraphics
Corporation from 1993 to 1995.

Howard C. Salwen....................... 62 Mr. Salwen founded the Company as a partnership in
1972 and served as its President until 1984. Since the
Company's incorporation in 1974 he has been Chairman
of the Company's Board of Directors. He served as
Chief Technical Officer from February 1984 to April
1991 and as Clerk and Treasurer from 1974 to April
1991. Mr. Salwen currently sits on the Board of
Directors of Marathon Technologies Corp., a company
which designs and manufactures fault-tolerant
computers, and of the Mass Telecommunications Council.
Mr. Salwen is also an Overseer of the DeCordova Museum
and the Computer Museum.

Dr. David Clark........................ 55 Dr. Clark has been a member of the Company's Board of
Directors since 1984. He has been employed since 1973
at Massachusetts Institute of Technology Laboratory
Computer Science, where he is a Senior Research
Scientist.

Dr. Robert M. Glorioso................. 59 Dr. Glorioso joined the Company's Board of Directors
in March 1997. Since April 1993, Dr. Glorioso has held
the position of President, Chief Executive Officer and
is a board member of Marathon Technologies Corp., a
company which designs and manufactures fault-tolerant
computers. From January 1976 to December 1992, Dr.
Glorioso held several senior executive positions while
a corporate Vice President at Digital Equipment
Corporation including Vice President of Information
Systems Business and Vice President of Executive
Consulting.

Thomas Liebermann...................... 49 Mr. Liebermann was appointed to the Company's Board of
Directors in July 1998. Mr. Liebermann has been
Chairman and Chief Executive Officer of Advanced
Frequency Products LLC, which develops specialized
subsystems and components for the wireless
communications and motion sensing markets, since 1997.
Prior to that Mr. Liebermann was President and CEO of
Kaye Instruments from 1989 until 1996. Mr. Liebermann
serves as a director on several Boards and holds a
leadership role in the Young President's Organization.
</TABLE>

3
<PAGE> 7

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION DURING
NAME AGE THE PAST FIVE YEARS; OTHER DIRECTORSHIPS
---- --- ----------------------------------------
<S> <C> <C>
James Norrod........................... 50 Mr. Norrod was appointed to the Company's Board of
Directors in December 1998. From 1998 to 1999 he was
the Chief Executive Officer of Biztravel.com. Prior to
joining Biztravel.com, Mr. Norrod was Chief Executive
Officer of ITK International from 1997 to 1998 and of
Telebit from 1993 to 1997. Mr. Norrod is also Chairman
of the Board of Directors of Cignal Global
Communications, Inc.
</TABLE>

No nominee for director or executive officer of the Company has any family
relationship with any other nominee or with any other executive officer.

INFORMATION CONCERNING THE BOARD OF DIRECTORS
AND THE EXECUTIVE OFFICERS

BOARD OF DIRECTORS

Meetings, Committees And Compensation Of The Board Of Directors

The Board of Directors currently consists of Mr. Holley, Dr. Clark, Dr.
Glorioso, Mr. Liebermann, Mr. Salwen and Mr. Norrod. The Board of Directors has
an Audit Committee and a Compensation Committee, but does not have a standing
Nominating Committee.

Audit Committee. Howard C. Salwen and David Clark currently serve on the
Audit Committee. The Audit Committee reviews the engagement of the Company's
independent accountants, reviews the annual financial statements, considers
matters relating to accounting policy and internal controls and reviews the
scope of the annual audits.

Compensation Committee. Howard C. Salwen and Robert M. Glorioso comprised
the Compensation Committee during the fiscal year ended December 31, 1998
("Fiscal Year 1998"). The Compensation Committee reviews, approves and makes
recommendations on the Company's compensation policies, practices and procedures
in an effort to ensure that the legal and fiduciary responsibilities of the
Board of Directors are met and that such policies, practices and procedures
contribute to the success of the Company. The Compensation Committee also
administers the Company's Stock Option Plan and Employee Stock Purchase Plan.

During Fiscal Year 1998, there were seven (7) meetings of the Board of
Directors, two (2) meetings of the Audit Committee and eight (8) meetings of the
Compensation Committee. In addition, the members of the Board of Directors and
its committees acted once by unanimous written consent pursuant to Massachusetts
Law.

During Fiscal Year 1998, each of the directors attended 75% or more of the
total number of (i) meetings of the Board of Directors and (ii) meetings of
committees of the Board of Directors on which such director served.

Directors' Compensation

During Fiscal Year 1998 the Company paid Dr. Clark and Dr. Glorioso, two of
the Company's directors who were not also employees of the Company, an annual
fee of $10,000 for their services as directors of the Company. The Company
intends to pay this fee, on an annual basis, to any future non-employee
directors. In addition, Dr. Clark, Dr. Glorioso, Mr. Liebermann and Mr. Salwen
received, and any future non-employee

4
<PAGE> 8

directors will receive, $1,000 for each Board of Directors meeting attended and
$1,000 for each Audit Committee and/or Compensation Committee meeting attended
if such committee meeting was not on the same day as a Board of Directors
meeting. The Company reimbursed directors, who requested such reimbursement, for
the expense of attending meetings, including airfare, hotel and auto/travel
mileage.

Pursuant to the Stock Option Plan, all non-employee directors who first
become directors on or after May 14, 1992, are automatically granted an option
to purchase 5,000 shares of the Company's Common Stock at the then calculated
fair market value (a "Director Option"). Director Options become exercisable
over four years at the rate of twenty-five percent per year and terminate ten
years after the grant date, so long as the individual remains a director.
Director Options terminate ninety (90) days after the individual ceases to be a
director, unless the directorship is terminated as a result of the director's
removal from the Board of Directors for cause (as defined), in which event the
options terminate immediately. Pursuant to an amendment to the Stock Option Plan
in November, 1998, directors may be granted Non-Qualified Options pursuant to
the Stock Option Plan in addition to the Director Options. In the event of the
death or disability of the director, the options which had become exercisable
through the last option vesting date, and an additional number, prorated up to
the date of death or disability, may be exercised by the director or the
director's survivors, as the case may be, in accordance with their original
terms up to one year after the death or disability of the director.

EXECUTIVE OFFICERS

The Company's executive officers serve at the discretion of the Board of
Directors and until their respective successors are chosen and qualified or
until their earlier resignation or removal.

In addition to Mr. Holley, the current executive officers of the Company
are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Thomas Aucella.................................. 48 Vice President, Asia Pacific Operations
Robert A. Koch.................................. 46 Vice President, Engineering and Customer
Support
Bruce MacAloney................................. 46 Vice President, Sales
Steven T. Shedd................................. 46 Vice President, Finance, Chief Financial
Officer, Treasurer and Clerk
Richard Sterry.................................. 48 Vice President, Marketing
</TABLE>

Mr. Aucella joined the Company in October 1998 as Vice President, Asia
Pacific Operations. Prior to joining the Company, Mr. Aucella held the position
of Vice President of Asia/Pacific Sales for Software.com from 1996 to 1998.
Beginning in 1991 until 1996, Mr. Aucella directed international business
development for Bay Networks.

Mr. Koch joined the Company in April 1993 as Product Marketing Director and
held that position until April 1997. In April 1997, Mr. Koch became Vice
President of Product Planning for the Company. As of September 1997, Mr. Koch
has held the position of Vice President, Engineering, and Customer Support.

Mr. MacAloney joined the Company in January 1999 as Vice President, Sales.
Prior to joining OpenROUTE Networks, Mr. MacAloney served as Vice President,
Sales for GigaNet, Inc. beginning in 1996. He held a senior executive position
with Racor beginning in 1994 until 1996. Mr. MacAloney has also held executive
positions with a number of key companies in the industry including Standard
Microsystems, Artel Communications and Interlan.

Mr. Shedd joined the Company in July 1997. Prior to joining OpenROUTE
Networks Mr. Shedd served as the Vice President and Chief Financial Officer of
Zoom Telephonics since 1996. In 1995, Mr. Shedd was the Vice President and Chief
Financial Officer for Versyss, Inc. From 1992 to 1995 Mr. Shedd served as Vice
President and Chief Financial Officer of TSI Corporation.

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<PAGE> 9

Mr. Sterry joined the Company in September 1998 as Vice President,
Marketing. Prior to joining OpenROUTE Networks, Mr. Sterry held executive
marketing positions with networking and communications companies including
Netaccess from 1996 to 1998, Computervision Corporation in 1995 and Sales &
Intelligence At Large in 1994. Mr. Sterry has also held executive positions at
Extension Technology, Avatar, Microcom and Prime Computer.

PRINCIPAL SHAREHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of April 1, 1999 (on which date 15,430,168 shares
were outstanding), by (a) each person or entity known by the Company to be the
beneficial owner of more than five percent of the Common Stock, (b) each
director (and nominee for director) of the Company, (c) each Named Executive
Officer (as defined in the Summary Compensation Table below), and (d) all
current Named Executive Officers and directors of the Company as a group. Except
as otherwise indicated, each shareholder has sole voting and investment power
with respect to the shares beneficially owned.

<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER(A) BENEFICIALLY OWNED BENEFICIALLY OWNED
--------------------------------------- ------------------ --------------------
<S> <C> <C>
Howard C. Salwen(B)....................................... 1,006,264 6.5%
c/o OpenROUTE Networks, Inc.
9 Technology Drive Westborough, MA 01581
Dr. David Clark(C)........................................ 50,000 *
Dr. Robert M. Glorioso(D)................................. 5,625 *
Thomas R. Liebermann(E)................................... 25,000 *
James Norrod(F)........................................... 26,250 *
Bryan R. Holley(G)........................................ 169,955 1.1%
Daniel J. Capone, Jr.(H).................................. 0 *
Steven T. Shedd(I)........................................ 46,875 *
Robert A. Koch(J)......................................... 58,722 *
Kenneth Hovaldt(K)........................................ 0 *
All current Named Executive Officers and Directors as a
group (11 persons)(L)................................... 1,464,066 9.2%
</TABLE>

- ---------------
* Less than 1%

(A) Addresses are given only for beneficial owners of more than five percent
of the Common Stock. The stock ownership information has been furnished to
the Company by the named persons. Share ownership includes shares of
Common Stock issuable upon exercise of certain outstanding options as
described in the footnotes below.

(B) Includes 125,164 shares owned by trusts of which Mr. Salwen is a trustee
for the benefit of his adult children, David J. Salwen and Andrea G.
Salwen. Mr. Salwen disclaims beneficial ownership of the 125,164 shares
held in trust, as to which he has no investment power. Also includes 5,000
shares which Mr. Salwen, Chairman of the Company's Board of Directors, may
acquire upon the exercise of options within sixty days after April 1,
1999.

(C) Includes 25,000 shares which Dr. Clark, a director of the Company, may
acquire upon the exercise of options within sixty days after April 1,
1999.

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<PAGE> 10

(D) Includes 5,625 shares which Dr. Glorioso, a director of the Company, may
acquire upon the exercise of options within sixty days after April 1, 1999.

(E) Includes 5,000 shares which Mr. Liebermann, a director of the Company, may
acquire upon the exercise of options within sixty days after April 1, 1999.

(F) Includes 6,250 shares which Mr. Norrod, a director of the Company, may
acquire upon the exercise of options within sixty days after April 1, 1999.

(G) Includes 152,955 shares which Mr. Holley, the Company's President and Chief
Executive Officer, may acquire upon the exercise of options within sixty
days after April 1, 1999.

(H) Mr. Capone is the Company's former President and Chief Executive Officer.

(I) Includes 29,375 shares which Mr. Shedd, the Company's Chief Financial
Officer, Treasurer and Clerk, may acquire upon the exercise of options
within sixty days after April 1, 1999.

(J) Includes 46,750 shares which Mr. Koch, the Company's Vice President,
Engineering and Customer Support, may acquire upon the exercise of options
within sixty days after April 1, 1999.

(K) Kenneth Hovaldt is the Company's former Vice President of Sales.

(L) Includes an aggregate of 310,330 shares, which may be acquired upon the
exercise of options within 60 days after April 1, 1999.

EXECUTIVE COMPENSATION

The following table shows compensation paid by the Company for services
rendered during the fiscal years ended December 31, 1998, 1997 and 1996 to (i)
the Chief Executive Officer and President, (ii) the Vice President, Finance and
Chief Financial Officer, (iii) the Vice President, Engineering and Customer
Support, (iv) the former President and Chief Executive Officer, and (v) the
former Vice President, Sales of the Company (collectively, the "Named Executive
Officers," and each, an "Executive").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
ANNUAL COMPENSATION ------------
---------------------------- SECURITIES
COMMISSIONS UNDERLYING ALL OTHER
SALARY AND BONUSES OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($)(A) ($)(A) (#) ($)(B)
--------------------------- ---- ------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Bryan R. Holley............................ 1998 125,000 91,193 459,000 2,820
Chief Executive Officer and President
Steven T. Shedd............................ 1998 150,385 44,892 90,000 3,008
Vice President, Finance and 1997 64,615 5,517 60,000 0
Chief Financial Officer
Robert A. Koch............................. 1998 145,289 44,664 130,000 0
Vice President, Engineering 1997 122,847 16,090 40,000 0
and Customer Support
Daniel J. Capone, Jr. (C).................. 1998 286,154 0 473,000 3,200
Former President and Chief 1997 241,324 43,899 77,500 3,200
Executive Officer 1996 241,405 39,719 120,500 3,000
</TABLE>

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<PAGE> 11

- ---------------
(A) Amounts shown include cash compensation earned and/or received by the Named
Executive Officers. Bonus amounts include a Stay Put Bonus which is more
fully described in the Employment and Severance Arrangements Section below.

(B) The totals in this column reflect the aggregate value of the Company's
contributions under the 401(k) Retirement Benefit Plan for the Named
Executive Officers.

(D) Mr. Hovaldt resigned his position as Vice President, Sales on November 7,
1998.

OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth information regarding each stock option
granted to the Named Executive Officers during Fiscal Year 1998. All options
were granted under the Stock Option Plan. Additionally, in accordance with the
Securities and Exchange Commission's ("SEC") rules, hypothetical gains or
"option spreads" that would exist for the respective options are also shown.
These gains are based on assumed rates of annual compounded stock price
appreciation of 5% and 10% from the date the options were granted to the option
expiration date. Actual gains, if any, on stock option exercises and Common
Stock holdings are dependent on the future performance of the Common Stock and
overall market conditions.

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------
% OF TOTAL POTENTIAL REALIZABLE VALUE
OPTIONS AT ASSUMED ANNUAL RATES
GRANTED OF STOCK PRICE
NUMBER OF TO APPRECIATION FOR
SECURITIES EMPLOYEES IN EXERCISE OPTION TERM
UNDERLYING OPTIONS FISCAL PRICE EXPIRATION ---------------------------
NAME GRANTED (#) YEAR ($/SH) DATE 5%($)(O) 10%($)(O)
---- ------------------ ------------ -------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Bryan R. Holley........ 350,000(A) 14.51 1.13 7/6/08 247,627 627,536
109,000(B) 4.52 0.81 11/3/08 55,731 141,233
Steven T. Shedd........ 50,000(C) 2.07 1.25 7/22/08 31,650 87,418
40,000(D) 1.66 0.81 11/3/08 20,452 51,829
Robert A. Koch......... 15,000(E) 0.62 1.90 2/11/08 3,581 22,584
5,000(F) 0.21 1.90 2/11/08 1,194 7,528
2,000(G) 0.08 1.90 2/11/08 477 3,011
10,000(H) 0.41 1.90 2/11/08 2,387 15,056
5,000(I) 0.21 1.90 2/11/08 1,194 7,528
10,000(J) 0.41 1.90 2/11/08 2,387 15,056
10,000(K) 0.41 1.90 2/11/08 2,387 15,056
25,000(L) 1.04 1.25 7/22/08 15,825 43,709
48,000(M) 1.99 0.81 11/3/08 24,542 62,194
</TABLE>

8
<PAGE> 12

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

(A) Incentive Stock Options were granted on July 6, 1998 and are exercisable for
20,400 shares on the grant date. The remaining 329,600 shares are
exercisable quarterly from the date of grant.

(B) Incentive Stock Options were granted on November 3, 1998 and are exercisable
for 66,266 shares on the grant date. The remaining 42,734 shares are
exercisable quarterly from the date of grant.

(D) Incentive Stock Options were granted on November 3, 1998 and are exercisable
quarterly from the date of grant.

(E) Incentive Stock Options were granted on February 11, 1998 in exchange for
options with an exercise price greater than $1.90 per share. These
substitute options are exercisable for 3,750 shares on the date of grant and
for an additional 3,750 shares each on February 22,1999, February 22, 2000
and February 22, 2001.

(F) Incentive Stock Options were granted on February 11, 1998 in exchange for
options with an exercise price greater than $1.90 per share. These
substitute options are exercisable for 2,500 shares on the date of grant and
for an additional 2,500 shares each on August 7, 1999 and August 7, 2000.

(G) Incentive Stock Options were granted on February 11, 1998 in exchange for
options with an exercise price greater than $1.90 per share. These
substitute options are fully exercisable on the date of grant.

(H) Incentive Stock Options were granted on February 11, 1998 in exchange for
options with an exercise price greater than $1.90 per share. These
substitute options are exercisable for 7,500 shares on the date of grant and
for the remaining 2,500 shares on May 15, 1999.

(I) Incentive Stock Options were granted on February 11, 1998 in exchange for
options with an exercise price greater than $1.90 per share. These
substitute options are exercisable for 2,500 shares on the date of grant and
for an additional 1,250 shares each on April 25, 1999 and April 25, 2000.

(J) Incentive Stock Options were granted on February 11, 1998 in exchange for
options with an exercise price greater than $1.90 per share. These
substitute options are exercisable for 2,500 shares on the date of grant and
for an additional 2,500 shares each on July 3, 1999, July 3, 2000 and July
3, 2001.

(K) Incentive Stock Options were granted on February 11, 1998 in exchange for
options with an exercise price greater than $1.90 per share. These
substitute options are exercisable for 2,500 shares on the grant date and
for an additional 2,500 shares each on August 10, 1999, August 10, 2000 and
August 10, 2001.

(L) Incentive Stock Options were granted on July 22, 1998 and are exercisable at
a rate of twenty-five percent per year beginning on July 22, 1999 through
July 22, 2002.

(M) Incentive Stock Options were granted on November 3, 1998 and are exercisable
quarterly from the date of grant with full vesting on November 3, 2002.

(N) Incentive and Non-Qualified Stock Options were granted on February 11, 1998
in exchange for options held with an exercise price greater than $1.90 per
share. These substitute options were exercisable

9
<PAGE> 13

between February 11, 1998 and April 22, 2002. Currently all of these options
have been exercised or expired.

(O) Potential realizable value based on an assumption that the price of Common
Stock appreciates at the annual rate shown (compounded annually) from the
date of grant until the end of the option term. These numbers are calculated
based on the requirements of the SEC and do not necessarily reflect the
Company's estimate of future stock price.

AGGREGATED OPTION EXERCISES AND FISCAL YEAR END VALUES

The following table provides information with respect to the Named
Executive Officers regarding the number of shares covered by both exercisable
and unexercisable stock options as of December 31, 1998, and the value of
unexercised options.

<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FY-END(#) AT FY-END($)(A)
SHARES ACQUIRED VALUE REALIZED --------------------------- ---------------------------
NAME ON EXERCISE(#) ($)(A) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Bryan R. Holley.............. 0 0 107,266 351,734 84,391 222,263
Steven T. Shedd.............. 0 0 18,125 131,875 1,466 58,224
Robert A. Koch............... 0 0 28,250 121,750 0 55,213
Daniel J. Capone, Jr.(B)..... 4,687 966 386,125 0 0 0
Kenneth W. Hovaldt (C)....... 0 0 0 0 0 0
</TABLE>

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

(A) The value realized is the fair market value on the date of exercise less the
option exercise price times the number of shares.

(B) Former President and Chief Executive Officer.

EMPLOYMENT AND SEVERANCE ARRANGEMENTS

Mr. Bryan R. Holley was appointed President and Chief Executive Officer of
the Company on July 6, 1998. In accordance with Mr. Holley's employment
contract, Mr. Holley will receive a base salary of $250,000 per year. Mr. Holley
was paid a base salary of $125,000 and received a bonus of $63,693 in Fiscal
Year 1998. In 1998, Mr. Holley was eligible to participate in the Company's
Incentive Bonus Plan which provides for the payment of cash bonuses as a
function of achievement by the Company of goals developed by the Board of
Directors. Mr. Holley's participation in the Incentive Bonus Plan is at the 50%
level. The Incentive Bonus Plan also provides for higher or lower bonuses
corresponding to the extent to which the Company achieves more or less than 100%
of the goals established by the Board of Directors. Mr. Holley was also granted
options to purchase a total of 459,000 shares of Common Stock of the Company.
Stock options were granted at fair market value on the date of grant. In the
event Mr. Holley's employment is terminated by the Company for any reason other
than "cause," he will be entitled to receive his then current base compensation
for an additional twelve months as well as the continuation of certain benefits
for a twelve month period and certain placement services. Mr. Holley's
employment contract also contains a twelve month non-compete provision.

The Company has entered into agreements with certain of its Executive
Officers, including Messrs. Holley, Shedd and Koch, whereby each could be paid
severance payments in the event of a change in control of the Company. Except
for the identity of the Executives and the dates, the agreements are identical
in all material respects. Upon the occurrence of certain events and the
fulfillment of certain conditions, each of the Executives may receive a
severance benefit equal to one year's salary and all outstanding options held by

10
<PAGE> 14

the Executive will become immediately exercisable in full. Each of the
agreements has a term from the date of the agreement to the earliest to occur of
(a) two years from the date of the agreement; (b) termination of the Executive's
employment (i) by death or disability, (ii) for cause or (iii) by the executive,
unless justified under the terms of the agreement by actions of the Company
subsequent to a change in control; or (c) one year after the date of a change in
control. Each of the agreements contains a twelve month non-compete provision in
the event severance payments are made pursuant to the agreements.

For purposes of the agreements, a "change in control" is defined as (a) a
person becoming the beneficial owner of 50% or more of the outstanding shares of
Common Stock of the Company, (b) a merger or consolidation where the Company is
not the survivor or the shareholders of the Company prior to the merger or
consolidation are not the holders of at least a majority of the voting power of
the entity resulting from such merger or consolidation, (c) sale of all or
substantially all of the assets of the Company, or (d) changes in the identity
of the directors of the Company within a two year period, unless certain
conditions specified in the agreements are met.

On December 18, 1998 the Company agreed to loan certain of its Executive
Officers, including Mssrs. Holley, Shedd and Koch $27,500, $22,000 and $22,000,
respectively, under a Stay Put Bonus Agreement. Each Executive was loaned the
money for a period of one year at an annual percentage rate of 7%. The interest
accrues on the unpaid balance beginning on January 1, 1999, until either
forgiven or paid back. The loan will be forgiven at the rate of 1/12 of the
original balance for each calendar month the Executive remains employed by the
Company. Accrued interest will be forgiven each calendar month that the
Executive remains employed by the Company.

If the Executive leaves the Company voluntarily and any balance of the loan
and accrued interest is still outstanding then the Executive is obligated to pay
the balance of the loan and accrued interest back to the Company. If 40% or more
of the Company's outstanding Common Stock is acquired by an entity or if the
Company enters into a pooling of interest transaction, the balance of the loan
and accrued interest will be forgiven at the time of the respective transaction.

COMPENSATION COMMITTEE REPORT ON OPTION REPRICING

As a result of the diminution in the market price of the Company's Common
Stock in 1997 and the resulting deep reduction in the perceived value of stock
options held by employees, the Compensation Committee of the Board of Directors
determined that many previously granted stock options had lost much of their
value in motivating employees to remain with the Company and share in its
overall financial goals. Consequently, the Compensation Committee of the Board
of Directors, in February 1998, pursuant to the authority granted under the
Company's Stock Option Plan, voted to allow employees of the Company holding
options to purchase shares with an option exercise price greater than $1.90 per
share to exchange those options for substitute options having an exercise price
of $1.90 per share. On February 11, 1998, options for a total of 799,575 shares
were surrendered by employees and exchanged for new options at the new option
exercise price.

11
<PAGE> 15

OPTION REPRICING

The following table sets forth information regarding all repricings of
options held by the Named Executive Officers during the last ten fiscal years.

<TABLE>
<CAPTION>
LENGTH OF
ORIGINAL
MARKET PRICE OF OPTION TERM
NUMBER OF SECURITIES STOCK REMAINING
UNDERLYING OPTIONS AT TIME OF EXERCISE PRICE AT NEW AT DATE OF
REPRICED OR REPRICING TIME OF REPRICING EXERCISE REPRICING
NAME DATE AMENDED(#) OR AMENDMENT($) OR AMENDMENT($) PRICE OR AMENDMENT
---- ------- ---------------------- ------------------- ------------------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Robert A. Koch........ 2/11/98 15,000 1.31 2.92 1.90 8 yrs. 6 mo.
2/11/98 5,000 1.31 3.63 1.90 8 yrs. 7 mo.
2/11/98 10,000 1.31 2.66 1.90 8 yrs. 11 mo.
2/11/98 10,000 1.31 2.53 1.90 9 yrs.
2/11/98 5,000 1.31 3.63 1.90 8 yrs. 7 mo.
2/11/98 10,000 1.31 3.63 1.90 8 yrs. 7 mo.
2/11/98 2,000 1.31 3.63 1.90 8 yrs. 7 mo.
9/16/96 5,000 3.63 6.63 3.63 9 yrs. 5 mo.
9/16/96 2,000 3.63 6.21 3.63 8 yrs. 2 mo.
9/16/96 10,000 3.63 6.21 3.63 8 yrs. 2 mo.
9/16/96 5,000 3.63 8.69 3.63 9 yrs. 1 mo.
Daniel J. Capone,
Jr.................. 2/11/98 315,250 1.31 3.13 1.90 6 yrs. 5 mo.
2/11/98 18,837 1.31 2.99 1.90 8 yrs. 5 mo.
2/11/98 21,163 1.31 2.99 1.90 8 yrs. 5 mo.
2/11/98 15,250 1.31 3.63 1.90 8 yrs. 7 mo.
2/11/98 15,014 1.31 3.63 1.90 8 yrs. 7 mo.
2/11/98 34,986 1.31 3.63 1.90 8 yrs. 7 mo.
2/11/98 13,275 1.31 2.53 1.90 8 yrs. 11 mo.
2/11/98 8,600 1.31 2.53 1.90 8 yrs. 11 mo.
2/11/98 28,125 1.31 2.53 1.90 8 yrs. 11 mo.
2/11/98 2,500 1.31 2.56 1.90 9 yrs. 8 mo.
9/16/96 7,000 3.63 11.80 3.63 5 yrs. 10 mo.
9/16/96 3,500 3.63 10.16 3.63 6 yrs. 4 mo.
9/16/96 5,250 3.63 6.00 3.63 6 yrs. 10 mo.
9/16/96 5,099 3.63 6.00 3.63 6 yrs. 10 mo.
9/16/96 4,250 3.63 12.05 3.63 4 yrs. 10 mo.
9/16/96 4,901 3.63 6.00 3.63 6 yrs. 10 mo.
9/16/96 500 3.63 12.05 3.63 4 yrs. 10 mo.
9/16/96 15,014 3.63 6.65 3.63 8 yrs. 11 mo.
9/16/96 34,986 3.63 6.65 3.63 8 yrs. 11 mo.
7/28/93 5,250 3.88 12.05 6.00 8 yrs.
7/28/93 10,000 3.88 15.68 6.00 8 yrs. 6 mo.
</TABLE>

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

The Compensation Committee of the Board of Directors determines the
remuneration and benefits for senior executives, reviews executive development
and succession, and acts in an advisory capacity to the Board of Directors as a
whole with regard to general compensation issues. The Compensation Committee is
comprised solely of outside directors.

The Compensation Committee's policies in compensating the Chief Executive
Officer and senior management are based on several principles: (i) the payment
of competitive salaries so as to attract and retain high quality personnel; (ii)
the provision of a cash bonus program which is structured to reward the
successful achievements of both overall Company financial goals, as measured by
profitability, market share and cost management and technical and market
development goals; and (iii) the granting of stock options based upon the
competitive environment for recruiting and retaining personnel. In addition, the
Compensation Committee's policies are designed to strongly align management's
interests with shareholders' interests so as to motivate employees to pursue
overall Company success. The Compensation Committee manages the compensation
program so that it is straightforward and easily communicated to and understood
by employees

12
<PAGE> 16

and shareholders. The compensation program is structured in such a manner that
the achievement of goals and performance can be understood and measured.
Further, it is the Company's philosophy that executives participate in the
general benefit programs offered to all employees.

Competitive base salaries are established through the use of published
industry surveys and targeted peer company surveys examining, depending on the
particular position, competitive companies in the data communications market as
well as other technically oriented companies in the relevant geographic area
which may constitute competition to the Company in hiring or retaining strong
performers. Compensation surveys used are The Survey Group Report and the
Radford Associates Benchmark Salary Survey. The Compensation Committee,
utilizing the survey data and applying the members' significant experience in
hiring and managing in a technical environment, seeks to set base salaries by
taking into account, for both new and existing management, not only competitive
factors, but the breadth of experience and recent individual performances of
current or future employees. It is not the Company's intent to establish a set
percentile rank for its compensation in general or for specific positions, but
rather, to establish levels dictated on a case-by-case basis as recommended by
management and determined by the Compensation Committee in the exercise of the
members' best collective judgment.

The process followed by the Compensation Committee in determining executive
bonus levels begins with the Board of Directors' review of management's annual
strategic and financial plan. A review of the performance of the Company against
the agreed upon overall corporate financial goals, along with recommendations,
is presented to the Compensation Committee quarterly by the Chief Executive
Officer. The Compensation Committee reviews and considers the recommendations
and then, acting pursuant to its authorization from the Board of Directors,
establishes the bonus for the Chief Executive Officer and other executives.

The Company's Management Incentive Program generally allows for four
payments each year. Actual payments, some of which are subject to certain
guaranteed minimums, are otherwise based upon achievement of corporate goals.
The terms of the plan are geared to recognize several key aspects of the
Company's business environment. Payments are currently capped at a maximum of
55% of base salary for the Chief Executive Officer, and generally lower
percentages of base salary for other executive officers. All participants in the
Company's Management Incentive Program receive bonuses based on objectively
measured parameters. These goals may include, without limitation: revenue goals;
unit product shipment goals; profitability goals and balance sheet goals. The
extent to which these goals are achieved, the relative position of the
individual in the Company and the individual's gross salary for each quarter are
used to determine the individual's quarterly bonus. Performance factors are
assigned to each goal based on the Company's accomplishment toward that goal in
the quarter. If a performance factor of less than 75% is determined for a
particular goal, that goal does not contribute to the calculation of a bonus.
Similarly, the performance factor is capped at 125% of any goal.

The Compensation Committee believes strongly that senior management's
compensation program should include stock option grants for a number of reasons,
including competitive practices, motivation for continued employment and
alignment of management's interests with those of shareholders. In granting
options, the Compensation Committee in 1998 considered, among other factors, the
quality of performance, the competitive market for the employee, the aggregate
sizes of individual grants and the number of options outstanding as a whole.
Option grants have been awarded to all senior management personnel upon hire and
periodically thereafter based upon specific individual and/or corporate
achievements.

In 1998, stock option grants were made to certain of the Company's
executive officers as an incentive to motivate them in their efforts to continue
the strategic repositioning of the Company. These options were issued with
exercise prices equal to the fair market value on the date of the grant and
generally vest annually over four years depending on the grant. All options were
granted under Stock Option Plan.

13
<PAGE> 17

In considering compensation of the Company's executives, one of the factors
that the Compensation Committee takes into account is the anticipated tax
treatment of various components of compensation. In 1994, the Company's Stock
Option Plan was amended to preserve the deductibility of compensation expense
under Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"). Section 162(m) eliminates the deductibility by the Company of certain
executive compensation in excess of one million per year per person. The
amendment provided for a limit of 750,000 shares of Common Stock with respect to
which stock options may be granted per employee per year. The Compensation
Committee has no present intentions of qualifying any other compensation paid to
its executive officers for deductibility under Section 162(m), but may consider
doing so in the future.

CHIEF EXECUTIVE OFFICER'S COMPENSATION

On July 6, 1998, the Company entered into an employment agreement with
Bryan R. Holley, appointing him President and Chief Executive Officer. Under Mr.
Holley's Employment Agreement he is entitled to receive an annual base salary of
$250,000 per year. In addition, Mr. Holley is eligible for a bonus of up to 50%
of his base salary based upon attainment of certain quantifiable goals. These
goals may include revenue goals, unit product shipment goals, profitability
goals and balance sheet goals and were jointly developed and agreed to by Mr.
Holley and the Company's Board of Directors. The Incentive Plan also provides
for higher or lower bonuses corresponding to the extent to which the Company
achieves more or less than 100% of the goals established by the Board of
Directors. In 1998, Mr. Holley received a bonus of $63,693 in accordance with
the Company's Incentive Bonus Program. Mr. Holley received an additional $27,500
in accordance with a Stay-Put Bonus Agreement which is described in more detail
in the Employment and Severance Arrangement section above. Mr. Holley was also
granted options in 1998 to purchase a total of 459,000 shares of Common Stock of
the Company.

COMPENSATION COMMITTEE

Mr. Howard C. Salwen
Dr. Robert M. Glorioso

14
<PAGE> 18

COMPARISON OF CUMULATIVE TOTAL RETURN SINCE DECEMBER 31, 1993
AMONG OPENROUTE NETWORKS, INC., THE NASDAQ STOCK MARKET
AND THE H & Q COMMUNICATIONS SECTOR INDEX

The following line graph compares the total return on investment, assuming
reinvestment of dividends, of the Company since December 31, 1993, with that of
the NASDAQ Stock Market (U.S. Companies) as measured by the Center for Research
in Securities Prices (CRSP) and a sub index of Hambrecht & Quist's Technology
Index entitled the Communications Sector. The companies in Hambrecht & Quist's
Communications Sector Index are 3Com, Bay Networks, Cisco, Fore Systems, FTP
Software, Gandalf, Madge NV, Network General, Optical Data Systems, Shiva Corp.,
Standard Microsystems and Xircom.

<TABLE>
<CAPTION>
OPENROUTE NETWORKS,
INC. NASDAQ STOCK MARKET-U.S. H&Q COMMUNICATIONS
------------------- ------------------------ ------------------
<S> <C> <C> <C>
Dec-93 100.00 100.00 100.00
108.51 103.03 108.96
112.77 102.07 108.03
Mar-94 97.87 95.80 98.60
102.13 94.55 95.57
93.62 94.79 83.45
Jun-94 53.19 91.32 75.11
49.99 93.19 77.94
59.57 99.13 86.33
Sep-94 95.74 98.88 89.23
108.51 100.82 96.57
100.00 97.48 100.39
Dec-94 89.36 97.75 110.98
125.53 98.31 105.39
108.51 103.51 109.41
Mar-95 106.38 106.58 115.37
110.64 109.94 117.08
106.38 112.77 121.04
Jun-95 100.00 121.91 138.23
110.64 130.87 152.46
117.02 133.53 160.28
Sep-95 159.57 136.60 168.59
123.40 135.81 173.46
129.79 139.00 188.31
Dec-95 112.77 138.26 176.85
108.51 138.94 179.79
100.00 144.22 195.40
Mar-96 93.34 144.70 180.57
97.87 156.70 203.92
97.87 163.90 210.46
Jun-96 65.96 156.51 202.92
51.06 142.55 173.38
46.81 150.54 189.48
Sep-96 51.06 162.05 206.29
37.23 160.26 201.14
67.81 170.17 212.44
Dec-96 41.48 182.10 200.00
41.48 182.10 212.60
39.35 172.03 176.38
Mar-97 25.53 160.79 158.80
32.97 165.82 161.38
42.55 184.61 205.93
Jun-97 31.39 190.27 202.81
31.39 210.35 229.22
28.71 210.03 218.16
Sep-97 35.10 222.44 230.21
32.97 210.92 212.36
27.66 211.98 205.13
Dec-97 19.68 208.58 192.09
19.68 215.16 197.51
18.08 235.36 215.97
Mar-98 20.20 244.05 228.17
17.55 248.20 232.14
20.74 234.57 226.69
Jun-98 19.68 251.12 245.60
20.74 248.47 240.85
18.09 199.75 186.26
Sep-98 13.83 227.34 199.80
14.89 236.63 226.46
30.85 259.94 255.35
Dec-98 29.26 293.21 283.61
</TABLE>

PROPOSAL 2: AMENDMENT TO THE 1991 RESTATED STOCK OPTION PLAN TO
INCREASE BY 500,000 THE NUMBER OF SHARES AVAILABLE FOR ISSUANCE
UPON THE EXERCISE OF OPTIONS GRANTED UNDER THE 1991 STOCK OPTION PLAN

The Company has currently allocated a total of 3,800,000 shares of Common
Stock for issuance under the 1991 Restated Stock Option Plan ("Stock Option
Plan"). Of this number, as of December 31, 1998, 3,457,954 shares have been
issued upon the exercise of options under the Stock Option Plan or are subject
to outstanding options, leaving a balance of 342,046 shares available for future
grants.

By the terms of the Stock Option Plan, the Stock Option Plan may be amended
by the Board of Directors or the Compensation Committee, provided that any
amendment approved by the Board of Directors or the Compensation Committee which
is of a scope that requires shareholder approval in order to ensure favorable
federal income tax treatment for any incentive stock options under Code Section
422, is subject to obtaining such shareholder approval. On February 10, 1999,
the Board of Directors voted to approve an amendment to

15
<PAGE> 19

the Stock Option Plan to increase the aggregate number of shares of Common Stock
for which stock options may be granted under the Stock Option Plan by 500,000
shares, to a total of 4,300,000 shares. This amendment is being submitted for
shareholder approval at the Meeting to ensure continued qualification of the
Stock Option Plan under the federal income tax rules relating to incentive stock
options. The Board of Directors believes that the increase is advisable to give
the Company the flexibility needed to attract, retain and motivate employees,
directors and consultants.

PRINCIPAL FEATURES OF THE STOCK OPTION PLAN

The purpose of the Stock Option Plan is to attract, retain and motivate
employees, directors and consultants through the issuance of stock options and
to encourage ownership of shares of Common Stock by employees, directors and
consultants of the Company. Subject to the provisions of the Stock Option Plan,
the Compensation Committee, which administers the Stock Option Plan, determines
the persons to whom options will be granted, the number of shares to be covered
by each option and the terms and conditions upon which an option may be granted.
All employees, directors and consultants of the Company and its affiliates
(approximately 100 people as of April 1, 1999) are eligible to participate in
the Stock Option Plan.

Options granted under the Stock Option Plan may be either (i) options
intended to qualify as "incentive stock options" under Section 422 of the Code
or (ii) non-qualified stock options. Incentive stock options may be granted
under the Stock Option Plan to employees of the Company and its affiliates.
Non-qualified stock options may be granted to consultants, directors and
employees of the Company and its affiliates. The Stock Option Plan provides for
an initial grant upon election to the Board of Directors to each non-employee
director of an option, which vests in four equal annual installments, to
purchase 5,000 shares of Common Stock at an exercise price equal to the fair
market value of the Common Stock on such grant date.

The aggregate fair market value (determined at the time of grant) of shares
issuable pursuant to incentive stock options which become exercisable in any
calendar year under the Stock Option Plan of the Company may not exceed $100,000
per person. Incentive stock options granted under the Stock Option Plan may not
be granted at a price less than the fair market value of the Common Stock on the
date of grant, or 110% of fair market value in the case of options granted to an
employee holding 10% or more of the voting stock of the Company. Non-qualified
stock options granted under the Stock Option Plan may not be granted at an
exercise price less than 50% of the fair market value of the Common Stock on the
date of grant. Incentive stock options granted under the Stock Option Plan
expire not more than ten years from the date of grant, or not more than five
years from the date of grant in the case of incentive stock options granted to
an employee holding 10% or more of the voting stock of the Company. An option
granted under the Stock Option Plan is exercisable, during the option holder's
lifetime, only by the option holder and is not transferable by him or her except
by will or by the laws of descent and distribution.

An incentive stock option granted under the Stock Option Plan may, at the
Compensation Committee's discretion, be exercised after the termination of the
option-holder's employment with the Company (other than by reason of death,
disability or termination for cause as defined in the Stock Option Plan) to the
extent exercisable on the date of such termination, at any time prior to the
earlier of the option's specified expiration date or 90 days after such
termination. In granting any non-qualified stock option, the Compensation
Committee may specify that such non-qualified stock option shall be subject to
such termination or cancellation provisions as the Compensation Committee shall
determine. In the event of the option-holder's death or disability, both
incentive stock options and non-qualified stock options generally may be
exercised, to the extent exercisable on the date of death or disability (plus a
pro-rata portion of the option if the option vests periodically), by the
option-holder or the option-holder's survivors at any time prior to the earlier
of the option's specified expiration date or one year from the date of the
option-holder's death or disability.

16
<PAGE> 20

Generally, in the event of the option-holder's termination for cause, all
outstanding and unexercised options are forfeited.

If the shares of Common Stock shall be subdivided or combined into a
greater or smaller number of shares or if the Company shall issue any shares of
Common Stock as a stock dividend on its outstanding Common Stock, the number of
shares of Common Stock deliverable upon the exercise of an option granted under
the Stock Option Plan shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in the purchase price
per share to reflect such subdivision, combination or stock dividend. If the
Company is to be consolidated with or acquired by another entity in a merger,
sale of all or substantially all of the Company's assets or otherwise (an
"Acquisition"), the Compensation Committee or the Board of Directors of any
entity assuming the obligations of the Company under the Stock Option Plan (the
"Successor Board"), shall, as to outstanding options under the Stock Option Plan
(i) make appropriate provision for the continuation of such options by
substituting on an equitable basis for the shares then subject to such options
the consideration payable with respect to the outstanding shares of Common Stock
in connection with the Acquisition or securities of the successor or acquiring
entity, (ii) upon written notice to the participants, provide that all options
must be exercised within a specified number of days of the date of such notice,
at the end of which period the options shall terminate or (iii) terminate all
options in exchange for a cash payment equal to the excess of the fair market
value of the shares subject to each such option over the exercise price thereof.
In the event of a recapitalization or reorganization of the Company (other than
an Acquisition) pursuant to which securities of the Company or of another
corporation are issued with respect to the outstanding shares of Common Stock,
an option-holder upon exercising an option under the Stock Option Plan shall be
entitled to receive for the purchase price paid upon such exercise the
securities he or she would have received if he or she had exercised such option
prior to such recapitalization or reorganization.

The Stock Option Plan may be amended by the shareholders of the Company.
The Stock Option Plan may also be amended by the Board of Directors or the
Compensation Committee, provided that any amendment approved by the Board of
Directors or the Compensation Committee which is of a scope that requires
shareholder approval in order to ensure favorable federal income tax treatment
for any incentive stock options under Code Section 422, is subject to obtaining
such shareholder approval.

CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

The following is a description of certain U.S. federal income tax
consequences of the issuance and exercise of options under the Stock Option
Plan:

Incentive Stock Options. An incentive stock option does not result in
taxable income to the optionee or deduction to the Company at the time it
is granted or exercised, provided that no disposition is made by the
optionee of the shares acquired pursuant to the option within two years
after the date of grant of the option nor within one year after the date of
issuance of shares to him (the "ISO holding period"). However, the
difference between the fair market value of the shares on the date of
exercise and the option price will be an item of tax preference includible
in "alternative minimum taxable income." Upon disposition of the shares
after the expiration of the ISO holding period, the optionee will generally
recognize long term capital gain or loss based on the difference between
the disposition proceeds and the option price paid for the shares. Such
gain will be eligible for the 20% maximum rate introduced by the Taxpayers
Relief Act of 1997 if the shares have been held for more than 12 months
after option exercise. If the shares are disposed of prior to the
expiration of the ISO holding period, the optionee generally will recognize
taxable compensation, and the Company will have a corresponding deduction,
in the year of the disposition, equal to the excess of the fair market
value of the shares on the date of exercise of the option over the option
price. Any additional gain realized on the disposition will normally
constitute capital gain. If the amount realized upon such a disqualifying
disposition is less than fair market value of the shares on

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<PAGE> 21

the date of exercise, the amount of compensation income will be limited to
the excess of the amount realized over the optionee's adjusted basis in the
shares.

Non-Qualified Stock Options. The grant of a non-qualified option will
not result in taxable income to the optionee or deduction to the Company at
the time of grant. The optionee will recognize taxable compensation, and
the Company will have a corresponding deduction, at the time of exercise in
the amount of the excess of the then fair market value of the shares
acquired over the option price. Upon disposition of the shares, the
optionee will generally realize capital gain or loss and his basis for
determining gain or loss will be the sum of the option price paid for the
shares plus the amount of compensation income recognized on exercise of the
option.

The affirmative vote of a majority of the shares present or represented and
voting at the Meeting is required to approve the proposed amendment to the Stock
Option Plan.

THE BOARD OF DIRECTORS RECOMMENDS APPROVAL OF THE ADOPTION OF AN AMENDMENT
TO THE STOCK OPTION PLAN TO INCREASE BY 500,000 SHARES THE AGGREGATE NUMBER OF
SHARES FOR WHICH STOCK OPTIONS MAY BE GRANTED UNDER THE STOCK OPTION PLAN.
PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE VOTED IN FAVOR OF SUCH
AMENDMENT UNLESS A SHAREHOLDER HAS INDICATED OTHERWISE ON THE PROXY.

PROPOSAL 3: AMENDMENT OF THE EMPLOYEE STOCK PURCHASE PLAN
TO INCREASE BY 100,000 THE NUMBER OF SHARES AVAILABLE FOR
ISSUANCE UNDER THE EMPLOYEE STOCK PURCHASE PLAN

The Company has currently allocated a total of 600,000 shares of Common
Stock for issuance under the Employee Stock Purchase Plan. Of this number, as of
December 31, 1998, 403,224 shares have been issued upon the exercise of options
under the Employee Stock Purchase Plan or are subject to outstanding options,
leaving a balance of 196,776 shares available for future grants.

Management and the Board of Directors believe that the interests of the
Company and the shareholders are advanced by the possibility of encouraging
stock ownership by employees of the Company and its subsidiaries and by
providing them with additional incentive to promote the success of the Company's
business. On February 10, 1999, the Board of Directors adopted, subject to
shareholder approval, an amendment to increase the number of shares reserved for
issuance upon the exercise of options granted under the Employee Stock Purchase
Plan by 100,000 shares to a total of 700,000 shares.

PRINCIPAL FEATURES OF THE PLAN

The Company's Employee Stock Purchase Plan was adopted by the Board of
Directors on April 3, 1991, and approved by the Company's shareholders on April
16, 1991. The Employee Stock Purchase Plan currently authorizes the issuance of
600,000 shares of Common Stock (and, if the amendments recommended herein by the
directors are approved by the shareholders, will authorize the issuance of
700,000 such shares in the aggregate) with a limit on issuance of 100,000 shares
of Common Stock in any calendar year (subject to adjustment for any dividend,
stock split or other relevant changes in the Company's capitalization).

With certain limited exceptions, all full-time employees, including
officers, employed by the Company on the relevant grant date are eligible to
participate in the Employee Stock Purchase Plan. As of April 1, 1999,
approximately 75 employees were eligible to participate in the Employee Stock
Purchase Plan.

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<PAGE> 22

To participate in the Employee Stock Purchase Plan, an employee must
authorize the Company to deduct an amount (not less than 1% nor more than 5% of
the employee's regular pay) from his or her pay during each exercise period in
which the employee participates in the Employee Stock Purchase Plan. The
exercise periods begin on January 2 and July 1 and end on December 31 and June
30 of each year, respectively. In some circumstances, shorter exercise periods
are provided in the event a participant's employment terminates (other than for
cause) during a regular exercise period.

At the beginning of each such exercise period, the Company will grant to
each participating employee an option to purchase Common Stock at the lower of
(i) 85% of the fair market value per share of the Common Stock as of the grant
date or (ii) 85% of the fair market value per share of the Common Stock as of
the date the option is exercised. For purposes of the Employee Stock Purchase
Plan, the fair market value on any date is the average of the last sales prices
of the Common Stock as quoted on the NASDAQ National Market System (so long as
the Company's shares of Common Stock are so quoted) for the ten consecutive
trading days immediately preceding such date.

Each option shall be exercised automatically on the last day of the
applicable exercise period, using the funds which have accumulated in the
employee's withholding account as of that date (or, if earlier, as of the date
of the employee's termination of employment), except in the event of a
withdrawal from the Employee Stock Purchase Plan. Participants (or, in the event
of death, the administrator or executor of the participant's estate) may
withdraw from the Employee Stock Purchase Plan during specified notice periods.
If a participant's employment terminates for cause, any outstanding option
granted to such participant will also be terminated. If a participant's
employment terminates other than for cause, any outstanding options granted to
such participant will be exercised as of the applicable exercise date, either
December 31 and June 30 of the applicable year, unless the Company has otherwise
provided written notice during specified notice periods. Upon withdrawal from
the Employee Stock Purchase Plan, all funds withheld by the Company and not
applied to the exercise of options granted under the Employee Stock Purchase
Plan will be paid to the participant or the participant's representative.

Options granted under the Employee Stock Purchase Plan are not transferable
by a participant other than by will or by the laws of descent and distribution
and are exercisable during a participant's lifetime only by such participant, or
by his or her legal representative if permitted by the Code.

The Employee Stock Purchase Plan is administered by the Compensation
Committee. Subject to the provisions of Employee Stock Purchase Plan, the
Compensation Committee has the authority to determine the terms and conditions
of options granted under the Employee Stock Purchase Plan and to interpret and
construe any provision of the Employee Stock Purchase Plan, and any option
granted thereunder. The Employee Stock Purchase Plan may be terminated by the
Board of Directors of the Company at any time. The Employee Stock Purchase Plan
may be amended by the Board of Directors, except that changes in the total
number of shares available for grant under the Employee Stock Purchase Plan,
extensions of the duration of the Employee Stock Purchase Plan, increases in
total number of options, changes in the option price and changes inconsistent
with Section 423 of the Code may not be made by the directors, but may be made
only by the shareholders.

CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

The following is a general description of certain U.S. Federal income tax
consequences resulting from the issuance and exercise of options under the
Employee Stock Purchase Plan. Options granted under the Employee Stock Purchase
Plan are intended to constitute stock options in an "employee stock purchase
plan" under Section 423 of the Code. Upon the death of a participant owning
Employee Stock Purchase Plan shares or upon the disposition of shares two years
or more after the date of the grant of the option to purchase such

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<PAGE> 23

shares and at least one year after acquiring such shares, the participant will
recognize as ordinary income an amount equal to the lesser of:

(i) the excess of the fair market value of the shares on the date of
disposition or death over the amount paid for such shares, or

(ii) 15% of the fair market value of the shares at the time of grant
of the option.

Any loss upon such a disposition or the balance of any gain will be
long-term capital loss or gain. The Company will not be entitled to a deduction
corresponding to the employee's compensation as a result of participation in the
Employee Stock Purchase Plan.

Upon disposition of the shares obtained pursuant to the Employee Stock
Purchase Plan within two years after the date when a participant was granted an
option to purchase such shares or within one year after the date the participant
acquired such shares, the participant generally will then recognize compensation
income, and the Company will have a corresponding deduction, equal to the fair
market value of the shares on the date of purchase less the amount paid for the
shares.

The difference between the amount realized on such a disqualifying
disposition and the participant's basis in his shares (his purchase price plus
the amount of related compensation income recognized) will generally constitute
capital gain or loss.

THE BOARD OF DIRECTORS RECOMMENDS APPROVAL OF THE PROPOSED AMENDMENT TO
INCREASE BY 100,000 THE NUMBER OF SHARES RESERVED FOR ISSUANCE UPON THE EXERCISE
OF OPTIONS GRANTED UNDER THE EMPLOYEE STOCK PURCHASE PLAN. PROXIES SOLICITED BY
THE BOARD WILL BE VOTED IN FAVOR OF SUCH AMENDMENT UNLESS A SHAREHOLDER HAS
INDICATED OTHERWISE ON THE PROXY.

INDEPENDENT ACCOUNTANTS

BDO Seidman, LLP ("BDO"), independent accountants, audited the Company's
financial statements for Fiscal Year 1998. The Company has selected BDO to audit
the Company's financial statements for the fiscal year ending December 31, 1999.
The Company expects that representatives of BDO will be present at the Meeting,
with the opportunity to make a statement if they so desire, and will be
available to respond to appropriate questions.

BDO became the Company's independent accountants on January 13, 1999. Prior
to that point, PricewaterhouseCoopers, LLP was the Company's independent
accountants. The information required by Item 9 appears in, and is incorporated
by reference herein to, the Form 8-K and the Form 8-K/A filed by the Company on
January 1, 1999 and February 24, 1999, respectively.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and officers, and persons who own more than ten percent of the
Company's Common Stock, to file with the SEC initial reports of ownership and
reports of changes in ownership of Common Stock and other equity securities of
the Company. Officers, directors and greater than ten percent shareholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.

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<PAGE> 24

To the Company's knowledge, based solely on a review of reports furnished
to the Company and written representations that no other reports were required
during the Fiscal Year 1998, all Section 16(a) filing requirements were
satisfied.

SHAREHOLDER PROPOSALS AND OTHER MATTERS

In order to be considered for inclusion in the Proxy Statement distributed
to shareholders prior to the 2000 Annual Meeting of Shareholders, a shareholder
proposal must be received by the Company no later than Monday, December 20,
1999. Proposals should be delivered in writing to Mr. Steven T. Shedd, Vice
President, Finance, Chief Financial Officer, Treasurer and Clerk, OpenROUTE
Networks, Inc., 9 Technology Drive, Westborough, Massachusetts 01581.

The Board of Directors does not know of any other matters which will be
brought before the Meeting. If other business is properly presented for
consideration at the Meeting including, among other things, consideration of a
motion to adjourn the Meeting (including for purposes of soliciting additional
proxies) to another time and/or place, the persons named in the enclosed form of
proxy and acting thereunder will have discretion to vote such matters in
accordance with their best judgement.

In order that your shares may be represented, if you do not plan to attend
the Meeting, and in order to assure the required quorum, please fill out, sign,
date and return your Proxy promptly.

By Order of the Board of Directors,

[Signature of Steven T. Shedd]

STEVEN T. SHEDD
Clerk

Dated: April 21, 1999

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<PAGE> 25

PROXY PROXY

OpenROUTE NETWORKS, INC.

THIS PROXY IS BEING SOLICITED BY OpenROUTE NETWORKS, INC.'S BOARD OF DIRECTORS

The undersigned, revoking previous proxies relating to these shares, hereby
acknowledges receipt of the Notice of Annual Meeting of Shareholders and Proxy
Statement dated April 21, 1999 in connection with the 1999 Annual Meeting of
Shareholders of OpenROUTE Networks, Inc., to be held at 10:00 a.m., local time,
on Wednesday, May 26, 1999, at the offices of OpenROUTE Networks, Inc., Nine
Technology Drive, Westborough, Massachusetts (the "Meeting") and hereby
appoints Steven T. Shedd and Bryan R. Holley, and each of them (with full power
to act alone), the attorneys and proxies of the undersigned, with full power of
substitution to each, to vote all shares of Common Stock of OpenROUTE Networks,
Inc. registered in the name provided herein which the undersigned is entitled
to vote at the Meeting, and at any postponement(s) or adjournment(s) thereof,
with all the powers the undersigned would have if personally present and
voting. Without limiting the general authorization hereby given, said proxies
are, and each of them is, instructed to vote or act as follows on the proposal
as set forth in said Proxy.

This Proxy when executed will be voted in the manner directed herein. If
no direction is made, this proxy will be voted FOR the election of six (6)
directors and FOR proposals 2 and 3 and for or against any other matter
that may properly come before the meeting at the discretion of the proxies.

SEE REVERSE SIDE FOR PROPOSAL. If you wish to vote in accordance with the Board
of Directors' recommendations, just sign on the reverse side. You need not mark
any boxes.

- ------------- -------------
SEE REVERSE SEE REVERSE
SIDE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SIDE
- ------------- -------------

<PAGE> 26

OpenROUTE NETWORKS, INC.
c/o EquiServe
P.O. Box 8040
Boston, MA 02266-8040

/X/ Please mark
votes as in
this example

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2 AND 3.

1. Election of six (6) directors to hold office until 2000 Annual Meeting of
Shareholders and until their successors are duly elected and qualified.

NOMINEES: Bryan R. Holley, Howard C. Salwen, James D. Norrod,
Thomas R. Liebermann, Dr. David Clark, Dr. Robert M. Glorioso

FOR WITHHELD
/ / / /

/ /_______________________________________
For all nominees except as noted above

2. To consider and act upon an amendment FOR AGAINST ABSTAIN
to the Company's 1991 Restated Stock / / / / / /
Option Plan which would increase by
500,000 the number of shares reserved
for issuance upon exercise of options
granted under the 1991 Restated Stock
Option Plan.

3. To consider and act upon an amendment FOR AGAINST ABSTAIN
of the Company's Employee Stock / / / / / /
Purchase Plan which would increase by
100,000 its number of shares reserved
for issuance in respect to purchases
made by employees pursuant to the
Employee Stock Purchase Plan.

MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT / /

In their discretion, the proxies are authorized to transact such other
business as may properly come before the Meeting or any
postponement(s) of adjournment(s) thereof, including any motion to
adjourn the meeting to a later date to permit further solicitation of
proxies.

Please sign exactly as name(s) appear(s) hereon. Joint owners must
each sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such, and if signer is a corporation
please sign with full corporate name by a duly authorized officer.

Signature: ________________________________ Date: ___________________