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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------------
FORM 10-K/A
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-50464
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NETRIX CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 54-1345159
(STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NO.)
13595 DULLES TECHNOLOGY DRIVE, HERNDON, VIRGINIA 20171
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (703) 742-6000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: Common Stock,
$0.05 Par Value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.[ ]
Aggregate market value of Common Stock (par value $.05 per share) held by
non-affiliates of Registrant on March 25, 2000: $736,300,181.
The number of shares of Registrant's Common Stock (par value $.05 per
share) outstanding as of March 25, 2000: 31,668,825.
Documents incorporated by reference: None.
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The information required by Part III (Items 10, 11, 12 and 13) of the
undersigned Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999 (the "Annual Report"), filed pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), was to
be incorporated by reference to the definitive Proxy Statement for the 2000
Annual Meeting of Stockholders of the Company, which Proxy Statement was to be
filed pursuant to Regulation 14A under the Exchange Act within 120 days
following the end of the Company's fiscal year as permitted under General
Instruction G of Form 10-K ("Instruction G"). However, the definitive Proxy
Statement will not have benefited within such period. Accordingly, pursuant to
Instruction G, the Company hereby amends Items 10, 11, 12 and 13 of the Annual
Report as follows:
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names, ages, position and business experience of the
executive officers and directors of the Company.
NAME AGE OFFICE
Steve T. Francesco..... 43 Chief Executive Officer, Chairman of the
Board and Director
Lynn C. Chapman........ 46 Vice Chairman and Director
John M. Faccibene...... 54 Director
Dr. Robert M. Glorioso. 50 Director
Thomas Liebermann...... 59 Director
Douglas J. Mello....... 57 Director
Richard Yalen.......... 55 Director
William Yundt.......... 59 Director
Peter Kendrick......... 46 Vice President - Finance and
Administration and Chief Financial Officer
Gregory C. McNulty..... 45 Executive Vice President - World Wide
Sales
Jonathan Sachs......... 34 Chief Technology Officer and Senior Vice
President of Engineering
Jay R. Schifferli...... 39 General Counsel and Executive Vice
President for Strategic Business
Development
STEVEN T. FRANCESCO has been a Director and Chairman of the Board
since March 1999 and Chief Executive Officer of the Company since May,
1999. Mr. Francesco is founder and President of Darien Corporation,
and was founder and former President and COO of SmartServ Online, Inc.
From 1989 to 1991, he was Senior Vice President of Strategic Planning
and Operations for a division of Cantor-Fitzgerald Securities. Mr.
Francesco has served as a senior strategic advisor to GTE Advanced
Network Services, KeyTrade and e-Tel. Mr. Francesco has served as a
consultant to numerous companies, including AT&T, GTE, Citibank,
Chemical Bank, Chase Manhattan Bank, J.J. Kenny, ADP, Telerate, and the
Chicago Mercantile Exchange. Mr. Francesco founded the Market
Technology Group, a computer and technology service company providing
financial systems and market data retrieval to the financial services
industry.
LYNN C. CHAPMAN joined the Company in December 1992 and has been a
Director since February 1997. Mr. Chapman was President and Chief Executive
Officer of the Company from 1997 until Mr. Francesco became an officer. When Mr.
Francesco became Chief Executive Officer, Mr. Chapman became the President and
Chief Operating Officer of the Company, which positions he held until the merger
with OpenRoute. Prior to joining the Company, Mr. Chapman served in various
management positions at Data General Corporation from 1989 to November 1992.
JOHN M. FACCIBENE has been a Director of the Company since March 1999.
Since January 1999, Mr. Faccibene has been Managing Director, Americas, for
ixNet, a subsidiary of IPC Information Systems, Inc. From 1997 to 1998, he was
Executive Director of CIBC/Oppenheimer & Co. From 1973 to 1998, he was a senior
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member of the Security Industry Association (SIA), and for two years served as
Chairman of the SIA Technology Management Committee. For 22 years, Mr. Faccibene
has been a senior member of the Wall Street Telecommunications Association
(WSTA) Executive Committee, and for three years served as President of the WSTA.
He has previously served as Chairman of the NYNEX Executive Forum, Newbridge
Worldwide User Group, Ascom/Timeplex User Group, and is a Director of the New
York Technical College. Mr. Faccibene also serves as a Director of ADVESTA, a
software company, Bridgewater Systems, a software company, and Timestep, a
software security company.
DR. ROBERT M. GLORIOSO has been a Director of the Company since
the merger with OpenROUTE on December 22, 1999, and he was previously a
member of OpenROUTE's board of directors since March 1997. Since April
1993, Dr. Glorioso has held the position of President and Chief
Executive Officer of, and has served as a board member of, Marathon
Technologies Corp. From January 1976 to December 1992, Dr. Glorioso
held several senior executive positions at Digital Equipment
Corporation, including Vice President of Information Systems Business
and Vice President of Executive Consulting.
THOMAS LIEBERMANN has been a Director of the Company since the merger with
OpenROUTE on December 22, 1999 and he was previously a member of OpenROUTE's
board of directors since 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
Chief Executive Officer of Kaye Instruments from 1989 until 1996.
DOUGLAS J. MELLO became a Director of the Company in April 1999.
Mr. Mello was employed by Bell Atlantic and its predecessor
corporations from 1965 until March, 1999. From 1997 to 1999, he served
as President, Large Business Sales-North for Bell Atlantic. From 1996
to 1997, he was NYNEX Vice President-Business Marketing and Amp Sales,
responsible for all business customers in the New York and New England
areas. From 1994 to 1996, he served as Vice President-Sales for NYNEX
Corporation. Prior to 1994, Mr. Mello was Group Vice
President-Manhattan Market Area for New York Telephone, where he was
responsible for the provisioning of telecommunications technology.
From 1985 to 1991, he was President of Business Information Systems
Crop. Mr. Mello is a director of Ixnet, Inc. and of Telexis Co.
RICHARD YALEN became a Director of the Company in April 1999. Mr. Yalen is
the Chief Executive Officer of Dynamic Telcom Engineering LLC, a
telecommunications company. From 1992 to 1998, prior to joining Dynamic Telcom,
Mr. Yalen served in various positions at Cable & Wireless USA, including that of
Chief Executive Officer.
WILLIAM YUNDT has been a Director of the Company since February 2000. Mr.
Yundt is the Vice President of Network Operations at WebTV Networks, Inc., a
wholly-owned subsidiary of Microsoft Corporation, which position he has held
since 1996. From 1994 until joining WebTV, Mr. Yundt served as a Vice President
of BBN Planet, the internet service arm of BBN Inc. While Director of Networking
and Communications Systems at Stanford University, he founded BARRNET, the San
Francisco Bay Area Regional Network, which pioneered the Internet in Northern
California. Mr. Yundt managed the development of BARRNET until it was purchased
by BBN in 1994.
PETER J. KENDRICK joined the Company in August, 1999 as Vice President and
Chief Financial Officer. Prior to joining the Company, he served as Vice
President and Chief Financial Officer of PACI, a Nasdaq listed company. From
1991 to 1996, he was Vice President and Chief Financial Officer of
Capital-Carosel, Inc. Mr. Kendrick also served as Senior Vice
President-Corporate Finance for Johnston, Lemon and Company and Vice President
and Chief Financial Officer of VSC, Inc. In addition he has held senior
executive roles with C3, Inc., The Source and SCS.
GREGORY C. McNULTY became Executive Vice President - World Wide Sales of
the Company in December 1999. From June, 1999 until February 2000, Mr. McNulty
was also a Director of the Company. From 1997 until joining the Company, Mr.
McNulty was the Senior Group Manager, Business Development at Microsoft
Corporation. Mr. McNulty also served as Major Accounts Executive for Microsoft.
From 1996 to 1997, Mr. McNulty was Vice President of sales at CIDCO, Inc., a
manufacturer of intelligent network terminal devices. From 1993 to 1996, Mr.
McNulty serves as Director of Major Accounts for Wind River Systems, Inc.,
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the leading supplier of real time operating systems software and related
software development tools. From 1992 to 1993, Mr. McNulty was co-founder of
Rugged Digital Systems, Inc., the leading manufacturer of military standard,
ruggedized computer systems and served in various high-level executive positions
from 1982 to 1992. Prior to that Mr. McNulty was employed by ROLM Corporation
and by FMC Corporation.
JONATHAN SACHS became the Chief Technical Officer and Senior Vice President
of Engineering of the Company in March 2000 when the Company acquired
AetherWorks. Mr. Sachs had been the Chief Executive Officer, President and a
director of AetherWorks from its formation in 1993 until it was acquired by the
Company.
JAY R. SCHIFFERLI became the General Counsel and Executive Vice President
for Strategic Business Development of the Company in April 2000. Prior to
joining the Company, Mr. Schifferli was a Partner in the law firm of Kelley Drye
& Warren LLP. Mr. Schifferli joined Kelley Drye in 1986 and concentrated his
practice in securities, mergers and acquisitions and securities law.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors,
certain officers and persons holding more than 10% of a registered class of the
Company's equity securities to file reports of ownership and reports of changes
in ownership with the Securities and Exchange Commission (the "Commission") and
the Nasdaq National Market. Directors, certain officers and greater than 10%
stockholders are also required by Commission regulations to furnish the Company
with copies of all such reports that they file. Based on the Company's review of
copies of such forms provided to it, the Company believes that all filing
requirements were complied with during the fiscal year ended December 31, 1999,
except for one late filing of a Form 3 and Form 4 by Peter Kendrick, in his
capacity as an executive officer, and one late filing of a Form 4 by each of
Messrs. Faccibene, McNulty, Mello and Yalen, in their capacity as directors of
the Company.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation for the
last three fiscal years of the Company's Chief Executive Officer and the
Company's other most highly compensated executive officers who earned at least
$100,000 in Salary and Bonus in 1999 (together, the "Named Executive Officers")
for the year ended December 31, 1999.
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Awards
------------
Annual Compensation Securities
------------------------------------ Underlying All Other
Name/Position Year Salary($) Bonus($) Other(5) Options(#) Compensation
- ------------------ ---- --------- -------- -------- ---------- ------------
Steven T. Francesco(1) 1999 126,201 -- 15,000(2) 1,600,000 1,000,000 shares(3)
Chief Executive 1998 -- -- -- -- --
Officer, Chairman of 1997 -- -- -- -- --
the Board of Directors
and Director
Lynn C. Chapman(4) 1999 156,834 -- 1,000(5) 50,000 --
Chief Operations 1998 160,000 6,593 -- 100,000 --
Officer, Vice 1997 156,546 21,750 2,375(5) 29,000 --
Chairman of the
Board of Directors
and DIrector
Karl W. Finkelnburg(6) 1999 142,602 -- 956(5) -- --
Former Vice 1998 163,658 -- 900(5) -- --
President Sales and 1997 197,230 -- 1,544(5) -- --
American Operations
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(1) Mr. Francesco became the Chief Executive Officer in May, 1999.
(2) Represents reimbursement of moving expenses.
(3) Upon the merger with Open ROUTE, Mr. Francesco became entitled to
1,00,000 shares of common stock pursuant to the change of control
provisions of his employment contract. Mr. Francesco deferred
receipt of such payment until 2000.
(4) Mr. Chapman was Chief Executive Officer through May, 1999.
(5) Represents matching 401(k) plan contributions by the Company.
(6) Mr. Finkelnburg resigned from the Company effective December 31,
1999.
OPTION GRANTS
The following table summarizes option grants during 1999 to the Named
Executive Officers:
STOCK OPTION GRANTS IN LAST FISCAL YEAR
- -------------------------------------------------------------------------------------------------------------------------------
Percent Potential
Realizable Value At
Assumed Annual
Rates of Stock Price
Appreciation
- -------------------------------------------------------------------------------------------------------------------------
Name % of Total Exercise
Options Options Price
Granted Granted to ($/ Market Expiration 5% ($) 10% ($)
( #)(A) Employees Share) Price (B) Date 0% ($) (C)
- -------------------------------------------------------------------------------------------------------------------------
Steven T. Francesco 400,000(D)(E) $1.50 3.31 7/22/09 724,000 1,557,000 2,834,000
1,200,000(D)(E) 23.9 2.75 3.31 7/22/09 672,000 3,170,000 7,002,000
Lynn C. Chapman 50,000(D) * 2.50 2.50 9/29/09 -- 78,000 199,000
Karl Finkelnburg -0- * N/A N/A N/A N/A N/A N/A
* less than 1 percent of total options granted to employees.
(A) Under the terms of the Company's incentive stock option plan, the Board of
Directors retains discretion, subject to plan limits, to modify the terms of
the outstanding options and to reprice the options. The options were granted
for a term of 10 years, subject to earlier termination in the event of
termination of employment. The options were granted with tandem tax
withholding rights.
(B) Equals fair market value of Common Stock on the date of grant.
(C) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 0%, 5% and 10%
compounded annually from the date of grant to their expiration date. Actual
gains, if any, on stock option exercises will depend upon the future
performance of the Common Stock and the date on which the options are
exercised.
(D) Identified options were granted September 29, 1999, and became 100% vested
and exercisable at December 23, 1999. Vesting was accelerated due to the
OpenROUTE merger.
(E) Identified options were granted based on terms of employment contract.
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OPTION EXERCISES AND YEAR-END VALUES
The following table summarizes option exercises during 1999 by the Named
Executive Officers and the value of the options held by such persons at the end
of 1999:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
Shares
Acquired Number of Value of Unexercised
On Value Unexercised Options In-the-money Options
Exercise Realized At Fiscal Year-end (#) At Fiscal Year-end ($)
---------------------- -------------------------
Name (#) ($) Exercisable\unexercisable Exercisable\unexercisable
- ------------ -------- -------- ------------------------- -------------------------
Steven Francesco -- -- 1,600,000 -- 20,000,000 --
Lynn C. Chapman -- -- 204,784 86,216 2,547,981 1,032,302
Karl Finkelnburg -- -- 15,692 -- 185,293 --
COMPENSATION OF DIRECTORS
In 1999, each member of the Board of Directors who was not an employee of
the Company was paid a one time grant of 50,000 stock options with an exercise
price equal to $3.31, the fair market value on the grant date. On September 30,
1999, the Company repriced the options issued to the Board of Directors to $2.50
per share, the then market value. In recognition of the demands placed upon the
Board in connection with the OpenRoute transaction, each Director who was not an
employee of the Company was granted an additional 50,000 options at December 2,
1999 with an exercise price equal to the market price on such date. In addition,
Directors are reimbursed for all reasonable expenses incurred by them in
connection with their attendance at Board or Committee meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee for 1999 were Messrs. Mello and
Faccibene. None of the executive officers of the Company currently serves on the
compensation committee of another entity or any other committee of the board of
directors of another entity performing functions similar to the Compensation
Committee. No interlocking relationships exist between the Company's Board of
Directors or its Compensation Committee and the board of directors or
compensation committee of any other company.
EMPLOYMENT AND SEVERANCE ARRANGEMENTS
Steven T. Francesco, the Chairman and Chief Executive Officer of the
Company, entered into an employment agreement effective as of March 22, 1999.
The term of Mr. Francesco's agreement is through March 21, 2002. Under the
agreement, Mr. Francesco is paid a base salary of $160,000 per annum, and he is
eligible for an annual bonus to be established in the sole discretion of the
compensation committee of the Company's Board. In addition, Mr. Francesco has
been issued options to purchase 1,600,000 shares of Netrix common stock. The
first 400,000 options have an exercise price of $1.50 per share and vested upon
grant. The remaining 1,200,000 options are exercisable at $2.75 per share and
400,000 options were scheduled to vest on each anniversary of the agreement,
subject to acceleration if certain performance criteria are met. Pursuant to the
stock option plan under which the options were granted, all 1,200,000 options
vested upon consummation of the OpenRoute merger. Mr. Francesco's employment
agreement also provides that, in the event of a change in control of Netrix, Mr.
Francesco will be issued 1,000,000 shares of Netrix common stock. Mr. Francesco
became entitled to these shares in connection with the OpenRoute merger, but he
deferred receipt of such shares until at least July 2000. In the event Mr.
Francesco's employment is terminated by Netrix without cause or by Mr. Francesco
for good reason, as these terms are described in the employment agreement, he
will be entitled to: (1) receive an amount equal to three times his base salary,
(2) accelerated vesting of all of his stock options and (3) participation in
Netrix benefit plans for up to three years. Mr. Francesco's employment agreement
also contains non-compete provisions for between one and three years after
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termination of this employment, that relate to the manner in which his
employment is terminated; provided, that if Mr. Francesco voluntarily resigns
from Netrix, there will be no non-compete covenant unless Netrix pays him an
amount equal to one year's salary, in which case the non-compete period will be
one year. If the payment to Mr. Francesco upon termination or change of control
results in the imposition of a excise tax pursuant to Section 280G of the
Internal Revenue Code, Netrix will pay to Mr. Francesco a tax "gross-up" payment
equal to the amount of his resulting tax liability.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of April 25, 2000, with
respect to the beneficial ownership of Common Stock by (i) each person known by
the Company to beneficially own more than 5% of the outstanding shares of Common
Stock, (ii) each Director of the Company and nominee for Director, (iii) each
executive officer of the Company named in the Summary Compensation Table set
forth under the caption "Executive Compensation" above and (iv) all Directors
and executive officers of the Company as a group:
Number of
Shares Percentage of
Beneficially Common Stock
Beneficial Owner Owned(1) Outstanding (2)
---------------- ------------- ---------------
Steven Francesco(3)............................................ 1,600,000 4.47%
Lynn C. Chapman................................................ 239,493 *
Douglas J. Mello............................................... 100,000 *
John M. Faccibene.............................................. 100,000 *
Richard Yalen.................................................. 100,000 *
Thomas Liebermann.............................................. 40,000 *
Robert Glorioso................................................ 31,875 *
William Yundt.................................................. 50,000 *
All Directors and executive officers as a group
(11 persons)................................................... 3,166,376 8.48%
* Less than 1%
(1)The number of shares of Common Stock beneficially owned by each person is
determined under the rules of the Securities and Exchange Commission, and the
information is not necessarily indicative of beneficial ownership for any
other purpose. Under such rules, beneficial ownership includes any shares as
to which the individual has sole or shared voting power or investment power
and also any shares of Common Stock which the individual has the right to
acquire within 60 days after April 25, 2000 through the exercise of any stock
option or other right. The inclusion herein of any shares of Common Stock
deemed beneficially owned does not constitute an admission of beneficial
ownership of those shares. Unless otherwise indicated, the persons named in
the table have sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by them. As of April 25, 2000, all
of the shares shown in this column represent shares which underly stock
options. The address of each beneficial owner is care of the Company.
(2)Number of shares deemed outstanding includes 34,159,464 shares outstanding
as of April 25, 2000, plus any shares subject to options held by the person
or entity in question that are currently exercisable or exercisable within 60
days after April 25, 2000.
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(3)Does not include 1,000,000 shares to which Mr. Francesco became entitled in
connection with the OpenRoute merger but which he deferred receipt of until
at least July 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In February 2000, the Company entered into a $10.0 million line of credit
agreement with its chief executive officer, Steven T. Francesco. The loan
agreement provided for interest of prime plus 5% on the outstanding principal.
No amounts were borrowed under this agreement. Per the agreement, the line was
terminated in March 2000 upon the Company completing an equity offering greater
than $10.0 million.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this Amendment No. 1 to be
signed on its behalf by the undersigned, thereunto duly authorized.
NETRIX CORPORATION
Date: April 29, 2000 By: /S/ STEVEN FRANCESCO
----------------------------------
Steven Francesco
Chairman and Chief Executive Officer
Signature Title Date
--------- ----- ----
/s/ Steven T. Francesco
- ---------------------------
STEVEN T. FRANCESCO Chairman, Chief April 29, 2000
Executive
(Principal Executive Officer)
/s/ Lynne C. Chapman
- ---------------------------
LYNN C. CHAPMAN Vice Chairman and April 29, 2000
Director
/s/ Peter J. Kendrick
- ---------------------------
PETER J. KENDRICK Vice President of Finance and April 29, 2000
Administration and Chief
Financial Officer
(Principal Financial Officer)
/s/ Jennifer Bell-Gordon
- ---------------------------
JENNIFER BELL-GORDON Controller April 29, 2000
(Principal Accounting Officer)
/s/ Douglas J. Mello
- ---------------------------
DOUGLAS J. MELLO Director April 29, 2000
/s/ Richard Yalen
- ---------------------------
RICHARD YALEN Director April 29, 2000
/s/ Robert M. Glorioso
- ---------------------------
ROBERT M. GLORIOSO Director April 29, 2000
/s/ Thomas Lieberman
- ---------------------------
THOMAS LIEBERMAN Director April 29, 2000
/s/ Bill Yundt
- ---------------------------
BILL YUNDT Director April 29, 2000
/s/ John M. Faccibene
- ---------------------------
JOHN M. FACCIBENE Director April 29, 2000
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