December 16, 2002 Minutes

Thirteen of the 19 members were present (there is one vacancy), representing a quorum:

Bryant, Anne - by telephone

Jackson, Jimmy - by telephone

Buller, Karen - by telephone

Jortner, Wayne - by telephone

Campbell, Anne - by telephone

Lubin, Joel - by telephone

Cornell, Diane - by telephone

Parrino, Cheryl

Eichler, Ed - Treasurer - by telephone

Sanders, Dr. Jay - by telephone

Gumper, Frank - Chair

Talbott, Dr. Brian - by telephone

Hess, Kevin - by telephone

One member joined the meeting in progress:

Coltharp, Jim - by telephone

Four members were absent:

Conn, David

Lineberry, Isiah

Davis, Fr. Bill

Sanders, Jay

Officers of the Corporation present:

Barash, D. Scott - Assistant Secretary; Vice President & General Counsel

Carmichael, Mark - Assistant Treasurer; VP, Finance & Financial Operations

Flannery, Irene – VP, High Cost and Low Income Division

Haga, Robert - VP, Strategic Planning & USAC Operations

Name

Company

Howard, Cathy - by telephone

USAC

Hughes, Alison

University of Arizona - Rural Health Care Office

Scott, Wayne

USAC

a1.

Election of Directors to the USAC Board of Directors. Mr. Rivera, Chair of the Nominating Committee, reported that the USAC Board of Directors Nominating Committee met on December 10, 2002, to review the FCC Chair's appointments of Board members to fill the Board member terms that expire the end of this year. In addition, he said that the FCC had appointed a new Board member to fill a current vacancy on the Board. The Nominating Committee recommended that the Board accept the appointments and elect the seven Board members to the USAC Board of Directors to fill the various open terms. Ms. Parrino explained that after the voting today, she will send out an email message to Board members seeking nominations for the Board of Directors officers' positions.

On a motion duly made and seconded, the Board adopted the following resolutions:

RESOLVED, That the USAC Board of Directors accepts the recommendation of the Nominating Committee, and with the nominations made by the FCC Chairman and USAC's corporate By?laws, the USAC Board of Directors elects Ms. Karen Buller, Mr. David Conn, Mr. Ed Eichler, Ms. Alison M. Hughes, Mr. Jimmy Jackson, and Mr. Brian Talbott to the USAC Board of Directors for three year terms beginning on January 1, 2003; and,

RESOLVED FURTHER, That the USAC Board of Directors accepts the recommendation of the Nominating Committee, and with the nomination made by the FCC Chairman and USAC's corporate By-laws, and due to the resignation of Board member Ms. Camie Swanson-Hull, the USAC Board of Directors elects Ms. Jo Anne Sanford to the USAC Board of Directors, whose term shall begin immediately and expire on December 31, 2003.

a2.

Establishment of an Audit Committee and Delegation of Authority. Ms. Parrino reported that the USAC Executive Committee determined at its October 17, 2002, quarterly meeting to recommend to the Board to create an Audit Committee of the USAC Board of Directors.

On a motion duly made and seconded, the Board adopted the following resolutions:

RESOLVED, That the USAC Board of Directors approves the formation of an Audit Committee consisting of five members with a representative from each of the three programmatic committees and two at-large Board members, preferably with financial, auditing, and/or accounting experience, and designates authority to that Committee to oversee the audit functions of the corporation; and

RESOLVED FURTHER, That the USAC Board of Directors hereby appoints Ms. Jo Anne Sanford as the High Cost & Low Income Committee representative, Ms. Alison Hughes as the Rural Health Care Committee representative, Ms. Anne Campbell as the School & Libraries Committee representative, and Mr. Ed Eichler and Mr. Kevin Hess as the at-large representatives to the Audit Committee, and hereby appoints Mr. Ed Eichler as Interim Chair and Ms. Anne Campbell as Interim Vice Chair of the Audit Committee; and

RESOLVED FURTHER, That the USAC Board of Directors determines that the Internal Audit Director shall report to the Board of Directors through the Audit Committee; and

RESOLVED FURTHER, That the USAC Board of Directors determines that the Chair of the Audit Committee shall also serve on the Executive Committee.

a3.

Appointment of Directors to Committees of the Board. Mr. Rivera, Chair of the Nominating Committee, reported that the USAC Board of Directors Nominating Committee met on December 10, 2002, to determine the nominations of Board members for appointments to the Committees of the Board. Ms. Parrino explained that the Committees themselves would bring nominations for Chairs and Vice Chairs of the Programmatic Committees to the Board at the Board's quarterly January 2003 meeting.

On a motion duly made and seconded, the Board adopted the following resolution:

RESOLVED, That the USAC Board of Directors accepts the recommendations of the Nominating Committee and hereby appoints Ms. Karen Buller as the Low Income Consumer representative, Mr. David Conn as the competitive local exchange carrier representative, Mr. Kevin Hess as the incumbent local exchange carrier representative which represents rural telephone companies as that term is defined in 47 USC 153(37), and Ms. Jo Anne Sanford as the state regulator representative to the High Cost & Low Income Committee; Ms. Alison M. Hughes as the rural health care representative and Ms. Jo Anne Sanford as the state regulator representative to the Rural Health Care Committee; and Mr. James Coltharp as the service provider representative, Mr. Jimmy Jackson as the at-large representative, and Mr. Brian Talbott as the school representative to the Schools & Libraries Committee.

i1.

Update on KPMG LLP Contract to Conduct a Large Scale Audit of Schools and Libraries Support Mechanism Beneficiaries - Confidential & Proprietary - Executive Session. In accordance with the approved criteria and procedure for conducting USAC Board and Committee business in Executive Session, Mr. Barash recommended that this matter be discussed in Executive Session because discussion and public disclosure of this matter at this time, which relates to USAC's procurement strategy and contract negotiations, would compromise USAC's negotiation strategy to the detriment of the corporation and the Universal Service Fund.

On a motion duly made and seconded, the Board adopted the following resolution:

RESOLVED, That the USAC Board of Directors determines that an update on the KPMG LLP contract to conduct a large scale audit of Schools and Libraries Universal Service Support Mechanism beneficiaries for USAC shall be conducted in Executive Session.

See Executive Session for a report of the discussion and action taken.

i2.

Update on the Transfer of USF Disbursement Functions from IBM Consulting In-house to USAC - Confidential & Proprietary - Executive Session. In accordance with the approved criteria and procedure for conducting USAC Board and Committee business in Executive Session, Mr. Barash recommended that discussion of this item be conducted in Executive Session because discussion and public disclosure of this matter at this time, which relates to USAC's procurement strategy and contract negotiations, would compromise USAC's negotiation strategy to the detriment of the corporation and the Universal Service Fund.

On a motion duly made and seconded, the Board adopted the following resolution:

RESOLVED, That the USAC Board of Directors determines that the discussion of the transfer of USF disbursement functions from IBM Consulting in-house to USAC shall be conducted in Executive Session.

See Executive Session for a report of this discussion.

i3.

Report on a Pending Litigation Matter. Mr. Barash said that he had a confidential report on a pending litigation matter involving USAC and in accordance with the guidelines regarding Executive Session approved by the USAC Board of Directors, he recommended that the report be discussed in Executive Session because this item concerns a pending litigation matter that is subject to the attorney-client privilege and discussion of this item in open session would compromise the continued applicability of the attorney-client privilege.

On a motion duly made and seconded, the Board adopted the following resolution:

RESOLVED, That the USAC Board of Directors determines that discussion of an update on pending litigation to which USAC is a party shall be conducted in Executive Session.

See Executive Session for a report of this discussion.

i1.

Update on KPMG LLP Contract to Conduct a Large Scale Audit of Schools and Libraries Support Mechanism Beneficiaries - Confidential & Proprietary - Executive Session. Ms. Parrino updated the Board on some changes that are being made to USAC's audit contract with KPMG LLP.

i2.

Update on the Transfer of USF Disbursement Functions from IBM Consulting In-house to USAC - Confidential & Proprietary - Executive Session. Ms. Parrino updated the Board on the status of the transfer of the USF disbursement functions from IBM Consulting in-house to USAC.

i3.

Report on a Pending Litigation Matter. Mr. Barash reported on a new litigation case involving USAC and said that even though the settlement amount is within the CEO's authority to approve, USAC staff felt that this case was a novel issue and should be brought to the Board's attention per the Board's previous direction.