APPENDIX A
CHARTER FOR THE AUDIT COMMITTEE
OF NEXTPATH TECHNOLOGIES, INC.
August 23, 2000
I. DESCRIPTION AND PURPOSE
The Audit Committee (the "Committee") is a standing committee of the Board of
Directors (the "Board") of NextPath Technologies, Inc. (the "Company") whose
primary function is to ensure the integrity of the Company's financial
statements. The Committee shall assist the Board in fulfilling its oversight
responsibilities by reviewing the financial information which will be provided
to the Board and others, the internal control structure, the audit process, and
the adherence to applicable laws and regulations. Considering the size and
complexity of the Company, the Committee shall apply reasonable materiality
standards to all of its activities.
II. COMPOSITION/EXPERTISE REQUIREMENT OF AUDIT COMMITTEE MEMBERS
A. In General
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1. The Committee shall consist of at least three directors, all of
whom have no relationship to the Company that may interfere with
the exercise of their independence from management and the
Company ("Independent");
2. Each member of the Committee shall be financially literate, as
such qualifications is interpreted by the Board in its business
judgment, or must become financially literate within a reasonable
period of time after his or her appointment to the Committee; and
3. At least one member of the Committee must have accounting or
related financial management expertise, as the Board interprets
such qualification in its business judgment.
B. Independence Requirement of Committee Members
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In addition to the definition of Independent provided above in II.A.1., the
following restrictions shall apply to every Committee member:
1. Employees. A director who is an employee (including non-employee
executive officers) of the Company or any of its affiliates may
not serve on the Committee until three years following the
termination of his or her employment. In the event the employment
relationship is with a former parent or predecessor of the
Company, the director can serve on the Committee after three
years following the termination of the relationship between the
Company and the former parent or predecessor.
2. Business Relationship. A director (i) who is a partner,
controlling shareholder, or executive officer of an organization
that has a business relationship with the Company, or (ii) who
has a direct business relationship with the Company (e.g., a
consultant) may serve on the Committee only if the Board
determines in its business judgment that the relationship does
not interfere with the director's exercise of independent
judgment. In making a determination regarding the independence
of a director, the Board should consider, among other things,
the materiality of the relationship to the Company, to the
director, and, if applicable, to the organization with which the
director is affiliated.
"Business relationships" can include commercial, industrial
banking, consulting, legal, accounting and other relationships. A
director can have this relationship directly with the Company, or
the director can be a partner, officer or employee of an
organization that has such a relationship. The director may serve
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on the Committee without the above-referenced Board's
determination after three years following the termination of, as
applicable, either (1) the relationship between the organization
with which the director is affiliated and the Company, (2) the
relationship between the director and his or her partnership
status, shareholder interest or executive officer position, or
(3) the direct business relationship between the director and the
Company.
3. Cross Compensation Committee. A director who is employed as an
executive of another corporation where any of the Company's
executives serves on that corporation's compensation committee
may not serve on the Committee.
4. Immediate Family. A director who is an Immediate Family member of
an individual who is an executive officer of the Company or any
of its affiliates cannot serve on the Committee until three years
following termination of such employment relationship. "Immediate
Family" includes a person's spouse, parents, children, siblings,
mothers-in-law and fathers-in-law, sons and daughters-in-law,
brothers and sisters-in-law (including step and adoptive
relationships), and anyone (other than employees) who shares such
person's home.
5. Exception. Notwithstanding the requirements of subparagraphs 1
and 4 of this Section II.B., one director who is no longer an
employee, or who is an Immediate Family member of a former
executive officer, of the Company or its affiliates, but who is
not considered Independent pursuant to these provisions due to
the three year restriction period, may be appointed, under
exceptional and limited circumstances, to the Committee if the
Board determines in its business judgment that membership on the
Committee by the individual is required by the best interests of
the Company and its shareholders, and the Company discloses
in the next annual proxy statement subsequent to such
determination, the nature of the relationship and the reasons for
such determination.
III. MEETINGS
The Committee shall meet as frequently as circumstances require, but in any
event on a quarterly basis. The Committee may ask members of management or
others to attend meetings and may provide pertinent information to them as the
Committee deems necessary. The Committee should meet privately in executive
session at least annually with management, the director of the Company's
internal auditing department, the independent auditors, and as a committee to
discuss any matters that the Committee or any of those groups believe should be
discussed. In addition, the Committee should communicate with management and the
independent auditors quarterly to review the Company's financial statements and
significant findings based upon the auditors' limited review procedures. Minutes
shall be taken for each Committee meeting which shall then be approved at the
next meeting of the Committee.
IV. RESPONSIBILITIES AND DUTIES
All members of the Committee shall have a basic understanding of finance and
accounting and be able to read and understand fundamental financial statements.
At least one member of the Committee shall have accounting or related financial
management expertise.
The Committee's primary responsibilities and duties are to:
A. In General
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1. Monitor the integrity of the Company's financial reporting
process and systems of internal controls regarding finance,
accounting, and legal compliance.
2. Monitor the independence and performance of the Company's
independent auditors and the performance of the Company's
internal auditing department.
3. Provide an avenue of communication between the independent
auditors and the Company's internal auditing department.
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4. Provide an avenue of communication among the independent
auditors, management, the Company's internal auditing department,
and the Board.
B. Review Procedures
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1. Review and reassess the adequacy of this Charter on an annual
basis. Submit the Charter to the Board for approval and have the
document published at least every three years in accordance with
SEC regulations and OTCBB, NASDAQ or other appropriate market
rules.
2. Review the Company's annual audited financial statements prior to
filing or distribution. Review should include discussion with
management and independent auditors of significant issues
regarding principals, practices, and judgments.
3. In conjunction with management, the independent auditors, and the
Company's internal auditors, consider the integrity of the
Company's financial reporting processes and controls. Discuss
significant financial risk exposures and the steps management has
taken to monitor, control and report such exposures. Review
significant findings prepared by the independent auditors and the
Company's internal auditing department together with management's
responses.
4. Review with management and the independent auditors the Company's
quarterly financial results prior to the release of earnings
and/or the Company's quarterly financial statements prior to
filing or distribution. Discuss any significant changes to the
Company's accounting principals and any items required to be
communicated by the independent auditors in accordance with SAS
61. The Chairman of the Committee may represent the entire
Committee for purposes of this review.
5. Review with the independent auditor:
a. The Company's financial statements and related footnotes
and the independent auditor's report thereon, including
their report on the adequacy of the Company's internal
controls and any significant recommendations they may
offer to improve internal controls;
b. Any significant accruals, reserves or estimates which may
have a material impact on the financial statements; and
c. Any difficulties or disputes with management encountered
by the independent auditor during the course of the audit
and any instances of second opinions sought by management.
6. Consider and review with the independent auditor:
a. The adequacy of the Company's internal controls and any
significant findings during the year and management's
responses thereto; and
b. Any difficulties encountered in the course of the internal
audits, including any restrictions on the scope of their
work or access to required information.
7. Consider with management and the independent auditor the possible
impact of any pending changes in accounting standards or rules as
promulgated by the FASB or others.
8. Review with legal counsel any legal and regulatory matters that
may have a material impact on the financial statements and any
reports received from regulators, and any environmental
compliance and reserves.
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9. Report Committee actions to the Board with such recommendations
as the Committee may deem appropriate.
C. Independent Auditors
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1. The independent auditors are ultimately accountable to the
Committee and the Board. The Committee and the Board have the
ultimate authority and responsibility to select, evaluate and,
where appropriate, replace the independent auditor (or to
nominate the independent auditor to be proposed for shareholder
approval in any proxy statement).
2. The Committee is responsible for ensuring that the independent
auditor submits on a periodic basis to the Committee a formal
written statement delineating all relationships between the
independent auditor and the Company and the Committee is
responsible for actively engaging in a dialogue with the
independent auditor with respect to any disclosed relationships
or servicest that may impact the objectivity and independence of
the independent auditor and for recommending that the Board take
appropriate action in response to the independent auditor's
report to satisfy itself of the independent auditor's
independence. The Committee shall review the independence and
the performance of the auditors and annually recommend to the
Board the appointment of the independent auditors or approve any
discharge of auditors when circumstances warrant. To ensure
independence, on an annual basis, the Committee shall review and
discuss with the independent auditors all significant
relationships they have with the Company that could impair the
auditors' independence.
3. Review the independent auditors' audit plan - discuss scope,
staffing, locations, reliance upon management, and internal audit
and general audit approach to ensure completeness of coverage,
reduction in redundant efforts, and the effective use of audit
resources.
4. Approve the fees and other significant compensation to be paid to
the independent auditors.
V. INVESTIGATIONS
The Committee has the authority to conduct any investigation appropriate to
fulfilling its responsibilities and duties and it has direct access to the
independent auditors as well as anyone in the Company. The Committee has the
ability to retain, at the Company's expense, special legal, accounting, or other
consultants or experts it deems necessary to fulfill its responsibilities and
duties.
VI. WRITTEN AFFIRMATION
Once each year the Committee shall provide the Company through the Board, and
the Company shall provide to the OTCBB, NASDAQ, or other market on which the
Company's securities are listed, written confirmation regarding:
1. Any determination that the Board has made regarding the
independence of directors who are members of the Committee
pursuant to this Charter;
2. The financial literacy of the Committee members;
3. The determination that at least one of the Committee members has
accounting or related financial management expertise; and
4. The annual review and reassessment of this Charter.
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