GRAFTECH INTERNATIONAL LTD.

CHARTER OF THE AUDIT AND FINANCE COMMITTEE

Purpose and Power


The Committee has been established by the Board to assist the Board in discharging and performing the duties and responsibilities of the Board with respect to the financial affairs of the Corporation and its subsidiaries, affiliates and related parties (collectively, the "Group"), including:

The Committee has the right to exercise any and all power and authority of the Board with respect to matters within the scope of this Charter, subject to the ultimate power and authority of the Board. The Board shall continue to have the ultimate duty and responsibility to manage or direct the management of the business and affairs of the Corporation.

The Committee has the authority to conduct any and all investigations it deems necessary or appropriate, to contact directly the independent accountants, the internal audit department and other employees and advisors and require them to provide any and all information and advice it deems necessary or appropriate, and to retain legal, accounting or other advisors it deems necessary or appropriate.

The Committee has the authority to set aside for payment, pay and direct the payment of the independent accountants for their reviews and audits of financial statements and all other services as well as such legal, accounting and other advisors.

The independent accountants shall report directly to the Committee, and shall be accountable to the Committee and the Board, for their reviews and audits of financial statements and all other services.

Composition

The Committee shall be comprised of that number of directors (but not less than three) as may be determined from time to time by the Board. Each member of the Committee shall be an independent director within the meaning of the rules of the NYSE and the Sarbanes-Oxley Act of 2002 and shall be free from any relationship that may interfere with the exercise of his or her judgment independent from management. A copy of those rules is attached to the charter of the Nominating and Governance Committee.

A member of the Committee may not, other than in his or her capacity as a member of the Committee, the Board or any other committee of the Board:

(i) accept any consulting, advisory or other compensatory fee from the Group or

(ii) be affiliated with the Group.
 

All members of the Committee shall be financially literate. At least one member of the Committee shall have accounting or financial management expertise, and, effective for fiscal years beginning after July 15, 2003, must constitute an "audit committee financial expert." 1 Members of the Committee may enhance their familiarity with finance and accounting matters by participating in educational programs conducted by the NYSE, the Corporation, an advisor or others.

The Nominating and Governance Committee shall recommend directors to be elected or terminated as members of the Committee. The members of the Committee shall be elected by the Board at the annual organizational meeting of the Board or at such other times as the Board may determine. Each member of the Committee shall serve until the next annual organizational meeting of the Board or the earlier of his or her termination as a member of the Committee by the Board, the election of his or her successor as a member of the Committee or his or her death, resignation or removal. Unless a Chair is elected by the Board, the members of the Committee may designate a Chair by a majority vote.

Meetings

The Committee shall meet in regular sessions at least four times annually and in special sessions as circumstances warrant. Committee members are expected to attend meetings and to spend the time needed to properly discharge their responsibilities.

The Committee shall meet at least once annually with management, the director of the internal audit department, the General Counsel and the independent accountants in separate executive sessions to discuss any matters that the Committee or any of them believe should be discussed privately.

A majority of the members of the Committee shall constitute a quorum for the transaction of business. The act of a majority of the members present at any meeting at which there is a quorum shall be the act of the Committee.

The Committee shall keep minutes of its meetings and other proceedings.

Procedures

The Committee shall determine its meeting schedule, the agenda for each meeting, the information to be provided to it before or at each meeting and all other matters relating to the conduct of its meetings and other activities.

The Chair of the Committee shall establish and distribute (or request the Secretary to distribute) to each Committee member prior to each meeting an agenda for the meeting. Each Committee member is free to raise at any meeting subjects that are not on the agenda for that meeting.

Information that is important to understanding the business to be conducted at a meeting should generally be distributed to the Committee members at least one week (or, if that is not feasible, as soon as practicable) before the meeting, and Committee members should review these materials before the meeting.

It is the sense of the Board that, subject to Section V below, the activities and procedures of the Committee should remain flexible so that it may appropriately respond to changing circumstances.

Primary Activities

Without limiting the scope of the preceding provisions of this Charter, the Committee shall:

Corporate Governance

1. Report on its meetings, proceedings and other activities at each meeting of the Board.

2. Review and assess the adequacy of this Charter at least annually. Submit changes to this Charter to the Board for approval.

3. Conduct an annual self-assessment to determine whether the Committee is functioning effectively, including evaluating the Committee's contributions to the Corporation, with a specific emphasis on areas in which such contributions could be improved.

4. Review, evaluate and, as appropriate, approve all transactions with affiliates, related parties, directors and executive officers. 2

5. Direct the establishment of procedures for the receipt and retention of, and the response to, complaints received regarding accounting, internal control or auditing matters.

6. Direct the establishment of procedures for the confidential and anonymous submission by employees of concerns regarding questionable accounting or auditing matters.

7. Review and assess at least annually the adequacy of the Corporation's Code of Conduct and Ethics, including codes relating to ethics, integrity, conflicts of interest, confidentiality, public disclosure and insider trading. Adopt appropriate changes.

Public Reporting

8. Cause this Charter to be included in the annual proxy statement at least once every three years in accordance with the rules of the SEC.

9. Prepare annually the report to stockholders to be included in the annual proxy statement as required by the rules of the SEC. 3

10. Review, prior to filing, all annual reports on Form 10-K, quarterly reports on Form 10-Q and interim reports on Form 8-K to be filed with the SEC. Discuss with management and the independent accountants, prior to filing, the financial statements (including the notes thereto) and the disclosures under "Management's Discussion and Analysis of Financial Condition and Results of Operations."  4,5

11. Review, prior to public dissemination, all press releases related to historical or prospective earnings or financial performance, including the use of "pro forma" or "adjusted" information, as well as information related thereto provided to analysts, ratings agencies, lenders, stockholders or others.

12. Obtain from the chief executive officer and chief financial officer assurances that the chief executive officer and chief financial officer are meeting their obligations to the Committee, the independent accountants and the public under certification requirements established by the SEC, the NYSE and the Sarbanes–Oxley Act of 2002.

Independent Accountants

13. Select, retain, evaluate and, as appropriate, terminate and replace the independent accountants (and the Committee shall have the sole authority to take any such action).

14. Obtain and review, at least once annually, a report by the independent accountants describing:

(i) their internal quality control procedures;

(ii) any material issues raised by the most recent internal quality control review or peer review or by any inquiry or investigation by any governmental or professional authority within the preceding five years, in each case with respect to one or more independent audits carried out by them;

(iii) all material steps taken to deal with any such issues and

(iv) all relationships between them and the Group.

15. Review annually the independence of the independent accountants by:

(i) receiving from the independent accountants a formal written statement delineating all relationships between the independent accountants and the Group in accordance with ISB No.1;

(ii) discussing with the independent accountants all disclosed relationships between the independent accountants and the Group and all other disclosed relationships that may impact the objectivity and independence of the independent accountants and

(iii) discussing with management its evaluation of the independence of the independent accountants.

16. Review and, as appropriate, approve, prior to commencement, all audit services (including comfort letters in connection with securities underwritings and tax services) and all non-audit services to be provided by the independent accountants. 6

17. Review with the independent accountants annually all compensation to the independent accountants for all audit and non-audit services.

Audits and Accounting

18. Review with the independent accountants annually the plan, scope, staffing and timing of their audit.

19. After completion of the audit of the financial statements, review with management, the director of internal audits and the independent accountants the audit report, the management letter relating to the audit report, all significant questions (resolved or unresolved) that arose and all significant difficulties that were encountered during the audit, the disposition of all audit adjustments identified by the independent accountants, all significant financial reporting issues encountered and judgments made during the course of the audit (including the effect of different assumptions and estimates on the financial statements) and the cooperation afforded or limitations (including restrictions on scope or access), if any, imposed by management on the conduct of the audit.

20. Review with management and the independent accountants all reports delivered by the independent accountants in accordance with Section 10A(k) 7 of the Securities Exchange Act of 1934 with respect to critical accounting policies and practices used, alternative treatments of financial information available under GAAP and other written communications (including letters under SAS No. 50) between the independent accountants and management, together with their ramifications and the preferred treatment by the independent accountants.

21. Review all items required to be communicated to the independent accountants in accordance with SAS No. 61.

22. Review with management and the independent accountants at least once annually all correspondence with regulatory authorities and all employee complaints or published reports that raise material issues regarding the financial statements or accounting policies.

23. Review regularly with the independent accountants significant disagreements between the independent accountants and management and resolve or direct the resolution of all material disagreements between management and the independent accountants regarding accounting and financial reporting.

Other

24. Review contingencies which could reasonably be expected to have significant impact on financial performance or condition.

25. Review at least annually best practices with respect to internal controls. Direct changes as appropriate.

Discretionary Activities

It is the sense of the Board that the Committee should periodically evaluate whether and the extent to which to undertake one or more of the following activities:

Independent Accountants

1. Review whether to adopt a policy of rotating the independent accountants on a regular basis or otherwise.

2. Obtain and review all written reports issued with respect to the results of inspections of the independent accountants conducted by the Public Company Accounting Oversight Board.

3. Obtain from the independent accountants assurances that no person associated with the independent accountants and engaged in providing any service to the Group is under suspension from being associated with a registered public accounting firm pursuant to Section 105 8 of the Sarbanes-Oxley Act of 2002. 9

4. Obtain from the independent accountants assurances that the independent auditors have not performed and will not perform any non-audit services prohibited by Section 10A(g) 10 of the Securities Exchange Act of 1934.  9

5. Obtain from the independent accountants assurance that the lead audit partner has been and will be rotated at least once every five years in accordance with Section 10A(j) 11 of the Securities Exchange Act of 1934. 9

6. Obtain from the independent accountants assurance that the independent accountants comply with all auditing, quality control and independence standards to be established by the Public Company Accounting Oversight Board.

7. Obtain from the independent accountants assurance that the independent accountants have not and will not violate the conflict of interest provisions set forth in Section 10A(l) 12 of the Securities Exchange Act of 1934. 9

8. Obtain from the independent accountants assurance that they will inform management concerning any information coming to their attention indicating that an illegal act has or may have occurred. 9

9. Review the experience and qualifications of the senior members of the audit team of the independent accountants.

10. Review the extent to which accountants other than the independent accountants are used and the reasons for such use.

11. Obtain from and review with the independent accountants a report on the assessment made by management as to the effectiveness of the internal control structure and procedures as required pursuant to Section 404 13 of the Sarbanes-Oxley Act of 2002. 9

Internal Audits

12. Review the resources, plans, activities, staffing and organizational structure of the internal audit department.

13. Review the appointment, performance and replacement of the director of internal audits.

14. Review all audits and reports prepared by the internal audit department together with management's response.

15. Review with management, the director of internal audits and the independent accountants the adequacy of financial reporting and internal control systems, the scope and results of the internal audit program and the cooperation afforded or limitations, if any, imposed by management on the conduct of the internal audit program.

Accounting

16. Review auditing, internal control and financial reporting principles, policies and practices, and presentation of financial statements. Review with management, the director of internal audits and the independent accountants adopted or proposed changes in those principles, policies and practices and the impact on the financial statements. Review the effect on those policies and practices of pronouncements and initiatives of the SEC, the Public Company Accounting Oversight Board, other regulatory authorities and the accounting profession.

17. Review with management, the director of internal audits and the independent accountants, at least annually:

(i) all significant accounting estimates;

(ii) all significant off balance sheet financing arrangements and their effect on the financial statements and

(iii) all significant valuation allowances and liability, restructuring and other reserves.

Controls and Systems

18. Review with management, the director of internal audits and the independent accountants the extent to which recommended changes to or improvements in auditing, accounting, financial reporting and internal control systems have been implemented.

19. Review the adequacy of auditing, accounting, financial reporting and internal control resources.

Public Reporting

20. Review with management policies and practices relating to disclosure of material information to the public, analysts, rating agencies, lenders, stockholders and others, including compliance with Regulation FD and other applicable laws.

Compliance

21. Review with the General Counsel, management and the director of internal audits the procedures for monitoring compliance with laws and policies on business integrity, ethics and conflicts of interest, including foreign corrupt practice, antitrust and insider trading matters.

22. Review with the General Counsel compliance with applicable laws, including all material regulatory inquiries.

Risk Assessment

23. Review with management compliance with covenants under debt issues and credit facilities.

24. Review with management and the independent accountants market, operational and financial risk assessment and management policies and practices, including related corporate approval requirements and internal auditing systems and initiatives to minimize such risks.

25. Review contingencies that could reasonably be expected to have significant impact on financial performance or condition.

26. Review with the General Counsel all legal matters that may have a significant impact on financial condition or performance.

Finance

27. Review with management and the independent accountants financial condition, liquidity and funding requirements, including short-term and long-term capital expenditure plans and working capital needs.

28. Review and, as appropriate, approve the amounts, timing, types and terms of public and private stock and debt issues and credit facilities.

29. Review with management financial planning policies and practices and financial objectives.

Other

30. Review policies for hiring of employees or former employees of the independent accountants.

31. Review reports on expenses of executive officers and directors.

Limitations

Notwithstanding anything contained herein to the contrary, the duties and responsibilities of the Committee and each of its members is one of oversight and neither the Committee nor any of its members shall have any duty or responsibility to:

Qualified Legal Compliance Committee

The Committee is hereby designated and shall constitute a Qualified Legal Compliance Committee within the meaning of the rules of the SEC. As such, the Committee shall adopt written procedures for the confidential receipt, retention and consideration of any report of evidence of a material violation within the meaning of the Standards of Professional Conduct for Attorneys adopted by the SEC. In addition, as such, the Committee shall:

The Committee shall take all other appropriate action, including notifying the SEC, if the Company fails in any material respect to implement an appropriate response that the Committee has recommended. 

Web Site

This Charter shall be placed on the Corporation's web site.

Date: February 25, 2003


Notes:

1  A person with:

- education and experience as a principal financial officer, principal accounting officer, controller, public accountant or auditor or experience in one or more positions that involve the performance of similar functions;
- experience actively supervising a principal financial officer, principal accounting officer, controller, public accountant, auditor or person performing similar functions, or experience overseeing or assessing performance of companies or public accountants with respect to preparation, auditing or evaluation of financial statements; or
- other relevant experience; and

 

2  This shall not apply to transactions with majority owned subsidiaries or compensation of directors or executive officers.   

 

3  The report must state whether the Committee has:

(i) reviewed and discussed the audited financial  statements with management;

(ii) discussed certain matters related to the conduct of the audit as set forth in SAS 61;

(iii) received written disclosures from the independent accountants regarding their independence as required by ISB No. 1 and discussed with the independent accountants their independence and

(iv) recommended to the Board that the audited financial statements be included in the annual report on Form 10-K to be filed with the SEC.    

 

4   This shall not require prior review where such review is or may be impracticable, such as certain filings under Regulation FD or filings with respect to certain items in current reports on Form 8-K.    

 

5   The Chair may represent the entire Committee for purposes of this review with respect to quarterly and interim reports.    

 The Committee may designate one member to approve such non-audit services, but that member must inform the Committee of the approval at the next meeting of the Committee. All such approvals must be disclosed in periodic reports filed with the SEC.   See  footnote 10 for a list of prohibited non-audit services.    

 

7  Section 10A(k) requires independent accountants to report timely to the Committee:

(a) critical accounting policies and practices to be used;

(b) alternative treatments of financial information within GAAP that have been discussed with management, ramifications of the use of such alternative disclosures and treatments, and treatment preferred by the independent accountants and

 (c) other material written communications between the independent accountants and management, such as management letters or schedules of unadjusted differences.    

8   Section 105 requires the Public Company Accounting Oversight Board to establish fair procedures for investigating and disciplining registered public accounting firms and their associated persons.  That Board may sanction such firms or their associated persons for refusing to testify, produce documents or otherwise cooperate with it in an investigation or for failing to supervise.   Rules to be adopted by that Board may require testimony to be given or audit work papers to be produced, and allows it to share information with other government agencies.  That Board may investigate such firms' acts or practices that may violate the Sarbanes-Oxley Act of 2002 or securities laws relating to audit reports, and establish procedures as to sanctions to be applied.    

 

9  The Committee should consider whether to include these items in the engagement letter with the independent accountants.    

 

10   Section 10A(g) makes it unlawful for the independent accountants to provide, contemporaneously with the audit, any non-audit service, including tax services, unless the Committee approves the activity in advance.  Certain non-audit services are prohibited  regardless of approval by the Committee. These prohibited services are: 

(1) bookkeeping or other services related to the Corporation's accounting records or financial statements;

(2) financial information systems design and implementation;

(3) appraisal or valuation services, fairness opinions, or contribution-in-kind reports;

(4) actuarial services;

(5) internal audit outsourcing services;

(6) management functions or human resources;

(7) broker or dealer, investment adviser, or investment banking services and

(8) legal services and expert services unrelated to the audit.    

11   Section 10A(j) makes it unlawful for the independent accountants to provide audit services if either the lead or reviewing audit partner has performed audit services for the Corporation in each of the Corporation's five previous fiscal years.    

 

12   Section 10A(l) makes it unlawful for the independent accountants to perform any audit service if the Corporation's CEO, controller, CFO, chief accounting officer or equivalent officer was employed by the independent accountants and participated in any capacity in the audit during the one-year period before the beginning date of the audit.    

 

13  Section 404 requires the SEC to prescribe rules requiring each annual report on Form 10-K to contain an internal control report stating management's responsibility for establishing and maintaining adequate internal control structures and financial reporting procedures, and containing an assessment of the effectiveness of such structures and procedures as of the end of the Corporation's most recent fiscal year.  Section 404 also requires the independent accountants to attest to and report on management's assessment of the internal controls.  Such attestation may not be the subject of a separate engagement, and must be made in accordance with standards to be adopted by the Public Company Accounting Oversight Board.