2003 Committee Charter : LSS

45219871.9
AMENDED AND RESTATED
CHARTER OF THE
AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS OF
LONE STAR TECHNOLOGIES, INC.
(Adopted by the Audit Committee on November 6, 2002
and adopted on December 3, 2002 and amended on March 20, 2003 by the Board of Directors)
I. PURPOSE
This Charter (the "Charter") shall govern the operations of the Audit Committee (the
"Committee") of the Board of Directors (the "Board") of Lone Star Technologies, Inc., a
Delaware corporation (the "Company"). The purpose of this Charter is to assist and direct the
Committee in performing the following primary responsibilities:
  • Oversee, or assist the Board in overseeing, as appropriate, the integrity of the
    Company's financial statements and the Company's compliance with legal and
    regulatory requirements; [NYSE Manual 303A, 7(b)(i)(A) (Proposed)]
  • Monitor the Company's financial reporting processes and its internal audit function
    regarding finance and accounting; [NYSE Manual 303A, 7(b)(i)(A) (Proposed)]
  • Select, appoint, compensate, oversee, evaluate (including the qualifications and
    independence of) and, where appropriate, replace the "registered public accounting
    firm"1 employed by the Company as its independent auditors to prepare or issue an
    audit report or related work and to cause such independent auditors to report directly
    to the Committee; [Sarbanes-Oxley 301; NYSE Company Manual
    303.01(B)(1)(b); NYSE Manual 303A, 7(b)(i)(A) (Proposed)]
  • Provide a forum for communication among the Board, the independent auditors, and
    financial and senior management of the Company, including the resolution of
    disagreements between management and the independent auditors regarding financial
    reporting and the establishment of procedures to handle complaints regarding
    accounting, internal audit control and auditing matters; [Sarbanes-Oxley 301]
  • Prepare the Committee's report for inclusion in the Company's annual proxy
    statement; and [NYSE Manual 303A, 7(B)(i)(B) (Proposed)]
  • Report the results of its oversight responsibilities to the Company's stockholders.
    The Committee is empowered to investigate any matter brought to its attention, with full
    access to all books, records, facilities and personnel of the Company and, for this purpose, to
    retain on behalf of the Committee outside counsel, accountants or other experts. [NYSE Manual
    303A, 7(B)(ii)(E) (Proposed)]
    1 As defined in Section 2(a)(12) of the Sarbanes-Oxley Act of 2002.
    45219871.9 -2-
    II. COMPOSITION
    The Committee shall be comprised of three or more directors, each of whom has been
    affirmatively determined by the Board to be an "independent director" satisfying the standards
    and rules of the New York Stock Exchange (the "NYSE"). [NYSE Manual 303A, 2
    (Proposed)] The affirmative determination by the Board that Committee members are
    independent directors shall be made no later than the first Board meeting held after the standards
    and rules of the NYSE regarding director independence are adopted.
    Each member of the Committee may not receive compensation from the Company other
    than director's fees and may not, other than in his or her capacity as a member of the Committee,
    the Board or any other Board Committee:
  • accept any consulting, advisory or other compensatory fee from the Company; or
  • be an affiliated person of the Company or any subsidiary thereof.
    [Sarbanes-Oxley 301, NYSE Manual 303A, 6 (Proposed)]
    Each member shall be financially literate, or must become financially literate within a
    reasonable period of time after being elected to the Committee, and at least one member shall be
    a "financial expert" within the meaning of the rules and regulations of the Securities and
    Exchange Commission (the "SEC") who through education and experience as a public
    accountant or auditor or a principal financial officer, comptroller, or principal accounting officer
    of an issuer (or from a position involving the performance of similar functions) has
  • an understanding of generally accepted accounting principles and financial
    statements;
  • experience in
    the preparation or auditing of financial statements of generally comparable
    issuers; and
    the application of such principles in connection with accounting for estimates,
    accruals and reserves;
  • experience with internal auditing controls; and
  • an understanding of audit committee functions.
    [Sarbanes-Oxley 407].
    Members of the Committee shall be elected by the Board at the annual meeting of the
    Board to serve until their successors are duly elected and qualified. If a member is unable to
    serve a full term, the Board shall elect a replacement. The Board shall appoint one of the
    members of the Committee to be Committee Chairperson.
    45219871.9 -3-
    III. MEETINGS
    The Committee shall meet at least four times annually, and more frequently as
    circumstances dictate.
    More specifically, the Committee shall meet:
  • on a quarterly basis with management and the independent auditors to review the
    Company's interim financial statements in accordance with Section VI.1;
  • at least annually with the Company's independent auditors with respect to
    independence and quality control issues involving such auditors pursuant to
    Sections VI.14 and VI. 21; and [NYSE Manual 303A, 7(b)(ii)(B) (Proposed); not
    clear that meeting is required]
  • at least annually with the Company's management and independent auditors with
    respect to the Company's audited year-end financial statements pursuant to
    Section VI.4. [NYSE Manual 303A, 7(b)(ii)(C) (Proposed)]
    The Committee shall periodically meet separately with the Company's management, with
    its internal auditors (or other personnel responsible for the internal audit function) and with its
    independent auditors. [NYSE Manual 303A, 7(b)(ii)(G) (Proposed)]
    Committee meetings and communications shall be either in person or by conference
    telephone call. Except to the extent separate meetings are otherwise required, meetings with
    management and the independent auditors may be either separate or combined at the discretion of
    the Committee. Minutes shall be prepared for each meeting of the Committee, which minutes shall
    be submitted to the Committee for approval at a later meeting. The minutes of all meetings of the
    Committee shall be sent to the Secretary of the Company for filing.
    IV. ACCOUNTABILITY
    The independent auditors shall be ultimately accountable to the Committee. The
    Committee shall have ultimate authority and responsibility to select, appoint, compensate,
    oversee, evaluate and, where appropriate, replace the independent auditors. [Sarbanes-Oxley
    301]
    V. RESPONSIBILITIES
    The responsibilities of the Committee are set forth in this Charter. The responsibility of
    management is to prepare the Company's financial statements. The responsibility of the
    independent auditors is to audit those financial statements.
    VI. SPECIFIC DUTIES
    To fulfill its responsibilities, the Committee shall:
    45219871.9 -4-
    Financial Reporting Review
    1. In accordance with Statement on Auditing Standards No. 71, and
    considering Statement on Auditing Standards No. 61 ("SAS No. 61") as it relates to
    interim financial information, review and discuss the Company's quarterly operating
    results with management and the independent auditors. If practicable the review and
    discussion shall occur prior to release of the Company's operating results, but in any
    event it shall occur prior to filing of the Company's quarterly report on Form 10-Q with
    the SEC. The Chairperson of the Committee may represent the entire Committee for
    purposes of this review and discussion.
    2. Prior to distribution, review and discuss the quarterly financial statements
    of the Company with management and the independent auditors, including the
    Company's disclosures under "Management's Discussion and Analysis of Financial
    Condition and Results of Operations." [NYSE Manual 303A, 7(b)(ii)(C) (Proposed)]
    3. On a quarterly basis (and as of a date within 90 days prior to the filing of
    the Company's periodic reports on Form 10-K and Form 10-Q), review a report from the
    Company's Chief Executive Officer and Chief Financial Officer disclosing to the
    Committee:
  • all significant deficiencies in the design or operation of the Company's
    internal controls which could adversely affect the Company's ability to
    record, process, summarize and report financial data and that such officers
    have identified for the Company's auditors any material weaknesses in such
    internal controls; and
  • any fraud, whether or not material, that involves management or other
    employees who have a significant role in the Company's internal controls.
    [Sarbanes-Oxley 302(a)(5)]
    4. Prior to distribution, review and discuss the annual audited financial
    statements of the Company with management and the independent auditors, (i) with
    specific attention to those matters required to be discussed by SAS No. 61, and (ii)
    including a review and discussion of the Company's disclosures under "Management's
    Discussion and Analysis of Financial Condition and Results of Operations." [NYSE
    Manual 303A, 7(b)(ii)(C) (Proposed)]
    5. Based on the review and discussions described in
    Sections VI.3, VI.4, VI.7 and other provisions of this Charter, determine whether the
    audited financial statements of the Company be included in the Company's annual report
    on Form 10-K to be filed with the SEC.
    6. Prepare the Committee's report for inclusion in the Company's annual
    proxy statement; [NYSE Manual 303A, 7(b)(i)(B) (Proposed)].
    45219871.9 -5-
    7. Review and discuss the report from the Company's independent auditors
    as to:
  • all critical accounting policies and practices to be used;
  • all alternative treatments of financial information within generally
    accepted accounting principles that have been discussed with
    management of the Company, ramifications of the use of such
    alternative disclosures and treatments, and the treatment preferred by
    such independent auditors; and
  • other material written communications between such independent
    auditors and management of the Company.
    [Sarbanes-Oxley 204]
    8. Review and discuss with the independent auditors their evaluation of the
    Company's financial reporting processes, both internal and external.
    9. Review and discuss with the independent auditors their judgment about
    the quality, not just the acceptability, of the Company's accounting principles as applied
    in its financial reporting (with management to be included in these discussions at the
    discretion of the Committee).
    10. Meet separately, periodically, with management, with internal auditors (or
    other personnel responsible for the internal audit function) and with the Company's
    independent auditors. [NYSE Manual 303A, 7(b)(ii)(G) (Proposed)]
    11. Review and discuss with the independent auditors and management the
    extent to which changes in financial or accounting practices, as approved by the
    Committee, have been implemented, and plans for future implementation.
    12. Review with the Company's independent auditors any audit problems or
    difficulties and management's response. [NYSE Manual 303A, 7(b)(ii)(H)
    (Proposed)]
    13. Discuss earnings, press releases and financial information and earnings
    guidance provided to analysts and rating agencies. [NYSE Manual 303A, 7(b)(ii)(D)
    (Proposed)]
    Independent Auditors
    14. (i) At least annually, obtain and review a report by the Company's
    independent auditors describing all relationships between the Company and such
    auditors; [NYSE Manual 303A 7(b)(ii)(B) (Proposed); not clear that meeting is
    required] (ii) receive the written disclosures and the letter required by Independence
    Standards Board Standard No. 1 from the independent auditors and discuss with them the
    disclosures, the letter and their independence; (iii) discuss with the independent auditors
    45219871.9 -6-
    any disclosed relationships or services that may impact the objectivity and independence
    of the independent auditors; and (iv) take appropriate action in response to the
    independent auditors' written disclosures for the Committee to satisfy itself of the
    independent auditors' independence.
    15. Approve in advance the engagement of the Company's independent
    auditors to provide both auditing services (including comfort letters in connection with
    securities underwritings) and non-audit services (including tax services); provided,
    however, the Company's independent auditors may not be engaged to provide any of the
    following non-audit services:
  • Bookkeeping or other services relating to the accounting records or
    financial statements of the Company;
  • Financial information systems design and implementation;
  • Appraisal or valuation services, fairness opinions or contribution-in-kind
    reports;
  • Actuarial services;
  • Internal audit outsourcing services;
  • Management functions or human resources;
  • Broker or dealer, investment advisor or investment banking services;
  • Legal services and expert services unrelated to the audit; and
  • Such other services as the Public Company Accounting Oversight Board
    may determine, by regulation, to be impermissible.
    [Sarbanes-Oxley 201 and 202]
    16. Confirm that both the lead (or coordinating) audit partner at the
    Company's independent accountants that has primary responsibility for the audit of the
    Company's financial statements and the audit partner responsible for reviewing the audit
    have not performed audit services for the Company in each of the five previous fiscal
    years before the current audit. [Sarbanes-Oxley 203; could delete, as requirement is
    technically applicable to independent auditors]
    17. Confirm that none of the following Company officers has been employed
    by the Company's independent auditors and participated in any capacity in an audit of the
    Company during the one-year period preceding the date that the independent auditors
    commenced their audit:
  • the Chief Executive Officer;
    45219871.9 -7-
  • the comptroller;
  • the Chief Financial Officer;
  • the chief accounting officer; and
  • any person serving in an equivalent position to those named above.
    [Sarbanes-Oxley 206]
    18. Set clear hiring policies for employees or former employees of the
    Company's independent auditors. [NYSE Manual 303A, 7(b)(ii)(I) (Proposed)]
    19. Prior to commencement of work on the annual audit by the independent
    auditors, discuss with them the overall scope and plan for the audit.
    20. Following completion of work on the annual audit, discuss with the
    independent auditors and management the adequacy and effectiveness of the Company's
    systems of internal controls regarding finance and accounting.
    21. At least annually, obtain and review a report by the Company's
    independent auditors describing their internal quality-control procedures, any material
    issues raised by the most recent internal quality-control review or peer review of the firm,
    or by any inquiry or investigation by governmental or professional authorities within the
    preceding five years with respect to one or more independent audits conducted by such
    firm and any steps taken to deal with such issues. [NYSE Manual 303A, 7(b)(ii)(B)
    (Proposed); not clear that meeting is required]
    22. Review the performance of the independent auditors annually.
    Confirm Independence
    23. Confirm, at least annually, that the members of the Committee continue to
    meet all NYSE requirements for independence.
    24. Confirm that the Company has made to the NYSE all required
    affirmations regarding (i) the independence, financial literacy and accounting or related
    financial management expertise of the members of the Committee and (ii) the annual
    review and reassessment of this Charter.
    Charter Review
    25. Review and assess the adequacy of this Charter annually, recommending
    appropriate changes for Board approval.
    45219871.9 -8-
    Legal and Other Matters
    26. Review with the Company's legal counsel (i) legal compliance matters
    and (ii) other legal matters that could have an impact on the Company's financial
    statements.
    27. Establish procedures for (i) the receipt, retention and treatment of
    complaints received by the Company regarding accounting, internal accounting controls
    or auditing matters and (ii) the confidential, anonymous submission by the Company's
    employees of concerns regarding questionable accounting or auditing matters.
    [Sarbanes-Oxley 301]
    28. Discuss policies with respect to risk assessment and risk management.
    [NYSE Manual 303A, 7(b)(ii)(F) (Proposed)]
    29. Report regularly to the Board. [NYSE Manual 303A, 7(b)(ii)(J)
    (Proposed)]
    Performance Review
    30. Annually perform an evaluation of the Committee's performance, report
    the results of such evaluation to the Board and receive directions or suggestions from the
    Board on areas in which the Committee's performance could be improved. [NYSE
    Manual 303A, 7(b)(iii) (Proposed)]