**TRENCH ELECTRIC B.V.**
**CHARTER OF THE AUDIT COMMITTEE**
*Organisation*
     The Audit Committee shall have at least two but no more than five members.In addition, the Audit Committee shall contain at least one member consideredto be an “audit committee financial expert” in accordance with the rules issuesby the SEC further to section 407 of the Sarbanes-Oxley Act of 2002.
     The members of the Audit Committee shall be recommended and appointed bythe board. Members shall serve for one-year terms unless reappointed.
     The Audit Committee shall meet at least four times each year, or morefrequently as circumstances dictate. In order to foster open communication,the Audit Committee should meet at least annually with management and theindependent auditor in separate sessions to discuss any matters that the AuditCommittee or either of these groups believe should be discussed privately.Meetings may be held in person or by telephone.
     The Audit Committee shall keep a separate book of minutes of itsproceedings and actions. The Audit Committee shall meet periodically, asdeemed necessary by the Chairman of the Audit Committee. All meetings shall beat the call of the Chairman of the Audit Committee. The Audit Committee shallelect a Secretary who shall give notice personally or by mail, telephone,facsimile or electronically to each member of the Audit Committee of allmeetings, not later than 12 noon of the day before the meeting, unless allmembers of the Audit Committee waive notice thereof in writing at or before themeeting, in which case the meeting may be held without the aforesaid advancenotice. A majority of the members of the Audit Committee shall constitute aquorum for the transaction of business.
*Purpose*
     The Audit Committee’s primary duties and responsibilities shall be:
 • To monitor the integrity of the Company’s financialreporting process and systems of internal controls regardingfinance, accounting and legal compliance.
 • To monitor the independence and performance of theCompany’s independent auditors.
 • To hire and fire the Company’s auditor and approve anynon-audit work performed by the Company’s Auditors.
 • To provide an avenue of communication among theindependent auditors, management and the board.
 • To establish procedures for receiving complaintsregarding accounting and auditing matters.
 

 

     The Audit Committee has the authority to conduct any investigationappropriate to fulfilling its responsibilities, and it has direct access to theindependent auditors as well as anyone in the organization. The AuditCommittee has the authority and ability to retain, at the Company’s expense,special legal, accounting or other consultants or experts it deems necessary toperform its duties.
     While the Audit Committee has the responsibilities and powers set forth inthis Charter, it is not the duty of the Audit Committee to plan or conductaudits or to determine that the Company’s financial statements are complete andaccurate and are in accordance with generally accepted accounting principles.This is the responsibility of management and the independent auditors. Nor isit the duty of the Audit Committee to conduct general investigations, toresolve disagreements, if any, between management and the independent auditoror to assure compliance with laws and regulations and the Company’s compliancepolicies.
*Responsibilities And Duties*
     To fulfill its responsibilities and duties, the Audit Committee shall:
*Review Procedures*
(i) Review and reassess the adequacy of this Charter at leastannually. Submit the Charter to the board for approval. (ii) Review the Company’s annual audited financial statements andquarterly financial statements prior to submission to the SEC ordistribution to bondholders. Review should include discussion withmanagement and independent auditors of significant issues regardingaccounting principles, practices and judgments, including theCompany’s disclosures under “Operating and Financial Review andProspects.” Discuss any significant changes to the Company’saccounting principles and any items required to be communicated bythe independent auditors in accordance with Statement on AuditingStandards No. 61 (“SAS No. 61”).
*Independent Auditors*
(iii) Appoint or replace the independent auditor, and approve allaudit engagement fees and terms (including providing comfort lettersin connection with securities underwritings) and all non-auditengagements with the independent auditors. The Audit Committee mayconsult with management but shall not delegate theseresponsibilities. The Audit Committee must ensure the rotation ofthe lead audit partner as required by law and consider whether torotate the audit firm itself. (iv) On an annual basis, review and discuss with the independentauditors all significant relationships they have with the Companythat could impair the auditor’s independence. The Company’sindependent auditors may not perform the following services for theCompany:
 • accounting or bookkeeping services;
 

 

 • internal audit services related to accounting controls,financial systems or financial statements;
 • financial information systems design implementation;
 • broker, dealer, investment banking or investment adviser services;
 • appraisal or valuation services;
 • actuarial services;
 • management services or human resources; and
 • legal or other expert services.
(v) Review the independent auditor’s audit plan. Discuss scope,staffing, locations, reliance upon management and general auditapproach.
1. Recommend to the board policies for the Company’s hiring of employees orformer employees of the independent auditor who were engaged on theCompany’s audit (should the situation arise). 2. Obtain and review a report by the independent auditor describing theauditor’s internal quality-control procedures and all material issuesraised by the most recent internal quality-control review or by anyinquiry or investigation by governmental or professional authoritieswithin the preceding five years relating to an independent audit carriedout by the firm, and all steps to deal with such issues.   *Financial Reporting Process*
(i) Prior to releasing year-end earnings, discuss the results ofthe audit with the independent auditors. Discuss certain mattersrequired to be communicated to audit committees in accordance withSAS No. 61, including such things as management judgments andaccounting estimates, significant audit adjustments, disagreementswith management and difficulties encountered in performing theaudit. (ii) Consider the independent auditor’s judgments about thequality (not just the acceptability) and appropriateness of theCompany’s accounting principles as applied to the Company. Inquireas to the independent auditor’s views about whether management’schoices of accounting principles appear reasonable from theperspective of income, asset and liability recognition, and whetherthose principles are common practices or minority practices. (iii) In consultation with management and the independentauditors, consider the integrity of the Company’s financialreporting processes and controls, both external and internal.Discuss significant financial risk exposures and the steps
 

 

      management has taken to monitor, control and report such exposures,including the Company’s risk assessment and risk managementpolicies. Review significant findings prepared by the independentauditors together with management’s responses, including the statusof previous recommendations. (iv) Review (a) the accounting treatment accorded significanttransactions, (b) any significant accounting issues, including anysecond opinions sought by management on accounting issues, (c) thedevelopment, selection and disclosure of critical accountingestimates and analyses of the effects of alternative GAAP methods,regulatory and accounting initiatives, and off-balance sheetstructures on the financial statements of the Company and (d) theCompany’s use of reserves and accruals, as reported by managementand the independent auditor.
*Internal Controls and Legal Compliance*
(v) Review the activities, organizational structure andqualifications of the Group Finance Function (“the controller’soffice”) as needed. Review significant reports prepared by theGroup Finance Function (“the controller’s office”) together withmanagement’s response and follow-up to these reports. (vi) Review the appointment and replacement of the seniorpersonnel responsible for financial reporting. (vii) Evaluate whether management is setting the appropriate toneat the top by communicating the importance of internal controls andensuring that all personnel possess an understanding of their rolesand responsibilities. (viii) Consider and review with management and the independent auditorsthe effectiveness or weakness of the Company’s internal controls.Develop in consultation with management a timetable for implementingany recommendations to correct identified weaknesses.
3. Review management’s monitoring of the Company’s compliance with laws andthe Company’s Code of Ethics and ensure the management has proper reviewsystems in place to ensure that the Company’s financial statements,reports and other information disseminated to governmental organizationsand the public satisfy legal requirements. 4. Establish procedures for the receipt, retention and treatment ofcomplaints received by the Company regarding accounting, internal accountscontrols and auditing matters and for the confidential, anonymoussubmission by employees of the Company of concerns regarding questionableaccounting or auditing matters. 5. Obtain from the independent auditor assurance that Section 10A (auditrequirements) of the Securities Exchange Act of 1934 has not beenimplicated. 6. Request and receive reports on the design and implementation of internalcontrols. Monitor significant changes in internal controls and addressany weaknesses.
 

 

*Miscellaneous*
(ix) The Audit Committee shall perform any other activitiesconsistent with this Charter and governing law, as the AuditCommittee deems appropriate or necessary.
     Adopted 4th February 2003