Historical Basis

Farmers Royalty Company was organized in 1929 with the concept of creating a company that would pool mineral interests owned by the shareholders and manage the assets for the benefit of all of the shareholders.  The original intent of the Company was to work for the “greater good” of the shareholders.  Overall, the various Board of Directors have “stayed the course” by paying the maximum dividend possible while at the same time taking advantage of opportunities for new growth.  The previous Boards during the past 78 years have served the Company and shareholders well.

In 1987, the Board of Directors became aware of numerous companies in the United States that appeared to be operating on the concept that what was best for their Board of Directors and management was best for their company.  At that time, the Board of Directors proposed a change in the Company’s By-Laws that would prohibit company management or employees from being a member of the Board.  The objective was to avoid the risk of management having too much influence and control over the Board of Directors.  Therefore, the By-Law changes were designed to establish a corporate structure which emphasizes the Board of Directors as the ultimate authority for all decisions related to Company operation and management.  The shareholders voted to support the changes in the By-Laws at the annual meeting on May 16, 1987.

In recent years, the collapse of numerous companies due to arrogance, incompetence, dishonesty and lack of integrity indicates Farmers Royalty Company’s Board of Directors was ahead of a majority of business leaders by identifying the problem early and taking positive action to avoid such problems.

Presently, many corporations are developing guidelines for conducting company business referred to as governance of the company.  To continue to build on the Company’s history of accountability as demonstrated in past years, Chairman of the Board, Hal Clark, recognized the need for our Company to, also, establish a formal Board approved Governance of the Company including a Code of Business Ethics.

Governance Of The Company

Farmers Royalty Company’s day to day business is conducted by its president and management staff under the direction of the Chairman of the Board and the oversight of the Board.  The five (5) members of the Board of Directors are elected by the shareholders to insure that the shareholders can control and direct the Company’s future.  The Board of Directors has six scheduled meetings a year to review and discuss reports by management on the financial status, transfer of company stock, exploration activity, ratification of well participation, authorize dividend payment and other emerging issues.  Additional meetings of the Board are called by the Chairman when emerging issues need immediate Board consideration.  Directors are expected to attend all scheduled Board and Committee meeting.  In addition to the overall Company structure established by the By-Laws, the following guidelines serve as a framework for the Company governance practices to assist the Board in performing its responsibility more effectively.

            RESPONSIBILITY ---The Board of Directors is responsible for corporate policy and overall performance of the Company through oversight of management and by setting goals and objectives that can realistically be attained to enhance the long-term growth of the Company for its shareholders and sustain the maximum dividend feasible in keeping with the original commitment when the Company was organized.

            LEADERSHIP ---The Chairman of the Board is the leader of the Company.  The Chairman will establish the agenda for the Board meetings by consulting with committee chairman and management.  Directors are encouraged to suggest items for the agenda and may raise subjects not on the agenda.

            PLANNING---In addition to the oversight of management, the Board will provide input and perspective in evaluation and planning the Company’s priorities for allocation of resources to drilling of oil and gas wells, purchase of mineral and acquisition of other property to assure the Company continues a sustained growth in the future.  The planning process also assesses major risks facing the Company and reviewing options for avoiding non productive situations.

            EVALUATION---The Board of Directors will maintain an on-going evaluation of all aspects of the Company, including but not limited to, drilling program success/failure, acquisition feasibility, investment of cash on had, cost efficiency of administration, shareholder relations, the Company’s ethical business practices and overall effectiveness.

            ACCESS TO MANAGEMENT AND ADVISORS---Directors have access to the Company’s management and records and, in addition, are encouraged to visit the Company’s office.  When necessary and appropriate, the Board and its Committees may retain outside legal, financial or other advisors.

            EXECUTIVE SESSIONS---Regularly scheduled or called Board meetings may include an executive session of the Board of Directors when requested by any member of the Board of Directors.  The Chairman of the Board may request the attendance of other individuals at his/her discretion.

            INTEGRITY---The Board of Directors will ensure that processes are in place for maintaining the integrity of the Company is such areas as the integrity of the financial statements and other records, the integrity of compliance with laws and ethics, the integrity of relationship with the Oklahoma Corporation Commission, companies operating wells in which the Company participates with a working interest or have a royalty interest, landmen, geologists and other professionals in the oil and gas industry, and, most of all, integrity of relationships with our shareholders.

            LEADERSHIP MAINTENANCE---The Board of Directors will be cognizant of leadership needs for the Board of Directors and management.  Board members are encouraged to assist in identifying exceptionally capable individuals that have integrity and values compatible with the Company’s cooperative concept as potential future members of the Board.  Further the Board will provide guidance, encouragement, and appropriate educational opportunities for management staff to improve their person professional careers and enhance their management expertise for the benefit of the Company.

            NEPOTISM PROHIBITED---It is the policy of the Board of Directors to prohibit the employment of relatives of the Board of Directors, management staff or other employees in a full-time position on the Company’s payroll.  Temporary employment of relatives for a period of three (3) months or less is permitted when approved by the Board of Directors.

Code Of Business Ethics

Considering the recent events of inappropriate and illegal business practice in numerous companies operating in the United States, it is imperative that the Company establish a Code Of Business Ethics to emphasize the importance of exemplary business conduct that requires the Board of Directors and management staff adhere to honest and ethical conduct, comply with all laws and other legal requirements, conduct business in an honest and ethical manner, avoid conflict of interest and, overall, act with integrity and in the Company’s best interest and benefit of the shareholders.  Farmers Royalty Company’s Code Of Business Ethics requires all directors, management and employees to conduct business the following guidelines:

• Conduct business in an honest and ethical manner.
• Comply with all laws and other legal requirements.
• Avoid conflict of interest related to Company business and personal business.
• Always act with integrity and in the Company’s best interest.
• Be cognitive of the shareholders contribution and importance to the Company and, always, address relations with shareholders in an ethical and respectful manner.
• Prepare all Company reports and records, including but not limited to, financial, mineral ownership, producing wells and income, newsletter, shareholder list, and audit information with the maximum accuracy and integrity of information.
• Report any conduct that you believe in good faith to be an actual or apparent violation of this Code of Business Ethics.

The Company’s reputation for integrity in our most important asset and, therefore, directors, management and employees must contribute to the code and preservation of the asset.

The Company intends to enforce the provisions of the code vigorously.  Violations could lead to sanctions, including dismissal in the case of an employee, as well as, in some cases, civil and criminal liability.