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Corporate Governance

Our Code Of Business Conduct & Ethics and Corporate Philosophy
Tri-Valley Corporation and its subsidiaries ("Tri-Valley") and each of its directors, officers and employees must conduct their affairs with uncompromising honesty and integrity. Business ethics are no different than personal ethics. The same high standard applies to both. As an employee of Tri-Valley or any of its subsidiaries, you are required to adhere to the highest standard. The ethical standards set forth in this code reflect who we are and are the standards by which we choose to be judged.

Our employees are expected to be honest and ethical in dealing with each other, with clients, vendors, and all other third parties. Doing the right thing means doing it right every time.

You must also respect the rights of your fellow co-workers and third parties. Your actions must be free from discrimination, libel, slander or harassment. Each person must be accorded equal opportunity regardless of age, race, sex, color, creed, religion, national origin, marital status, veteran’s status, handicap or disability.

Misconduct cannot be excused because it was directed or requested by another. In this regard, you are expected to alert management whenever an illegal, dishonest or unethical act is discovered or suspected. You will never be penalized for reporting your discoveries or suspicions. There will be no reprisals for the good faith reporting of a perceived violation. Reports of a violation will be investigated promptly and the matter will be treated, to the extent possible, as confidential. In addition to (or instead of) reporting the matter to Tri-Valley’s management, employees may report violations by senior management (and must report violations involving financial accounting and reporting) to the chairperson of our audit committee, who is an independent director and who does not report to our president or other senior management of Tri-Valley.

The following statements concern frequently raised ethical concerns. Violations of this code are serious matters that may result in disciplinary actions, up to and including termination. In addition, violations of the law may result in fines, penalties or other legal remedies imposed by regulatory and law enforcement authorities.

Conflicts of Interest
You must avoid any personal activity, investment or association which could appear to interfere with good judgment concerning Tri-Valley’s best interests. You may not exploit your position or relationship with Tri-Valley for personal gain. You should avoid even the appearance of such a conflict. For example, there is a likely conflict of interest if you:

• Cause Tri-Valley to engage in business transactions with relatives or friends;
  
• Use nonpublic Tri-Valley, client or vendor information for personal gain by you, relatives or friends (including securities transactions based on such information);
  
• Have more than a modest financial interest in Tri-Valley’s vendors, clients or competitors;
  
• Receive a loan or guarantee of obligations from Tri-Valley or a third party as a result of your position at Tri-Valley;
  
• Work simultaneously for Tri-Valley and a competitor, customer or supplier; or
  
• Compete, or prepare to compete, with Tri-Valley while still employed by Tri-Valley.

• Promptly bring to the attention of the audit committee any information they may have concerning (a) significant deficiencies in the design or operation of internal controls which could adversely affect our ability to record, process, summarize and report financial data or (b) any fraud, whether or not material, that involves management or other employees who have a significant role in our financial reporting, disclosures or internal controls.
  
• Promptly bring to the attention of our legal counsel and the audit committee any information they may have concerning any violation of this code or of the securities or other laws, rules and regulations applicable to Tri-Valley and the operation of its business;
  
• Promptly bring to the attention of our legal counsel and the audit committee any material transaction or relationship that arises and of which they become aware that could be expected to give rise to an actual or apparent conflict of interest;
  
• Develop and maintain the skills necessary and relevant to Tri-Valley’s needs with respect to maintenance of adequate disclosure controls and internal controls and procedures; and
  
• Proactively promote ethical and honest behavior within Tri-Valley.

• Fraud or deliberate error in the preparation, evaluation, review or audit of any or our financial statements;
  
• Fraud or deliberate error in recording and maintaining our financial records;
  
• Deficiencies in or noncompliance with our internal accounting controls;
  
• Misrepresentations or false statements to or by a senior officer with respect to a matter contained in our financial records, financial reports or audit reports, or
  
• Deviation from full and fair reporting of our financial condition.
  Reports to the secretary of the audit committee may be made to: Milt Carlson
  

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Charter of the Audit Committee


Organization

The audit committee of the board of directors shall consist of at least three independent directors who are generally knowledgeable in financial and auditing matters. The committee shall include at least one member with accounting or related financial management expertise, who qualifies as an audit committee financial expert under Item 401(h) of Regulation S-K of the U.S. Securities and Exchange Commission. Each member shall be free of any relationship that, in the opinion of the board, would interfere with his or her individual exercise of independent judgment. Applicable laws and regulations shall be followed in evaluating a member’s independence, including the rules of the Securities and Exchange Commission and the American Stock Exchange. The chairperson shall be appointed by the full board.

Statement of Policy
The audit committee assists the corporate directors in fulfilling their responsibility to the shareholders, potential shareholders, and investment community relating to corporate accounting, reporting practices of the corporation, and the quality and integrity of the financial reports of the corporation.  It is the responsibility of the audit committee to maintain free and open means of communication between the directors, the independent auditors, the internal accounting staff, and the financial management of the corporation.

Relationship with Auditors
The audit committee is responsible for the engagement, supervision, compensation and termination of the company’s independent auditors.  The independent auditors shall report directly to the audit committee.  The audit committee is responsible for determining the independence of the company’s outside auditor and must approve in advance, all audit and non-audit services provided by the outside auditor.

Relationship with Management
The audit committee consults with management to review critical accounting policies and alternative accounting treatment of financial reporting issues.  In the event of a dispute between management and the company’s independent auditors over accounting and financial reporting, the audit committee will resolve disputes after consulting with both management and the independent auditors.

Relationship with the Board of Directors
The audit committee regularly reports to the full board on internal auditing, the performance of the auditors, and all significant accounting and financial reporting issues.  Members of the audit committee are not, however, expected to bear greater responsibility or liability for assuring compliance with accounting rules and federal and state securities laws than other members of the board of directors.

Authority
In discharging its oversight role, the audit committee is empowered to investigate any matter brought to its attention, with full power to retain and compensate outside counsel or other experts for this purpose.  The company must sufficiently fund the audit committee to discharge its duties, including retention of experts.

Specific Responsibilities
The committee has the following specific responsibilities:

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Review of Documents and Reports

1. At the completion of the annual audit, review with management and the independent auditor the following:

• The annual financial statements and related footnotes and financial information to be included in the company’s annual report to shareholders on Form 10-K including: (i) the selection and disclosure of all critical accounting policies and practices used; (ii) any required management certifications; and (iii) any certification, report, opinion or review rendered by the independent auditor.
• Results of the audit of the financial statements and the related report thereon and, if applicable, a report on changes during the year in accounting principles and their application.
• Significant developments in accounting guidelines, policies and procedures including any changes in generally accepted accounting principles which may impact the company’s accounting policies or financial results.
• Other communications as required to be communicated by the independent auditor by Statement of Auditing Standards (SAS) 61 as amended by SAS 90 relating to the conduct of the audit.  Further, receive a written communication provided by the independent auditor concerning their judgment about the quality of the company’s accounting principles, as outlined in SAS 61 as amended by SAS 90, and that they concur with management’s representation concerning audit adjustments.

If deemed appropriate after such review and discussion, the committee shall recommend to the board that the financial statements be included in the company’s annual report on Form 10-K.

2. After preparation by management and review by independent auditor, approve the report required under SEC rules to be included in the company’s annual proxy statement. 

3. Review and reassess the adequacy of the audit committee charter on an annual basis.  The audit committee charter is to be published as an appendix to the proxy statement every three years.

4. Review with the company’s management and the independent auditor prior to filing the company’s interim financial information, earnings press release and the financials information contained in the company’s quarterly reports on Form 10-Q, including: (i) the selection, application and disclosure of the critical accounting policies and practices used; and (ii) any management certifications related thereto.  The chairperson may represent the committee for purposes of review.

5. Review with the company’s management and the independent auditor all significant accounting and reporting principles, practices and procedures applied by the company in preparing its financial statements.  Discuss with the independent auditor their judgments about the quality, not just the acceptability, of the company’s accounting principles used in financial reporting.

6. Review any reports submitted by the independent auditor, including a report, if prepared, relating to: (i) all critical accounting policies and practices used; (ii) all alternative treatments of financial information within generally accepted accounting principles that have been discussed with management, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the independent auditor; and (iii) other material written communications between the independent auditor and management, such as any management letter or schedule of unadjusted differences.

7. Review disclosures made by CEO and CFO during the Forms 10-K and 10-Q certification process about significant deficiencies in the design or operation of internal controls or any fraud that involves management or other employees who have a significant role in the company’s internal controls.

8. Generally as part of the review of the annual financial statements, receive an oral report(s), at least annually, from legal counsel concerning legal and regulatory matters that may have a material impact on the financial statements.

Control Process

9. Review with the company’s management and the independent auditor the company’s accounting and financial reporting controls. Obtain annually in writing from the independent auditor their letter as to the adequacy of such controls.

10. Require that the independent auditor will advise management and the committee, through its chairperson, of any matters identified through the procedures followed for interim quarterly financial statements that may adversely affect the quality or the acceptability of the quarterly financial reports. This notification is required under standards for communication with audit committees regarding the effect on quality for significant events, transactions, and changes in accounting estimates, is to be made prior to the related press release or, if not practicable, prior to filing Form 10-Q with the SEC.

11. Meet with management and the independent auditor to discuss any relevant significant recommendations that the independent auditor may have, particularly those characterized as “material” or “serious”. Typically, such recommendations will be presented by the independent auditor in the form of a letter of comments and recommendations to the committee. The committee should review responses of management to the letter of comments and recommendations from the independent auditor and receive follow-up reports on action taken concerning the aforementioned recommendations.

12. Discuss the independent auditor the quality of the company’s financial and accounting personnel. Also elicit the comments of management regarding the responsiveness of the independent auditor to the company’s needs.

Internal Audit

13. Review with the company’s management the annual internal audit plan; any significant findings during the year and management’s responses thereto; and the effectiveness and adequacy of the internal audit function.

14. Review with the company’s management and the independent auditor significant changes to the audit plan, if any, and any serious disputes or difficulties with management encountered during the audit. Inquire about the cooperation received by the independent auditor and whether there have been any disagreements with management which is not satisfactorily resolved, would have caused them to issue a nonstandard report on the company’s financial statements.

External Audit

15. Pre-approve in accordance with applicable law (including SEC and American Stock Exchange rules) all audit and permissible non-audit services provided to the Company by the independent auditor. The committee may delegate this responsibility to one or more members of the committee.

16. Review the scope and general extent of the independent auditor’s annual audit. The committee’s review should include an explanation from the independent auditor of the factors considered by the accountants in determining the audit scope, including the major risk factors. The independent auditor should confirm to the committee that no limitations have been placed on the scope or nature of their audit procedures.

17. At least annually, obtain and review a report by the independent auditor describing: (i) the independent auditor’s internal quality control procedures: (ii) any material issues raised by the most recent internal quality control review, or peer review, of the registered public accounting firm, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the independent accounting firm, and any steps taken to deal with any such issues; and (iii) all relationships between the independent auditor and the company (to assess the independent auditor’s independence).

18. Inquire as to the independence of the independent auditor and obtain from the independent auditor, at least annually, a formal written statement delineating all relationships and services between the independent auditor and the company as contemplated by Independence Standards Board Standard No. 1, Independence Discussions with Audit Committee.

19. Actively engage in a dialogue with the independent auditor with respect to any disclosed relationships or services that may impact the objectivity and independence of the auditor and take, or recommend that the full Board take, appropriate action to oversee the independence of the independent auditor.

20. Review any reports submitted to the committee by the independent auditor.

Compliance

21. As the committee may deem appropriate, obtain, weigh and consider expert advice as to audit committee related rules of the American Stock Exchange, Statements on Auditing Standards and other accounting, legal and regulatory provisions.

22. Review with management and the independent auditor the methods used to establish and monitor the company’s policies with respect to unethical or illegal activities by company employees that may have a material impact on the financial statements.

23. Establish procedures for: (i) the receipt, retention and treatment of complaints received by the listed issuer regarding accounting, internal accounting control, or auditing matters; and (ii) the confidential, anonymous submission by employees of the listed issuer of concerns regarding questionable accounting or auditing matters in compliance with applicable law, including SEC rules.

24. Review and investigate any matters pertaining to the integrity of management, including conflicts of interest, or adherence to standard of conduct, as required by the code of conduct policy adopted by the board and any other policies of the company governing the integrity and conduct of management which the board determines should be overseen by the committee. This code of conduct will be applicable to all directors, officers and employees and shall be made publicly available in accordance with SEC and American Stock Exchange rules.

Other Responsibilities

25. Make reports and recommendations to the board on matters within the scope of the committee’s functions.

26. Review and reassess the adequacy of this charter annually and recommend any proposed changes to the board for approval. This should be done in compliance with applicable SEC and American Stock Exchange audit committee requirements.

27. Should the company receive an audit opinion that contains a going concern qualification, the committee will assure that the company makes a timely public announcement through the public news media disclosing the receipt of such qualification and provides the text of the public announcement to the appropriate American Stock Exchange department in accordance with American Stock Exchange rules.

28. Review and approve, where appropriate, all related-party transaction as are required to be disclosed pursuant to SEC Regulation S-K, Item 404.

29. Engage independent counsel and other advisors, as the committee deems necessary or appropriate to carry out its duties, with funding provided by the company.

30. Perform other activities related to this charter as requested by the board.

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Audit Committee Checklist
The audit committee checklist delineates the committee’s specific responsibilities.  The committee relies on expertise from management, the independent auditors and the corporate staff in carrying out its responsibilities.  Management of the company is responsible to determine that the company’s financial statements are complete, accurate, and in accordance with generally accepted accounting principles.  The public accounting firm is responsible for auditing the company’s financial statements.  It is not the audit committee’s duty to plan or conduct audits, to determine that the financial statements are complete, accurate and in accordance with generally accepted accounting principles, to conduct investigations, or to assure compliance with laws and regulations or the company’s internal procedures or controls.

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