DEF 14A 1 c749-20170221xdef14a.htm DEF 14A Proxy_Statement_Folio

 

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of

the Securities Exchange Act of 1934 (Amendment No.     )

 

Filed by the Registrant    

Filed by a party other than the Registrant     

 

Check the appropriate box:

Preliminary Proxy Statement

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

Definitive Proxy Statement

Definitive Additional Materials

Soliciting Material Under § 240.14a-12

 

 

 

GRANITE FALLS ENERGY, LLC

(Name of Registrant as Specified In Its Charter)

 

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GRANITE FALLS ENERGY, LLC

15045 Highway 23 S.E.

Granite Falls, MN  56241-0216

 

NOTICE OF 2017 ANNUAL MEETING OF MEMBERS

 

To Be Held On:  Thursday, March 23, 2017

 

To our members:

 

The 2017 annual meeting of members (the “2017 annual meeting”) of Granite Falls Energy, LLC (the “Company”) will be held on Thursday, March 23, 2017, at Prairie’s Edge Casino Resort, 5616 Prairie’s Edge Lane, Granite Falls, Minnesota.  Registration for the meeting will begin at 8:00 a.m. The 2017 annual meeting will commence at 9:00 a.m. 

 

The purposes of the meeting are to:

 

·

Cast an advisory vote on executive compensation;

 

·

Elect three governors to serve on the Company’s board of governors until the 2020 annual meeting of members or until their successors are elected and qualified;

 

·

Consider and vote upon proposals to amend our Fifth Amended and Restated Operating and Member Control Agreement (and as proposed to be amended and restated, the “Form of Sixth Amended and Restated Operating Agreement”).  The proposed amendments are described in detail in Proposals 3 through 8 in the accompanying proxy statement and the full text of the amendments are set forth in Appendix A to the proxy statement; and

 

·

Transact such other business as may properly come before the 2017 annual meeting or any adjournments thereof.

 

All members are cordially invited to attend the 2017 annual meeting in person.  However, only members listed on the Company’s records at the close of business on February 28, 2017 are entitled to vote at the 2017 annual meeting and any adjournments thereof.

 

Your proxy is important to ensure a quorum at the meeting. Even if you own only a few units, and whether or not you expect to be present, the board of governors requests that you promptly sign, date and return the enclosed proxy card in the postage-paid envelope that is provided or by fax to (320) 235-5962. Voting by proxy will not affect your right to subsequently change your vote or to attend the regular meeting.

 

For your proxy card to be counted in advance of the meeting, it must be received by the inspector of elections, Christianson PLLP, 302 SW 5th Street, Willmar, MN 56201, no later than 5:00 p.m. on Tuesday, March 21, 2017.

 

By order of the board of governors,

 

/s/ Paul Enstad

 

PAUL ENSTAD,

Chairman

 

Granite Falls, Minnesota

February 28, 2017

 

 


 

 

 

Granite Falls Energy, LLC

15045 Highway 23 S.E.

Granite Falls, MN 56241-0216

 

PROXY STATEMENT

for the

2017 Annual Meeting of Members

To be held Thursday, March 23, 2017

This proxy statement is furnished in connection with the solicitation by the board of governors (the “Board”) of Granite Falls Energy, LLC (the “Company”, “we”, “us”, “our”) of proxies to be voted at the 2017 annual meeting of members of the Company to be held on Thursday, March 23, 2017 (the “2017 annual meeting”), and at any adjournment thereof.  The 2017 annual meeting will be held at Prairie’s Edge Casino Resort, 5616 Prairie’s Edge Lane, Granite Falls, Minnesota. Registration for the meeting will begin at 8:00 a.m. The 2017 annual meeting will commence at approximately 9:00 a.m.  

 

This solicitation is being made by mail, however, the Company may also use its officers, governors, and employees (without providing them with additional compensation) to solicit proxies from members in person or by telephone, facsimile or letter.  A copy of our annual report to members, including our annual report on Form 10-K for the fiscal year ended October 31, 2016, which includes our audited consolidated financial statements for fiscal year 2016 (the “annual report”), accompanies this proxy statement. Distribution of this proxy statement, the proxy card and our annual report is scheduled to begin on or about February 28, 2017. 

 

We have organized this proxy statement into three sections in order to set forth our information in a straightforward and understandable way.  You should read all three sections.

 

·

Questions and Answers:  this section provides answers to frequently asked questions regarding the purpose of the 2017 annual meeting and meeting procedures.

 

·

Proxy Proposals:  this section provides information and detailed explanation of the proposals to be voted on at the 2017 annual meeting. There are eight proposals being presented for your consideration at the 2017 annual meeting:

 

§

Proposal 1: Members will provide an advisory vote on executive compensation, commonly known as a “Say-on-Pay” proposal.

 

§

Proposal 2: Elect three governors from the six nominees listed in Proposal 2 to serve on the Company’s board of governors. The three elected governors will serve until the 2020 annual meeting of members and until their successors are elected; and

 

§

Proposals 3 through 8:  Consider and adopt proposed amendments to and a restatement of our Fifth Amended and Restated Operating and Member Control Agreement (the “Current Operating Agreement”) as follows:

 

o

Proposal 3:  To consider, approve and adopt amendments to our current Operating Agreement to (i) “opt-in” and elect governance under the Minnesota Revised Uniform Limited Liability Company Act (the “New LLC Act”) and make other consistency and wording changes to the Current Operating Agreement, (ii) incorporate certain amendments to the Current Operating Agreement previously approved by the Members (iii) remove certain special governor appointment rights and related governance rights of Glacial Lakes Energy, LLC and Fagen, Inc. that are no longer applicable and only have historical significance; and (iv) to make certain corrections and administrative changes to the transfer provisions and remove unnecessary redemption procedures.

 

o

Proposal 4: To consider, approve and adopt amendments to our current Operating Agreement to (i) clarify the allocation and distribution provisions of the Current Operating Agreement and make such provisions consistent with the special regulatory allocation provisions required by the IRS for large partnerships (100 or more partners); and (ii) to adopt certain the tax audit procedures to be consistent with recent IRS regulatory changes to large partnership audit procedures;

 

o

Proposal 5: To consider and approve amendments to the Current Operating Agreement to modify and clarify certain governance requirements of the Company;

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o

Proposal 6: To consider and approve amendments to the Current Operating Agreement to revise the limitation of liability, exculpation, indemnification, and advancement of expenses provisions of the Operating Agreement so that they are consistent with indemnification provisions of the New LLC Act;

 

o

Proposal 7: To consider and approve an amendment to the Current Operating Agreement to affirmatively waive dissenters’ rights under the New LLC Act;

 

o

Proposal 8:  To consider, approve and adopt amendments to our current Operating Agreement to provide procedures for proposal and adoption of amendments the Operating and Member Control Agreement. 

 

The express language of the proposed changes pursuant to each of Proposals 3, 4, 5, 6, 7 and 8 is set forth in their entirety in Appendix A, in a marked format, with deletions shown by strikethroughs and additions by underlines. You should read each of Proposals 3, 4, 5, 6, 7, and 8 and Appendix A in their entirety before voting.

 

The approval of each of Proposals 3, 4, 5, 6, 7, and 8 are independent of each other and are not conditioned on member approval of all of Proposals 3, 4, 5, 6, 7, and 8.  Therefore, if any one of Proposals 3, 4, 5, 6, 7, and 8 passes, then the Current Operating Agreement will be amended and restated to incorporate the changes described in such Proposals as are approved by the members and as amended and restated, will become the Company’s Sixth Amended and Restated Operating Agreement.  The changes described in any failing Proposal will not be implemented and will not be incorporated in the Sixth Amended and Restated Operating Agreement. If all of Proposals 3, 4, 5, 6, 7, and 8 fail, then the Company’s Current Operating Agreement will remain in effect and none of the changes described in Proposals 3 through 8 will be implemented.

 

·

Required Information:  this section provides information that is required by law to be included in the Company’s proxy statement, which has not been included in Sections I and II.

 

 

SECTION I - QUESTIONS AND ANSWERS ABOUT THE

2017 ANNUAL MEETING AND VOTING

 

Q:What is a proxy?

 

A:It is your legal designation of another person to vote the units you own. That other person is called a proxy.  If you designate someone as your proxy in a written document, that document also is called a proxy or a proxy card. We have designated two of our officers as proxies for the 2017 annual meeting. These officers are Paul Enstad and Rod Wilkison.

 

Q:What is a proxy statement?

 

A:It is a document that Securities and Exchange Commission (“SEC”) regulations require us to give you when we ask you to vote by mail or by fax by signing and returning a proxy card designating Paul Enstad and Rod Wilkison as proxies to vote on your behalf.

 

Q:Why did I receive this proxy statement?

 

A:The Board is soliciting your proxy to vote at the 2017 annual meeting because you were a member of the Company as of the close of business on the record date.

 

Q:Who can attend the 2017 annual meeting?

 

A:All members of the Company may attend the 2017 annual meeting.

 

Q:What is the record date for the 2017 annual meeting and what does it mean?

 

A:The record date for the 2017 annual meeting is February 28, 2017. The record date is established by the Board as required by the Company’s Current Operating Agreement and the Minnesota Limited Liability Company Act set forth in Chapter 322B of the Minnesota Statutes.

 

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Owners of record of units at the close of business on the record date are entitled to receive notice of the meeting and vote at the meeting and any adjournments or postponements of the 2017 annual meeting.

 

Q:How do I vote?

 

A:Membership units can be voted only if the holder of record is present at the 2017 annual meeting either in person or by proxy.  You may vote using either of the following methods:

 

·

Proxy card.  The enclosed proxy card is a means by which a member may authorize the voting of his, her, or its membership units at the 2017 annual meeting.  The membership units represented by each properly executed proxy card will be voted at the 2017 annual meeting in accordance with the member’s directions.  The Company urges you to specify your choices by marking the appropriate boxes on your enclosed proxy card.  After you have marked your choices, please sign and date the enclosed proxy card and return it

 

§

By mail in the enclosed envelope to Christianson PLLP, Attention: Christina Boike, at 302 SW 5th Street, Willmar, MN 56201. 

 

§

By fax to Christianson PLLP, Attention: Christina Boike, at (320) 235-5962. 

 

If you sign and return the proxy card without specifying any choices, your membership units will be voted (i) FOR Proposal 1; FOR all incumbent governor nominees with respect to Proposal 2; (ii) FOR Proposals 3, 4, 5, 6, 7, and 8.

 

·

In person at the 2017 annual meeting.  All members may vote in person at the 2017 annual meeting.

 

Q:How many votes do I have?

 

A:Members are entitled to one vote for each membership unit owned by such member as of the close of business on the record date on any matter which may properly come before the meeting.

 

Q:What am I voting on?

 

A:You are voting on eight proposals:

 

·

Proposal 1: Members will provide an advisory vote on executive compensation, whereby you can either endorse or not endorse the Company’s system of compensating its executive officers.  This proposal is commonly referred to as “Say-on-Pay”. While we are asking our members to indicate their support for the compensation of our executive officers, the Say-on-Pay vote is not binding on the Board. Detailed information regarding executive compensation is provided below under “Section III - Required Information, Compensation of Executive Officers.”

 

·

Proposal 2: The election of three governors. The following persons have been nominated by the nominating committee to fill the three open seats on the Board: Kenton Johnson, Bruce LaVigne, Michael Lund, Julie Oftedahl-Volstad, Loren Solberg, and Scott Van Binsbergen.  Detailed information on each nominee is provided below at “Section II - Proposals To Be Voted On, Proposal 2 - Election Of Governors”.  The Board has determined that each of the nominees is qualified to serve as a governor.  The Board recommends a vote FOR the three incumbent nominees (Messrs. Johnson, LaVigne, and Lund) for election as governors due to their current service on our Board, which has provided them with significant exposure to and familiarity with our business.

 

·

Proposal 3 through 8: Amendments to and a restatement of the Company’s Current Operating Agreement as described in Proposals 3 through 8, with the proposed changes set forth in their entirety in Appendix A in a marked format. These proposals are discussed below beginning at “Section II - Proposals To Be Voted On,  Special Note On Proposals 3  Through 8 - Amendment And Restatement Of The Company’s Operating And Member Control Agreement”.  We encourage you to read each of Proposals 3, 4, 5, 6, 7, and 8 and Appendix A in their entirety before voting.

 

As of the mailing date of this proxy statement, the Board is not aware of any matters, other than those set forth above, that may be presented for action at the 2017 annual meeting. If other matters are properly presented, including voting to adjourn or postpone the annual meeting to solicit additional proxies with respect to any proposal or for any other reason, the persons named as proxies will vote in accordance with the member’s directions.  

 

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Q:What is the Board’s recommendation on each proposal?

 

Unless you give other instructions, the persons named as proxies will vote in accordance with the recommendations of the Board. The Board’s recommendations are set forth together with the description of each item in this proxy statement. In summary, the Board recommends a vote:

 

·

Proposal 1: The Board recommends a vote FOR Proposal 1.

 

·

Proposal 2:   Although the Board has determined that each of the nominees is qualified to serve as a governor, the Board recommends a vote FOR the three incumbent nominees (Messrs. Johnson, LaVigne, and Lund) for election as governors due to their current service on our Board, which has provided them with significant exposure to and familiarity with our business.

 

·

Proposals 3 through 8:    The Board recommends a vote FOR each of Proposals 3, 4, 5, 6, 7, and 8.

 

Q:What are the voting requirements for the proposals?

 

A:The voting requirements for each proposal are set forth below:

 

·

Proposal 1: The affirmative vote of the holders of a majority of the units present, either in person or by proxy, and entitled to vote is required FOR approval of Proposal 1: Say-On-Pay.

 

·

Proposal 2: In the election of governors, the three nominees receiving the greatest number of votes will be elected as governors regardless of whether an individual nominee receives a majority of the votes cast. Members do not have cumulative voting rights.

 

·

Proposals 3 through 8: The affirmative vote of the holders of a majority of the total number of membership units outstanding is required to amend and restate the Company’s Operating and Member Control Agreement.  On February 28, 2017, there were 30,606 membership units outstanding and entitled to vote at the 2017 annual meeting. Therefore, a vote FOR by 15,304 membership units is required to approve each of Proposals 3, 4, 5, 6, 7, and 8.

 

The approval of each of Proposals 3, 4, 5, 6, 7, and 8 are independent of each other and are not conditioned on member approval of all of Proposals 3, 4, 5, 6, 7, and 8.  Therefore, if any one of Proposals 3, 4, 5, 6, 7, and 8 passes, then the Current Operating Agreement will be amended and restated to incorporate the changes described in such Proposals as are approved by the members and as amended and restated will become the Company’s Sixth Amended and Restated Operating Agreement.  The changes described in any failing Proposal will not be implemented and will not be incorporated in the Sixth Amended and Restated Operating Agreement. If all of Proposals 3, 4, 5, 6, 7, and 8 fail, then the Company’s Current Operating Agreement will remain in effect and none of the changes described in Proposals 3 through 8 will be implemented.

 

Q:What is the effect of an abstention?

 

A:Abstentions will be counted when determining whether a quorum is present. Abstentions will have the following effect:

 

·

Proposal 1:  Abstentions in the Say-On-Pay advisory vote will have the effect of a vote AGAINST Proposal 1.

 

·

Proposal 2:  Abstentions for governor elections will not be counted either for or against any nominee because governors are elected by plurality vote, meaning that the person receiving the most votes will be elected.

 

·

Proposals 3 through 8:   If you abstain from voting on any of Proposals 3, 4, 5, 6, 7, and/or 8, it has the same effect as a vote AGAINST such proposal. 

 

Q:What can I do if I change my mind after I submit my proxy?

 

A:You may revoke your proxy by:

 

·

Voting in person at the 2017 annual meeting; or

 

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·

Giving written notice of revocation that is received by Christianson PLLP by 5:00 p.m. on Tuesday, March 22, 2017.

 

·

Giving written notice of the revocation to the Company’s CFO, Stacie Schuler, at the commencement of the 2017 annual meeting.

 

Simply attending the 2017 annual meeting will not revoke your proxy; you must revoke your proxy one of the ways described above. If you would like to change your vote, you may do so by revoking your proxy and then voting in person or by proxy as described in the immediately preceding question.

 

Q:What happens if I mark too few or too many boxes on the proxy card?

 

A:If you mark too few or too many boxes on the proxy card for each proposal, your vote will be counted as follows:

 

·

For Proposal 1: 

 

§

If you do not mark any choices on the proxy card, then the proxy will vote your units FOR Proposal 1.

 

§

If you mark contradicting choices on the proxy card, such as both FOR and ABSTAIN on Proposal 1, it has the same effect as a vote AGAINST such proposal.

 

·

For Proposal 2: 

 

§

If you do not mark any choices on the proxy card, then the proxy will vote your units FOR all incumbent governor nominees (Messrs. Johnson, LaVigne, and Lund) with respect to Proposal 2.

 

§

You may wish to vote FOR only one or two of the governor nominees.  In this case, your vote will only be counted FOR the governor candidates you have selected.

 

§

If you mark a vote FOR more than three choices on the proxy card, your votes will not be counted with respect to any of the governor candidates.

 

§

If you mark contradicting choices on the proxy card, such as both FOR and WITHHOLD/ABSTAIN for a candidate, your votes will not be counted with respect to the governor candidate for which you marked contradicting choices.

 

·

For Proposals 3 through 8: 

 

§

If you do not mark any choices on the proxy card, then the proxy will vote your units FOR Proposals 3, 4, 5, 6, 7, and 8.

 

§

If you mark contradicting choices on the proxy card, such as both FOR and AGAINST and/or ABSTAIN for a particular proposal, it has the same effect as a vote AGAINST such proposal. 

 

If any other matters are properly presented to the 2017 annual meeting for action, including voting to adjourn or postpone the annual meeting to solicit additional proxies with respect to any proposal or for any other reason, the proxy will vote the proxy cards in accordance with members’ directions therein.  As provided on the proxy card, a member may grant discretionary authority to the proxies to vote on such matters in accordance with their best judgment.

 

Q:How will a quorum be established the 2017 annual meeting?

 

A:To transact any business at the 2017 annual meeting, we must have a quorum of members present at the meeting.  The presence of members holding 40% of the total outstanding membership units constitutes a quorum. As of the record date, we had 30,606 membership units issued and outstanding. Accordingly, we need 12,242 membership units represented at the meeting to constitute a quorum. If you submit a properly executed proxy, then you will be considered part of the quorum even if you are not physically present at the meeting.

 

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Q:Do I have dissenters’ rights to any matter acted upon during the 2017 annual meeting?

 

A:No.  Neither the election of governors nor the amendment and restatement of the Company’s Operating and Member Control Agreement described in Proposals 3, 4, 5, 6, 7, and 8 are a circumstance in which the Minnesota Limited Liability Company Act or the Company’s Current Operating Agreement provides members with dissenters’ rights.

 

Pursuant to the Minnesota Limited Liability Company Act, dissenters’ rights are available to members under the following circumstances: (1) an amendment to the articles of organization which materially and adversely affects the rights or preferences of the membership interests of the dissenting member; (2) a sale, lease, transfer, or other disposition of property and assets requiring member approval; (3) a plan of merger; (4) a plan of exchange; (5) a plan of conversion; or (6) any other action taken to which the articles of organization, member control agreement, bylaws, or a resolution approved by the Board directs that dissenting members may obtain payment for their membership units.  The Company’s Current Operating Agreement neither provides nor waives any dissenters’ rights for our members.

 

Q:Who will count the vote?

 

A:The Company has hired the accounting firm of Christianson PLLP to count the ballots.

 

Q:How do I nominate a candidate for election as a governor or make a proposal for next year’s annual meeting?

 

A:This question is answered in the section of this proxy statement entitled “Section III - Required Information; Member Proposals For The 2018 Annual Meeting.

 

Q:Who is paying for this proxy solicitation?

 

A:The entire cost of this proxy solicitation will be borne by the Company.  The cost will include the cost of supplying necessary additional copies of the solicitation material for beneficial owners of membership units held of record by brokers, dealers, banks and voting trustees and their nominees and, upon request, the reasonable expenses of such record holders for completing the mailing of such material and report to such beneficial owners.

 

Q:How can I find out results of the voting at the 2017 annual meeting?

 

A:Preliminary voting results will be announced at the 2017 annual meeting.  In addition, final voting results will be published in a current report on Form 8-K that we expect to file within four business days after the 2017 annual meeting. If final voting results are not available to us in time to file a Form 8-K within four business days after the meeting, we intend to file a Form 8-K to publish preliminary results and, within four business days after the final results are known to us, file an additional Form 8-K to publish the final results.

 

FORWARD-LOOKING STATEMENTS

 

This proxy statement contains forward-looking statements that involve future events, our future performance and our expected future operations and actions.  In some cases you can identify forward-looking statements by the use of words such as “may”, “will”, “should”, “anticipate”, “believe”, “expect”, “plan”, “future”, “intend”, “could”, “estimate”, “predict”, “hope”, “potential,” “continue,” or the negative of these terms or other similar expressions.  These forward-looking statements are only our predictions and involve numerous assumptions, risks and uncertainties, including, but not limited to those described in this proxy statement and our other Securities and Exchange Commission filings.

 

Our actual results or actions could and likely will differ materially from those anticipated in the forward-looking statements for many reasons, including the reasons described in this proxy statement.  We are not under any duty to update the forward-looking statements contained in this proxy statement.  We cannot guarantee future results, levels of activity, performance or achievements.  We caution you not to put undue reliance on any forward-looking statements, which speak only as of the date of this proxy statement.  You should read this proxy statement and the documents that we reference in this proxy statement, completely and with the understanding that our actual future results may be materially different from what we currently expect.  We qualify all of our forward-looking statements by these cautionary statements.

 

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SECTION II - PROPOSALS TO BE VOTED UPON

 

PROPOSAL 1

 

ADVISORY VOTE ON EXECUTIVE COMPENSATION (“SAY-ON-PAY”)

 

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, enables our members to vote to approve the compensation of our named executive officer as disclosed in this proxy statement on an advisory, non-binding basis.  We believe that our compensation policies and procedures are reasonable based on the size and complexity of the Company, consistent with the Company’s budget, financial performance, and local labor market conditions, and are strongly aligned with the long-term interests of our members.  We believe our compensation program supports our business initiatives and provides incentives to high performance. We urge you to read “Section III - Required Information, Compensation of Executive Officers” below for additional details about our executive compensation programs, including information about the fiscal year 2016 compensation of our named executive officers. We believe the “Say-on-Pay” proposal demonstrates our commitment to achieving a high level of total return for our members.

 

This proposal, commonly known as “Say-on-Pay”, gives you, as a member, the opportunity to endorse or not endorse the compensation of our named executive officers as described in this proxy statement by voting for or against the following resolution. This advisory member vote is not intended to address any specific item of compensation, but rather the overall compensation of our named executive officers and the philosophy, policies and practices described in this proxy statement.  Accordingly, we ask our Members to vote “FOR” the following resolution at the 2017 annual meeting:

 

“RESOLVED, that the Members of Granite Falls Energy, LLC approve the compensation of the Company’s named executive officers as disclosed in the Compensation Discussion and Analysis, the compensation tables, and the related disclosure contained in this proxy statement set forth under the caption ‘Executive Compensation’.”

 

Required Vote and Board Recommendation

 

Approval of this Proposal 1 requires the affirmative vote of the holders of a majority of the units present, in person or by proxy, and entitled to vote on this Proposal 1.

 

OUR BOARD UNANIMOUSLY RECOMMENDS THAT THE MEMBERS VOTE “FOR” THE ADVISORY VOTE ON EXECUTIVE COMPENSATION AS DISCLOSED IN THIS PROXY STATEMENT.

 

Effect of Your Proxy

 

You may vote “FOR,” “AGAINST” or “ABSTAIN” on Proposal 1.  If you do not mark any choices on the proxy card, then the proxies will vote your units FOR Proposal 1.  If you abstain, your units will be included in the determination of whether a quorum is present. However, your abstention will have the effect of a vote AGAINST Proposal 1. If you do not submit a proxy card or attend the 2017 Annual Meeting, your vote will not be counted as a vote either for or against Proposal 1.

 

Effectiveness of Proposal 1

 

The advisory vote on the Say-on-Pay vote will be approved if the votes cast FOR the proposal exceed the votes cast AGAINST the proposal.

 

However, members are not ultimately voting to approve or disapprove our Board’s recommendation. Because your vote is advisory, the outcome of the vote is not binding on us with respect to future executive compensation decisions, including those relating to our named executive officers, or otherwise. We believe the Say-on-Pay vote will provide valuable information to us that our Board and our Compensation Committee will take into account when considering future executive compensation arrangements.

 

We currently anticipate that we will present the Say-on-Pay proposal to our members every third year and anticipate that the next Say-on-Pay vote will occur at our 2020 annual meeting.

 

 

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PROPOSAL 2

 

ELECTION OF THREE GOVERNORS

 

Our Board consists of nine elected governors.  Additional information regarding our Board and our continuing governors is set forth below under the section entitled “Section III - Required Information, Board of Governors and Company Governance.”

 

Under Current Operating Agreement, the governors’ terms (other than the alternate governors) are staggered such that three governors are up for election every year.    Our governor nominees are nominated by our Board, following consideration by our Board’s nominating committee, and then elected by our members. 

 

The Board has nominated Kenton Johnson, Bruce LaVigne, Michael Lund, Julie Oftedahl-Volstad, Loren Solberg, and Scott Van Binsbergen as nominees for the 2017 annual board of governors’ election, based upon the recommendation of the Board’s nominating committee. Each of the nominees was recommended by members of the Company to the nomination committee.  The Board has determined that each of the nominees is qualified to serve as a governor.  All nominees have indicated their willingness to serve as governors if elected. 

 

Each of the governor nominees meets the “independent director” standards applicable to companies listed on the NASDAQ Capital Market (though our units are not listed on any exchange or quotation system).  None of the governor nominees serve as a director of any other company having a class of securities registered under Section 12 of the Exchange Act, or subject to Section 15(d) of the Exchange Act, nor do any of the governor nominees serve as a director of an investment company registered under the Investment Company Act of 1940, as amended.   

 

We know of no arrangements or understandings between a governor or nominee and any other person pursuant to which he or she has been selected as a governor or nominee. There are no direct family relationships exist between any of the nominees, our governors, officers, or key employees of the Company.

 

Information Regarding Nominees

 

The following table contains certain information with respect to the nominees for election to the Board at the 2017 annual meeting:

 

 

 

 

 

 

 

 

 

 

Name

 

Age

 

Year First Became a

Governor (if applicable)

 

Term Expires

(if applicable)

Kenton Johnson

 

28

 

2013

 

2020

Bruce LaVigne

 

66

 

2014

 

2020

Michael Lund

 

50

 

2014

 

2020

Julie Oftedahl-Volstad

 

62

 

N/A

 

2020

Loren Solberg

 

75

 

N/A

 

2020

Scott Van Binsbergen

 

48

 

N/A

 

2020

 

Each of Messrs. Johnson, LaVigne, and Lund are incumbent governors.  Ms. Oftedahl-Volstad previously served on our Board from our inception until March 2013. Neither Mr. Solberg nor Mr. Van Binsbergen has served on our Board. 

 

Set forth below is certain information with respect to the nominees for governor, including the business experience and the experiences, qualifications, attributes or skills, our Board believes qualifies these individuals to serve as governors. Biographical information for non-nominee governors whose terms continue beyond the 2017 annual meeting may be found below at “Section III - Required Information, Board Of Governors And Company Governance, Biographical Information for Governors Continuing in Office”.

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Kenton Johnson - Incumbent Governor and Nominee. Mr. Johnson began his tenure with the Board in April 2013 as Fagen, Inc.’s appointed governor and continued as a governor upon his election to the Board in March 2014.  Since 2007, Mr. Johnson has raised corn and soybeans in his farming operation located south of Granite Falls, Minnesota. In August of 2009, Mr. Johnson became chief executive officer and shareholder of Prairie View Farms, Inc., a family owned and operated farming business. Since January of 2013, Mr. Johnson has served as a director on the boards of Platinum Ethanol, LLC, a 125 million gallon per year ethanol plant located in Arthur, Iowa, and of Platinum Grain, LLC, a commercial grain elevator in Anthon, Iowa. Since October 2013, he has served on the board of Bushmills Ethanol, Inc., a 60 million gallon per year ethanol facility located in Atwater, Minnesota, as an appointee of our general contractor Fagen, Inc. Since June 2015, Mr. Johnson has served as a director for Ringneck Energy LLC, a start-up ethanol company with plans to develop, construct and operate and 80 million gallon per year ethanol facility in Onida, South Dakota.  Mr. Johnson also serves as one of the Company’s alternate appointed governors to the board of governors of Heron Lake BioEnergy, LLC, an SEC reporting company and our majority owned subsidiary (“HLBE”), representing our investment interest in HLBE. Mr. Johnson received a Bachelor of Science degree in agriculture business management from Southwest Minnesota State University in 2011. Mr. Johnson was selected as a nominee based on his prior service on our Board, his familiarity with our Company and its business, as well as his board service for similar companies in the ethanol industry, which provides a broad view of ethanol plant operations to the Company.  

 

Bruce LaVigne - Incumbent Governor and Nominee.  Mr. LaVigne has served as a governor since March 2014. Mr. LaVigne is currently employed by as the managing director of Red Lake Resources Ltd, an Ontario private equity mineral exploration company, since April 2010 and as chief executive officer of Secluded Properties Limited, an Ontario company that develops commercial timber and mining, since February 1989. In addition, Mr. LaVigne is also former chief executive officer of Lac Seul Airways, Ltd. (having held the position of chief executive officer from 1998 to 2011); the chief executive officer of 972974 Ontario Limited, a private equity mining and real estate company; the chairman of 1009167 Ontario Limited, a private investment holding company; and a vice president of Boundary Waters Land and Timber, a private equity Minnesota real estate development and timber production company that manages 2,800 acres of commercial timber production land in northern Minnesota. Mr. LaVigne’s past leadership and current position is valuable to the Board in developing strategy and provides operational perspective.

 

Michael Lund - Incumbent Governor and Nominee.  Mr. Lund was first elected as a governor in 2014. Mr. Lund has been a co-owner of Stony Run Farms, a 3,400 acre corn and soybean farm near Montevideo, Minnesota since 2002 and the owner of West Central Seeds, Inc., a sales agency for Pioneer Hi-Bred since 1999. From 1990 to 1999, Mr. Lund worked as an agronomist for Golden Harvest Seed Company. He has also served as director and secretary, and is currently president of Leenthrop Farmers Mutual Insurance Company since 2005. Mr. Lund earned his bachelor of science degree in agronomy and agricultural economics at the University of Minnesota, St. Paul and his masters degree in corn and soybean production at the University of Wisconsin, Madison. Mr. Lund was selected as a nominee based on his prior service on our Board, familiarity with our Company and its business, and his leadership and agricultural experience outside our Company.

 

Julie Oftedahl-Volstad - Nominee. Ms. Oftedahl-Volstad previously served on the Board from our inception until March 2013, during which time she served as the Company’s Secretary and a member of the audit committee. She has been farming along the Yellow Medicine River near Hanley Falls, Minnesota since 1978 on a farm homesteaded in 1873 by her great-great-grandfather. She farms in partnership with her three brothers, principally growing corn, soybeans, and wheat. She has a degree in sociology from Southwest Minnesota State University and a degree from Minnesota West Community and Technical College in farm business operation and management. She is a member of Yellow Medicine County Corn Growers and Soybean Growers. She is an active member of Yellow Medicine Lutheran Church and Healing Waters Parish. She is also on the board of Neighbors United Food Shelf, a support organization. Ms. Oftedahl-Volstad was selected as a nominee based on her prior service on our Board, familiarity with our Company and its business, and her agricultural experience outside our Company.

 

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Loren Solberg - Nominee. Mr. Solberg currently owns and operates Loren Solberg Consulting, LLC, a public relations, lobbying and consulting business he started in 2013.  Prior to that, he served in elected office with the Minnesota House of Representatives from 1983 until leaving office in January 2011, serving district 3B which includes Aitkin, Itasca, St. Louis Counties of Minnesota. He was a member of the House Ways and Means, the Finance, the Rules and Legislative Administration, and the Taxes committees. He also served on the Finance Subcommittee for the Commerce and Labor Subcommittee for the Labor and Consumer Protection Division and on the Finance Subcommittee for the Capital Investment Finance Division. He previously chaired the Ways and Means Committee from 1993–1998, and chaired the Ethics Committee from 1989-1990. He was an assistant minority leader from 1999-2002. Prior to his service in the Minnesota House of Representatives, Mr. Solberg was the mayor of Bovey, Minnesota from 1970 to 1982. Mr. Solberg and his wife also own farm ground in eastern South Dakota that they lease to family members for production. He also serves on the board of trustees and the finance committee of Itasca Community College Foundation, which oversees the investment portfolios and financial reports for the Foundation. Mr. Solberg earned his bachelor of science and masters degree in mathematics education from Bemidji State University. He also holds a masters degree in public administration from the John F. Kennedy School of Government at Harvard University. Mr. Solberg was selected as a nominee based experience and understanding of government, public affairs, economic development, and regulatory and public policy.  

 

Scott Van Binsbergen - Nominee.  Mr. Van Binsbergen has been a co-owner of Van Binsbergen & Associates, a professional property management firm that develops, owns and manages apartment buildings, office buildings and assisted living facilities in over 50 Minnesota communities and employs a staff of 75.  Additionally, since 2010, he has been the co-owner of Madsen Properties, Inc., a real estate sales firm that lists and sells all types of properties in the Montevideo, Minnesota area. From 2002 until the sale of the company in 2016, Mr. Van Binsbergen owned Heath Providers, Inc., which provided professional care services for adults with disabilities and seniors. Mr. Van Binsbergen earned his bachelor of science degree in political science from Moorhead State University.  Mr. Van Binsbergen, as a founder of health care and real estate companies, would bring to the Board entrepreneurial experience and real estate expertise.

 

Effect of Your Proxy

 

You may vote FOR three nominees only in Proposal 2.  FOR EACH PROPERLY EXECUTED PROXY CARD WHERE THE MEMBER DOES NOT MARK ANY CHOICES FOR GOVERNOR, THE PROXIES WILL VOTE FOR THE INCUMBENT GOVERNOR NOMINEES KENTON JOHNSON, BRUCE LAVIGNE, AND MICHAEL LUND.

 

Abstentions will not be counted either for or against any nominee. Abstentions will be included when counting membership units to determine whether a sufficient number of the voting membership units are represented to establish a quorum. If you mark contradicting choices on your proxy card such as both for and abstain for a nominee, your votes will not be counted with respect to the nominee for whom you marked contradicting choices.  If you mark a vote for more than three nominees on the proxy card, your votes will not be counted with respect to any of the nominees.

 

If at the time of the 2017 annual meeting any nominee is unable or declines to serve, the proxies will vote for the election of such substitute nominee as the Board may recommend. Our Board has no reason to believe that any substitute nominee will be required.

 

Required Vote and Board Recommendation

 

In the election of governors, the affirmative vote of a plurality of the membership voting interests is required to elect a nominee to the position of governor.  Therefore, the three nominees receiving the greatest number of votes relative to the votes cast for their competitors will be elected, regardless of whether any individual nominee receives votes from a majority of the quorum.  Members do not have cumulative voting rights. 

 

The Board has determined that each nominee is qualified to serve as a governor. HOWEVER, THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE INCUMBENT DIRECTORS, DUE TO THEIR EXPERIENCE AND CURRENT SERVICE ON THE BOARD, WHICH HAS PROVIDED THEM WITH SIGNIFICANT EXPOSURE TO AND FAMILIARITY WITH OUR BUSINESS AND OUR PLANTS’ OPERATIONS.

 

 

 

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SPECIAL NOTE REGARDING PROPOSALS 3 THROUGH 8 - AMENDMENTS TO AND A RESTATEMENT OF THE COMPANY’S CURRENT OPERATING AGREEMENT

 

In December 2015, our Board undertook a review of the Company’s Fifth Amended and Restated Operating and Member Control Agreement (the “Current Operating Agreement”) to determine whether changes were appropriate.  As a result of this review, the Board decided that it was in the best interest of the Company and its members to amend our Current Operating Agreement in order to make the certain changes.  These changes and amendments were proposed to the members at the Company’s 2016 annual meeting.  These changes were described in proposals 2 through 7 of the Company’s 2016 proxy statement.  A majority of these proposals were received favorably by the members.  However, these proposals were not adopted by the members as the votes in favor did not meet the vote threshold required to amend our Current Operating Agreement (a majority of the total number of membership units outstanding.

 

In December 2016, our Board again reviewed the Company’s Current Operating Agreement and determined that many of the amendments proposed at our 2016 annual meeting were still necessary and in the best interest of the Company and its members.  However, in making this determination, the Board took into account the vote of the members at 2016 annual meeting and the concerns raised regarding the prior proposals to limit unit ownership and voting.  Therefore, the Board is not proposing to amend the Current Operating Agreement to establish any unit ownership or voting limitations.  Rather, the Board proposes that members adopt the following amendments to the Current Operating Agreement:

 

·

“opt-in” and elect governance under the Minnesota Revised Uniform Limited Liability Company Act (the “New LLC Act”), which became effective August 15, 2015 and make other consistency and wording changes to the Current Operating Agreement;

 

·

incorporate three prior operating agreement amendments which were previously adopted by the members;

 

·

remove certain special governor appointment rights and related governance rights of Glacial Lakes Energy, LLC and Fagen, Inc. that are no longer applicable and only have historical significance;

 

·

clarify the allocation and distribution provisions of the Current Operating Agreement and make such provisions consistent with the special regulatory allocation provisions required by the IRS for large partnerships (100 or more partners) and adopt certain tax audit procedures to be consistent with recent IRS regulatory changes to large partnership audit procedures;  

 

·

make certain corrections and administrative changes to the transfer provisions and remove unnecessary redemption procedures;

 

·

provide procedures for proposal and adoption of amendments to the operating agreement;

 

·

modify and clarify certain governance requirements of the Company;

 

·

revise the limitation of liability, exculpation, indemnification, and advancement of expenses provisions of the Operating Agreement so that they are consistent with indemnification provisions of the New LLC Act;

 

·

affirmatively waive dissenters’ rights under the New LLC Act; and

 

·

make other minor changes to update the Current Operating Agreement to effect conforming changes related to each of the foregoing amendments.

 

Our members are being asked to consider and approve Proposed Amendments, which are discussed in further detail in Proposals 3, 4, 5, 6, 7, and 8 below.  The express language of the proposed changes pursuant to each of Proposals 3, 4, 5, 6, 7 and 8 is set forth in their entirety in Appendix A, in a marked format, with deletions shown by strikethroughs and additions by underlines. You should read each of Proposals 3, 4, 5, 6, 7, and 8 and Appendix A in their entirety before voting.

 

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The approval of each of Proposals 3, 4, 5, 6, 7, and 8 are independent of each other and are not conditioned on member approval of all of Proposals 3, 4, 5, 6, 7, and 8.  Therefore, if any one of Proposals 3, 4, 5, 6, 7, and 8 passes, then the Current Operating Agreement will be amended and restated to incorporate the changes described in such Proposals as are approved by the members and as amended and restated, will become the Company’s Sixth Amended and Restated Operating Agreement.  The changes described in any failing Proposal will not be implemented and will not be incorporated in the Sixth Amended and Restated Operating Agreement. If all of Proposals 3, 4, 5, 6, 7, and 8 fail, then the Company’s Current Operating Agreement will remain in effect and none of the changes described in Proposals 3 through 8 will be implemented.

 

PROPOSAL 3

 

AMENDMENTS TO ADOPT APPLICATION OF THE NEW LLC ACT

AND OTHER ADMINISTRATIVE CHANGES

 

The third item for consideration at the Annual Meeting is the approval of the following amendments to the Company’s Operating Agreement:

 

·

“opt-in” and elect governance under the Minnesota Revised Uniform Limited Liability Company Act (the “New LLC Act”), which became effective August 15, 2015 and make other consistency and wording changes to the Current Operating Agreement;

 

·

incorporate three prior operating agreement amendments which were previously adopted by the members;

 

·

remove certain special governor appointment rights and related governance rights of Glacial Lakes Energy, LLC and Fagen, Inc. that are no longer applicable and only have historical significance;

 

·

make certain corrections and administrative changes to the transfer provisions and remove unnecessary redemption procedures; and

 

·

make certain other minor administrative changes to update the Current Operating Agreement to effect conforming changes related to each of the foregoing amendments.

 

The Company does not believe that any of the proposed revisions materially change the terms of the Current Operating Agreement.  A description of each of the primary changes contemplated by Proposal 3 set forth below.  Attached to this Proxy Statement is Appendix A, a copy of a proposed Current Operating Agreement incorporating the amendments described in Proposal 3, as well as the amendments proposed by Proposals 4, 5, 6, 7, and 8, in marked format. 

 

Proposal 3 Amendments to the Current Operating Agreement

 

Election of the New LLC Act

 

The Company was organized as a Minnesota limited liability company under Chapter 322B of the Minnesota Statutes (the “Existing Act”) and is currently governed by the Existing Act.  However, the Minnesota Revised Uniform Limited Liability Company Act, which is found in Chapter 322C of the Minnesota Statutes (the “New LLC Act”), was signed into law on April 8, 2014 and will replace the Existing Act effective August 1, 2015.  Beginning August 1, 2015 and until January 1, 2018, Minnesota limited liability companies that were formed under the Existing Act may elect to opt-in to the New LLC Act and become governed by the New LLC Act instead of the Existing Act. However, effective as of January 1, 2018, the New LLC Act will apply to all Minnesota limited liability companies, regardless of when they were formed and whether they have made an election to be governed by the New LLC Act. 

 

The Board believes that, if Proposal 3 is adopted, the revisions made to opt-in and elect governance under the New LLC Act will ease the Company’s transition to the New LLC Act. The Board does not believe that any of the changes to opt-in and elect governance under the New LLC Act would represent a change in the fundamental voting or economic rights of members under our Current Operating Agreement.

 

Therefore, the Board proposes that the members adopt Proposal 3 and implement the following changes, among others, to the Current Operating Agreement to opt-in to the New LLC Act and become governed by the New LLC Act:

 

·

Amendment of certain definitions and the addition of new definitions to reflect adoption of governance under the New LLC Act (Sections 1.1, 2.4, 2.6, 2.9).

 

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·

Address certain terms and concepts used in the Existing Act that have no meaning under the New LLC Act (Sections 1.13, 1.14, 1.15, 1.16).

 

Incorporation of Three Prior Amendments to the Current Operating Agreement

 

Changes are proposed to Sections 1.10, 2.8 and 10.2(e) to incorporate the changes previously approved by the members by their adoption of (i) the First Amendment to Fifth Amended and Restated Operating Agreement of the Company dated April 28, 2005, (ii) the Second Amendment to Fifth Amended and Restated Operating Agreement of the Company dated June 13, 2006, and (iii) the Third Amendment to Fifth Amended and Restated Operating Agreement of the Company dated March 21, 2013.

 

The Board does not believe that any of the changes to Section 1.10, 2.8 and 10.2(e) are material as they only incorporate amendments previously adopted by the members.

 

Removal of Provisions Related to Certain Historical Governor Appointment and Governance Rights

 

The Current Operating Agreement provides for special governor appointment rights of Glacial Lakes Energy, LLC and Fagen, Inc. and specifically prohibits the Board from taking certain actions without the consent of the Glacial Lakes Energy, LLC.  However, the appointment rights of Glacial Lakes Energy, LLC and the related restrictions on the authority of the Board terminated when Glacial Lakes Energy, LLC’s unit ownership fell below the required 20% ownership threshold.  Further, the Current Operating Agreement includes provisions granting appointment rights to Fagen, Inc.  However, Fagen, Inc. voluntarily relinquished its rights to appoint a governor to the Board with the member approval of the Third Amendment to Fifth Amended and Restated Operating Agreement of the Company dated March 21, 2013. As these appointment rights and related restrictions on board authority are no longer applicable, the Board proposes amendments to eliminate the provisions regarding appointment of governors by Glacial Lakes Energy, LLC and Fagen, Inc. (Sections 6.1(c)(ii)-(v), 6.5, and 6.11) and removes the related restrictions on the authority of the Board related to such appointment rights (Sections 6.6 and 6.7).

 

The Board believes that, if adopted, these governance changes will make the Current Operating Agreement, as amended and restated, a better governing document for the Company by removing terminated rights that are no longer applicable and unnecessarily complicate the Current Operating Agreement.

 

Certain Administrative Changes to Transfer Requirements and Removal of Redemption

 

The Board proposes to amend Section 10 to address certain administrative deficiencies in the unit transfer process and to conform the Current Operating Agreement to current administrative transfer procedures implemented and used by the Company including:

 

·

amending Section 10.3 to add the requirement of a transferee to execute of a member signature page prior to approval of the transfer;

 

·

amending Section 10.3 to add the requirement of member approval if a transfer would result in termination of the Company for tax purposes under Section 708 of the Internal Revenue Code;

 

·

add new Sections 10.08, 10.09 and10.10 to provide procedures for treatment of prohibited transfers, unadmitted assignees or the admission of new substitute members or additional members;

 

·

removal of Sections 10.4 and 10.5 regarding transfers on death, which are unnecessary in light of Current Operating Agreements other provisions regarding transfers and the proposed amendments to Section 10.3;  and

 

·

removal of Sections 10.7, 10.8 and 10.10 regarding the procedures for members to request a redemption of units. 

 

As of the date of this proxy solicitation, no members have availed themselves of these procedures to request that the Company redeem of their units.  Moreover, had a member made a redemption request pursuant these provisions, these provisions explicitly provide that the Company is under no obligation to grant such requests.  Further, removal of these provisions will not inhibit or prohibit the Company from voluntarily offering redemption or repurchase to a member or members or conducting a tender offer.  Therefore, the Board has determined that these redemption provisions are unnecessary, overly complicate the Company’s Current Operating Agreement and should be eliminated.

 

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These are not the only changes to the transfer provisions of Section 10 as certain minor and internal consistency changes are proposed to current Sections 10.1, 10.9, and 10.11.  Members are encouraged to carefully read Appendix A which contains the complete text of the proposed changes to Section 10, indicating new language by underlining and deletions by strike-through.  The Board does not believe that any of the changes to the transfer provisions of Section 10 would represent a change in the fundamental voting, economic rights or transfer rights of members under our Current Operating Agreement. 

 

Required Vote on Proposal 3 and Board Recommendation

 

The affirmative vote of the holders of a majority of the total number of membership units outstanding is required to approve the amendments to the Current Operating Agreement set forth in Proposal 3. If you do not mark any choices on the proxy card, then the proxy will vote your units FOR Proposal 3.  If you abstain, your units will be included in the determination of whether a quorum is present. However, your abstention will have the effect of a vote AGAINST Proposal 3. If you do not submit a proxy card or attend the 2017 annual meeting, your vote will not be counted as a vote either for or against Proposal 3.

 

THE BOARD OF GOVERNORS HAS APPROVED THE AMENDMENTS DESCRIBED IN PROPOSAL 3 AND RECOMMENDS A VOTE FOR PROPOSAL 3.

 

Effectiveness of Proposal 3

 

The approval of the proposed amendments set forth above in Proposal 3 are independent of and are not conditioned on member approval of each of Proposals 4, 5, 6, 7, and 8. Therefore, if Proposal 3 passes, then the Current Operating Agreement will be amended and restated to incorporate the changes described in this Proposal 3, as well as the changes described in any other passing Proposal, effective as of the date of the 2017 annual meeting.  If Proposal 3 fails, then none of the changes described in Proposal 3 will be implemented. If all of Proposals 3, 4, 5, 6, 7, and 8 fail, then the Company’s Current Operating Agreement will remain in effect and none of the changes described in Proposals 3 through 8 will be implemented.

 

 

PROPOSAL 4

 

AMENDMENT TO CERTAIN PROVISIONS OF SECTION 5 AND SECTION 11.4

 

Proposal 4 contemplates approval of the certain changes to Section 5 and Section 11 of the Current Operating Agreement to make the provisions of these Sections internally consistent and adopt provisions required by the IRS for large partnerships (100 or more partners). The Board does not believe that any of the changes to these sections would represent a change in the fundamental financial rights of members under of the Current Operating Agreement and are consistent with the current accounting practices of the Company.  Attached to this Proxy Statement is Appendix A, a copy of our Current Operating Agreement incorporating the amendments described in Proposal 4, as well as the amendments proposed by Proposals 3, 5, 6, 7, and 8, in marked format.

 

Revisions to Allocation and Distribution Provisions

 

The Board proposes revising the allocations and distribution provisions of the Current Operating Agreement, including Sections 5.2 and 5.3, to make the language contained therein internally consistent.  Additionally the Board proposes that members revise Section 5.5 and adopt new provisions Sections 5.6 and 5.11 to adopt certain special regulatory allocation provisions required by the IRS for large partnerships of 100 or more partners.  These large partnership tax rules currently apply to the Company as we have more than 100 members and have elected partnership tax treatment.

 

Changes to Tax Matters Provisions and Adoption of Tax Audit Procedures

 

The Board proposes to amend Section 11.4 to revise the current tax matters provisions and adopt tax audit procedures in order to ensure the Company’s tax audit procedures are consistent with recent IRS regulatory changes to large partnership audit procedures.

 

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Required Vote on Proposal 4 and Board Recommendation

 

The affirmative vote of the holders of a majority of the total number of membership units outstanding is required to approve the amendments to the Current Operating Agreement set forth in Proposal 4. If you do not mark any choices on the proxy card, then the proxy will vote your units FOR Proposal 4.  If you abstain, your units will be included in the determination of whether a quorum is present. However, your abstention will have the effect of a vote AGAINST Proposal 4. If you do not submit a proxy card or attend the 2017 annual meeting, your vote will not be counted as a vote either for or against Proposal 4.

 

THE BOARD OF GOVERNORS HAS APPROVED THE AMENDMENTS DESCRIBED IN PROPOSAL 4 AND RECOMMENDS A VOTE FOR PROPOSAL 4.

 

Effectiveness of Proposal 4

 

The approval of the proposed amendments set forth above in Proposal 4 are independent of and are not conditioned on member approval of each of Proposals 3, 5, 6, 7, and 8. Therefore, if Proposal 4 passes, then the Current Operating Agreement will be amended and restated to incorporate the changes described in this Proposal 4, as well as the changes described in any other passing Proposal, effective as of the date of the 2017 annual meeting.  If Proposal 4 fails, then none of the changes described in Proposal 4 will be implemented. If all of Proposals 3, 4, 5, 6, 7, and 8 fail, then the Company’s Current Operating Agreement will remain in effect and none of the changes described in Proposals 3 through 8 will be implemented.

 

PROPOSAL 5

 

AMENDMENT TO CERTAIN GOVERNANCE PROVISIONS OF SECTION 6 AND SECTION 9.3

 

Proposal 5 contemplates approval of the certain changes to Section 6 and Section 9.3 of the Current Operating Agreement in order to enhance the governance of the Company.  These amendments do not contemplate those certain changes to Sections 6.1(c)(ii)-(v), 6.5, 6.6, 6.7, and 6.11 addressed above in Proposal 3 or the changes to Sections 6.13 and 6.14 regarding limitation liability, exculpation and indemnification of governors and officers which are addressed in Proposal 6 below.

 

The primary governance changes to the Current Operating Agreement contemplated by Proposal 5 are as follows:

 

·

The Board proposes revising Section 6.1(d) to provide flexibility and allow the Board to set the size of the Board within a variable range with minimum of 7 governors and maximum of 11 governors and set the initial size of the Board upon adoption of the Proposal 5 at 9 governors.  The current Board is comprised of 9 governors.

 

·

The Current Operating Agreement does not provide procedures for members to nominate candidates for the Board. The Board proposes adding new Section 6.1(g) to provide that such a mechanism for members.

 

·

The Board proposes revising Section 6.2 to provide clarity as to the authority of Board and explicitly authorizes certain acts allowed under both the New LLC Act and the Existing Act, such as acquire and operate Company property, execute agreements, redeem units, purchase and hold securities in other entities, and indemnify a member, governor or officer.

 

·

The Board proposes revising Section 6.3 to clarify the duties and obligations of the governors and the standards of conduct applicable to governors and officers, including adding language that, with respect to the Company, no governor or officer shall engage (i) in any act or omission which involves intentional misconduct or a knowing violation of law or (ii) in any transaction from which the governor or officer would receive an improper personal benefit. The Company believes this is appropriate language to clarify required governor and officer conduct and is consistent with the general standard in public companies today.

 

·

The Current Operating Agreement does not provide a procedure for members to remove an elected governor from the Board. The Board proposes revising Section 6.5, which addressed removal of an appointed governor, to provide a procedure for members to remove elected governors.

 

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·

The Board proposes revising Section 6.6 to clarify that the Board may appoint any person to a committee without the requirement that such person also be a governor, and to require that at least two persons must serve on any committee. In addition, the proposed amendments to Section 6.6 clarify that the members of any committee are subject to the direction and control of the governors, and any vacancies shall be filled by the governors. This change will allow the Board greater flexibility to create specific committees and to appoint qualified persons, whether or not members or governors, to serve on such committees.

 

·

The Board proposes revising Section 6.17 and retitling the section as “Resolution of Conflicts of Interest; Standards of Conduct and Modification of Duties”. The Board believes the existing section was not detailed enough and as a result, might not provide the appropriate guidance in the event of a need to resolve a governor conflict of interest. The proposed revisions would provide a more thorough procedure for resolving any conflicts of interest that may arise in the future.

 

·

The Board proposes revising Section 9.3 to remove authority for actions by consent of the members and add new language to clarify the ability of the Board to take action without a meeting by consent action and specifically authorize consent action by electronic means.  The Board believes that removing authority for action by consent of the members will have little practical impact to the Company as such consent action required unanimous action by the members, a near impracticality given the large number of members of the Company.  However, the Board believes that the addition of express authority to the Board to act by written or electronic consent will allow the Board to take timely action on matters requiring little or no debate by the Board and are time sensitive.

 

The Board believes that, if adopted, these governance changes will make the Company’s operating agreement a better governing document for the Company by removing terminated rights that are no longer applicable and unnecessarily complicate the existing Operating and Member Control Agreement and correcting administrative deficiencies. The complete text of the proposed changes to Sections 6 and 9.3 in the Proposal 5 are included in Appendix A, indicating language that is added by underlining and deletions with strike-through.  Members are encouraged to carefully read Appendix A to fully understand the governance changes.

 

Required Vote and Board Recommendation

 

The affirmative vote of the holders of a majority of the total number of membership units outstanding is required to approve the amendments to the Current Operating Agreement set forth in Proposal 5. If you do not mark any choices on the proxy card, then the proxy will vote your units FOR Proposal 5.  If you abstain, your units will be included in the determination of whether a quorum is present. However, your abstention will have the effect of a vote AGAINST Proposal 5. If you do not submit a proxy card or attend the 2017 Annual Meeting, your vote will not be counted as a vote either for or against Proposal 5.

 

THE BOARD OF GOVERNORS HAS APPROVED THE AMENDMENTS DESCRIBED IN PROPOSAL 5 AND RECOMMENDS A VOTE FOR PROPOSAL 5.

 

Effectiveness of Proposal 5

 

The approval of the proposed amendments set forth above in Proposal 5 are independent of and are not conditioned on member approval of each of Proposals 3, 4, 6, 7, and 8. Therefore, if Proposal 5 passes, then the Current Operating Agreement will be amended and restated to incorporate the changes described in this Proposal 5, as well as the changes described in any other passing Proposal, effective as of the date of the 2017 annual meeting.  If Proposal 5 fails, then none of the changes described in Proposal 5 will be implemented. If all of Proposals 3, 4, 5, 6, 7, and 8 fail, then the Company’s Current Operating Agreement will remain in effect and none of the changes described in Proposals 3 through 8 will be implemented.

 

 

PROPOSAL 6

 

AMENDMENTS TO LIMITATION OF LIABILITY, EXCULPATION AND INDEMNIFICATION

OF GOVERNORS AND OFFICERS

 

Proposal 6 contemplates approval of the certain changes to Sections 6.13 and 6.14 of the Current Operating Agreement to clarify rights to indemnification of governors and officers, the limits on indemnification by the Company, and makes the indemnification provisions of the Company more consistent with the indemnification provisions applicable to newly formed limited liability companies under the New LLC Act.

 

16


 

As set forth in Appendix A, the Board proposes to revise Section 6.13 and retitle the revised section “Limitation of Liability”.  The Company and the governors believe the existing Section 6.13 was not descriptive enough and as a result, might not provide the appropriate guidance in the event of litigation regarding a governor’s or officer’s liability to the Company or a member.  Additionally, current Section 6.13 would be amended to add language providing provide that a governor, alternate governor or officer of the Company would only be subject to fiduciary duties to the extent provided in Company’s operating agreement and would not be personally liable to the Company or to its members for monetary damages for breach of fiduciary duty as a governor, alternate governor or officer to the extent he or she reasonably believed his or her action was within the scope of authority conferred upon such person and to the extent permitted by the New LLC Act. The Company believes that by focusing on the individual governor, alternate governor and officer’s individual belief, it would establish a consistent and predictable standard of behavior for individual governors, alternate governors and officers. The Company believes this is appropriate language to limiting governor, alternate governors and officer liability and is consistent with the New LLC Act and general standard in public companies today.

 

The Board also proposes to revise Section 6.14 to make indemnification subject to satisfying the duties of governors, alternate governors and officers as specified in revised Section 6.13 and expressly provides for the advancement of expenses. As stated above, revised Section 6.13 clarifies the standard of conduct for governors and officers of the Company, specifying that governors, alternate governors and officers are to discharge their duties in good faith, in a manner the governor, alternate governor or officer reasonably believes to be within their scope of authority. The amendments to Section 6.14 also contemplate that the indemnification provided therein is not exclusive of any other right to indemnification a person may have.  The changes would also include procedures for requesting and processing indemnification requests. Lastly, revised Section 6.14 contemplates that the Company would have the ability to participate in and assume the legal defense of any action subject to indemnification.

 

The complete text of the proposed changes to Sections 6.13 and 6.14 described above are included in Appendix A, indicating language that is added by underlining and deletions with strike-through. Members are encouraged to carefully read Appendix A to fully understand the changes regarding governor and officer limitation of liability, exculpation, and indemnification.

 

The Board believes that these changes should assist the Company in attracting and retaining governors, alternate governors and officers who might otherwise be concerned about the scope of our indemnification provisions and having to bear upfront costs in any potential litigation. It is not expected that this change will result in a significantly greater expense to the Company.

 

Required Vote and Board Recommendation

 

The affirmative vote of the holders of a majority of the total number of membership units outstanding is required to approve the amendments to the Current Operating Agreement set forth in Proposal 6. If you do not mark any choices on the proxy card, then the proxy will vote your units FOR Proposal 6.  If you abstain, your units will be included in the determination of whether a quorum is present. However, your abstention will have the effect of a vote AGAINST Proposal 6. If you do not submit a proxy card or attend the 2017 Annual Meeting, your vote will not be counted as a vote either for or against Proposal 6.

 

THE BOARD OF GOVERNORS HAS APPROVED THE AMENDMENTS DESCRIBED IN PROPOSAL 6 AND RECOMMENDS A VOTE FOR PROPOSAL 6.

 

Effectiveness of Proposal 6

 

The approval of the proposed amendments set forth above in Proposal 6 are independent of and are not conditioned on member approval of each of Proposals 3, 4, 5, 7, and 8. Therefore, if Proposal 6 passes, then the Current Operating Agreement will be amended and restated to incorporate the changes described in this Proposal 6, as well as the changes described in any other passing Proposal, effective as of the date of the 2017 annual meeting.  If Proposal 6 fails, then none of the changes described in Proposal 6 will be implemented. If all of Proposals 3, 4, 5, 6, 7, and 8 fail, then the Company’s Current Operating Agreement will remain in effect and none of the changes described in Proposals 3 through 8 will be implemented.

 

 

 

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PROPOSAL 7

 

WAIVER OF DISSENTERS’ RIGHTS

 

Proposal 7 proposes to amend the Current Operating Agreement to add new Section 7.9 to affirmatively waive members’ dissenters’ rights. Pursuant to the Existing Act, dissenters’ rights are available to members under the following circumstances: (1) an amendment to the articles of organization which materially and adversely affects the rights or preferences of the membership interests of the dissenting member; (2) a sale, lease, transfer, or other disposition of property and assets requiring member approval; (3) a plan of merger; (4) a plan of exchange; (5) a plan of conversion; or (6) any other action taken to which the articles of organization, member control agreement, bylaws, or a resolution approved by the Board directs that dissenting members may obtain payment for their membership units.  With regard to item (6), neither the Current Operating Agreement nor the Company’s articles of organization include any provisions that provide for or waive dissenters’ rights.  The New LLC Act does not expressly address dissenters’ rights.

 

The Board believes that with the adoption of the New LLC Act, the failure of the Current Operating Agreement to address dissenters’ rights creates ambiguity.  Therefore, to eliminate any ambiguity, in proposed new Section 7.9, each member disclaims, waives and agrees not to assert any dissenters’ or similar rights. By waiving dissenters’ rights, a member would be foregoing the ability to assert dissenters’ rights under any circumstances for which such dissenters’ right are granted under the Existing LLC Act, such as merger or sale of substantially all the assets of the Company, or any dissenters’ rights that a court might determine are available under the New LLC Act.

 

The complete text of proposed new Section 7.9 is included in Appendix A, indicating language that is added by underlining and deletions with strike-through.  Members are encouraged to carefully read Appendix A to fully understand the governance changes.

 

Required Vote and Board Recommendation

 

The affirmative vote of the holders of a majority of the total number of membership units outstanding is required to approve the amendments to the Current Operating Agreement set forth in Proposal 7. If you do not mark any choices on the proxy card, then the proxy will vote your units FOR Proposal 7.  If you abstain, your units will be included in the determination of whether a quorum is present. However, your abstention will have the effect of a vote AGAINST Proposal 7. If you do not submit a proxy card or attend the 2017 Annual Meeting, your vote will not be counted as a vote either for or against Proposal 7.

 

THE BOARD OF GOVERNORS HAS APPROVED THE AMENDMENTS DESCRIBED IN PROPOSAL 7 AND RECOMMENDS A VOTE FOR PROPOSAL 7.

 

Effectiveness of Proposal 7

 

The approval of the proposed amendments set forth above in Proposal 7 are independent of and are not conditioned on member approval of each of Proposals 3, 4, 5, 6, and 8. Therefore, if Proposal 7 passes, then the Current Operating Agreement will be amended and restated to incorporate the changes described in this Proposal 7, as well as the changes described in any other passing Proposal, effective as of the date of the 2017 annual meeting.  If Proposal 7 fails, then none of the changes described in Proposal 7 will be implemented. If all of Proposals 3, 4, 5, 6, 7, and 8 fail, then the Company’s Current Operating Agreement will remain in effect and none of the changes described in Proposals 3 through 8 will be implemented.

 

 

PROPOSAL 8

 

AMENDMENTS TO PROCEDURES FOR AMENDMENT OF THE OPERATING AGREEMENT

 

Proposal 8 contemplates changes to Sections 14.5 of the Current Operating Agreement to clarify procedures for proposal and adoption of amendments to the Company’s operating agreement. 

 

The Current Operating Agreement currently provides that amendments to the Current Operating Agreement may be amended by the Board if such amendment does not adversely affect the rights of members.  This means that the Board may generally make immaterial administrative and non-substantive changes to the operating, including but not limited to consolidating amendments adopted by the members into an amended and restated operating agreement or make corrections to internal references. However, under the Current Operating Agreement, if the modification or amendment would adversely affect the rights of members, then the amendment must be approved by the holders of a majority of the outstanding units. 

18


 

 

As proposed, the amendments to Section 14.5 would retain the Board’s retain the right to make modifications or amendments to the Company’s operating agreement that do not adversely affect the rights of members.  Additionally, revised Section 14.5 would adopt procedures to allow amendments to the Company’s operating agreement to be proposed by the Board or any member and that the Board shall seek the written vote of the members or call a meeting to vote on the proposed amendment.  The Board believes the revised Section 14.5 provides a clear mechanism for members to propose amendments to the operating agreement, which is lacking in our Current Operating Agreement.  The Board also believes, given the time and expense associated with holding a meeting, that any proposal by a member to amend the operating agreement should be supported by members holding at least 1% of the units of the Company and the Board should be able to determine whether to call a special meeting or to submit such a proposal at the Company’s next annual meeting.

 

The revised Section 14.5 also amends the required threshold for approval of an amendment to the Current Operating Agreement, which as proposed would be reduced to the affirmative vote of the holders of a majority of the total number of membership units represented in person or by proxy at a meeting of the members in which a quorum was established. However, revised Section 14.5 explicitly requires the consent of each member adversely affected if the proposed amendment to the Company’s operating agreement would modify the limited liability of the member or alter the financial rights of the member.

 

In practice, the approval threshold for amendments in the Current Operating Agreement requires that at least a majority of our units be present at a meeting in order to adopt any amendment to the operating agreement.  Historically, this level of member turn out, whether by person or proxy, has not often been attained.  As result, the Board believes a more appropriate amendment approval threshold is a majority of the units represented at a meeting. While this revised reduced threshold will make it easier to adopt amendments to the operating agreement, the board believes that this change is appropriate as it will still require more than just the approval of our largest members to adopt an amendment to the operating agreement and is more practical given the large number of members of the Company holding small percentages of our units.

 

Although the proposed amendment reduces the required threshold for approval of amendments, the Board does not believe that any of the changes to Section 14.5 would represent a change or potential for change in the limited liability or fundamental economic rights of members under our Current Operating Agreement, as any amendment that adversely affects such rights must be expressly consented to by such affected member.

 

The complete text of the proposed changes to Section 14.5 6 described in this Proposal 8 is included in Appendix A, indicating language that is added by underlining and deletions with strike-through.  Members are encouraged to carefully read Appendix A to fully understand the governance changes.

 

Required Vote and Board Recommendation

 

The affirmative vote of the holders of a majority of the total number of membership units outstanding is required to approve the amendments to the Current Operating Agreement set forth in Proposal 8. If you do not mark any choices on the proxy card, then the proxy will vote your units FOR Proposal 8.  If you abstain, your units will be included in the determination of whether a quorum is present. However, your abstention will have the effect of a vote AGAINST Proposal 8. If you do not submit a proxy card or attend the 2017 Annual Meeting, your vote will not be counted as a vote either for or against Proposal 8.

 

THE BOARD OF GOVERNORS HAS APPROVED THE AMENDMENTS DESCRIBED IN PROPOSAL 8 AND RECOMMENDS A VOTE FOR PROPOSAL 8.

 

Effectiveness of Proposal 8

 

The approval of the proposed amendments set forth above in Proposal 8 are independent of and are not conditioned on member approval of each of Proposals 3, 4, 5, 6, and 7. Therefore, if Proposal 8 passes, then the Current Operating Agreement will be amended and restated to incorporate the changes described in this Proposal 8, as well as the changes described in any other passing Proposal, effective as of the date of the 2017 annual meeting.  If Proposal 8 fails, then none of the changes described in Proposal 8 will be implemented. If all of Proposals 3, 4, 5, 6, 7, and 8 fail, then the Company’s Current Operating Agreement will remain in effect and none of the changes described in Proposals 3 through 8 will be implemented.

 

 

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SECTION III - REQUIRED INFORMATION

 

SECURITY OWNERSHIP OF GOVERNORS, NOMINEES, EXECUTIVE OFFICERS

AND CERTAIN BENEFICIAL OWNERS

 

The following table provides certain information as of February 28, 2017, with respect to the unit ownership of: (i) those persons or groups (as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended ) who beneficially own more than beneficial owners owning or holding 5% or more of our outstanding units; (ii) each governor of the Company, (iii) each named executive officer of the Company (as defined in the “Summary Compensation Table” below); and (iv) all officers, governors, and nominees, as a groupExcept as noted below, the persons listed below possess sole voting and investment power over their respective units. No family relationships exist among our governors and executive officers. 

 

 

 

 

 

 

 

 

 

 

 

 

Title of Class

 

Name and Address of

Beneficial Owner (1)

 

Position with the Company

 

Amount and Nature of

Beneficial Ownership(2)

 

Percent

of Class(3)

Governors and Executive Officers

 

 

 

 

 

 

 

 

Membership Units

 

Leslie Bergquist

 

Governor

 

15 

units

 

%*

Membership Units

 

Dean Buesing(4)

 

Governor & Secretary

 

635 

units

 

2.07

%

Membership Units

 

Steve Christensen

 

Chief Executive Officer & General Manager

 

units

 

%

Membership Units

 

Paul Enstad(5)

 

Governor & Chairman

 

125 

units

 

%*

Membership Units

 

Marten Goulet(6)

 

Governor

 

50 

units

 

%*

Membership Units

 

Sherry Jean Larson

 

Governor

 

units

 

%*

Membership Units

 

Stacie Schuler

 

Chief Financial Officer

 

units

 

%*

Membership Units

 

Martin Seifert

 

Alternate Governor

 

units

 

%*

Membership Units

 

Rodney Wilkison

 

Governor & Vice Chairman

 

82 

units

 

%*

Membership Units

 

Kenton Johnson

 

Incumbent Nominee

 

10 

units

 

%*

Membership Units

 

Bruce LaVigne(7)

 

Incumbent Nominee

 

500 

units

 

1.63

%

Membership Units

 

Michael Lund

 

Incumbent Nominee

 

10 

units

 

%*

Membership Units

 

Julie Oftedahl-Volstad(8)

 

Nominee

 

55 

units

 

%*

Membership Units

 

Loren Solberg(9)

 

Nominee

 

25 

units

 

%*

Membership Units

 

Scott Van Binsbergen

 

Nominee

 

units

 

%

 

 

All Governors, Officers and Nominees as a Group:

 

1,519 

units

 

4.96

%

 

 

 

 

 

 

 

 

 

 

 

Other Members Owning or Holding 5% or More of Our Outstanding Units:

 

 

 

 

 

 

Membership Units

 

Glacial Lakes Energy, LLC

301 20th Avenue SE

Watertown, SD  57201

 

 

 

5,004 

units

 

16.35

%

Membership Units

 

Fagen, Inc.

501 W. Highway 212

P.O. Box 159

Granite Falls, MN 56241

 

 

 

4,071 

units

 

13.30

%

 

* Indicates less than 1% ownership.

 

(1) The address for all governors and named executive officers is the Company’s principal executive offices located at 15045 Highway 23 SE, Granite Falls, Minnesota.

 

(2)In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, a person is deemed to be the beneficial owner for purposes of this table, of any units if he has shared voting or investment power with respect to such security, or has a right to acquire beneficial ownership at any time within 60 days from the date as of which beneficial ownership is being determined.  As used herein, “voting power” is the power to vote or direct the voting of units and “investment power” is the power to dispose or direct the disposition of units, and includes all units held directly as well as by spouses and minor children, in trust and other indirect ownership, over which units the named individuals effectively exercise sole or shared voting or investment power.

 

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(3)The percentages in the table are based on 30,606 Units issued and outstanding as of February 28, 2017. 

 

(4)Includes 287 units owned directly through Dean J. Buesing Revocable Living Trust and 348 units owned indirectly through Barbara J. Buesing Revocable Living Trust with his wife.  550 of these units are pledged as security.

 

(5)Includes 20 units owned by Enstad Brothers Partnership and 5 units owned by the Enstad Family Partnership. Mr. Enstad is a partner of both entities.

 

(6)Includes 40 units owned jointly with Mr. Goulet’s spouse and 10 units owned indirectly through Jasper Gerald Goulet, Mr. Goulet’s son.

 

(7)Includes 500 units owned directly by Mr. LaVigne’s spouse.

 

(8)Includes 24 units owned by Oftedahl Partners and 1 unit owned by W.I.T.S. Ms. Oftedahl-Volstad is a 25% owner of both entities.

 

(9)Includes 25 units owned jointly with Mr. Solberg’s spouse.

 

 

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Section 16(a) of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), requires our officers and governors, and persons who own more than 10% of a registered class of our equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission (the “SEC”).  Officers, governors and greater than 10% beneficial owners are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file.  The Company is required to disclose in this Proxy Statement any failure to file or late filings of such reports with respect to the most recent fiscal year.

 

Based solely upon a review of copies of forms furnished to the Company or written representations from certain reporting persons that no Form 5s were required for such covered persons, we believe that all Section 16(a) filing requirements applicable to each covered person were satisfied during the 2016 fiscal year, except that the Company has identified that a Form 3 on behalf of Ms. Larson in connection with her election as governor was unintentionally filed late due to inadvertent administrative error.

 

 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

Except as disclosed below or “Compensation Of Governors” and “Compensation Of Executive Officers”, we have not entered into any transaction since the beginning of fiscal year 2016 and there are no currently proposed transactions, in which we were or are to be a participant and the amount involved exceeds $120,000, and in which any related person had or will have a direct or indirect material interest.  The term “related person” as defined in Item 404(a) of Regulation S-K refers to our directors, executive officers, holders of more than 5% of our outstanding units and the immediate family members of any of those persons.  No direct family relationships exist between any of the governors of the Board, officers, or key employees of the Company.

 

Related Party Transaction Approval Policy

 

During fiscal year 2016, we had no written related-party transaction policy.  However, our operating and member control agreement requires that all future transactions with related persons will be no less favorable to us than those generally available from unaffiliated third parties and that all such related party transactions must be approved by a majority of the disinterested governors.

 

Corn Storage and Grain Handling Agreement

 

In October 2003 we entered into, and subsequently renegotiated in 2009, a corn storage and grain handling agreement with Farmers Cooperative Elevator Company, one of our members.  Farmers Cooperative Elevator Company owns a total of 650 units.

 

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Pursuant to the corn storage and grain handling agreement, we purchase all of our corn from Farmers Cooperative Elevator Company.  The price at which we purchase our corn is the bid price the member establishes for the plant plus a per bushel procurement fee.  During the fiscal year ended October 31, 2016, we purchased approximately $78,865,000 of corn from Farmers Cooperative Elevator Company for use in our operations. 

 

 

BOARD OF GOVERNORS’ AND COMPANY GOVERNANCE

 

Board Leadership Structure

 

The Company is managed by a chief executive officer that is separate from the chairman of the Board. Steve Christensen is our general manager and chief executive officer, while Paul Enstad is the chairman of the Board. Separation of the two offices is not mandated by the Company’s operating and member control agreement or our corporate governance guidelines and policies. However, we have determined he current separation of the two roles allow our chief executive officer to manage our day to day operations while allowing our chairman to focus on leading our Board in its duty to act in our best interests and that of the members. We believe this leadership structure allows our Board to best focus on its oversight role, providing us a perspective that is independent from that of our management and creating create checks and balances on the executive officers of the Company

 

Our Board reserves the right to determine the appropriate leadership structure from time to time.

 

Board’s Role In Risk Oversight

 

Although management is responsible for the day-to-day management of risks to the Company, our full Board is actively involved in providing broad oversight of the Company’s risk management programs.  In this oversight role, our Board is responsible for satisfying itself that the risk management processes designed and implemented by the Company’s management are functioning and that the systems and processes in place will bring to its attention the material risks facing the Company in order to permit the Board to effectively oversee the management of these risks. A fundamental part of risk management is not only understanding the risks a company faces and what steps management is taking to manage those risks, but also understanding what level of risk is appropriate for the Company.  The involvement of our full board in the risk oversight process allows our Board to assess management’s appetite for risk and also determine what constitutes an appropriate level of risk for the Company.  Our Board regularly includes agenda items at its meetings relating to its risk oversight role and meets with various members of management on a range of topics, including corporate governance and regulatory obligations, operations and significant transactions, business continuity planning, succession planning, risk management, insurance, pending and threatened litigation and significant commercial disputes.

 

While our Board provides broad oversight of the Company’s risk management processes, various committees of the Board oversee risk management in their respective areas and regularly report on their activities to our entire board.  Principally, the risk management committee assists our Board in identifying and quantifying methods of mitigating or eliminating risk, principally those relating to commodity prices. Our audit committee focuses on assessing and mitigating financial risk, including internal controls over financial reporting. Our three member executive board, functioning as our compensation committee, oversees risks and relevant risk controls related to the Company’s compensation policies, programs and procedures, including the incentives they create, to encourage a level of risk-taking behavior consistent with the Company’s business strategy.

 

We believe the division of risk management responsibilities described above is an effective approach for addressing the risks facing the Company and that our Board leadership structure provides appropriate checks and balances against undue risk taking.

 

Governors

 

Our current Board consists of nine elected governors. Under our Current Operating Agreement, the governors’ terms are staggered such that three governors are up for election every year.  Nominees for governor are nominated by our Board, following consideration by our Board’s nominating committee, and then elected by our members.  

 

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The chart below lists the governors whose terms continue after the 2017 Annual Meeting and also includes the incumbent governor nominees whose terms expire at the 2017 annual meeting.  The address for all governors is 15045 Highway 23 S.E., Granite Falls, Minnesota, 56241-0216.  

 

 

 

 

 

 

 

 

 

Name

 

Age

 

Year First

Became a Governor

 

Term Expires

Kenton Johnson

 

28

 

2013

 

2017

Bruce LaVigne

 

66

 

2014

 

2017

Michael Lund 

 

50

 

2014

 

2017

Paul Enstad

 

58

 

2000

 

2018

Marten Goulet

 

37

 

2012

 

2018

Rodney Wilkison

 

62

 

2006

 

2018

Leslie Bergquist

 

57

 

2013

 

2019

Dean Buesing

 

63

 

2009

 

2019

Sherry Jean Larson

 

41

 

2016

 

2019

Martin Seifert

 

43

 

2011

 

*

 

*Pursuant to our Current Operating Agreement, Mr. Seifert was appointed to serve as an alternate governor by majority vote of our elected governors. 

 

Except for Messrs. Enstad, Goulet, Wilkison, Bergquist, Buesing, Johnson and Seifert, none of the directors listed above currently serve on the board of directors of any other company having a class of securities registered under Section 12 of the Exchange Act or subject to the requirements of Section 15(d) of the Exchange Act, nor have any of our directors served as directors of an investment company registered under the Investment Company Act.  Each of Messrs. Enstad, Goulet, Wilkison, Bergquist, and Buesing serve as the Company’s appointed governors to the board of governors of HLBE, our majority-owned subsidiary and a publicly reporting company.  Each of Messrs. Johnson and Seifert serves as the Company’s alternate appointed governors to the board of governors of HLBE.

 

Biographical Information for Governors Continuing in Office

 

Set forth below is certain information with respect to our governors whose terms continue after the 2017 annual meeting, including the business experience and the experiences, qualifications, attributes or skills, our Board believes qualifies these individuals to serve as governors. Biographical information for nominee incumbent governors whose terms expire at the 2017 annual meeting may be found above at “Section II - Proposals to Be Voted Upon, Proposal 2 - Information Regarding Nominees”.

 

Paul Enstad - Governor and Chairman of the Board.    Mr. Enstad has served on the Board since its inception in 2000. Mr. Enstad has been farming corn and soybeans near Granite Falls, Minnesota since 1978. He served on the board of directors of Farmers Cooperative Elevator Company, a member of the Company, from 1996 to 2011. Mr. Enstad also serves as a one of the Company’s appointed governors to the board of governors of HLBE, as well as the chairman of HLBE. Mr. Enstad also serves as an appointed director of Agrinatural Gas, LLC, a majority owned subsidiary of HLBE (“Agrinatural”), representing HLBE’s investment interest in Agrinatural. The Board believes Mr. Enstad’s business experience, experience in board and leadership roles, and his knowledge of the ethanol industry, provides the Board with valuable perspective.

 

Rod Wilkison - Governor and Vice Chairman of the Board.    Mr. Wilkison was initially appointed to a Board seat in December 2006 and elected as a governor in 2007.  Since 1985, Mr. Wilkison has been the owner and chief executive officer of Wilkison Consulting Service, which provides financial consulting, tax preparation, and monthly accounting services for farmers and small businesses. Prior to starting his consulting business, Mr. Wilkison worked for two different banks for over eleven years. Mr. Wilkison graduated from Pipestone Area Vocational Technical Institute with a degree in agricultural banking and is certified by the Minnesota Department of Agriculture as a Farm Business Management Instructor. Mr. Wilkison also serves as a one of our appointed governors to the board of governors of HLBE, as well as the vice-chairman and chair of the audit committee of HLBE. Mr. Wilkison has served as a member and chairman of the Company’s Audit Committee since his election as a governor in 2007.  The Board believes Mr. Wilkison provides the Board with critical financial and accounting acumen and because he qualifies as an audit committee financial expert.

 

23


 

Leslie Bergquist - Governor.    Mr. Bergquist was first elected as a governor in 2013. Since January 2012, Mr. Bergquist has owned and served as president of Bergquist Consulting Corporation, which provides commercial and agricultural loan reviews and appraisal reviews. Mr. Bergquist also serves as a farm manager for Fagen Farms, LLP, which is an affiliate of Fagen, Inc., as a bus driver for Bennett & Bennett Transportation. Mr. Bergquist previously served as a senior credit analyst for Forstrom Bancorporation, Inc. from May 2007 through December 2011, and held the positions of president, vice president, and director during his tenure with Yellow Medicine County Bank, which spanned from August 2002 through May 2007. Mr. Bergquist also serves as a one of our appointed governors to the board of governors of HLBE, and serves as a member of the audit committee of HLBE. He also serves as an appointed director of Agrinatural, representing HLBE’s investment interest in Agrinatural. Mr. Bergquist provides value to our Board through his experience as an executive, his knowledge of the agricultural industry, and his financial acumen and audit committee experience.

 

Dean Buesing - Governor and Secretary of the Board.  Mr. Buesing has been a governor of the Company since 2009. Mr. Buesing has decades of experience in the agricultural industry, farming near Granite Falls since 1973, and serving as the president of Buesing Farms, Inc. since 1980, as the president of Buesing-Buesing, LLC since 2006 and as a partner in Buesing Ag Partnership since 2007. He also served as a director and planning committee member of Minnesota Corn Processors, LLC, an ethanol production facility located near Marshall, Minnesota, from 1998 until its acquisition by Archer Daniels Midland in 2002.  From 2007 to 2011, Mr. Buesing was a director and secretary of SW Energy, LLC, a development stage ethanol production facility located near McCook, Nebraska. From 1992 to 2000, he was a director and treasurer of Yellow Medicine Soybean Growers. Mr. Buesing also serves as a one of our appointed governors to the board of governors of HLBE. Mr. Buesing’s business experience in both the agriculture and ethanol industries and prior involvement with the biofuels industry provides the Board with a long-term view of agriculture and biofuels businesses

 

Marten Goulet - Governor.  Mr. Goulet was first elected as a governor in 2012. Since June 2012, Mr. Goulet has been the chief financial officer of Wagner Construction, an underground utility and site development contractor based in International Falls, Minnesota with operations in Arizona, Arkansas, Colorado, Michigan, Minnesota, Montana, South Dakota, North Dakota, and Canada. Prior to joining Wagner Construction, Mr. Goulet spent eight years with Wells Fargo in the Twin Cities managing banking relationships and providing financial services to companies in the construction, manufacturing, wholesaling, and service-related industries with annual revenues of $20 million to $1 billion. Mr. Goulet received his bachelors of arts in finance from Bemidji State University and his M.B.A. in accounting from the University of St. Thomas in St. Paul, Minnesota. He also serves as a one of our appointed governors to the board of governors of HLBE, as well as a member of the audit committee of HLBE. Mr. Goulet has served as a member of the Company’s Audit Committee since his election as a governor in 2012.  The Board believes Mr. Goulet provides valuable insight to the Board because of his business experiences, his education and financial acumen, and because he qualifies as an audit committee financial expert.

 

Sherry Jean Larson, CPA - Governor.    Ms. Larson has been a governor of the Company since March 2016.  She is a certified public accountant and since December 2016, she has been employed as the Chief Financial Officer of Quam Construction in Willmar, Minnesota.  Her responsibilities at Quam Construction include financial planning, record keeping and financial reporting for the company.  For the 15 years prior to her employment at Quam Construction, Ms. Larson was employed as a manager at Christianson & Associates, PLLP (“Christianson”), a public accounting firm located in Wilmar, Minnesota. In her role as a manager at Christianson, she assisted a wide variety of clients in the agriculture and manufacturing industries, including numerous ethanol and other alternative renewable fuel clients, with her primary focus on financial forecasting, business development, and preparation of business plans.  Additionally, from October 2014 to April 2016, as part of her duties with Christianson, Ms. Larson served as the interim part-time chief financial officer for a private ethanol production facility pursuant to a financial and consulting services agreement between Christianson and the ethanol production facility.  Prior to her employment with Christianson & Associates, Ms. Larson was employed as a senior accountant at Schlenner Wenner & Co. in St. Cloud, Minnesota from November 1997 to July 2001.  She graduated from the University of Evansville with a bachelor of accounting degree and from St. Cloud State University with a masters in business administration.  Ms. Larson’s business experience, knowledge of the ethanol industry, education and financial acumen provide valuable insight to our Board.

 

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Martin Seifert - Alternate Governor. Mr. Seifert was first appointed by the Board as an alternate governor in May 2011. Since December 2014, Mr. Seifert has been employed as a lobbyist with the firm of Flaherty and Hood, P.A. in St. Paul, Minnesota.  Previously, he was the executive director of the Avera Marshall Foundation from 2010 to 2013, which provides financial support for the Marshall Regional Medical Center hospital and long term care facility. Mr. Seifert has also been a realtor with Real Estate Retrievers from 2010 to 2014. Mr. Seifert was a member of the Minnesota House of Representatives from 1996 to 2011. He also served as minority leader in the Minnesota House of Representatives from 2006 to 2009. In August 2016, Mr. Seifert was elected to the board of Catholic United Financial, a fraternal insurance company located in Minnesota. Mr. Seifert graduated from Southwest Minnesota State University in 1995 with a bachelors of arts in political science. Mr. Seifert also serves as an alternate appointed governor of HLBE. Mr. Seifert provides significant assistance to our Board in the Company’s interaction with all levels of local and state government and also provides an independent, long-term view of the further development of Company’s site and business.

 

Governor Independence Standards

 

Our securities are not listed on a national securities exchange or in an inter-dealer quotation system that requires that a majority of the Board be independent. However, we use the independence standards set forth by the SEC and NASDAQ to evaluate the independence of our Board. 

 

In determining independence, the Board reviews whether governors have any material relationship with the Company taking into consideration the following factors: (i) the business relationships of our directors; (ii) positions our directors hold with other companies; (iii) family relationships between our directors and other individuals involved with the Company; (iv) transactions between our directors and the Company; and (v) compensation arrangements between our directors and the Company. An independent governor must not have any material relationship with the Company, directly or indirectly as a partner, shareholder, or officer of an organization that has a relationship with the Company, or any relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a governor.

 

During our 2016 fiscal year, all of our governors and governor nominees were independent, as defined by NASDAQ Rule 5605(a)(2).

 

Code of Ethics

 

The Board has adopted a code of ethics that sets forth standards regarding matters such as honest and ethical conduct, compliance with the law, and full, fair, accurate, and timely disclosure in reports and documents that we file with the SEC and in other public communications.  The code of ethics applies to all of our employees, officers, and governors, including our chief executive officer and chief financial officer.  The code of ethics is available free of charge on written request to Granite Falls Energy, LLC, 15045 Highway 23 S.E., Granite Falls, Minnesota, 56241-0216.

 

Committees of Our Board of Governors

 

During fiscal 2016, our Board had four standing committees: the audit committee, compensation committee, nominating committee and risk management committee.

 

Audit Committee

 

The audit committee’s function is one of oversight and, in that regard, the audit committee meets with our management and independent registered public accounting firm to review and discuss our financial reporting and our controls respecting accounting.  The audit committee consists of Messrs. Rodney Wilkison (chairman), Leslie Bergquist and Marten Goulet.

 

Compensation Committee 

 

The Board’s three member non-employee executive board serves as our compensation committee. The executive board is responsible for discharging the Board’s responsibilities relating to compensation of our Company’s executive officers. The executive board has the authority to approve and make recommendations to the Board with respect to the compensation of the chief executive officer of the Company and evaluates the chief executive officer’s performance in light of his goals and objectives, as determined by the executive board. The executive board consults with the chief executive officer with respect to compensation for the Company’s other executives and the chief executive officer may be present at meetings for deliberations on other executive officer compensation, but he may not vote. The executive board consists of Messrs. Paul Enstad (chairman), Dean Buesing and Rodney Wilkison.

 

25


 

Nominating Committee

 

The nominating committee is responsible for identifying individuals qualified to become Board members and recommending to the Board the governor nominees to be considered for election by members and for election by the Board to fill any vacancy or newly created governorship. The nominating committee consists of Messrs. Dean Buesing, Leslie Bergquist, Sherry Jean Larson, Marty Goulet and Lee Uldbjerg (chairman).

 

Risk Management Committee

 

The risk management committee’s function is to assist the Board in assessing and managing the risks associated with managing our processing margin and the purchase and sale of commodities required in connection with or produced as a result of our production of ethanol. The risk management committee consists of Steve Christensen, our chief executive officer, and Eric Baukol, our risk manager.

 

Board and Committee Meetings and Governor Attendance

 

The Board generally meets once per month.  The Board held thirteen regularly scheduled and special meetings during the fiscal year ended October 31, 2016.  In addition, the audit committee held four meetings, the compensation committee held two meetings, the risk management committee held twelve meetings and the nominating committee held two meetings.  Each incumbent governor attended 75% or more of the meetings of the Board and Board committees on which he served during fiscal year 2016. 

 

As provided in the Current Operating Agreement, the alternate governor attends meetings of the Board and if any elected governor is not available for, or during any part of, a meeting of the Board or to take action in writing in lieu of such a meeting, the alternate governor is entitled to act in the stead of such elected governor at such meeting, or during such part, or to take such action in writing (but only on behalf of one elected governor, if more than one is unavailable).  Mr. Seifert, our alternate governor, attended all Board meetings but did not take part in any actions of the Board during our fiscal year ended October 31, 2016.

 

The Board does not have a policy with regard to governors’ attendance at annual meetings.  Last year all of our governors attended the Company’s annual meeting.  Due to this high attendance record, it is the view of the Board that such a policy is unnecessary.

 

Member Communications with Our Directors

 

The Board does not have a formalized process for holders of membership units to send communications to the Board.  The Board feels this is reasonable given the accessibility of our governors.  Members desiring to communicate with the Board are free to do so by contacting a governor via our website, fax, phone or in writing to the Company’s principal office at 15045 Highway 23 S.E., Granite Falls, Minnesota, 56241-0216.  The Company will provide a copy of each such writing to the directed governor or to all governors if directed to the Board generally.  The names of our governors are set forth above and are listed on the Company’s website at www.granitefallsenergy.com.

 

Audit Committee

The audit committee of the Board operates under a charter adopted by the Board in fall 2005.  Our audit committee charter is available on our website at www.granitefallsenergy.com. Under the charter, the audit committee must have at least three members.  The audit committee consists of Messrs. Wilkison (chairman), Bergquist and Goulet.

 

The audit committee is exempt from the independence listing standards because the Company’s securities are not listed on a national securities exchange or listed in an automated inter-dealer quotation system of a national securities association or to issuers of such securities.  However, our audit committee charter requires a majority of our committee members to be independent.  All of the members of our audit committee are independent under the definition provided in our audit committee charter and the definition of independence provided by NASDAQ rules 5605(a)(2) and 5605(c)(2).

 

Mr. Wilkison serves as our audit committee financial expert.  Mr. Wilkison’s experience as the owner and chief executive officer of Wilkison Consulting Service, which provides financial consulting, tax preparation, and monthly accounting services for farmers and small businesses, qualifies him to be the audit committee’s financial expert.

 

Our audit committee held four meetings during fiscal year 2016.  Each of our audit committee members attended all of the audit committee meetings. 

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Audit Committee Report

 

The following is a report of the audit committee for the fiscal year ended October 31, 2016. The following report of the audit committee shall not be deemed to be incorporated by reference in any previous or future documents filed by the Company with the Securities and Exchange Commission under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Company specifically incorporates the report by reference in any such document.

 

The audit committee reviews the Company’s financial reporting process on behalf of the Board. Management has the primary responsibility for the financial statements and the reporting process.  The Company’s independent auditors are responsible for expressing an opinion on the conformity of the audited financial statements to generally accepted accounting principles.  The audit committee reviewed and discussed with management the Company’s audited consolidated financial statements as of and for the fiscal year ended October 31, 2016.  The audit committee has discussed with Boulay PLLP, its independent auditors, the matters required to be discussed under Public Company Accounting Oversight Board (“PCAOB”) Auditing Standard No. 16, Communication with Audit Committee (AS16). The audit committee has received and reviewed the written disclosures and the letter to management from Boulay PLLP, as required by applicable requirements of the PCAOB, and has discussed with the independent accountants the independent accountants’ independence as required by the PCAOB and the Independence Rule 3526, Communications with Audit Committees Concerning Independence.  The audit committee has considered whether the provision of services by Boulay PLLP, not related to the audit of the financial statements referred to above and to the reviews of the interim consolidated financial statements included in the Company’s Forms 10-Q, are compatible with maintaining Boulay PLLP’s independence and concluded that the provision of such services is compatible with maintaining Boulay PLLP’s independence.

 

Based on the reviews and discussions referred to above, the audit committee recommended to the Board that the audited consolidated financial statements referred to above be included in the Company’s annual report on Form 10-K for the fiscal year ended October 31, 2016.

 

Audit Committee:

Rodney Wilkison, Chair

Leslie Bergquist

Marten Goulet

 

Independent Registered Public Accounting Firm

 

The audit committee selected Boulay PLLP, as independent registered public accountants for the fiscal year November 1, 2016 to October 31, 2017.  A representative of Boulay PLLP, is expected to be present at the 2017 annual meeting of members and will have an opportunity to make a statement if so desired.  The representative is also expected to be available for questions from the members.

 

Audit Fees

 

The aggregate fees billed by the principal independent registered public accountants (Boulay PLLP) to the Company for the fiscal year ended October 31, 2016 and 2015 are as follows:

 

 

 

 

 

 

 

Category

 

Fiscal Year

 

Fees

Audit Fees(1)

 

2016

 

$

122,000 

 

 

2015

 

$

116,000 

Tax Fees(2)

 

2016

 

$

17,000 

 

 

2015

 

$

16,000 

All Other Fees(3)

 

2016

 

$

22,000 

 

 

2015

 

$

31,000 

 

(1)The audit fees were incurred for the audit of the Company’s annual consolidated financial statements included within Form 10-K and review of the consolidated financial statements included in the Company’s quarterly reports on Form 10-Q, as well as services in connection with other statutory and regulatory filings or engagements for the fiscal years ended October 31, 2016 and 2015.

 

(2)The tax fees were billed for services rendered for tax compliance. The nature of the services comprising the tax fees was for year-end tax preparation of the partnership return and associated K-1’s.

 

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(3)The other fees were billed for services rendered for the Renewable Identification Number agreed-upon procedures as well as other financial, tax, and operational related consulting.

 

Prior to engagement of the principal independent registered public accountants to perform audit services for the Company, the principal accountant was pre-approved by our audit committee pursuant to Company policy requiring such approval.

 

One hundred percent (100%) of all audit services, audit-related services and tax-related services were pre-approved by our audit committee.

 

Audit Committee Pre-Approval Policies

 

We have adopted pre-approval policies and procedures for the audit committee that require the audit committee to pre-approve all audit and all permitted non-audit engagements and services (including the fees and terms thereof) by the independent auditors, except that the audit committee may delegate the authority to pre-approve any engagement or service less than $10,000 to one of its members, but requires that the member report such pre-approval at the next full audit committee meeting. The audit committee may not delegate its pre-approval authority for any services rendered by our independent auditors relating to internal controls. These pre-approval policies and procedures prohibit delegation of the audit committee’s responsibilities to our management. Under the policies and procedures, the audit committee may pre-approve specifically described categories of services which are expected to be conducted over the subsequent twelve months on its own volition, or upon application by management or the independent auditor.

 

All of the services described above for fiscal year 2016 were pre-approved by the audit committee or a member of the committee before Boulay PLLP was engaged to render the services.

 

Nominating Committee

 

The nominating committee operates under a charter adopted by the Board in August 2007.  In May 2013, we amended our nominating committee charter to eliminate the requirement that the committee include at least two members that had served on the nominating committee during the previous nominating committee cycle. Under the amended charter, the nominating committee must consist of at least four members and may not have more than one member who is not a governor of the Company. Our nominating committee charter is available on our website at www.granitefallsenergy.com.

 

Ms. Larson and Messrs. Buesing, Bergquist, Goulet, and Uldbjerg currently serve as the Company’s nominating committee. The chairperson of the nominating committee is Mr. Uldbjerg, who is the principal of Uldbjerg Consulting LLC and not a member of our Board. 

 

The nominating committee has the authority to engage consultants, and since 2013, has engaged the Uldbjerg Consulting LLC to help identify and evaluate potential governor nominees.  As part of the engagement, Uldbjerg Consulting LLC agreed to provide the services of Mr. Uldbjerg as nominating committee chair and that he would attend all meetings of the Company’s nominating committee and attend board of governor meetings as requested by our Board.  In exchange for these services, we agreed to pay Uldbjerg Consulting LLC $250 per each nominating meeting attended by Mr. Uldbjerg plus travel expenses and mileage at IRS approved rates.  For fiscal year 2016, we paid Uldbjerg Consulting LLC a total of approximately $280 and additional approximately $570 subsequent to the end of the 2016 fiscal year for his services on our nominating committee.

 

The nominating committee is exempt from the independence listing standards because the Company’s securities are not listed on a national securities exchange or listed in an automated inter-dealer quotation system of a national securities association or to issuers of such securities.  Nevertheless, our nominating committee charter requires at least one of our committee members to be independent. The Board has determined that each member of the nominating committee is independent under the NASDAQ definition of independence. 

 

The nominating committee oversees the identification and evaluation of individuals qualified to become governors and recommends to the Board the governor nominees for each annual meeting of the members. The major responsibilities of the nominating committee are to:

 

·

Develop a nomination process for candidates to the Board;

 

·

Establish criteria and qualifications for membership to the Board;

 

28


 

·

Identify and evaluate potential governor nominees;

 

·

Fill vacancies on the Board; and

 

·

Recommend nominees to the Board for election or reelection.

 

The following list represents the types of criteria the nominating committee takes into account when identifying and evaluating potential nominees:

 

·

Agricultural, business and financial background;

 

·

Accounting experience;

 

·

Community or civic involvement;

 

·

Independence from the Company (i.e. free from any family, material business or professional relationship with the Company);

 

·

Lack of potential conflicts with the Company;

 

·

Examples or references that demonstrate a candidate’s integrity, good judgment, commitment and willingness to consider matters with objectivity and impartiality; and

 

·

Specific needs of the existing board relative to any particular candidate so that the overall board composition reflects a mix of talents, experience, expertise and perspectives appropriate to the Company’s circumstances.

 

Pursuant to the nominating committee’s charter, the nominating committee may consider potential governor candidates recommended by members.  Company members may submit recommendations for candidates to the chairman of the nominating committee.  All nominations must be submitted in writing along with a completed nominee questionnaire which includes the nominating member’s name and contact information, a brief description of the candidate’s business experience, civic involvement, education and such other information as the member submitting the recommendation believes is relevant to the evaluation of the candidate.  All member recommendations for the election of governors at the 2018 annual meeting must be received by the Company no later than November 1, 2017.

 

Our nominating committee held two meetings for the purpose of selecting nominees for the election of governors at the 2017 annual meeting.  Each of our nominating committee members attended at least 75% of the nominating committee meetings.  Mr. Uldbjerg attended all meetings.

 

Compensation Committee

 

The board of governors has not established a committee specifically entitled “compensation committee”. Rather, the executive board serves as the Company’s compensation committee.  The executive board does not operate under a charter when performing its functions as a compensation committee.  The executive board carried out its function as a compensation committee during two meetings held in the fiscal year ended October 31, 2016.

 

The executive board has the overall responsibility for approving and evaluating the Company’s governor and executive compensation plans, policies and programs.  Neither the Company nor the executive board has historically engaged compensation consultants to assist in determining or recommending the amount or form of executive or governor compensation, but would consider doing so in those situations where either the Company or the compensation committee felt it was warranted or appropriate.

 

The executive board is exempt from independence listing standards because our securities are not listed on a national securities exchange or listed in an automated inter-dealer quotation system of a national securities association or to issuers of such securities.  As discussed above, all of our governors are independent as defined by NASDAQ Rule 5605(a)(2).

 

For additional information on the responsibilities and activities of the executive board, including the process for determining executive compensation, see the sections of this proxy statement entitled “Governor Compensation” and “Compensation Of Executive Officers”.

 

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Our executive board held two meetings for the purpose of selecting performing its functions as our compensation committee.  Each of our executive committee members attended all of these meetings. 

 

Compensation Committee Interlocks and Insider Participation

 

None of the members of the executive board is or has been an employee of the Company.  There are no interlocking relationships between our Company and other entities that might affect the determination of the compensation of our executive officers.

 

 

GOVERNOR COMPENSATION

 

We do not provide our governors with any equity or equity option awards, nor any non-equity incentive payments or deferred compensation.  Similarly, we do not provide our governors with any other perquisites, “gross-ups,” defined contribution plans, consulting fees, life insurance premium payments or otherwise.

 

Our governor compensation policy was approved by our Board in April 2012.  The current governor compensation policy provides that each governor receives a monthly stipend of $1,000 per Board meeting attended in-person plus an additional $250 per Board meeting for meeting participation whether attended in person or by conference call.  Additionally, we also pay $250 for additional meetings of greater than one-half day in length; $125 for attending meetings less than one-half day in length; and $125 for attendance at meetings by conference call.  The following amounts are also paid to governors for specified services: (i) the Chairman and Secretary of the Board are paid $500 per month, and (ii) members of the audit committee are paid $1,000 per quarter.

 

The following table sets forth all compensation paid or payable by the Company to our governors during the fiscal year ended October 31, 2016.  As of February 28, 2017, none of our officers had any options, warrants, or other similar rights to purchase securities of the Company.

 

 

 

 

 

 

 

 

 

 

Governor

Fees Earned or

Paid in Cash ($)(1)

Additional

Compensation ($)(2)

Total

Compensation ($)

Paul Enstad

$

22,250 

 

$

21,918 

(4)

$

44,168 

Rodney Wilkison

$

22,250 

 

$

19,832 

(5)

$

42,082 

Dean Buesing

$

22,125 

 

$

15,257 

(6)

$

37,382 

Marten Goulet

$

18,000 

 

$

36,524 

(7)

$

54,524 

Leslie Bergquist

$

19,500 

 

$

19,593 

(8)

$

39,093 

Sherry Jean Larson(3)

$

10,250 

 

$

788 

 

$

11,038 

Myron Peterson(3)

$

5,000 

 

$

134 

 

$

5,134 

Kenton Johnson

$

15,250 

 

$

17,291 

(9)

$

32,541 

Bruce LaVigne

$

14,250 

 

$

4,001 

 

$

18,251 

Michael Lund

$

14,125 

 

$

398 

 

$

14,523 

Marty Seifert

$

14,250 

 

$

14,406 

(10)

$

28,656 

 

(1)

Includes a monthly stipend plus fees paid based on attendance at board and committee meetings. 

 

(2)

Includes reimbursement for mileage and other reasonable expenses incurred in connection with services rendered to the Company and the Board.

 

(3)

Mr. Peterson and Ms. Larson only served as governors for a portion of our 2016 fiscal year. 

 

(4)

Includes approximately $304 in mileage and expense reimbursement paid by the Company, approximately $613 in mileage and expense reimbursement paid by HLBE, and $21,000 paid by HLBE for serving as one of the Company’s appointed governors on the HLBE board of governors and as HLBE’s chairman.

 

(5)

Includes approximately $503 in mileage and expense reimbursement paid by the Company, approximately $329 in mileage and expense reimbursement paid by HLBE, and $19,000 paid by HLBE for serving as one of the Company’s appointed governors on the HLBE board of governors, as HLBE’s vice chairman and chairman of HLBE’s audit committee.

 

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(6)

Includes approximately $217 in mileage and expense reimbursement paid by the Company, approximately $40 in mileage and expense reimbursement paid by HLBE, and $15,000 paid by HLBE for serving as one of the Company’s appointed governors on the HLBE board of governors.

 

(7)

Includes approximately $7,294 in mileage and expense reimbursement paid by the Company, approximately $9,350 in mileage and expense reimbursement paid by HLBE, and $19,250 paid by HLBE for serving as one of the Company’s appointed governors on the HLBE board of governors and as HLBE’s chairman and an alternate member of HLBE’s audit committee.

 

(8)

Includes approximately $194 in mileage and expense reimbursement paid by the Company, approximately $399 in mileage and expense reimbursement paid by HLBE, and $19,000 paid by HLBE for serving as one of the Company’s appointed governors on the HLBE board of governors and as HLBE’s chairman and a member of HLBE’s audit committee.

 

(9)

Includes approximately $995 in mileage and expense reimbursement paid by the Company, approximately $46 in mileage and expense reimbursement paid by HLBE, and $16,250 paid by HLBE for serving as one of the Company’s alternate appointed governors on the HLBE board of governors.

 

(10)

Includes approximately $181 in mileage and expense reimbursement paid by the Company, approximately $225 in mileage and expense reimbursement paid by HLBE, and $14,000 paid by HLBE for serving as one of the Company’s alternate appointed governors on the HLBE board of governors.

 

 

COMPENSATION OF EXECUTIVE OFFICERS

 

Executive Officers and Significant Employees

 

The table below lists all of our executive officers and two significant employees, our risk manager and plant manager, whom we expect to make a significant contribution to the Company’s business.  The address for all of the individuals identified below is 15045 Highway 23 S.E., Granite Falls, Minnesota, 56241-0216.  There are no arrangements or understandings between any of the Company’s executive officers and any other persons pursuant to which he or she was selected as an executive officer.

 

 

 

 

 

 

 

 

Name

 

Age

 

Position(s) Held with the Company

 

Length of Service

Steve Christensen

 

59

 

Chief Executive Officer and General Manager

 

Since April 2012

Stacie Schuler

 

44

 

Chief Financial Officer

 

Since July 2005

Eric Baukol

 

34

 

Risk Manager

 

Since June 2010

Robin Spaude

 

67

 

Plant Manager

 

Since March 2001

 

Biographical Information for Executive Officers and Significant Employees

 

Steve Christensen, Chief Executive Officer and General Manager.  Mr. Christensen joined the Company in April 2012 as chief executive officer and general manager. From 2005 through December 2011, Mr. Christensen was chief executive officer and general manager of Western Wisconsin Energy, LLC, which owned and operated an ethanol plant in Boyceville, Wisconsin. Mr. Christensen has also operated a southwest Iowa family farm since 1987. Mr. Christensen holds a bachelors of science degree in animal science from Iowa State University and has completed some post graduate work in business. Pursuant to the Company’s Management Services Agreement with HLBE, Mr. Christensen also serves as Chief Executive Officer of that company, a position he has held since July 31, 2013. It is anticipated that Mr. Christensen will hold the office of Chief Executive Officer until the earlier of his resignation, death, disqualification or removal by the Board.

 

Stacie Schuler - Chief Financial Officer.  Ms. Schuler joined the Company in July 2005 as chief financial officer and controller. Prior to joining the Company, Ms. Schuler worked as a financial manager for Cargill, Incorporated from 1997 to 2005. Ms. Schuler received her accounting degree through Southwestern Technical College in Granite Falls, Minnesota and Southwest State University in Marshall, Minnesota. Pursuant to the Company’s Management Services Agreement with HLBE, Ms. Schuler also serves as Chief Financial Officer of that company, a position she has held since July 31, 2013. It is anticipated that Ms. Schuler will hold the office of Chief Financial Officer until the earlier of her resignation, death, disqualification or removal by the Board.

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Eric Baukol - Risk Manager.  Mr. Baukol joined the Company in June 2010 as risk manager. Prior to joining the Company, Mr. Baukol was employed as a market analyst for Country Hedging, Inc. (now CHS Hedging), a farm marketer for Cargill, and as a location manager for Canby Farmers Grain.  Mr. Baukol holds a B.S. degree in agricultural education from the University of Wisconsin-River Falls and a master’s degree in business administration from Southwest Minnesota State University. Pursuant to the Company’s Management Services Agreement with HLBE, Mr. Baukol also serves as the risk manager of that company, a position he has held since July 31, 2013. It is anticipated that Mr. Baukol will serve as Risk Manager until the earlier of his resignation, death, disqualification or removal by the Board.

 

Robin Spaude - Plant Manager.  Mr. Spaude began his working relationship with the Company in March 2001 as an independent contractor providing project & construction coordination services and assisting the Company with permitting, infrastructure and construction management activities. Since July 2005, he has been the Company’s Plant Manager and full-time employee of Company.  In addition to his employment with the Company, Mr. Spaude served as an independent contractor to Highwater Ethanol, LLC, an SEC reporting company, providing project & construction coordinator services from May 2008 to Sept 2009.  Prior to his ethanol industry experience, Mr. Spaude was employed for 31 years as a director of Manufacturing and Engineering in the U.S. and Mexico for the Plews Manufacturing Company, an automotive aftermarket automotive components   company and operating division of the Parker-Hannifin Corp. until its sale of Plews to the Stant Corp.  Mr. Spaude is a retired Army Reserve officer of 20 years service in ordinance and logistics.  He also served the Granite Falls community as Airport Commission chairman for 19 years, from 1988 until 2007.  Mr. Spaude is a graduate of the Minnesota West Community and Technical College in Granite Falls, Minnesota with a degree in Industrial Drafting and Design Technology. It is anticipated that Mr. Spaude will serve as Plant Manager until the earlier of his resignation, death, disqualification or removal by the Board.

 

Compensation Discussion and Analysis

 

Overview

 

Throughout this proxy statement, the individuals who serve as our chief executive officer and chief financial officer are referred to as the “executive officers”.

 

Compensation Committee

 

Our three-member executive board serves as the Company’s compensation committee for the fiscal year ended October 31, 2016. The executive board has responsibility for establishing, implementing and regularly monitoring adherence to the Company’s compensation philosophy and objectives.  The executive board ensures that the total compensation paid to the executive officers is fair, reasonable and competitive. 

 

The executive board:

 

·

establishes and administers a compensation policy for the executive officers;

 

·

reviews and approves the compensation policy for all of our employees other than the executive officers;

 

·

reviews and monitors our financial performance as it affects our compensation policies or the administration of those policies;

 

·

reviews and monitors our succession plans;

 

·

approves awards to employees pursuant to our incentive compensation plans; and

 

·

approves modifications in the employee benefit plans with respect to the benefits salaried employees receive under such plans.

 

All of the executive board’s actions are reported to the Board and, where appropriate, submitted to the Board for ratification. In determining the chief executive officer’s compensation, the executive board considers evaluations prepared by the governors. From time to time, the executive board may delegate to the chief executive officer the authority to implement certain decisions of the committee, to set compensation for other executive officers and to fulfill administrative duties.

 

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Compensation Philosophy and Objectives

 

Our compensation programs are designed to achieve the following objectives:

 

·

Attract, retain and motivate highly qualified and talented executives who will contribute to the Company’s success by reason of their ability, ingenuity and industry;

 

·

Link compensation realized to the achievement of the Company’s short and long-term financial and strategic goals;

 

·

Align management and member interests by encouraging long-term member value creation;

 

·

Maximize the financial efficiency of the compensation program from tax, accounting, cash flow and dilution perspectives; and

 

·

Support important corporate governance principles and comply with best practices.

 

Compensation Committee Procedures

 

The executive board is responsible for determining the nature and amount of compensation for the Company’s executive officers.  The executive board receives input from the chief executive officer on the personal performance achievements of the executive officers and management employees who report to him.  This individual performance assessment determines a portion of the annual compensation for each such executive officer and manager.  In addition, the chief executive officer provides input on salary increases, incentive compensation opportunities, and long-term incentive grants for the executive officers and management employees who report to him, which the committee considers when making executive compensation decisions.

 

The executive board does its own performance review of the chief executive officer.  The executive board annually evaluates the performance of our chief executive officer in light of the Company’s goals and objectives and determines and approves the chief executive officer’s compensation level based on this evaluation.  In determining the long-term incentive component of the chief executive officer’s compensation, the executive board will consider all relevant factors, including the Company’s performance, the value of similar awards to chief executive officers of comparable companies, and the awards given to the chief executive officer of the Company in past years.  The chief executive officer is not present at executive board level deliberations concerning his compensation.

 

Compensation Elements

Generally the types of compensation and benefits provided to the executive officers are similar in form to the compensation and benefits provided to our other employees.  For fiscal year 2016, the principal components of our compensation for executive officers included:

 

·

base salary;

 

·

incentive cash bonuses; and

 

·

perquisites and other personal benefits.

 

We expect that the principal components of compensation for any executive officer who may be hired in 2017 will be comprised of the same principal components. We have entered into employment agreements with Mr. Christensen (our chief executive officer) and Ms. Schuler (our chief financial officer).  These components have been included in the employment agreements with our executive officers, as well as in Company policies.

 

Base Salary

 

Base salaries for our executive officers are established based on the scope of their roles, responsibilities, experience levels and performance, and taking into account competitive market compensation paid by comparable companies for similar positions.  Base salaries are reviewed approximately annually, and may be adjusted from time to time to realign salaries with market levels after taking into account individual performance and experience.

 

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Bonus

 

Our chief executive officer’s bonus is dependent on our profitability.  If our net profits are less than $10 million, then no bonus is paid.  If our net profits are $10 million or more, then our chief executive officer is entitled to a bonus equal to one quarter of one percent of the amount of net profits. The bonus is generally to be assessed each year as of the end of the then current fiscal year (October 31).  As of the end our 2016 fiscal year, our board determined that no bonus was payable to our chief executive officer under the bonus plan.

 

During our 2016 fiscal year, our board of governors awarded a bonus of $23,760 to our chief financial officer, or approximately 16.8% of her base wages. The foregoing bonus was awarded by the Board to our chief financial officer as part of an employee incentive program adopted by our board. The purpose of the employee incentive program is to reward employees for the Company’s attainment of financial results and production goals, to encourage regulatory compliance, and reflect a positive safety culture. All employees, except our chief executive officer, can earn a quarterly bonus up to 3.0% of the employee’s base wages if the Company meets certain minimum safety, regulatory compliance, production and financial performance goals, or up to 12.0% of the employee’s base wages on an annual basis. For the purpose of the incentive bonus calculation, base wages include all regular, paid time off and holiday pay. The Company believes that the employee incentive bonus program is reasonable as it ties the bonus paid to the employees to the operational performance and financial success of the Company and is easily quantified by the Company. 

 

In addition to the base salary and performance incentives, our executive officers may receive bonuses in the discretion of our board. No discretionary bonuses were awarded during fiscal 2016.

 

Employment Agreements with Executive Officers

 

We entered into employment agreements with our chief executive officer and chief financial officer.  The terms of these employment agreements commenced on October 31, 2014, and continue until terminated by the executive officer or the Company upon thirty days written notice.

 

The employment agreements provide for an initial base salary which is subject to review and adjustment on an annual basis by the Board.  Additionally, the executives are each entitled to twelve months continued salary and paid health care benefits in the event of their dismissal by the Company without cause with such amounts to be reduced by any salary earned in and health care benefits provided by other employment during that period. If the employee voluntarily terminates his or her employment or is terminated for “cause” by the Company, the employee has no right, and Company has no obligation, to continue salary or health insurance benefits after the date of termination.  In addition, the Company may terminate the employment agreements upon sixty days notice and payment of twelve months salary in the event of certain change in control events, which include the sale of substantially all of the Company’s assets, the sale of a majority of the Company’s outstanding membership units and the merger or consolidation of the Company with another.

 

The employment agreements prohibit the executive officers from competing with the Company within thirty miles of the Company’s facility during the term of the employment agreements and for one year thereafter. The employment agreements also restrict the executive officers from disclosing certain Company information, interfering with the Company and soliciting customers, suppliers or past or present employees of the Company in connection with a competitive business operating within thirty miles of the Company’s facility.

 

Potential Payments upon Termination or Change in Control

 

If our chief executive officer would have been dismissed without cause on October 31, 2016, and assuming that there was no reduction for salary earned in other employment, the Company estimates that it would have provided salary and health care benefits over an twelve month period of approximately $211,000 pursuant to our employment agreement with our chief executive officer. Assuming that our chief executive officer would have been dismissed due to a change in control event on October 31, 2015, the Company estimates that it would have paid a lump sum in the amount of $211,000. 

 

If our chief financial officer would have been dismissed without cause on October 31, 2016, and assuming that there was no reduction for salary earned in other employment, the Company estimates that it would have provided salary and health care benefits over an twelve month period of $141,000 pursuant to our employment agreement with our chief executive officer. Assuming that our chief financial officer would have been dismissed due to a change in control event on October 31, 2015, the Company estimates that it would have paid a lump sum in the amount of $141,000.

 

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Perquisites and Other Personal Benefits

 

We have traditionally provided named executive officers with perquisites and other personal benefits that the executive board believes are reasonable and consistent with our overall compensation program and are provided to all employees. Except for a Company-owned vehicle provided to Mr. Christensen, our chief executive officer, we do not provide any material executive perquisites.  The executive board believes that the use of a Company-owned vehicle, including all costs incurred in the use of the vehicle, are consistent with market practices and necessary for him to effectively serve as the chief executive officer of the Company.

 

Accounting and Tax Treatment of Awards

 

None of our executive officers, governors, or employees receives compensation in excess of $1,000,000 and therefore the entire amount of their compensation is deductible by the Company as a business expense. Certain large executive compensation awards are not tax deductible by companies making such awards. None of our compensation arrangements are likely to reach this cap in the foreseeable future.

  

Compensation Committee Report

 

The following report of the compensation committee shall not be deemed to be “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended, or the 1934 Securities Exchange Act, as amended, except to the extent that we specifically incorporate it by reference in such filing.

The executive board has reviewed and discussed the foregoing Compensation Discussion and Analysis with management.  Based upon this review and discussion, the Board determined that the Compensation Discussion and Analysis should be included in this proxy statement.

 

Executive Board:

Paul Enstad, Chair

Rodney Wilkison

Dean Buesing

 

Summary Compensation Table

 

The following table sets forth all compensation paid or payable by the Company to our executive officers during the fiscal years ended October 31, 2016, 2015, and 2014, respectively.  As of February 28, 2017, none of our officers had any options, warrants, or other similar rights to purchase securities of the Company.

 

 

 

 

 

 

 

 

 

 

 

 

Name and Principal Position

Year

Salary

Bonus

Non-equity Incentive

Plan Compensation(1)(2)

All Other

Compensation(3)(4)

Total

Steve Christensen, CEO

2016

$

210,531

$

$

34,231

$

244,762

 

2015

$

189,807

$

34,080

$

22,711

$

246,598

 

2014

$

190,780

$

19,202

$

121,935

$

331,917

Stacie Schuler, CFO

2016

$

140,696

$

23,760

$

10,842

$

175,298

 

2015

$

129,808

$

22,470

$

9,423

$

161,701

 

2014

$

115,038

$

21,038

$

4,962

$

141,038

 

(1)Amounts consist of cash bonuses awarded to Mr. Christensen’s under his annual net profits based bonus plan. See “Compensation Of Executive OfficersCompensation Disclosure and AnalysisCompensation Elements–  Bonus”.

 

(2)Amounts consist of cash bonuses awarded to Ms. Schuler under the Company’s employee incentive program applicable to all employees other than the chief executive officer. See “Compensation Of Executive OfficersCompensation Disclosure and AnalysisCompensation Elements–  Bonus”.

 

(3)All other compensation for Mr. Christensen includes compensation related to paid time off and vacation ($24,206 in fiscal year 2016, $18,375 in fiscal year 2015, and $15,000 in fiscal year 2014) and personal use of a company vehicle ($10,025 in fiscal year 2016, $4,336 in fiscal year 2015, and $4,202 in fiscal year 2014).

 

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(4)Other compensation for Ms. Schuler includes compensation related to paid time off and vacation.

 

MEMBER PROPOSALS FOR THE 2018 ANNUAL MEETING

 

We currently intend to hold our 2018 annual meeting during the last half of March 2018.  Under the rules of the SEC, including Rule 14a-8 of the Securities Exchange Act of 1934, any member proposal to be considered by us for inclusion in the proxy material for the 2018 annual meeting must be received by the Secretary of the Company at our principal office, 15045 Highway 23 S.E., Granite Falls, MN 56241-0216, no later than one-hundred and twenty (120) days prior to when we mailed the proxy materials for the preceding year’s annual meeting. Accordingly, we determined that members must submit proposals related to the 2017 annual meeting of members to the Company by October 31, 2017. The submission of a proposal does not guarantee its inclusion in the proxy statement or presentation at the annual meeting unless certain securities laws requirements are met. Proposals submitted later than October 31, 2017 will be considered untimely and will not be included in our proxy statement for the 2018 annual meeting. We suggest that any proposal be submitted by certified mail - return receipt requested.

 

Pursuant to our nominating committee charter, members of the Company may submit recommendations for governor candidates to the chairman of the nominating committee. All such nominations must be submitted in writing to Nominating Committee at Granite Falls Energy, LLC, 15045 Hwy 23 SE, P.O. Box 216, Granite Falls, MN 56241. Such submissions should include the nominating member’s name and contact information, a brief description of the candidate’s business experience, civic involvement, education and such other information as the member submitting the recommendation believes is relevant to the evaluation of the candidate.

 

For candidates to be considered for election at the 2018 annual meeting, the recommendation must be received by the Company by November 1, 2017. Candidates properly submitted by members of the Company or members of the nominating committee will be considered in the same manner as those submitted by third-party search firms to the nominating committee.

 

 

ANNUAL REPORT AND FINANCIAL STATEMENTS

 

The Company’s annual report to the Securities and Exchange Commission on Form 10-K, including the financial statements and the notes thereto, for the fiscal year ended October 31, 2016, accompanies the mailing of this proxy statement.

 

The Company will provide each member solicited a copy of Exhibits to the 10-K upon written request and payment of specified fees. The written request for such Exhibits should be directed to Stacie Schuler, Chief Financial Officer of Granite Falls Energy, LLC at 15045 Highway 23 S.E., Granite Falls, MN 56241-0216. Such request must set forth a good faith representation that the requesting party was a holder of record or a beneficial owner of membership units in the Company on February 28, 2017. The 2016 annual report on Form 10-K complete with exhibits is also available at no cost through the EDGAR database available from the SEC’s internet site (www.sec.gov).  Information about us is also available at our website at www.granitefallsenergy.com, under “SEC Compliance,” which includes links to reports we have filed with the Securities and Exchange Commission.

 

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APPENDIX A

AMENDMENTS TO THE COMPANY’S CURRENT OPERATING AGREEMENT AS DESCRIBED IN PROPOSALS 3 THROUGH 8

 

THIS FIFTHSIXTH AMENDED AND RESTATED OPERATING AND MEMBER CONTROL AGREEMENT (the “Agreement”) is made and entered into as of August 12, 2004 by the Effective Date (as hereinafter defined), by and among Granite Falls Energy, LLC, a Minnesota limited liability company (the “Company”), each of the Persons (as hereinafter defined) who are identified as Members on the Membership Register of the Company and any other Persons as may from time-to-time be subsequently admitted as a Member of the Company in accordance with the terms of this AgreementCapitalized terms used but not otherwise defined herein shall have the meaning set forth in Section 1. ”).  This document has been duly adopted by the Board of Governors of the Company and supersedes and replaces the Fourth Amended and Restated Operating Agreement and Member Control Agreement.  This Agreement is binding retroactively on all Members to the date of organization of the Company.  The Effective of this Fifth Amended and Restated Operating Agreement is August 12, 2004.  In consideration of the mutual covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

 

WHEREAS, the Members adopted the Fifth Amended and Restated Operating Agreement of the Company dated August 4, 2014; and

 

WHEREAS, the Members desire to amend and restate the Fifth Amended and Restated Operating Agreement dated August 4, 2015, as amended by the First Amendment to Fifth Amended and Restated Operating Agreement of the Company dated April 28, 2005, the Second Amendment to Fifth Amended and Restated Operating Agreement of the Company dated June 13, 2006, and the Third Amendment to Fifth Amended and Restated Operating Agreement of the Company dated March 21, 2013, in order to elect application of the Minnesota Revised Uniform Limited Liability Act and to adopt certain amendments set forth herein; and

 

WHEREAS, the Board of Governors have approved, adopted and recommended the adoption of this Agreement, and the Members voted to adopt this Agreement at the Company’s Regular Annual Meeting of Members held on March 23, 2017.

 

     NOW, THEREFORE, in consideration of the mutual covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

 

 

SECTION 1

DEFINITIONS

 

As used in this Agreement, the following terms shall have the following meanings:

 

1.1Act” shall mean the Minnesota Limited Liability Company Act, Chapter 322B of the Minnesota Statutes, as amended from time to time.  Effective on and after March 23, 2017, “Act” shall mean the Minnesota Revised Uniform Limited Liability Act, Chapter 322C of the Minnesota Statutes, as amended from time to time (or any corresponding provision or provisions of any succeeding law)as amended from time to time.    

 

1.2Affiliate” means and includes, with respect to another Person, any of the following:  i) any Person directly or indirectly owning, controlling, or holding with power to vote ten percent (10%) or more of the outstanding voting securities of such other Person, ii) any Person ten percent (10%) or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held, with power to vote, by such other Person, iii) any Person directly or indirectly controlling, controlled by, or under common control with such other Person, iv) any executive officer, governor, director, general partner, trustee or partnermember of such other Person, or v) any legal entity on which such Person acts as an executive officer, governor, trustee, or partner.    For purposes of this definition, the terms “controlling,” “controlled by” or “under common control with” shall mean the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person or entity, whether through the ownership of voting securities, by contract or otherwise, or the power to elect at least 50% of the directors, members, or persons exercising similar authority with respect to such Person or entities.

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1.3Agreement” shall mean this FifthSixth Amended and Restated Operating and Member Control Agreement, including all schedules and exhibits attached hereto, as originally executed or as it may be amended, modified, supplemented or restated from time to time as provided herein.

 

1.4Alternate” shall have the meaning set forth in Section 6.1(e).

 

1.5Articles” shall mean the Articles of Organization of the Company as originally adopted and filed with the Secretary of State or as properly amended or amended and restated from time to time and filed with the Secretary of State.

1.6Capital Account” means the separate capital account maintained for each Unit Holder in accordance with Section 5.1.

1.7Capital Account Balance” shall have the meaning set forth in Section 5.1.

 

1.58Capital Contribution” shall mean, in the case of any Member as of any date of determination, the aggregate amount of cash, property, or services rendered, or a promissory note or other binding obligation to contribute cash or property or to perform services that such Member shall have contributed to the Company on or prior to such date and a Member’s share of any of the Company’s liabilities as determined in accordance with the Code and Treasury Regulations (or, if such Member is not the original holder of the Interest of such Member, the Capital Contribution with respect to the Interest).  In the event that any capital is returned to a Member, such Member’s Capital Contribution shall be adjusted to reflect such return.

 

1.69Code” shall mean the Internal Revenue Code of 1986, as amended from time to time and any successor statute or subsequent codification or recodification of the federal income tax laws of the United States.

 

1.710Company shall mean Granite Falls Energy, LLC, a Minnesota limited liability company, as such limited liability company may from time to time be constituted, or any successor in interest for such limited liability company. 

 

1.811Distribution” shall mean any distribution pursuant to Section 5.4 by the Company of cash to the Members or any Distribution in Kind.

 

1.912Distribution in Kind” shall have the meaning set forth in paragraph (b) of Section 5.4.

 

1.13Effective Date”  shall mean the effective date of this Operating Agreement, March 23, 2017.

 

1.14Financial Rights” means a Member’s rights to share inof Profits and Losses and in , the right to receive Distributions, and the right to information concerning the business and affairs of the Company as provided by the Act.

 

1.1115Governance Rights” means all a Member’s rights as a member of the Company other than Financial Rights and the right to assign Financial Rights.collectively, a Member’s right to vote as set forth in this Agreement or required by the Act. The Governance Rights of a Member shall mean as to any matter to which the Member is entitled to vote hereunder or as may be required under the Act, the right to one (1) vote for each Unit registered in the name of such Member as shown in the Membership Register.

 

1.16Governor” shall mean one or more Persons designated by the Members to be members of the Board of Governors.  The “Board of Governors” or “Board” shall manage the Company as provided in Section 6.    A Governor shall mean a “Governor” as that term is used in Chapter 322B and a “Manager” as that term is used in Chapter 322C of the Minnesota Statutes.

 

1.1317Interest” shall mean, in the case of any Member at any time, such Member’s share of the Profits and Losses of the Company at such time and the right of such Member to receive distributions of the Company assets to which such Member may be entitled as provided in this Agreement and applicable law, and the right of such Member to vote and participate in the management of the Company as provided in this Agreement (i.e.,collective Governance and Financial Rights).

 

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1.1418Losses” shall mean the net losses and deductions of the Company determined in accordance with accounting principles consistently applied from year to year employed under the method of accounting adopted by the Company and as reported separately or in the aggregate, as appropriate, on the tax return of the Company filed for federal income tax purposes.

 

1.1519Majority in Interest” shall mean the affirmative vote of those Members holding more than fifty percent (50%) of the Percentage of Membership Units in the Company.  With respect to the Board, “Majority of the Board” shall mean the affirmative vote of more than fifty percent (50%) of the Governors.  Except as otherwise provided in this Agreement, all actions requiring approval or vote of Members shall be taken by and approved upon voting based upon Membership Units and Percentage of Membership Units.

 

1.20Majority of the Board” shall mean the affirmative vote of more than fifty percent (50%) of the Governors. 

 

1.1621Member” means a Person reflected in the required records of the Company as the owner of one or more Membership Units of the Company who has signed this Agreement, such Person’s heirs, executors, administrators, personal representatives and successors and any assigns of Membership Units, Governance Rights or Financial Rights as permitted by the Act, the Articles of Organization and this Agreement and as reflected in the required records of the Company.  When the Governance Rights and Financial Rights attributable to a Membership Unit have been separated and such separation is reflected in the required records of the Company, references to Member shall mean the holder of the Governance Rights or Financial Rights related to such Membership Unit as appropriate in the context.

 

1.1722Officer” shall mean a Member or other Person designated by the Board or Members as provided in sSection 6.1112.

 

1.1823Person” shall mean an individual, a partnership, a joint venture, a corporation, a limited liability company, a trust, an estate, an unincorporated organization or any other entity or a government or any department or agency thereof.

 

1.1924Percentage Interest” means the percentage figure calculated by dividing a Member’s Capital Account Balance at any given time by the total sum of the capital Account Balances of all Members.

 

1.2025Percentage of Memberships Units” means the percentage figure calculated by dividing a Member’s Membership Units at any given time by the total Membership Units of the Company issued and outstanding.

 

1.2126Pro Rata” means the ratio computed by dividing the units of each Member to whom a particular provision of this Agreement is stated to apply by the aggregate of the Units of all Members to whom that provision is stated to apply.

 

1.2227Profits” shall mean the net income and gains of the Company determined in accordance with accounting principles consistently applied from year to year employed under the methods of accounting adopted by the Company and as reported separately or in the aggregate, as appropriate, on the tax return of the Company filed for federal income tax purposes.  Profits includes taxable income, capital gain, and income exempt from taxation.

 

1.2328Publicly Traded Partnership” shall mean a partnership whose interests are traded on an established securities market, or are readily tradable on a secondary market (or the substantial equivalent thereof).

 

1.2429Qualified Matching Service Program” shall mean a matching service that satisfied the requirements of a qualified matching service within the meaning of the Treasury Regulation Section 1.7704-1(g)(2), as amended from time to time, during limited time periods specified and approved by Board from time to time, in its sole discretion.

 

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1.2530Transfer” or derivations thereof, of a Unit or Interest means, as a noun, the sale, assignment, exchange, pledge, hypothecation or other disposition of a Unit or Interest, or any part thereof, directly or indirectly, or the sale, assignment, exchange, pledge, hypothecation, or other disposition of a controlling interest in the equity securities of a Member, and as a verb, voluntarily to transfer, sell, assign, exchange, pledge, hypothecate or otherwise dispose of.

 

1.2631Treasury Regulations” shall mean the regulations of the United States Department of the Treasury pertaining to the income tax, as from time to time in force.

 

1.2732Units” or “Membership Units” means the unit of measurement used to quantify the Members’ ownership interests in the Company.  The Board may issue an unlimited number of Membership Units.  Each Membership Unit consists of Governance Rights and Financial Rights and the right to assign together or separately such Governance Rights or Financial Rights in accordance with the Act, the Articles of Organization and this Agreement.  When the Governance Rights and Financial Rights attributable to a Membership Unit have been separated and such separation is reflected in the required records of the Company under the Act, references to Membership Unit shall mean the Governance Rights or Financial Rights related to such Membership Unit as appropriate in the context.  Except as otherwise provided in this Agreement, and unless the Board from time to time by resolution fixes the relative rights and preferences of different classes or series of Membership Units, all Membership units shall be ordinary Membership units of one class, without series, with one vote per Membership Unit on all matters and having equal rights and preferences in all other matters.  No Member shall have any preemptive rights to acquire additional Membership Units.

 

1.2833Value” shall mean, with respect to any Capital Contributions or Distributions, if cash, the amount of such cash, or if not cash, the value of such Capital Contribution or Distribution calculated pursuant to paragraph (d) of Section 5.4.

 

SECTION 2

INITIAL DATE, PARTIES AND TERMS OF AGREEMENT

 

2.1Formation.  The original parties to this Agreement organized a limited liability company under the provisions of the ActMinnesota LLC Act, Chapter 322B of the Minnesota Statutes, by delivering Articles of Organization to the Secretary of State of the State of Minnesota for filing, which were filed effective December 29, 2000.  The Board may take such further actions as it deems necessary or advisable to permit the Company to conduct business as a limited liability company in any jurisdiction.  The rights and liabilities of the Members under the Agreement shall be as provided by Minnesota law.  

 

2.2Name.  The name of the Company shall be Granite Falls Energy, LLC, or any other name permitted by the Act as the Members shall afterwards designate by appropriate amendment to the Company’s Articles or organization.

 

2.3Principal Office.  The principal office of the Company shall be at 2448-540th Street, Suite 1, Granite Falls, Minnesota 56241 (P.O. Box 216) or such place as the Board may, from time to time, designate by appropriate amendment to the Company’s Articles of Organization and/or this Agreement.  The Board may establish additional places of business for the Company when and where required by the business of the Company.  The Board may take such further actions as it deems necessary or advisable to permit the Company to conduct business as a limited liability company in any jurisdiction.

 

2.4Initial Date and Parties.

 

(a)This Agreement was first made on February 21, 2002 and was initially agreed to by the Company and all persons who on that date were Members of the Company.

 

(b)Ownership rights in the Company are measured by Units.  The Company shall maintain a membership register at its principal office or by a duly appointed agent of the Company setting forth the name, address, capital contribution and number of Units held by each Member which shall be modified from time to time as Transfers occur or as additional Units are issued pursuant to the provisions hereof.

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2.4Construction.  From and after the Effective Date, the rights and liabilities of the Members under the Agreement shall be as provided by the Minnesota Revised Uniform Limited Liability Act, Chapter 322C of the Minnesota Statutes, which such election was approved by the Members at a duly called meeting of the Members held on March 23, 2017 effective as of the Effective Date.  Whenever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under the Act, but if any provision of this Agreement, or the application thereof to any Person or under any circumstances, shall be invalid or unenforceable to any extent under the Act, such provision shall be deemed severed from this Agreement with respect to such Person or such circumstance, without invalidating the remainder of this Agreement or the application of such provision to other Persons or circumstances, and a new provision shall be deemed to be substituted in lieu of the provision so severed which new provision shall, to the extent possible, accomplish the intent of the parties hereto as evidenced by the provision so severed.

 

2.5Subsequent Parties.  No person may become a Member of the Company without first assenting to and signing this Agreement.  Any act by the Company to offer or provide member status, or reflect that status in the Company’s required records, automatically includes the condition that the person becoming a member first assents to and signs this Agreement.  Furthermore, no Member may offer to assign or assign Governance Rights or Membership Units unless the assignee has assented to and signed this Agreement.

 

2.6Relationship with ArticlesOrganizationIf aTo the extent that the rights or obligations of any Member are different by reason of any provision of this Agreement than they would be in the absence of such differs from a provision of the Company’s Articles of Organization, then to the extent allowed by law, this Agreement shall, to the extent permitted by the Act, controlgovern.

 

2.7Tax Matters and Partnership Status.  The members acknowledge that the Company will be treated as a “partnership” for federal and Minnesota state tax purposes.  The Members further intend, that as a result of this Agreement, and except for federal and state tax purposes, the Company shall not be a partnership (including limited partnership) or joint venture; and no member or governor shall be a partner or joint venturer of any other member.  All provisions of this Agreement, and the Company’s Articles of Organization are to be so construed.

 

2.8Fiscal Year.  The fiscal year of the Company shall begin on November 1st of each year and end on October 31st 

 

2.9Intent of this Agreement.

 

(a)The parties to this Agreement have reached an understanding concerning various aspects of (i) their business relationship with each other and (ii) the organization and operation of the Company and its business.  They wish to use rights created by statute to record and bind themselves to that understanding.    The Members hereby agree that this Agreement constitutes the “Member Control Agreement” and “Bylaws” as such terms are used in Chapter 322B and the “Operating Agreement” as that term is used in Chapter 322C of the Minnesota Statutes.

 

(b)The parties intend for this Agreement to control, to the extent stated or fairly implied, the business and affairs of the Company, including the Company’s governance structure and the Company’s dissolution and winding up, as well as the relations among the Company’s Members.  To the extent that the rights and obligations of any Member are different by reason of any provision of this Agreement than they would be in the absence of such provision, including by reason of the Articles of Organization of the Company, this Agreement, to the extent permitted by the Act, shall control.

 

2.10Advice of Counsel.  Each Person signing this Agreement:

 

(a)Understands that this Agreement contains legal binding provisions;

 

(b)Has had the opportunity to consult with that Person’s own lawyers; and

 

(c)Has either consulted that lawyer or consciously decided not to consult a lawyer.

 

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SECTION 3

BUSINESS OF THE COMPANY

 

The Company may engage in any lawful business activity; and this Agreement shall be construed in light of such purpose.  The Company has the power to do any and all acts necessary, appropriate, proper, advisable, incidental or convenient to or in furtherance of the purpose of the Company as set forth in this Section 3 and has, without limitation, any and all powers that may be exercised on behalf of the Company by the Governors pursuant to Section 6 hereof.

 

SECTION 4

CAPITAL CONTRIBUTIONS

 

4.1Initial Paid-In Capital.

 

(a)Prior to the date of this Agreement, the initial Members of the Company (the “Founders”) contributed cash to the capital of the Company as set forth in the required records of the Company.Ownership rights in the Company shall be measured in Units.  The Company shall maintain a membership register at its principal office or by a duly appointed agent of the Company setting forth the name, address, capital contribution and number of Units held by each Member which shall be modified from time to time as Transfers occur or as additional Units are issued pursuant to the provisions hereof.

 

(b)The Board of Governors, in its sole discretion, may from time to time by majority vote, accept additional subscriptions for Membership Units in the Company, or grant options, warrants or other rights to purchase or otherwise acquire Membership Units, all on such terms as the Board may determine.  Under acceptance of any such subscription, the Company shall promptly enter into a subscription agreement (and any agreement referred to therein), without the requirement of any further act, approval or vote of any other Person and such subscription agreement will, along with execution of agreement to be bound by this Agreement be deemed to satisfy all the conditions hereof.

 

(c)Each Founder shall be entitled, notwithstanding Section 10.1, to transfer such Founder’s Interest on a one time basis to another Person and at the Founder’s discretion; provided, however, that the Transferee’s ownership in all respects complies with the terms hereof and the Transferee becomes bound by all the terms and conditions set forth herein.

 

4.2Additional Capital Contributions.  No Member shall be required to make any additional contributions to the Capital of the Company.  No Member shall be obligated to satisfy any negative Capital Account Balance, except to the extent expressly set forth herein.  No Member shall be paid interest on any Capital Contribution.

 

4.3Maximum Ownership.  There is no limit on the number of Units or Percentage Interest that any Member may own.

 

4.4Withdrawal or Reduction of Members’ Capital Contributions.

 

(a)No Member has the right to withdraw all or any part of the Member’s Capital Contribution or to receive any return on any portion of the Member’s Capital Contribution, except as may be otherwise specifically provided in this Agreement.  Under circumstances involving a return of any Capital Contribution, no Member has the right to receive property other than cash.

 

(b)Unless the Board from time to time by resolution fixes the relative rights and preferences of different classes or series of Membership Units, no Member shall have priority over any other Members, either as to the return of Capital Contributions or as to Losses and Profits, or distributions, except as otherwise provided herein.

 

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4.5Loans from Governors and Members.  The Company may borrow money from and enter into other transactions with any Governor or Member or their Affiliates only in compliance with Section 6.1417.  Borrowing from or engaging in other transactions with one or more Governors or Members does not obligate the Company to provide comparable opportunities to other Governors or Members.  Any loan made by a Governor or Member (or their Affiliates) to the Company shall be evidenced by a promissory note made payable from the Company to such Governor or Member (or their Affiliates).  Loans by a Governor or Member to the Company shall not be considered Capital Contributions but shall be a debt due from the Company.  None of the Members or their Affiliates shall be obligated to make any loan or advance to the Company.

 

Loans by a Governor or Member to the Company shall not be considered Capital Contributions and shall be repaid pursuant to Section 5.4(a) below.

 

4.6Loans by Company to Members.  Unless otherwise approved by the Board of Governors, the Company will not make any loans to Members.

 

4.7Prohibition on Loans to Governors and Executive Officers.  Despite anything otherwise in this Agreement to the contrary, the Company shall note directly or indirectly, including through any subsidiary, extend or maintain credit, arrange for the extension of credit or renew an extension of credit, in the form of a personal loan to or for any governor or executive officer.

 

SECTION 5

ALLOCATIONS AND DISTRIBUTIONS

 

5.1Capital Accounts.  A “Capital Account” shall be established for each Member on the books of the Company and maintained in accordance with Section 1.7040-1(b)(2) of the Treasury Regulations, as amended from time to time.

 

(a)To each Member’s Capital Account shall be credited:

 

(i)the cash and the value of any property other than cash contributed by such Member to the capital of the Company;

 

(ii)such Member’s allocable share of Profits, and any items of income or gain which are specifically allocated to the Member; and

 

(iii)the amount of any Company liabilities assumed by such Member of which are secured by any property of the Company distributed to such Member.

 

The principal amount of a promissory note which is not readily traded on an established securities market and which is contributed to the Company by the maker of the note shall not be credited to the Capital Account of any Member until the Company makes a taxable disposition of the note or until (and only to the extent) principal payments are made on the note.

 

(b)To each member’s Capital Account there shall be debited:

 

(i)the amount of cash and the Value of any property other than cash distributed to such Member pursuant to Section 5.4;

 

(ii)such Member’s allocable share of Losses and any items of expense or loss which are specially allocated to the Member; and

 

(iii)the amount of any liabilities of such Member assumed by the Company or which are secured by any property contributed by such Member to the Company.

 

Provided; however, all of the foregoing to be determined in accordance with the rules set forth in Section 1.704-1(b)(2)(iv) of the Treasury Regulations, as amended from time to time.

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5.2Allocation of ProfitsAfter giving effect to Sections 5.6, 5.7 and any special allocations required thereunder, Profits of the Company shall be allocated to the Members according to their Percentage of Membership Units.

 

5.3Allocation of Losses.   After giving effect to Sections 5.6, 5.7 and any special allocations required thereunder, Losses of the Company shall be allocated to the Members according to their Percentage of Membership Units.

 

5.4Distributions.

 

(a)The Board of Governors shall determine, in its sole discretion, whether to distribute or retain all or any portion of the Profits.  The Governors may distribute cash to the Members irrespective of Profits.  All cash distributions shall be made to the Members in accordance with paragraph (c) of this Section 5.4; provided, however, no Member has a right to any distribution prior to the dissolution of the Company without the approval of the Board; provided, further, notwithstanding any other language herein no distributions in dissolution will be made until all loans from all Members, including all principal and interest, are repaid in full.  Such repayments shall be made on a Pro Rata basis.  Nothing herein shall be construed as requiring the making of distributions prior to the repayment of loans from unrelated parties.

 

(b)The Board may agree to distribute to the Members in kind any property held by the Company.  Any such distribution of the property shall be referred to herein as a “Distribution in Kind.”  The value of any such Distribution in Kind at the time of such distribution shall be determined in accordance with paragraph (d) of this Section 5.4 and such distribution shall be made to the Members in accordance with paragraph (c) of this Section 5.4.  Distribution in Kind, made pursuant to this paragraph (b), shall be subject to such restrictions and conditions as the Board shall have determined are necessary or appropriate in order for such distributions to be made in accordance with applicable law.  Notwithstanding the foregoing, Distributions in Kind shall not be allowed, unless they are (i) distributions of readily marketable securities, (ii) distributions of cash from a liquidating trust established for the dissolution of the Company and the liquidation of its assets in accordance with this Agreement or (iii) distributions of in-kind property in which the Members have been advised of the risks associated with such property, the Members have been offered the election of receiving in-kind property distributions and only the Members who accept the offer of in-kind property actually receive in- kind property.

 

(c)Subject to Section 5.510, and distribution of Profits in accordance with this Section 5.4, and any distribution, other than Profits or cash pursuant to paragraph (a) of this Section 5.4 or Distribution in Kind pursuant to paragraph (b) of Section 5.4, shall be made to the Members according to their Percentage of Membership Units.

 

(d)The Value of any Distribution in Kind as of any date of determination (or in the event such date is a holiday or other day that is not a business day, as of the next preceding business day) shall be the estimated fair market value of the property distributed.

 

(e)All distributions are subject to set-off by the Company for any past-due obligation of the members to the Company.

 

5.5Other Allocation Rules.  The provisions of Sections 5.5 through 5.11 are set forth in Schedule 5 attached hereto, which by this reference is incorporated into this Agreement.

 

(a)For purposes of determining the Profits, Losses, or any other items allocable to any period, Profits, Losses and any such other items shall be determined on a daily, monthly, or other basis, as determined by the Board, using any permissible method under Section 706 of the Code and the Treasury Regulations thereunder.

 

(b)The Members are aware of the income tax consequences of the allocations made by this Section 5 and hereby agree to be bound by the provisions of this Section 5 in reporting their shares of Company income and loss for income tax purposes.

 

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(c)Unless approved by the Board, in advance, all Allocations and Distributions (and K-1s reflecting the same) made by the Company shall be based on the record ownership of Membership units at the time for which such allocations or distributions are attributable.  For example, it shall be a Member’s responsibility in the event of a transfer of a Membership Interest in the Company (permitted under this Agreement) to request Board approval with respect to allocations or distributions being made to any transferee that arise from allocations or distributions attributable to a prior year where, at year end, the transferring member was the record owner of the Membership Units.

 

(d)Notwithstanding any provision herein to the contrary, in the event of Termination and Dissolution of the Company, sale of substantially all of its assets, or other action causing a distribution to Members other than in the ordinary course of business of the Company, the Board shall be authorized and shall adjust the distribution to any member (to include Founding Member) so that the Member will receive first, a distribution based upon the Members Percentage Interest as required by law and generally accepted principles of accounting, to the extent necessary to equalize all Members Capital Account Balances, and thereafter by Percentage of Membership Units.

 

5.612Transfer of Capital Accounts.  In the event all or a portion of an Interest in the Company is Transferred in accordance with the terms of the Articles of Organization and this Agreement, the transferee shall succeed to that portion of the Capital Account of the transferor which is allocable to the transferred Interest.

 

SECTION 6

MANAGEMENT OF THE COMPANY

 

6.1Management.

 

(a)Board of Governors.  The Company shall be managed by a Board of Governors whose members are elected, designated or appointed in accordance with Section 6.1(c f).  All powers of the Company shall be exercised by or under the authority of, and the business affairs of the Company managed under the directions of the Board of Governors in accordance this Agreement.  Individual Governors or Officers designated by the Board from time to time may act for or on behalf of the Company and execute all agreements on behalf of the Company and otherwise bind the Company as to third parties without the consent of the Members or remainder of the Board of Governors;  provided, however, that with respect to those issues requiring approval of the Members under the Act or as set forth in this Agreement, such approval must first be obtained; and further provided that except for those acts for which the approval of the Board of Governors is required by this Agreement, and except for those powers or acts specifically reserved to the Board of Governors by this Agreement, the Board of Governors shall have authority to appoint a management company to manage the business and affairs of the Company in accordance with agreements reached by the Board and any such management company from time to time.Except as otherwise provided in this Agreement, the management of the business and affairs of the Company shall be directed by the Board and not by its Members, and the Board shall exercise all powers of the Company except such powers as are by this Agreement or the Act conferred upon or reserved to the Members.  The Board shall adopt such policies, rules, regulations, and actions not inconsistent with law or this Agreement as they may deem advisable.  Subject to Section 6.7 hereof or any other express provisions hereof, the business and affairs of the Company shall be managed by or under the direction of the Governors and not by its Members.

 

(b)Delegation.    The salaries and other compensation, if any, of the Governors for management services shall be fixed annually by a vote of a Majority of the Board.

 

(i)Notwithstanding the power and authority of the Governors to manage the business and affairs of the Company, no Governor shall have authority to act as agent for the Company for the purposes of its business (including the execution of any instrument on behalf of the Company) unless the Governors have authorized the Governor to take such action; provided, however, that with respect to those issues requiring approval of the Members under the Act or as set forth in this Agreement, such approval must first be obtained.  The Governors may also delegate authority to manage the business and affairs of the Company (including the execution of instruments on behalf of the Company) to such Person or Persons (including to any Officers or Committees) designated by the Governors, and such Person or Persons (or Officers or Committees) shall have such titles and authority as determined by the Governors.

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(ii)Unless prohibited by a resolution of the Governors, Officers may delegate in writing some or all of the duties and powers of such Officer’s management position to other Persons. An Officer who delegates the duties or powers of an office remains subject to the standard of conduct for such Officer with respect to the discharge of all duties and powers so delegated. Any delegation pursuant to this Section 6.1(b) may be revoked at any time by the delegating Officer or by action of the Governors.

 

(c)Compensation.    The Board of Governors shall be comprised of natural persons as stated in the Articles of Organization.  The Board of Governors shall consist of the following:The salaries and other compensation, if any, of the Governors for management services shall be fixed annually by a vote of a Majority of the Board. No Member, Governor or Officer shall receive any salary, fee, or draw for services rendered to or on behalf of the Company merely by virtue of their status as a Member or Governor, it being the intention that, irrespective of any personal interest of any of the Governors, the Governors shall have authority to establish reasonable compensation of all Governors for services to the Company as Governors, Officers, or otherwise. Except as otherwise approved by or pursuant to a policy approved by the Governors, no Member or Governor shall be reimbursed for any expenses incurred by such Member or Governor on behalf of the Company. Notwithstanding the foregoing, by resolution by the Governors, the Governors may be paid as reimbursement therefor, their expenses, if any, of attendance at each meeting of the Governors. In addition, the Governors, by resolution, may approve from time to time, the salaries and other compensation packages of the Officers of the Company.

(i)Subject to Section 6.1(c)(vix), the Board of Governors shall consist of seven (7) individuals.

 

(ii)So long as it is a member and holds no less than 20% of the issued and outstanding Membership Units of the Company, Glacial Lakes Energy, LLC (“Glacial Lakes”) shall designate two (2) members to serve on the Board of Governors (the “Glacial Lakes Appointees”), and an alternate (the “Glacial Lakes Alternate”) to serve as described below.  Glacial Lakes shall promptly appoint any replacements for such individuals if they resign and/or retire from the Board of Governors or from service as an alternate.  If a Glacial Appointee is not available for, or during any part of, a meeting of the Board of Governors or to take action in writing in lieu of such a meeting, the Glacial Alternate is entitled to act as a Governor at such meeting, or during such part, or to take such action in writing (but only on behalf of one Glacial Appointee, if both are unavailable).  In any event, if Glacial Lakes is no longer a member of the Company or holds less that 205 of the issued and outstanding Membership Units of the Company, then the Glacial Lakes Appointees and the Glacial Lakes Alternate shall be deemed to have resigned and, unless the provisions of Section 6.1(c)(iii) apply, the Glacial Lakes Appointees shall be replaced as At-Large Additional Governors under Section 6.1(c)(v).

 

(iii)If Glacial Lakes sells a number of its Membership Units comprising at least 20% of the issued and outstanding Membership Units of the Company to a single person or entity that is not an Affiliate of Glacial Lakes, the buyer of such Membership Units (the “Glacial Successor”) shall succeed to Glacial Lakes’ right to designate two (2) members to serve on the Board of Governors (the “Glacial Successor Appointees”), and the alternate (the “Glacial Successor Alternate”).  The Glacial Successor’s right to designate the Glacial Successor Appointees and the Glacial Successor Alternate will terminate (and such Appointees and Alternate shall be deemed to have resigned and the Glacial Successor Appointees shall be replaced as At-Large Additional Governors under Section 6.1(c)©) upon the earlier of (x) the sale or other disposition of all or substantially all of the Glacial Successor’s assets, (y) the sale or other disposition (including whether by equity sale to, or merger or consolidation with or into, another person or entity) of a majority of the capital securities, or voting securities, of the Glacial Successor or (z) the date that the Glacial Successor no longer holds at least 20% of the issued and outstanding Membership Units of the Company.  Glacial Lakes shall have no other right to assign the appointment of Governors or an alternate except as provided by this Section 6.1(c)(iii).

 

(iv)So long as it is a member and holds no less than 5% of the issued and outstanding Membership Units of the Company, Fagen, Inc. (“Fagen”) shall designate one (1) member to serve on the Board of Governors (the “Fagen Appointee”).  Fagen shall promptly appoint any replacements for the Fagen Appointee in the event of his or her resignation and/or retirement from the Board of Governors.  In the event that Fagen is no longer a member of the Company or holds less than 5% of the issued and outstanding Membership Units in the Company, then the Fagen Appointee shall be deemed to have resigned and Fagen’s Appointee shall be replaced as an At-Large Additional Governor under Section 6.1(c)(v).  Notwithstanding the foregoing provisions of this Section 6.1(c)(iv), beginning on the date of the first election of Governors following the 2013 annual meeting,

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Fagen shall no longer separately appoint a Governor to serve on the Board of Governors and, as of such date, the Fagen Appointee shall be deemed to have resigned and shall be replaced as an At-Large Additional Governor under Section 6.1(c)(v).

 

(v)The remaining four Governors (the “At-Large Governors”), together with any Governor to be elected to fill a vacancy created by the deemed resignation above of a former Glacial Lakes, Fagen or Glacial Successor Appointee (an “At-Large Additional Governor”) shall be elected by the members of the Company.  However, Glacial Lakes, Glacial Successor and Fagen shall not be entitled to vote with respect to the election of the At-Large Governors or any At-Large Additional Governor if Glacial Lakes, the Glacial Successor and/or Fagen, as applicable, continues to have the right to separately appoint one or more Governors above.  The At-Large Governors and any At-Large Additional Governors shall together (by majority vote of all such Governors) designate an alternate (the “At-Large Alternate”) to serve as follows.  If any At-Large Governor or At-Large Additional Governor is not available for, or during any part of, a meeting of the Board of Governors or to take action in writing in lieu of such a meeting, the At-Large Alternate is entitled to act as a Governor at such meeting, or during such part, or to take such action in writing (but only on behalf of one At-Large Governor or At-Large Additional Governor, if more than one is unavailable).  The At-Large Governors and any At-Large Additional Governors shall together have the right to fill vacancies in the At-Large Governor and At-Large Additional Governor positions by majority vote.

 

(vi)The manner of election as to the At-Large Governors and any At-Large Additional Governors shall be by affirmative vote of a Plurality in Interest of the members (excluding Glacial Lakes, the Glacial Successor and Fagen to the extent noted above), so that the nominees receiving the greatest number of votes relative to all other nominees are elected as Governors and as follows:  at the First Annual Meeting of Members after the date hereof, one (or if greater, one-third rounded down to the nearest whole number) of the At-Large Governors and any At-Large Additional Governors shall be elected for a 3-year term (“Class One”); at the Second Annual Meeting of the Members after the date hereof, a second one (or if greater, one-half rounded down to the nearest whole number) of the total number of At-Large Governors and any At-Large Additional Governors that did not stand for election in Class One shall be elected to 3-year term (“Class Two”); and at the Third Annual Meeting of Members after the date hereof, the remaining At-Large Governors and At-Large Additional Governors shall be elected for a 3-year term (“Class Three”).

 

(vii)Each Governor shall serve until his or her successor is duly elected or, if earlier, until such Governor’s death, actual or deemed resignation or removal.

 

(viii)Each alternate, as designated above, shall be entitled to attend all Board functions and to receive and shall receive all information provided to the Governors; provided, however, that if legal counsel to the Company concludes that providing or sharing particular information with an alternate would jeopardize the Company’s attorney-client privilege, then the Company may withhold such information from the alternate.

 

(vix)The right is reserved to the Board of Governors to establish two (2) additional board seats upon such criteria as approved unanimously by the Board of Governors.

(d)Number of Governors.  The Board of Governors shall be comprised of natural persons as stated in the Articles.  The total number of Governors shall be a minimum of seven (7) and a maximum of eleven (11), excluding any alternate governor appointed pursuant to Section 6.1(e).  Unless and until adjusted by the Governors as provided in this Section 6.1(d), the number of Governors shall fixed at nine (9).  Subject to the election of Governors pursuant to the terms of this Agreement, the Governors may increase or decrease the number of Governors last approved within the range provided in this Section 6.1(d) Notwithstanding the foregoing, the Members may increase or decrease the total number of Governors and may change from a fixed number to a variable range or vice versa by the affirmative vote of a Majority in Interest of the members represented at a meeting of the Members (in person, by proxy, or by mail ballot).

 

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(e)Alternate Governor.  Notwithstanding the limitation on the number of Governors set in Section 6.1(c) above, the Board, by majority vote of the Governors, shall designate the Alternate to serve as follows.  If any Governor is not available for, or during any part of, a meeting of the Board of Governors or to take action in writing in lieu of such a meeting, the Alternate is entitled to act as a Governor at such meeting, or during such part, or to take such action in writing (but only on behalf of one Governor, if more than one is unavailable).  The Alternate, as designated herein, shall be entitled to attend all Board functions and to receive and shall receive all information provided to the Governors; provided, however, that if legal counsel to the Company concludes that providing or sharing particular information with an alternate would jeopardize the Company’s attorney-client privilege, then the Company may withhold such information from the alternate.

 

(f)Election of Governors. The manner of election of Governors shall be by affirmative vote of a Plurality in Interest of the Members, so that the nominees receiving the greatest number of votes relative to all other nominees are elected as Governors.  Governors shall be divided into three groups, Class One, Class Two or Class Three, with such classification to serve as the basis for staggering the terms among the Governors. At each annual meeting of the Members approximately one third of the Governors shall be elected by the Members for terms of three (3) years and shall serve until a successor is elected and qualified, or until the earlier death, resignation, removal or disqualification of any such Governor. 

 

(g)Nominations for Governors. One or more nominees for Governor positions up for election shall be named by the then current Governors or by a nominating committee established by the Governors. Nominations for the election of Governors may also be made by any Member entitled to vote generally in the election of Governors. Any Member that intends to nominate one or more persons for election as Governors at a meeting may do so only if written notice of such Member’s intent to make such nomination or nominations has been given, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the Company not less than sixty (60) days nor more than ninety (90) days prior to the annual meeting of the Company. Each such notice to the Secretary shall set forth:

 

(i)the name and address of record of the Member who intends to make the nomination;

 

(ii)a representation that the Member is a holder of record of Units of the Company entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice;

 

(iii)the name, age, business and residence addresses, and principal occupation or employment of each nominee;

 

(iv)a description of all arrangements or understandings between the Member and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the Members;

 

(v)such other information regarding each nominee proposed by such Member as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission;

 

(vi)the consent of each nominee to serve as a Governor of the Company if so elected; and

 

(vii)a nominating petition signed and dated by the holders of at least twenty-five percent (25%) of the then outstanding Units and clearly setting forth the proposed nominee as a candidate of the Governor’s seat to be filled at the next election of Governors.

 

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The Company may require any proposed nominee to furnish such other information as may reasonably be required by the Company to determine the eligibility of such proposed nominee to serve as a Governor of the Company. The presiding Officer of the meeting may, if the facts warrant, determine that a nomination was not made in accordance with the foregoing procedures, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded.

 

(h)Vacancies.  Whenever a vacancy occurs other than from expiration of a term of office or removal from office, a majority of the remaining Governors may, but are not obligated to, appoint a new Governor to fill the vacancy for the remainder of such term.  In the event the remaining Governors exercise their authority under Section 6.1(d) to increase the size of the Board of Governors within the range established therein, a new Governor shall be elected pursuant to Section 6.1(f) at the immediately following annual meeting of the Members.  Prior to the annual meeting following the expansion of the Board, a Majority of the Governors may, but are not obligated to, appoint a new Governor to serve until such annual meeting.

 

6.2Authority of the Board of Governors.  In addition to and not in limitation of any rights and powers conferred by law or other provisions of this Agreement, and except as limited, restricted or prohibited by the express provisions of this Agreement, the Board of Governors shall have and may exercise on behalf of the Company, all powers and rights necessary, proper, convenient or advisable to effectuate and carry out the purposes, business and objectives of the Company.  Such powers shall include, without limitation, the power to:

 

(a)Conduct the Company’s business, carry on its operations and have and exercise the powers granted by the Act in any state, territory, district or possession of the United States, or in any foreign country which may be necessary or convenient to effect any or all of the purposes for which it is organized;

 

(b)Acquire by purchase, lease, or otherwise any real or personal property which may be necessary, convenient, or incidental to the accomplishment of the purposes of the Company;

 

(c)Operate, maintain, finance, improve, construct, own, grant operations with respect to, sell, convey, assign, mortgage, and lease any real estate and any personal property necessary, convenient, or incidental to the accomplishment of the purposes of the Company;

 

(d)Execute any and all agreements, contracts, documents, certifications, and instruments necessary or convenient in connection with the management, maintenance, and operation of the business, or in connection with managing the affairs of the Company, including, executing amendments to this Agreement and the Articles in accordance with the terms of this Agreement, both as Governors and, if required, as attorney-in-fact for the Members pursuant to any power of attorney granted by the Members to the Governors;

 

(e) Expend Company funds in connection with the operation of the Company’s business or otherwise pursuant to this Agreement;

 

(bf)Employ and dismiss from employment any and all employees, agents, independent contractors, attorneys and accountants;

 

(cg)Prosecute, settle or compromise all claims against third parties, compromise, settle or accept judgment on, claims against the Company and execute all documents and make all representations, admissions and waivers in connection therewith;

 

(dh)Borrow money on behalf of the Company from any Person, issue promissory notes, drafts and other negotiable and nonnegotiable instruments and evidences of indebtedness, secure payment of the principal of any such indebtedness and the interest thereon by mortgage, pledge, property of the Company, whether at the time owned or thereafter acquired;

 

(ei)Hold, received, mortgage, pledge, lease, transfer, exchange, otherwise dispose of, grant options with respect to, and otherwise deal in the exercise all rights, powers, privileges and other incidents of ownership or possession with respect to all property of whatever nature held or owned by, or licensed to, the Company;

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(fj)Prepay in whole or in part, refinance, recast, increase, modify, or extend any liabilities affecting the assets of the Company and in connection therewith execute any extensions or renewals of encumbrances on any or all of such assets;

 

(k)Lend any of the Company property with or without security;

 

(gl)Have and maintain one or more offices within or without the State of Minnesota;

 

(hm)Care for and distribute funds to the Members by way of cash income, return of capital, or otherwise, all in accordance with the provisions of this Agreement, and perform all matters in furtherance of the objectives of the Company or this Agreement;

 

(n)Open, maintain and close bank accounts and money market mutual funds accounts, and draw checks and other orders for the payment of monies;

 

(io)Engage accountants, custodians, consultants and attorneys and any and all other agents and assistants (professional and nonprofessional) and pay such compensation in connection with such engagement that the Board of Governors determines is appropriate;

 

(jp)Enter into, execute, make, amend, supplement, acknowledge, deliver and perform any and all contracts, agreements, licenses, and other instruments, undertakings and understandings that the Board determines is necessary, appropriate or incidental to carrying out the business of the Company; Engage in any kind of activity and perform and carry out contracts of any kind (including contracts of insurance covering risks to Company assets and Governors’ and Officers’ liability) necessary or incidental to, or in connection with, the accomplishment of the purposes of the Company, as may be lawfully carried on or performed by a limited liability company under the laws of each state in which the Company is then formed or qualified;

 

(kq)Establish one or more committees of the Board, including an audit committee in compliance with the Securities Exchange Act of 1934, as amended, and a compensation committee;Take, or refrain from taking, all actions, not expressly prescribed or limited by this Agreement, as may be necessary or appropriate to accomplish the purposes of the Company;

 

(r) Redeem, repurchase or otherwise acquire any Units of a Member or otherwise liquidate all or any portion of a Member’s Interest or enter into any agreement for such repurchase, redemption or acquisition of Units on such terms the Governors reasonably believe are in the best interests of the Company;

 

(s) Institute, prosecute, defend, settle, compromise, and dismiss lawsuits or other judicial or administrative proceedings brought on or in behalf of, or against, the Company, the Members or the Governors or Officers in connection with activities arising out of, connected with, or incidental to this Agreement, and to engage counsel or others in connection therewith;

 

(t) Purchase, take, receive, subscribe for or otherwise acquire, own, hold, vote, use, employ, sell, mortgage, lend, pledge, or otherwise dispose of, and otherwise use and deal in and with, shares or other interests in or obligations of domestic or foreign corporations, associations, general or limited partnerships, other limited liability companies, or individuals or direct or indirect obligations of the United States or of any government, state, territory, government district or municipality or of any instrumentality of any of them;

 

(u)File a petition in bankruptcy on behalf of the Company;

and

 

(m)Delegate to the Chairman, President and other Officers, such responsibility and authority as the Board deems necessary or appropriate from time to time.

 

(v)Indemnify a Member or Governors or Officers, or former Members or Governors or Officers, and to make any other indemnification that is authorized by this Agreement in accordance with, and to the fullest extent permitted by, the Act.

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In exercising its powers, the Board of Governors may (i) rely upon and shall be protected from acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, or document believed by him or her to be genuine and to have been signed or presented by the proper party or parties; (ii) consult with counsel, accountants, and other experts selected by him or her and any opinion of an independent counsel, accountant or expert shall be full and complete authorization and protection in respect of any action taken or suffered or omitted by the Board of Governors in good faith and in accordance with such opinion; and (iii) execute any of his or her powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys.

 

6.3Duties and Obligations of the Board of GovernorsThe Board of Governors shall:

 

(a)Devote to the Company and apply to the accomplishment of Company purposes so much of the Board of Governors time and attention as they determine to be necessary or advisable to manage properly the affairs of the Company;

 

(b)Maintain accounting records from which a Company Capital Account Balance can be determined for each Member;

 

(c)Execute, file, record or publish all certificates, statements and other documents and do all things appropriate for the formation, qualification and operation of the Company and for the conduct of its business in all appropriate jurisdictions;

 

(d)Employ attorneys to represent the Company when necessary or appropriate;

 

(e)Use their best efforts to maintain the status of the Company as a “limited liability company” for state law purposes, and as a “partnership” for federal income tax purposes;

 

(f)Have fiduciary responsibility for the safekeeping and use of all funds and assets of the Company, and not employ or permit others to employ such funds or assets (including any interest earned thereon) in any manner except for the benefit of the Company; and

 

(g)Maintain a current list of the names, last known addresses and Percentage Interest of each Member at the Company’s principal office.The Governors shall be required to devote such time to the affairs of the Company as may be necessary to manage and operate the Company, and shall be free to serve any other Person or enterprise in any capacity that the Governor may deem appropriate in such Governor’s discretion.  Each Governor and Officer discharge his or her duties in good faith, in a manner the Governor or Officer reasonably believes to be in or not opposed to the best interests of the Company, and with the care an ordinarily prudent person in a like position would exercise under similar circumstances. Notwithstanding the foregoing, each Governor and Officer shall not engage with respect to the Company (i) in any act or omission which involves intentional harm to a Member or the Company or intentional violation of criminal law; (ii) in any transaction from which the Governor or Officer would receive an improper personal benefit; (iii) or ultra vires acts.  Except as provided herein, the Governors and Officers shall be under no other fiduciary duty to the Company or the Members to conduct the affairs of the Company in a particular manner and a Governor or Officer who so performs those duties shall not be liable by reason of being a Governor or Officer of the Company. 

 

6.4Resignation of Governor.  Any Governor may resign as Governor of the Company upon written notice to the Board of Governors.

 

6.5Removal of a GovernorOne or both of the Glacial Lakes Appointees may be removed from time to time with or without cause by Glacial Lakes.  One or both of the Glacial Successor Appointees may be removed from time to time with or without cause by the Glacial Successor.  The Fagen Appointee may be removed from time to time with or without cause by Fagen.  Any other Governor may be removed from time to time with or without cause by a Majority in Interest of Members.  However, Glacial Lakes, Glacial Successor and Fagen shall not be entitled to vote with respect to the removal of any At-Large Governors or any At-Large Additional Governor if Glacial Lakes, the Glacial Successor and/or Fagen, as applicable, continues to have the right to separately appoint one or more Governors under Section 6.1(c).The Members may, from time to time, remove a Governor, with or without cause, by a Majority in Interest of Members at a meeting called for that purpose, if notice has been given

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that a purpose of the meeting is such removal. Notwithstanding the foregoing, the Board of Governors shall have the discretion to remove any Governor who attends less than seventy-five percent (75%) of the Board’s meetings during any 12 month period as measured on a rotating basis. 

 

6.6Board Voting Requirements for Certain IssuesCommittees.  A resolution approved by the affirmative vote of a majority of the Governors may establish committees having the authority of the Governors in the management of the business of the Company to the extent consistent with this Agreement and provided in the resolution.  A committee shall consist of two or more Persons, who need not be Governors, appointed by affirmative vote of a majority of the Governors present. Committees may include an executive committee, a compensation committee and/or an audit committee, in each case consisting of one or more independent Governors or other independent persons. Committees are subject to the direction and control of the Governors and vacancies in the membership thereof shall be filled by the Governors. A majority of the members of the committee is a quorum for the transaction of business, unless a larger or smaller proportion or number is provided by the resolution of the Board authorizing such committee.During such time that Glacial Lakes is a member of the Company and holds at least 20% of the issued and outstanding Membership Units of the Company, the following actions shall require the minimum vote, as set forth in each item, of the full Board of governors before such decisions are binding or effective on the Company:

 

(i)Hiring of a manager or entering into an agreement to have management services provided to the Company shall require a two-thirds (2/3) vote;

 

(ii)The initial hiring of any marketer(s) or entering into an agreement to have marketing services provided to the Company (regarding the sale of ethanol, distillers grain, or any other products produced or sold by the Company) shall require a three-fourths (3/4) vote and any hiring thereafter shall require a two-thirds (2/3) vote;

 

(iii)The sale, lease, exchange or other disposition of any assets of the Company out of the ordinary course of business, except for sales of ethanol, distiller