DEF 14A 1 c964-20170228xdef14a.htm DEF 14A Current_Folio_Proxy_Statement

 

 

 

 

 

 

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

 

 

Heron Lake BioEnergy, LLC

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

No fee required.

Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

 

(1)

Title of each class of securities to which transaction applies:

 

 

 

 

(2)

Aggregate number of securities to which transaction applies:

 

 

 

 

(3)

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

 

 

 

(4)

Proposed maximum aggregate value of transaction:

 

 

 

 

(5)

Total fee paid:

 

 

 

Fee paid previously with preliminary materials.

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

(1)

Amount Previously Paid:

 

 

 

 

(2)

Form, Schedule or Registration Statement No.:

 

 

 

 

(3)

Filing Party:

 

 

 

 

(4)

Date Filed:

 

 

 


 

 

 

Image - Image1.gif

Heron Lake BioEnergy, LLC

91246 390th Avenue

Heron Lake, Minnesota 56137

(507) 793-0077

       

 

NOTICE OF 2017 ANNUAL MEETING OF MEMBERS

 

To Be Held Wednesday, March 22, 2017

       

 

TO THE MEMBERS OF HERON LAKE BIOENERGY, LLC:

The 2017 annual meeting of members (the “2017 annual meeting”) of Heron Lake BioEnergy, LLC (the “Company”) will be held on Wednesday, March 22, 2017, at the Heron Lake Community Center, 312 10th Street, Heron Lake, Minnesota 56137.  Registration for the meeting will begin at 12:00 p.m.  The 2017 annual meeting will commence at 1:00 p.m.

 

The purposes of the meeting are to:

 

·

Cast an advisory vote on executive compensation;

 

·

Elect one governor to serve on the Company’s board of governors until the 2020 annual meeting of members or until a successor is elected and qualified;

 

·

Consider and vote upon a proposal to amend our Member Control Agreement.  The proposed changes to the Member Control Agreement are described in detail in Proposal 3 in the accompanying proxy statement, including the full text of the amendments, and the form of the proposed Second Amendment to the Member Control Agreement is included 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.

The foregoing items of business are more fully described in the proxy statement accompanying this notice.

All unitholders 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 by fax to (320) 235-5962 or by mail to Christianson PLLP, Attention: Christina Boike, at 302 SW 5th Street, Willmar, MN 56201, using the enclosed envelope. 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, 2016.

By Order of the Board of Governors,

 

/s/ Paul Enstad

PAUL ENSTAD,

Chairman of the Board of Governors

Heron Lake, Minnesota

February 28, 2017

 


 

 

Heron Lake BioEnergy, LLC

91246 390th Avenue

Heron Lake, Minnesota 56137

(507) 793-0077

 

 

PROXY STATEMENT

for the

2017 Annual Meeting of Members

To be Held Wednesday, March 22, 2017

 

 

This proxy statement is furnished in connection with the solicitation by the board of governors (the “Board”) of Heron Lake BioEnergy, LLC (the “Company”, “we”, “us”, “our”) of the proxy authority included on the enclosed proxy card for use at the 2017 annual meeting of members to be held on Wednesday, March 22, 2017 (the “2017 annual meeting”), and any adjournment thereof.  The 2017 annual meeting will be held at the Heron Lake Community Center, 312 10th Street, Heron Lake, Minnesota 56137.  Registration for the meeting will begin at 12:00 p.m.  The 2017 annual meeting will commence at 1:00 p.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 March 6, 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.

 

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 three 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 one governor to serve on the Company’s board of governors. The elected governor will serve until the 2020 annual meeting of members and until their successors are elected; and

 

§

Proposals 3:  Consider and adopt the following proposed changes to our the Company’s Member Control Agreement, as amended August 30, 2011, and as further amended by that certain First Amendment to the Member Control Agreement (collectively referred to as the “Member Control Agreement”) to: (a) “opt-in” and elect governance under the Minnesota Revised Uniform Limited Liability Company Act (the “New LLC Act”) and make related definition revisions and consistency and wording changes to the Member Control Agreement; and (b) adopt certain tax audit procedures to be consistent with recent IRS regulatory changes to large partnership audit procedures.  

 

The proposed changes to the Member Control Agreement are described in detail in Proposal 3, including the full text of the amendments, and the form of the proposed Second Amendment to the Member Control Agreement is included in Appendix A to the proxy statement (the “Second Amendment”). Therefore, if Proposal 3 passes, then Second Amendment will be attached to and amend the Member Control Agreement effective as of the date of the 2017 annual meeting. 

 

·

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.

1


 

 

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 Rodney 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 Rodney Wilkison as proxies to vote on your behalf.

 

Q. Why did I receive this proxy statement?

 

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

 

In order to be considered a member, you must hold a minimum of 2,500 units. If you own fewer than 2,500 units, you are considered a non-member unit holder and have no rights except financial rights with respect to the units you own. We currently have 66 non-member unit holders who own an aggregate of 36,488 Class A units.

 

Q. Who can attend the annual meeting?

 

A:All members as of the close of business on the record date 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 of governors as required by the Company’s Member Control Agreement and the Minnesota Limited Liability Company Act set forth in Chapter 322B of the Minnesota Statutes. 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 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 the incumbent governor nominee with respect to Proposal 2; (ii) FOR Proposal 3.

 

·

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

 

2


 

 

Q.How many membership units are outstanding on the record date?

 

A: On February 28, 2017, there were 77,932,107 units of the Company issued and outstanding, consisting of 62,932,107 Class A units and 15,000,000 Class B units. There are no other classes of units outstanding.  Under the Company’s member control agreement, the Class A units and the Class B units are identical with respect to voting rights and privileges and vote together as one class.  Therefore, when we refer to “units”, unless the context otherwise requires, we are referring to the Class A units and Class B units collectively.

 

Under our member control agreement, only members may vote at the 2017 annual meeting.  We currently have 66 non-member unit holders who own an aggregate of 36,488 Class A units.  Therefore, the total number of units outstanding and entitled to vote at the 2017 annual meeting is 77,895,619 units.

 

Q. What am I voting on?

 

A: Members will vote on three proposals at the 2017 annual meeting:

 

·

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.” The Board recommends a vote FOR Proposal 1.

 

·

Proposal 2: The election of one governor. Michael S. Kunerth, the incumbent governor, has been nominated by the nomination and governance committee for re-election at the 2017 annual meeting.  Detailed information on Mr. Kunerth is provided below at “Section II - Proposals To Be Voted On, Proposal 2 - Election Of One Governor”. The board of governors believes the nominee is well qualified to serve as a governor of the Company and recommends a vote FOR Mr. Kunerth.

 

Any member who is entitled to appoint a governor pursuant to Section 5.3(a)(iv) of the Member Control Agreement (an “appointing member”), and such appointing members’ affiliates, are not entitled to vote for the election of any governors.  As of the record date, Project Viking, L.L.C. (“Project Viking”), a wholly owned subsidiary of Granite Falls Energy, LLC (“Granite Falls Energy”), is the only member entitled to appoint governors under our Member Control Agreement. Accordingly, Granite Falls Energy (and Project Viking) is not entitled to vote for the election of governors.

 

·

Proposal 3: Amendments to the Company’s Member Control Agreement as described in Proposal 3, with the proposed changes set forth in their entirety in the form of the Second Amendment to the Member Control Agreement provided herewith in Appendix A.  This proposal is discussed below beginning at “Section II - Proposals To Be Voted On, Proposal 3 - Amendment to the Company’s Member Control Agreement”.  We encourage you to read Proposal 3and Appendix A in their entirety before voting. The Board recommends a vote FOR Proposal 3.

 

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.

 

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.

 

However, as stated above, units owned by an appointing member, and such appointing member’s affiliates, are not entitled to be voted in the election of any governors.  Therefore, the 39,420,949 units controlled by Granite Falls Energy as of February 28, 2017 are excluded from voting in the election of governors.

 

3


 

 

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. You may vote “FOR,” “AGAINST” or “ABSTAIN” on Proposal 2.

 

·

Proposal 2: In the election of one governor, the sole nominee will be elected as governor if the nominee receives an affirmative vote of the members holding at least a majority of the units present, in person or by proxy, at the 2016 annual meeting (excluding units controlled by Granite Falls Energy and its affiliates). Members are not entitled to cumulate their voting power for the election of governors. You may vote "FOR", "WITHHOLD/AGAINST" or "ABSTAIN" with respect to the nominee.

 

·

Proposals 3: The affirmative vote of the holders of a majority of the total number of membership units outstanding is required to adopt the amendments described in Proposal 3 and set forth in their entirety in the form of Second Amendment to the Member Control Agreement included as Appendix A hereto.  On February 28, 2017, there were 77,895,619 units outstanding and entitled to vote at the 2017 annual meeting (which excludes units held by non-member unit holders). Therefore, a vote FOR by 38,947,810 membership units is required to approve Proposal 3.

 

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 have the same effect as a vote of “WITHHOLD/AGAINST” that nominee. 

 

·

Proposal 3:   If you abstain from voting Proposal 3, 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

 

·

Giving written notice of revocation that is received by Christianson PLLP by 5:00 p.m. on Tuesday, March 21, 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 proxies 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 proxies will vote your units FOR Mr. Kunerth, the incumbent governor nominee, with respect to Proposal 2. If you mark contradicting choices on the proxy card, such as both FOR and WITHHOLD/ABSTAIN for the nominee, your votes will not be counted with respect to the governor candidate.

 

4


 

 

·

For 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 mark contradicting choices on the proxy card, such as both FOR and AGAINST and/or ABSTAIN for Proposal 3, it has the same effect as a vote AGAINST Proposal 3. 

 

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.   A majority in interest of members, represented in person or by proxy, constitutes a quorum necessary for the transaction of business at the 2017 annual meeting. “Majority in interest” means members holding more than 50% of the units then held by all members. 

 

Because there is an aggregate total of 77,895,619 units held by members (which excludes units held by non-member unit holders), quorum for the 2017 annual meeting requires that 38,947,810 units be represented at the meeting in person or by proxy.  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.

 

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

 

A: No. Neither the election of governors, the advisory vote on executive compensation, nor the proposed amendment to the Company's Member Control Agreement is a circumstance in which the Minnesota Limited Liability Company Act or the Company's Member Control Agreement provides members with dissenters' rights.

Pursuant to the Minnesota Limited Liability Company Act, dissenters’ rights are available to members under the following circumstances: (i) an amendment to the articles of organization which materially and adversely affects the rights or preferences of the membership interests of the dissenting member; (ii) a sale, lease, transfer, or other disposition of property and assets requiring member approval; (iii) a plan of merger; (iv) a plan of exchange; (v) a plan of conversion; or (vi) any other action taken to which the articles of organization, member control agreement, bylaws, or a resolution approved by the board of governors directs that dissenting members may obtain payment for their membership units. In addition, the Company’s member control agreement does not provide for 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.

 

 

5


 

 

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.

 

 

SECTION II - PROPOSAL 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 Heron Lake BioEnergy, 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 ‘Compensation of Executive Officers’.”

 

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.

 

6


 

 

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.

 

 

PROPOSAL 2:

 

ELECTION OF ONE GOVERNOR

 

Our Board consists of nine elected governors, which includes four elected governors and five appointed governors.  In addition, we have three alternate governors to our Board - one alternate to our elected governors and two alternates to the appointed governors.  The alternate to our elected governors is appointed collectively by our elected governors.  The alternate governors to the appointed governors are appointed by the appointing member.  Additional information regarding our Board and our continuing governors is set forth below under the sections entitled “Section III - Required Information, Board of Governors and Company Governance.”

 

Under our Member Control Agreement, the elected governors’ terms (other than the alternate to the elected governors) are staggered such that so that one-third of the governors (or as nearly as possible) are elected by the members at each annual meeting.    Our elected governor nominees are nominated by our Board, following consideration by our Board’s nominating committee, and then elected by our members. 

 

Upon the recommendation of the nomination and governance committee, the Board has nominated Michael S. Kunerth, the incumbent governor, for election.  The board of governors has determined that Mr. Kunerth is qualified to serve as a governor and he has indicated his willingness to serve as a governor if elected. The Board recommends a vote FOR re-election Mr. Kunerth at the 2017 annual meeting.

 

Under the member control agreement, appointing members, and such appointing member’s affiliates, are not entitled to vote for the election of governors.  As of the record date, Granite Falls Energy, as a result of its 100% ownership of Project Viking, is the Company’s sole appointing member and has appointed five governors to the board of governors pursuant to this right.  Accordingly, Granite Falls Energy (and Project Viking) is not entitled to vote for the election of a governor.  Detailed information regarding the governors appointed by Granite Falls Energy is provided below under Section III - Required Information, Board of Governors and Company Governance.”

 

Except for the appointment right described above, we know of no arrangements or understandings between a governor or nominee and any other person pursuant to which he has been selected as a governor or nominee. There is no family relationship between any of the nominees, our governors or our executive officers.

 

Information Regarding the Nominee

 

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”.

7


 

 

Michael S. Kunerth - Age 49, Incumbent Elected Governor, Nominee for Elected Governor, and Incumbent Secretary of the Board of Governors.  Mr. Kunerth has served on our board of governors since our inception.  He has operated a corn and soybean farm near Brewster, Minnesota since 1990. Since 1992, Mr. Kunerth has also operated a retail seed and service business specializing in seed and precision agricultural equipment. From 1994 to 2008, Mr. Kunerth also served as the Clerk of Graham Lakes Township. He holds a B.S. degree in business management from St. John’s University, Collegeville, Minnesota. Mr. Kunerth was an original member of our founding board of governors and formerly served as treasurer.  Mr. Kunerth is a member of the audit committee for the Company and past chair of the audit committee.  He also serves on the Company’s compensation committee. Mr. Kunerth is an important resource to the board due to his agriculture and business experience and first-hand knowledge of the Company’s history and business.

 

Mr. Kunerth 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).  Mr. Kunerth does not 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 does he serve as a director of an investment company registered under the Investment Company Act of 1940, as amended.

 

Effect of Your Proxy

 

You may only mark one voting choice with respect to the nominee, either “FOR”, “WITHHOLD/AGAINST” or “ABSTAIN”.   If you mark “ABSTAIN”, it has the same effect as a vote of “WITHHOLD/AGAINST” that nominee.  If you just sign and submit your proxy without voting instructions, your units will be voted “FOR” for the incumbent nominee for governor. If you mark contradicting choices on your proxy card such as both “FOR” and “ABSTAIN”, your votes will not be counted with respect to the nominee. FOR EACH PROPERLY EXECUTED PROXY CARD WHERE THE MEMBER DOES NOT MARK ANY CHOICES FOR GOVERNOR, THE PROXIES WILL VOTE FOR THE INCUMBENT GOVERNOR NOMINEE MICHAEL S. KUNERTH.

 

 If at the time of the 2017 annual meeting, the 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

 

Under our Member Control Agreement, the sole nominee for governor will be elected if the nominee receives an affirmative vote of the members holding at least a majority of the units present, in person or by proxy, at the 2017 annual meeting. Members are not entitled to cumulate their voting power for the election of governors. 

 

Any member who is entitled to appoint one or more governors pursuant to Section 5.3(a)(iv) of our Member Control Agreement, and such appointing member’s affiliates, are not entitled to vote for the election of governors.  Granite Falls Energy, as a result of its 100% ownership of Project Viking, is the only appointing member of the Company.  Accordingly, the 39,420,949 units held by Granite Falls Energy (through Project Viking) as of February 28, 2017, are excluded in determining the outcome of the vote for the election of governors.

The board believes the nominee is well qualified to serve as a governor of the Company.  THE BOARD RECOMMENDS A VOTE FOR THE INCUMBENT GOVERNOR MICHAEL S. KUNERTH.

 

 

PROPOSAL 3

 

SECOND AMENDMENT TO

THE COMPANY’S MEMBER CONTROL AGREEMENT

 

In December 2016, our Board undertook a review of the Company’s Member Control Agreement, as amended August 30, 2011, and as further amended by that certain First Amendment to the Member Control Agreement (collectively referred to as the “Member Control 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 the Member Control Agreement in order to make the following changes:

 

·

“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 definition, consistency and wording changes to the Member Control Agreement; and

 

8


 

 

·

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.

 

The Company does not believe that any of the proposed revisions materially change the terms of the Member Control Agreement.  A description of each of the changes contemplated by Proposal 3 set forth below.  The complete text of the changes proposed by the Second Amendment to the Member Control Agreement is set forth below and the form of the proposed Second Amendment to the Member Control Agreement is included in Appendix A.  Members are encouraged to carefully read this Proposal 3 and Appendix A in their entirety to fully understand the proposed changes.

 

Election of Application 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 became effective August 1, 2015, which delayed effectiveness as to existing limited liability companies.  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 Member Control Agreement. 

 

Therefore, the Board proposes that the members adopt Proposal 3 and implement the following changes:

 

·

Amendment to Section 1.1 to reflect adoption of governance under the New LLC Act. Language that is struck through is the language that would be deleted and language that is underlined would be added as replacement to Section 1.1 if Proposal 3 is approved:

 

The original Members have caused the Company to be formed as a Minnesota limited liability company pursuant to the provisions of the Chapter 322B of the Minnesota Statutes Act. The Members hereby agree that this Agreement constitutes the “member control agreement” within the meaning of Section 322B.37 of Chapter 322B and the “operating agreement” within the meaning of Section 322C.0102(17) of Chapter 322Cthe Act.  From and after March 22, 2017, 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 22, 2017. To 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 provisions, this Agreement, to the extent permitted by the Act, shall control.

 

·

Amendment of definitions of “Act” and “Board” set forth in Section 1.13 to reflect adoption of governance under the New LLC Act.  Language that is struck through is the language that would be deleted and language that is underlined would be added to Section 1.13 if Proposal 3 is approved:

 

“Act” means the Minnesota Limited Liability Company Act as set forth in Chapter 322B of the Minnesota Statutes Annotated (commencing with Section 322B.01), as amended from time to time (or any corresponding provision or provisions of any succeeding law). Effective on and after March 22, 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).

 

“Board” means collectively the persons who are named as Governors of the Company in or designated or elected as Governors pursuant to this Agreement. “Governor” or “Governors” means any such person or persons.  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.

 

9


 

 

·

Amendment to Section 14.3 to add what is commonly referred to as a “savings” clause to ensure that any language of the Member Control Agreement not revised by these amendments is interpreted in a manner to ensure application under the New LLC Act.  Language that is underlined would be added to Section 14.3 if Proposal 3 is approved:

 

Every covenant, term, and provision of this Agreement shall be construed simply according to its fair meaning and not strictly for or against any Member. 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.

 

Changes to Tax Matters Provisions and Adoption of Tax Audit Procedures

 

Proposal 3 also contemplates approval of the certain changes to Section 8.3 of the Member Control Agreement to make the provisions of Section 8.3 to adopt tax audit procedures in order to ensure the Company’s tax audit procedures are consistent with recent IRS regulatory changes to large partnership (100 or more partners) audit procedures. 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 Member Control Agreement and are consistent with the current accounting practices of the Company. 

 

Therefore, the Board proposes that the members adopt Proposal 3 and implement the following changes to Section 8.3.  Language that is underlined would be added to Section 8.3 if Proposal 3 is approved:

 

8.3 Tax Matters.

 

(a) Tax Elections. The Board shall, without any further consent of the Members being required (except as specifically required herein), make any and all elections for federal, state, local, and foreign tax purposes including, without limitation, any election, if permitted by applicable law: (i) to make the election provided for in Code Section 6231(a)(1)(B)(ii) or take any other action necessary to cause the provisions of Code Sections 6221 through 6231 to apply to the Company, as amended by the Bipartisan Budget Act of 2015 (“BBA”) [refers to election by certain “small partnerships” that are not covered by the TEFRA audit rules to have such rules apply to them] (ii) to adjust the basis of Property pursuant to Code Sections 754, 734(b) and 743(b), or comparable provisions of state, local or foreign law, in connection with Transfers of Units and Company distributions; (iii) with the consent of all of the Members, to extend the statute of limitations for assessment of tax deficiencies against the Unit Holders with respect to adjustments to the Company’s federal, state, local or foreign tax returns; and (iv) to the extent provided in Code Sections 6221 through 6231, as amended by the BBA, and similar provisions of federal, state, local, or foreign law, to represent the Company and the Unit Holders before taxing authorities or courts of competent jurisdiction in tax matters affecting the Company or the Unit Holders in their capacities as Unit Holders, and to file any tax returns and execute any agreements or other documents relating to or affecting such tax matters, including agreements or other documents that bind the Unit Holders with respect to such tax matters or otherwise affect the rights of the Company and the Unit Holders. The Board shall designate a qualifying Member to act as the tax matters partner within the meaning of and pursuant to Regulations Sections 301.6231(a)(7)-1 and —2 (prior to its amendment by the BBA) or any similar provision under state or local law.  Such “tax matters partner” shall become the “partnership representative” within the meaning of Section 6223(a) of the Code (as amended by the BBA) as in effect for the tax years beginning on or after January 1, 2018.

 

(b) Tax Information. Necessary tax information shall be delivered to each Unit Holder as soon as practicable after the end of each Fiscal Year of the Company but not later than five (5) months after the end of each Fiscal Year.

 

(c)Tax Returns and Tax Deficiencies. Each Unit Holder agrees that such Unit Holder shall not treat any Company item inconsistently on such Unit Holder's federal, state, foreign, or other income tax return with the treatment of the item on the Company's return. Any deficiency for taxes imposed on any Unit Holder (including penalties, additions to tax, or interest imposed with respect to such taxes and taxes imposed pursuant to Code Section 6226 as amended by the BBA) will be paid by such Unit Holder and if required to be paid (and actually paid) by the Company, will be recoverable from such Unit Holder as provided in Section 4.2.

10


 

 

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 proposed amendments to the Company’s Member Control 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

 

If Proposal 3 passes, then the Second Amendment will be attached to and amend the Member Control Agreement, and the changes to the Member Control Agreement described in Proposal 3 will be 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 and the Company’s Member Control Agreement will remain in effect as is.     

 

 

 

11


 

 

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)

 

Percent of All Classes(3)

Class A Units

 

Leslie Bergquist

 

Appointed Governor

 

Units

 

%

 

%

Class A Units

 

Dean Buesing

 

Appointed Governor

 

Units

 

%

 

%

Class A Units

 

Steve Christensen

 

Chief Executive Officer & General Manager

 

Units

 

%

 

%

Class A Units

 

Paul Enstad

 

Appointed Governor & Chairman

 

Units

 

%

 

%

Class A Units

 

Robert Ferguson(4)

 

Elected Governor

 

296,250 

Units

 

*

%

 

*

%

Class A Units

 

Marten Goulet

 

Appointed Governor

 

Units

 

%

 

%

Class A Units

 

Kenton Johnson

 

Alternate Appointed Governor

 

Units

 

%

 

%

Class A Units

 

Michael Kunerth(5)

 

Incumbent Nominee & Secretary

 

977,000 

Units

 

1.55 

%

 

1.25 

%

Class A Units

 

Milton McKeown(6)

 

Alternate Elected Governor

 

122,000 

Units

 

*

%

 

*

%

Class A Units

 

Doug Schmitz(7)

 

Elected Governor

 

2,039,675 

Units

 

3.24 

%

 

2.62 

%

Class A Units

 

Stacie Schuler

 

Chief Financial Officer

 

Units

 

%

 

%

Class A Units

 

Martin Seifert

 

Alternate Appointed Governor

 

Units

 

%

 

%

Class A Units

 

Rodney Wilkison

 

Appointed Governor & Chairman

 

Units

 

%

 

%

Class A Units

 

Dave Woestehoff(8)

 

Elected Governor

 

3,239,846 

Units

 

5.15 

%

 

4.16 

%

All Governors, Officers and Nominees as a Group:

6,674,711 

Units

 

10.61 

%

 

8.56 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

Class A Units

 

Granite Falls Energy(9)

 

 

 

24,420,949 

Units

 

38.81 

%

 

31.34 

%

Class B Units

 

Granite Falls Energy(9)

 

 

 

15,000,000 

Units

 

100.00 

%

 

19.25 

%

All Classes

 

Granite Falls Energy(9)

 

 

 

39,420,949 

Units

 

 

 

 

50.58 

%

 

 

* Indicates less than 1% ownership.

 

(1) The address for all governors, nominee and named executive officers is the Company’s principal executive offices located at 91246 390th Avenue, Heron Lake, Minnesota 56137.  The address for Granite Falls Energy, LLC is 15045 Highway 23 SE, Granite Falls, Minnesota 56241.

 

(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.

12


 

 

(3)The percentages in the table are based on 77,932,107 units of the Company issued and outstanding as of February 28, 2017, consisting of 62,932,107 Class A units and 15,000,000 Class B units

 

(4)Includes 148,125 Class A Units owned by Mr. Ferguson and 148,125 Class A Units owned by Mr. Ferguson’s spouse.

 

(5)Includes 11,000 Class A Units owned by Mr. Kunerth , 483,000 Class A Units owned by the Dawn Kunerth and Michael Kunerth Trust dated July 18, 2006 and 483,000 Class A Units owned by the Michael Kunerth Trust dated July 18, 2006. Mr. Kunerth and his spouse are trustees of each of these trusts.

 

(6)All Units are owned jointly by Mr. McKeown and his spouse.

 

(7)Includes 860,000 Class A Units owned by Doug Schmitz, 38,092 Class A Units owned by Mr. Schmitz and his spouse, 44,432 Class A Units owned by Mr. Schmitz’s spouse, and 1,097,151 Class A Units owned by Schmitz Grain Inc., which is controlled by Doug Schmitz.

 

(8)All Units are owned jointly by Mr. Woestehoff and his spouse.

 

(9)Each of Messrs. Enstad, Wilkison, Buesing, Goulet, Bergquist, Johnson and Seifert, were appointed to our board by Granite Falls Energy, and each serves a governor on the board of governors of Granite Falls Energy. However, each of Messrs. Enstad, Wilkison, Buesing, Goulet, Bergquist, Johnson and Seifert disclaim beneficial ownership of the securities indicated, and the reporting herein of such securities shall not be construed as an admission that any of the foregoing is the beneficial owner thereof for purposes of Section 16 or for any other purpose.

 

 

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.

 

 

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.

 

Corn Transactions

 

In the ordinary course of business, we regularly enter into transactions to buy grain. From time to time, we may buy grain from related persons on the same basis as we buy grain from unrelated parties. For the fiscal year ended October 31, 2016, we purchased approximately $15.0 million of corn from board members, consisting of approximately $445,000 from Robert J. Ferguson and approximately $14.6 million in grain from Schmitz Grain, Inc., which is controlled by our governor Doug Schmitz.

13


 

 

Management Services Agreement with Granite Falls Energy

On July 31, 2013, we entered into a management services agreement with Granite Falls Energy for the purpose of sharing certain management employees. At the expiration of the initial three-year term, the management services agreement will automatically renew for successive one-year terms unless and until the Company or Granite Falls Energy gives the other party 90-days written notice of termination prior to expiration of the initial term or the start of a renewal term. The management services agreement may also be terminated by either party for cause under certain circumstances.

 

Under the management services agreement, Granite Falls Energy supplies its personnel to act as part-time officers and managers of the Company for the positions of chief executive officer, chief financial officer, and risk manager. In return, we paid Granite Falls Energy $35,000 per month for the first year of the management services agreement. During years two and three of the management services agreement and any renewal term, the Company pays Granite Falls Energy 50% of the total salary, bonuses and other expenses and costs (including all benefits and tax contributions) incurred by Granite Falls Energy for the three management positions, paid on an estimated monthly basis with a “true-up” following the close of Granite Falls Energy’s fiscal year.  Granite Falls Energy is responsible for and agreed to directly pay salary, wages, and/or benefits to the persons providing management services under the management services agreement.

 

The total costs that the Company incurred under the management services agreement for fiscal year 2016 was approximately $375,000.

 

Review and Approval of the Transactions with Project Viking and Granite Falls Energy

 

The transactions and agreements with Granite Falls Energy described above, were reviewed and approved by a Special Committee of the board of governors. The Special Committee was comprised of Robert J. Ferguson, Doug Schmitz, David J. Woestehoff, Michael S. Kunerth and Milton J. McKeown. The governors serving on the Special Committee had no personal interest in the transactions contemplated by the management services agreement or related transactions. The governors serving on the Special Committee also were not affiliated with Granite Falls Energy or Project Viking or any of their respective affiliates

 

Process for Review, Approval or Ratification of Transactions with Related Persons

 

The charter of our audit committee provides that the audit committee is responsible for reviewing and approving the terms and conditions of all of transactions we enter into in which an officer, governor or any member holding greater than 5% or any affiliate of these persons has a direct or indirect material interest. Our Code of Business Conduct and Ethics, which is applicable to all of our employees and governors, also prohibits our employees, including our executive officers, and our governors from engaging in conflict of interest transactions. Requests for waivers by our executive officers and governors from the provisions of, or requests for consents by our executive officers and governors under, our Code of Business Conduct and Ethics must be made to the audit committee.

 

In addition, in December 2007, we adopted a formal related person transaction approval policy, which sets forth our policies and procedures for the review, approval or ratification of any transaction required to be reported in our filings with the SEC. Our policy applies to any financial transaction, arrangement or relationship or any series of similar transactions, arrangements or relationships in which our company is a participant and in which a related person has a direct or indirect interest. Through the policy, the audit committee has also identified and pre-approved certain transactions with related persons, including:

 

·

employment and compensation of our executive officers or governor compensation, if required to be reported in under the disclosure requirements of the SEC;

 

·

payment of ordinary expenses and business reimbursements;

 

·

transactions with another company in which the related party’s only relationship is as a non-executive officer, employee, governor/director or beneficial owner of less than 10% of the other company’s voting equity and in which the dollar amount does not exceed the greater of $100,000 or 2% of the other company’s total revenues;

 

·

any transaction with another company controlled by a related party or with a related party for the purchase by us of corn where (A) the amount of corn sold in the transaction does not exceed 200,000 bushels; (B) the contract for delivery of the corn specifies a delivery date of not more than sixty (60) days from the date of the contract; (C) the price per bushel is fixed at the time of the contract; and (D) where the amount paid per bushel or other material terms of the transaction are based on consideration or criteria generally applicable to other sellers of corn of a like quality and quantity, given the conditions of the grain markets at the time of sale;

 

14


 

 

·

charitable contributions in which the dollar amount does not exceed $100,000 or 2% of the charitable organization’s receipts if the related party’s only relationship is as a non-executive officer, employee or a governor/director;

 

·

payments made under our Articles of Organization, member control agreement, insurance policies or other agreements relating to indemnification;

 

·

transactions in which our members receive proportional benefits; and

 

·

transactions that involve competitive bid, banking transactions and transactions where the terms of which are regulated by law or governmental authority.

 

The audit committee must approve any related person transaction subject to this policy before commencement of the related party transaction. If pre-approval is not feasible, the audit committee may ratify, amend or terminate the related person transaction. The audit committee will analyze the following factors, in addition to any other factors the Committee deems appropriate, in determining whether to approve a related party transaction:

 

·

whether the terms are fair to us;

 

·

whether the terms of the related party transaction are no less favorable than terms generally available to an unaffiliated third-party under the same or similar circumstances;

 

·

whether the related party transaction is material to us;

 

·

the role the related party has played in arranging the transaction;

 

·

the structure of the related party transaction;

 

·

the interests of all related parties in the transaction;

 

·

the extent of the related party’s interest in the transaction; and

 

·

whether the transaction would require a waiver of our Code of Business Conduct and Ethics.

 

The audit committee may, in its sole discretion, approve or deny any related person transaction. Approval of a related person transaction may be conditioned upon our company and the related person taking such precautionary actions, as the audit committees deems appropriate.

 

 

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 chief executive officer, while Paul Enstad is the chairman of the Board.  Our chief executive officer is employed by Granite Falls Energy and is provided on a part-time basis to the Company pursuant to our management services agreement with Granite Falls Energy.

 

Separation of the two offices is not mandated by the Company’s 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.

 

15


 

 

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 commodity price risk management, 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 governors, including five appointed governors and four 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.  

 

Under Section 5.3(a)(iv) of the Member Control Agreement, any member who, together with such member’s affiliates, holds 9% or more of the units outstanding is entitled to appoint one governor to the board for every 9% of units held, up to the right to appoint a maximum of four governors by any member who, together with such member’s affiliates, holds 36% or more of the units outstanding but less than a majority of the units outstanding. No member who, together with such member’s affiliates, holds 45% or more of the units outstanding but less than a majority of the units outstanding is entitled to appoint a majority of the governors to the board, notwithstanding the fact that such member together with such member’s affiliates owns 45% or more but less than a majority of the units outstanding. Any member who, together with such member’s affiliates, holds a majority of the units outstanding is entitled to appoint a majority of the governors (five governors) to the board of governors.  An appointed governor serves indefinitely at the pleasure of the member appointing him or her (so long as such member and its affiliates continue to hold a sufficient number of units to maintain the applicable appointment right) until a successor is appointed, or until the earlier death, resignation or removal of the appointed governor.

 

Project Viking, a wholly owned subsidiary of Granite Falls Energy, is the only member entitled to appoint governors under Section 5.3(a)(iv) of our member control agreement. Granite Falls Energy, through Project Viking, controls 39,420,949 units, or approximately 50.6% of our issued and outstanding units.  Accordingly, Granite Falls Energy has the right to appoint a majority of the Company’s board of governors and has appointed the following five governors: Paul Enstad, Rod Wilkison, Dean Buesing, Marten Goulet, and Leslie Bergquist.

 

In addition to our appointed and elected governors, our board of governors includes three alternate governors.  Two of these alternates serve as available replacements to the appointed governors and are designated by Granite Falls Energy.  One of the alternate governors serves as an available replacement to the elected governors and is designated by the elected governors of the board of governors.  The alternate governors are entitled to attend and participate in all meeting of the board, but are only entitled to vote at a board meeting at which an appointed governor or elected governor for which the alternate is serving is absent.  The alternates to the appointed governors designated by Granite Falls Energy are Kenton Johnson and Martin Seifert.  The alternate to the elected governors selected by the elected governors is Milton McKeown.

 

16


 

 

The chart below lists the governors whose terms continue after the 2017 Annual Meeting and also includes the incumbent governor nominee whose term expires at the 2017 annual meeting.  The address for all governors is 91246 390th Avenue, Heron Lake, Minnesota 56137.  

 

 

 

 

 

 

 

 

 

 

Name

 

Age

 

Position with the Company

 

Year First

Became a Governor

 

Term Expires

Paul Enstad

 

58

 

Appointed Governor & Chairman

 

2013

 

*

Rodney Wilkison

 

62

 

Appointed Governor & Vice Chairman

 

2013

 

2018

Michael Kunerth

 

49

 

Elected Governor & Secretary

 

2001

 

2017

Robert Ferguson

 

68

 

Elected Governor

 

2001

 

2019

Doug Schmitz

 

54

 

Elected Governor

 

2001

 

2018

David Woestehoff

 

47

 

Elected Governor

 

2001

 

2018

Dean Buesing

 

63

 

Appointed Governor

 

2009

 

*

Marten Goulet

 

37

 

Appointed Governor

 

2013

 

*

Leslie Bergquist

 

57

 

Appointed Governor

 

2013

 

*

Milton McKeown

 

71

 

Alternate Elected Governor

 

2001

 

+

Kenton Johnson

 

28

 

Alternate Appointed Governor

 

2013

 

*

Martin Seifert

 

43

 

Alternate Appointed Governor

 

2011

 

*

 

* Appointed by Granite Falls Energy.  The appointed governors’ terms do not have a specified number of years, as these governors are appointed by Granite Falls Energy as discussed above.

 

+ Pursuant to our Member Control Agreement, Mr. McKeown was appointed to serve as an alternate elected 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, Buesing and Johnson also serve on the board of governors of Granite Falls Energy, which owns approximately 50.6% of the Company and is a publicly reporting company.  Mr. Seifert serves as an alternate governor to the board of governors of Granite Falls Energy.

 

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 Mr. Kunerth, the incumbent governor nominee whose term expires at the 2017 annual meeting, may be found above at “Section II - Proposals to Be Voted Upon, Proposal 2 - Information Regarding Nominees”.

 

Paul Enstad - Appointed Governor, President of the Board of Governors. Mr. Enstad was appointed as a governor by Granite Falls Energy effective July 31, 2013. 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 chairman and as a governor of Granite Falls Energy.  He also serves one of the Company’s appointed directors to the board of directors of Agrinatural Gas, LLC (“Agrinatural”), our majority owned subsidiary, representing the Company’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 - Appointed Governor, Vice President of the Board of Governors. Mr. Wilkison was appointed as a governor by Granite Falls Energy effective July 31, 2013. 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 vice-chairman and as a governor of Granite Falls Energy. Mr. Wilkison is a member of and serves as the chairman of the audit committees for the Company and Granite Falls Energy.  The board believes Mr. Wilkison provides the board with critical financial and accounting acumen and because he qualifies as an audit committee financial expert.

17


 

 

Robert J. Ferguson - Elected Governor.  Since 1972, Mr. Ferguson has farmed near Heron Lake, Minnesota. Mr. Ferguson was formerly a Jackson County Commissioner and served on the Jackson County Planning and Zoning board and the Prairieland Economic Development board. In addition, he is a member of the Jackson County Corn and Soybean Associations. Mr. Ferguson attended Worthington Community College to pursue his associate of arts degree in business administration but just after graduation was drafted by the U.S. Army to serve in the Vietnam War. Mr. Ferguson was an original member of our founding board of governors and formerly served as our president and chief executive officer from 2007 to 2013.  Mr. Ferguson also serves one of the Company’s appointed directors to the board of directors of Agrinatural, representing the Company’s investment interest in Agrinatural.  Due to his former leadership as our chief executive officer, Mr. Ferguson provides the Board with a significant depth of understanding of the Company’s operations.

 

David Woestehoff - Elected Governor. Mr. Woestehoff operates grain farming operations in Belle Plaine, Minnesota and Arlington, South Dakota.  In 2009, Mr. Woestehoff became president, chief executive officer and majority shareholder of Minnesota Valley Grain Company, LLC, which operates commercial grain elevators in LeCenter, LeSueur, Montgomery and Webster, Minnesota.  Mr. Woestehoff also serves as the treasurer for Emanuel Lutheran Church in Hamburg, Minnesota and on the board of directors for the Lutheran High School Mayer Foundation. Mr. Woestehoff graduated from the University of Wisconsin in 1990 with a B.S. degree in agricultural business and minors in economics and animal science. Mr. Woestehoff was an original member of our founding board of governors and formerly served as our board president.  Mr. Woestehoff also serves one of the Company’s appointed directors to the board of directors of Agrinatural, representing the Company’s investment interest in Agrinatural. Mr. Woestehoff was selected as a nominee based on his prior experience with the Company along with his experience in commodities and agribusiness knowledge.

 

Doug Schmitz - Elected Governor. Mr. Schmitz attended Willmar Community College in Willmar, Minnesota, and majored in ag business. Mr. Schmitz is a third generation farmer who has been farming with his brother since 1988. In addition to agriculture, Mr. Schmitz owns and operates Schmitz Grain, Inc., which was purchased from his father in 1991. Schmitz Grain has three locations in southwestern Minnesota and provides services to area farmers in grain merchandising, custom drying, feed sales, seed sales and fertilizer and chemical application. He also currently serves on the board of two privately-held companies: Agri-Tech Systems, Inc. located in Las Vegas, Nevada, and United Ag Resources of Slayton, Minnesota.  Mr. Schmitz was selected as a nominee based on his prior experience with the Company along with his experience in commodities and agribusiness knowledge.

 

Milton J. McKeown - Alternate Elected Governor. Mr. McKeown was appointed as an alternate governor by the board of governors effective July 31, 2013. From 1991 until his retirement in October 2006, Mr. McKeown managed the Heron Lake Insurance Agency. While he is currently retired, Mr. McKeown is active in community affairs. Mr. McKeown graduated from Dakota State University with a B.S. degree in Industrial Arts. Mr. McKeown was an original member of our founding board of governors, serving as an at-large governor until July 2013, when he was appointed as an alternate at-large governor.  Mr. McKeown is an important resource to the Board due to his prior involvement with the Company and his business experience.

 

Dean Buesing - Appointed Governor. Mr. Buesing was appointed as a governor by Granite Falls Energy effective July 31, 2013.  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 governor and secretary of Granite Falls Energy.  Mr. Buesing’s board experience with other ethanol companies and grain industry experience traits make him an essential member of the Board.

 

Marten Goulet - Appointed Governor. Mr. Goulet was appointed as a governor by Granite Falls Energy effective July 31, 2013. 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.  Mr. Goulet also serves as a governor of Granite Falls Energy. Mr. Goulet is an alternate member of the audit committee for the Company and a member of the audit committee for Granite Falls Energy.  The Board believes Mr. Goulet provides valuable insight to the Board because his business experiences, his education and financial acumen.

 

18


 

 

Leslie Bergquist - Appointed Governor.  Mr. Bergquist was appointed as a governor by Granite Falls Energy effective March 21, 2014.   Previously, Mr. Bergquist served as Granite Falls Energy’s alternate appointed governor from July 31, 2013 until his appointment as an appointed governor.  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 governor of Granite Falls Energy.  Mr. Bergquist is a member of the audit committees of the Company and Granite Falls Energy.  Mr. Bergquist also serves one of the Company’s appointed directors to the board of directors of Agrinatural, representing the Company’s investment interest in Agrinatural. Mr. Bergquist’s business, agriculture and banking experience provide the board with unique insight.

 

Kenton Johnson - Alternate Appointed Governor. In March 2014, Granite Falls Energy appointed Mr. Johnson to fill its alternate appointed seat on the board of governors. Previously, Mr. Johnson was appointed to our Board of Governors by Project Viking, LLC from August 30, 2011 until July 31, 2013.  Additionally, Mr. Johnson previously served as the Company’s board secretary.  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 serves as a governor of Granite Falls Energy. Mr. Johnson received his B.S. in agriculture business management from Southwest Minnesota State University. Mr. Johnson’s prior service on our board, agriculture experience and leadership traits make him an essential member of the Board.

 

Martin Seifert - Alternate Appointed Governor. Mr. Seifert was appointed as one of Granite Falls Energy’s alternate appointed governors in March 2014. 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. He also serves as an alternate governor of Granite Falls Energy.  Mr. Seifert graduated from Southwest Minnesota State University in 1995. Mr. Seifert’s business and government experience provides valuable leadership skills and perspective to the Board.

 

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.

 

The Board undertook a review of governor independence in February 2017 as to all of the governors then serving.   As a result of its review, the board of governors affirmatively determined that Messrs. Woestehoff, Kunerth, and McKeown are independent according to the “independence” definition of the NASDAQ Listing Rules. 

19


 

 

Messers. Enstad, Wilkison, Goulet, Bergquist, Johnson, and Seifert are appointed to our Board by Granite Falls Energy.  Granite Falls Energy has voting and disposition control over approximately 50.6% of the Company’s units.  However, per SEC Rule 10A-3(e)(1)(ii)(B), ownership of 10% of an issuer’s securities does not create a presumption of affiliation and thus lack of independence and, based upon all other factors, the Board made the determination that each of Messrs. Enstad, Wilkison, Goulet, Bergquist, Johnson and Seifert was independent.

 

The Board made the determination that each of Messrs. Ferguson and Schmitz are not “independent” because they sold a significant amount of grain to us in fiscal year 2016, as discussed above under the section titled “Certain Relationships and Related Transactions”. 

 

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, chief financial officer and risk manager.  The code of ethics is available free of charge on written request to Heron Lake BioEnergy, LLC, 91246 390th Avenue, Heron Lake, Minnesota 56137.

 

Committees of Our Board of Governors

 

During fiscal 2016, our board of governors had four standing committees: the audit committee, compensation committee, nomination and governance 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 Michael Kunerth.  Marten Goulet also serves as an alternate member of the audit committee

 

Compensation Committee

 

The board of governors’ three member non-employee executive committee 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 non-CEO executive officer compensation, but he may not vote. The executive board consists of Messrs. Paul Enstad (Chairman), Rodney Wilkison, and Michael Kunerth.

Nominating Committee

 

The nominating committee is responsible for identifying individuals qualified to become board members and recommending to the board of governors the governor nominees to be considered for election by members and for election by the board of governors to fill any vacancy or newly created governorship. The nominating committee consists of Messrs. Robert Ferguson, David Woestehoeff, Doug Schmitz and Lee Uldbjerg (Chairman).

 

Risk Management Committee

 

The risk management committee’s function is to assist the board of governors 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.

 

20


 

 

Board and Committee Meetings and Governor Attendance

 

The Board generally meets once per month.  The Board held twelve 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 one meeting, the risk management committee held twelve meetings and the nominating committee held two meetings.  Each 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 Member Control Agreement, the alternate appointed and elected governors attend meetings of the Board.  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 elected 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).  If any appointed 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 appointed governors are entitled to act in the stead of such appointed governors at such meeting, or during such part, or to take such action in writing (but only on behalf of two appointed governors, if more than two are unavailable).  Our alternate governors 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 but one 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 91246 390th Avenue, Heron Lake, Minnesota 56137The 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.heronlakebioenergy.com.

 

Audit Committee

The audit committee of the Board operates under a charter adopted by the Board.  Our audit committee charter is available on our website at www.heronlakebioenergy.com. Under the charter, the audit committee must have at least three members.  The audit committee consists of three governors: Michael S. Kunerth, Rod Wilkison (chair) and Leslie Bergquist.  Additionally, Marten Goulet was appointed as an alternate member to the committee. 

 

During fiscal year 2016, the audit committee met four times. Each of our audit committee members attended all of the audit committee meetings.

 

The audit committee assists the board in fulfilling its oversight responsibility for: (1) the integrity of our financial statements and financial reporting process and our systems of internal accounting and financial controls; (2) the performance of our internal audit function; (3) the annual independent integrated audit of our consolidated financial statements and internal control over financial reporting; and (4) our compliance with legal and regulatory requirements, including our disclosure controls and procedures. The duties and responsibilities of the audit committee include the engagement of our independent registered public accounting firm and the evaluation of our accounting firm’s qualifications, independence and performance.

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 under the NASDAQ Listing Rules, as adopted in the Company’s Governance Guidelines.  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).Moreover, all members of the committee must have a basic understanding of finance and accounting and be able to read and understand fundamental financial statements, and at least one member of the committee must have accounting or related financial management expertise. The board of governors determined that the membership of the audit committee meets the requirements of its charter.

 

21


 

 

Each year the Board reviews the qualifications of each member of the audit committee for the purpose of determining whether any governor serving on the audit committee would qualify as an “audit committee financial expert” as that term is defined under the rules of the SEC. Based upon that review, the board of governors determined that Mr. Wilkison qualifies as an audit committee financial expert for fiscal year 2016.  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.

 

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.

 

Submitted By the Audit Committee of the Board of Governors:

 

Rodney Wilkison, Chair

Michael S. Kunerth

Leslie Bergquist

Martin Goulet (alternate)

 

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.

 

22


 

 

Audit Fees

 

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

 

 

 

 

 

 

 

Category

 

Fiscal Year

 

Fees

Audit Fees(1)

 

2016

 

$

137,000 

 

 

2015

 

$

128,000 

Tax Fees(2)

 

2016

 

$

14,000 

 

 

2015

 

$

17,000 

All Other Fees(3)

 

2016

 

$

20,000 

 

 

2015

 

$

26,000 

 

(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.

 

(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.

 

Nomination And Governance Committee

 

The nomination and governance committee operates under a charter adopted by the board of governors. Our nomination and governance committee charter is available on our website at www.heronlakebioenergy.com.

 

Messrs. Kunerth, Woestehoff, Schmitz 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 of governors.

 

23


 

 

The nominating committee has the authority to engage consultants, and during fiscal year 2015 engaged 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 the nomination and governance committee chair and that he would attend all meetings of the Company’s nomination and governance 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 2015, we paid Uldbjerg Consulting LLC a total of approximately $970 for his services on our nominating committee. The nomination and governance committee held three meetings in order to nominate candidates for the 2017 annual meeting and all members of the nomination and governance committee attended at least 75% of these meetings.

 

The nomination and governance committee’s responsibilities include: (1) identifying and nominating individuals qualified to serve as governors and on committees of the board; (2) advising the governors with respect to the board’s composition, procedures and committees; (3) developing and recommending to the board a set of corporate governance principles; and (4) overseeing the evaluation of the board and the board committees.

 

The charter of the nomination and governance committee requires that this committee consist of at least two members of the board of governors. A majority of members of the nomination and governance committee must satisfy the independence requirements of the NASDAQ Listing Rules, as adopted in the Company’s Governance Guidelines. The membership of our nomination and governance committee meets the requirements of its charter.

 

The nomination and governance committee will consider candidates for board membership suggested by members of that committee, other governors, as well as management and members.

 

Criteria for Nomination to the Board

 

The nominating committee operates under a charter adopted by the Board.  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.heronlakebioenergy.com.

 

The nominating committee has the authority to engage consultants, and since 2014, 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 $285 and additional approximately $319 subsequent to the end of the 2016 fiscal year for his services on our nominating committee.

 

Messrs. Ferguson, Woestehoff, Schmitz, and Lee 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 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 two members of the nominating committee are independent under the NASDAQ definition of independence, Messrs Woestehoff and Uldbjerg. 

 

Process for Identifying and Evaluating Nominees

 

The nomination and governance committee is responsible for identifying, evaluating and approving qualified candidates for nomination as governors. The nomination and governance committee evaluates candidates by reviewing the candidates’ biographical information and qualifications and checking the candidates’ references.

 

The committee has not adopted minimum qualifications that nominees must meet in order for the committee to recommend them to the Board, as the committee believes that each nominee should be evaluated based on his or her merits as an individual, taking into account our needs and the needs of the Board. The nomination and governance committee evaluates each prospective nominee against the standards and qualifications set out in our Governance Guidelines, including:

 

·

Background, including demonstrated high personal and professional ethics and integrity; and the ability to exercise good business judgment and enhance the board’s ability to manage and direct the affairs and business of the Company;

24


 

 

 

·

Commitment, including the willingness to devote adequate time to the work of the board and its committees, and the ability to represent the interests of all members and not a particular interest group;

 

·

Board skills needs, in the context of the existing makeup of the board, and the candidate’ s qualification as independent and qualification to serve on board committees;

 

·

Diversity, in terms of knowledge, experience, skills, expertise, and other demographics which contribute to the board’s diversity; and

 

·

Business experience, which should reflect a broad experience at the policy-making level in business, government and/or education.

 

The nomination and governance committee also considers such other relevant factors, as it deems appropriate.

 

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 compensation committee operates under a charter adopted by the board of governors. Our compensation committee charter is available on our website at www.heronlakebioenergy.com. The board of governors has acted as a compensation committee for the Company and no separate committee was established.

 

The board of governors has not established a committee specifically entitled “compensation committee”. Rather, the executive board serves as the Company’s compensation committee and reports all of its activities as the “compensation committee” to the full Board.  The executive board operates under the compensation committee 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.

 

Our executive board performs the same tasks usually performed by a compensation committee overseeing our compensation and employee benefit plans and practices, including any executive compensation plans, governor compensation plans and incentive compensation and equity-based plans.

 

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.  However, the charter of the compensation committee requires majority of members of the compensation committee must satisfy the independence requirements of: (1) the NASDAQ Listing Rules, as adopted in the Company’s Governance Guidelines; (2) Section 16b-3 of the Exchange Act, if Section 16 is applicable to the Company; and (3) Section 162(m) of the Internal Revenue Code of 1986, all as amended from time to time. The Board has determined that all of the members of our executive board meet these requirements. During fiscal year 2016, the board met one times to review our compensation and employee benefit plans and practice.

 

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”.

 

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.

25


 

 

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 September 2013.  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

$

21,000

 

$

4,113

(3)

$

21,613

Michael S. Kunerth

$

22,875

 

$

587

 

$

23,462

Rodney Wilkison

$

19,000

 

$

329

 

$

19,329

Dean Buesing

$

15,000

 

$

40

 

$

15,040

Marten Goulet

$

19,250

 

$

9,350

 

$

28,600

Robert Ferguson

$

12,875

 

$

3,394

(4)

$

13,346

David J. Woestehoff

$

13,250

 

$

4,412

(5)

$

14,547

Doug Schmitz

$

15,125

 

$

483

 

$

15,608

Milton J. McKeown

$

13,000

 

$

399

 

$

13,399

Leslie Bergquist

$

19,000

 

$

4,355

(6)

$

19,399

Kenton Johnson

$

16,250

 

$

46

 

$

16,296

Martin Seifert

$

14,000

 

$

225

 

$

14,225

 

(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)

Includes approximately $613 in mileage and expense reimbursement paid by the Company and $3,500 of fees paid by Agrinatural for on attendance at Agrinatural board meetings.

 

(4)

Includes approximately $471 in mileage and expense reimbursement paid by the Company and approximately $173 in mileage and expense reimbursement paid by Agrinatural and $2,750 of fees paid by Agrinatural for on attendance at Agrinatural board meetings.

 

(5)

Includes approximately $1,297 in mileage and expense reimbursement paid by the Company and approximately $115 in mileage and expense reimbursement paid by Agrinatural and $3,000 of fees paid by Agrinatural for on attendance at Agrinatural board meetings.

 

(6)

Includes approximately $399 in mileage and expense reimbursement paid by the Company and approximately $456 in mileage and expense reimbursement paid by Agrinatural and $3,500 of fees paid by Agrinatural for on attendance at Agrinatural board meetings.  

 

 

26


 

 

COMPENSATION OF EXECUTIVE OFFICERS

 

Executive Officers and Significant Employees

 

Since July 31, 2013, our chief executive officer, chief financial officer, and risk manager have are employed by Granite Falls Energy and are provided to us on a part-time basis pursuant to our management services agreement with Granite Falls Energy, as described above in the section titled section “Certain Relationships and Related Transactions”.  Granite Falls Energy is responsible for and agreed to directly pay salary, wages, and/or benefits to the persons providing management services under the management services agreement. Other than our management services agreement with Granite Falls Energy, 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. Except for our chief executive officer, chief financial officer, and risk manager, all other employees are employed by the Company.

 

The table below lists all of our executive officers and one significant employee, our risk manager, whom we expect to make a significant contribution to the Company’s business.  The address for all of the individuals identified below is 91246 390th Avenue, Heron Lake, Minnesota 56137. 

 

 

 

 

 

 

 

Name

 

Age

 

Position(s) Held with the Company

 

Length of Service

Steve Christensen

 

59

 

Chief Executive Officer

 

Since July 31, 2013

Stacie Schuler

 

44

 

Chief Financial Officer

 

Since July 31, 2013

Eric Baukol

 

34

 

Risk Manager

 

Since July 31, 2013

 

Biographical Information for Executive Officers and Significant Employee

 

Steve Christensen - Chief Executive Officer.  Mr. Christensen was named chief executive officer of the Company effective as of July 31, 2013, pursuant to the Company’s management services agreement with Granite Falls Energy.  Mr. Christensen also serves as chief executive officer and general manager of Granite Falls Energy, positions he has held since April 2012. 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.  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 or the termination of the Company’s management services agreement with Granite Falls Energy.

 

Stacie Schuler - Chief Financial Officer.  Ms. Schuler was named chief financial officer of the Company effective as of July 31, 2013, pursuant to the Company’s management services agreement with Granite Falls Energy.  Ms. Schuler also serves as chief financial officer and controller of Granite Falls Energy, LLC, positions she has held since July 2005.  Prior to joining Granite Falls Energy, 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. Ms. Schuler received her accounting degree through Southwestern Technical College in Granite Falls, Minnesota and Southwest State University in Marshall, Minnesota. 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 or the termination of the Company’s management services agreement with Granite Falls Energy.

 

Eric Baukol - Risk Manager. Mr. Baukol was named risk manager of the Company effective as of July 31, 2013, pursuant to the Company’s management services agreement with Granite Falls Energy.  Prior to joining the Granite Falls Energy, 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. It is anticipated that Mr. Baukol will hold the office of risk manager until the earlier of his resignation, death, disqualification or removal by the Board or the termination of the Company’s management services agreement with Granite Falls Energy.

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”.  Pursuant to our management services agreement with Granite Falls Energy, these executive officers are employed by Granite Falls Energy and provide part-time management services to our Company.  Subject to the terms of the management services agreement discussed below, Granite Falls Energy sets the compensation paid to the executive officers that are employees of Granite Falls Energy.

27


 

 

Compensation Committee

 

Our three-member executive board serves as the Company’s compensation committee for the fiscal year ended October 31, 2016, reporting all compensation committee activities for review by the full Board.  Subject to oversight by the full Board, 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 management and employees is fair, reasonable and competitive. The compensation committee considers compensation paid to all Company employees, subject to the terms of the management services agreement with Granite Falls Energy, as described above in the section titled section “Certain Relationships and Related Transactions”.

 

The executive board:

 

·

establishes and administers a compensation policy for management;

 

·

reviews and approves the compensation policy for all or our employees other than management;

 

·

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. 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 employees or to fulfill administrative duties.

 

Our Compensation Philosophy and Objectives

 

The executive board’s compensation philosophy is to provide a competitive level of compensation that is consistent with the Company’s budget, financial performance, and local labor market conditions. 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, acting as the compensation committee, is responsible for determining the nature and amount of compensation for the Company’s management employees. The compensation committee receives input from the chief executive officer on the personal performance achievements of the management employees who report to him. This individual performance assessment determines a portion of the annual compensation for each manager. In addition, the chief executive officer provides input on salary increases, incentive compensation opportunities, and long-term incentive grants for the management employees who report to him, which the committee considers when making executive compensation decisions. The executive board also may solicit input from our human resources personnel, primarily relating to benefit programs and local labor market conditions. 

 

28


 

 

In addition, the Board annually reviews the executive officers’ performance pursuant to the management services agreement with Granite Falls Energy.  A part of this review includes decisions and approvals regarding compensation reimbursement by the Company to Granite Falls Energy.

 

Compensation Elements

 

The executive board followed the guiding principles outlined above in the development and administration of compensation programs for our management. Compensation programs for our named executive officers were determined by Granite Falls Energy as provided in our management services agreement with Granite Falls Energy.  During fiscal year 2016, the components of our management compensation programs consisted of base salary and incentive cash bonuses, perquisites and other personal benefits. Additionally, management (other than our executive officers) was also eligible to participate in the same benefit programs as were available to our other employees.

 

For fiscal year 2016, the principal components of the compensation for executive officers included:

 

Base Salaries

 

Base salaries for management and other employees employed by the Company 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. 

 

The base salaries of our executive officers are set by Granite Falls Energy as provided in the management services agreement. The Company’s obligation to reimburse Granite Falls Energy for the base salaries paid to these shared employees is established by the management services agreement.

 

Bonus

 

In addition to the base salaries, management and other employees employed by the Company may receive bonuses. The bonuses, if any, of the executive officers are set by Granite Falls Energy. The Company’s obligation to reimburse Granite Falls Energy for bonuses paid to these shared employees is established by the management services agreement.

 

Our executive officers and management employees may receive bonuses in the discretion of our Board. No discretionary bonuses were awarded during fiscal 2016.

Benefits and Perquisites

 

We do not provide any material executive perquisites. We have no supplemental retirement plans or pension plans.

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.

 

29


 

 

Report of the Compensation Committee

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.

 

Submitted By the Audit Committee of the Board of Governors:

 

Paul Enstad, Chair

Michael S. Kunerth

Rod Wilkison

 

Summary Compensation Table

 

The following table sets forth all compensation paid or payable by the Company during the last three fiscal years to our named executive officers. Although Mr. Steve Christensen and Ms. Stacie Schuler are the Company’s named executive officers, they are directly employed and compensated by Granite Falls Energy and their services are provided to us on a part-time basis pursuant to the management services agreement between the Company and Granite Falls Energy.  The management services agreement is discussed in more detail above in the section titled “Certain Relationships and Related Person Transactions”. 

 

Therefore, for fiscal years 2016, 2015, and 2014, the table below reflects one-half of the total compensation received by the Mr. Christensen and Ms. Schuler in their capacity as employees of Granite Falls Energy that has been attributed to the Company as a result of the services provided by Mr. Christensen and Ms. Schuler to Company under the management services agreement.  We do not pay any cash or non-cash salary, bonus, or other compensation to Mr. Christensen and Ms. Schuler for their services to us. 

 

As of February 28, 2017, none of our named executive 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(5)

Steve Christensen, CEO

2016

$

105,266

$

$

34,231

$

139,497

 

2015

$

94,904

$

17,040

$

11,356

$

123,299

 

2014

$

95,390

$

9,601

$

60,968

$

165,959

Stacie Schuler, CFO

2016

$

70,348

$

11,880

$

5,421

$

93,070

 

2015

$

64,904

$

11,235

$

4,712

$

80,851

 

2014

$

57,519

$

10,519

$

2,481

$

70,519

 

(1)Amounts consist of cash bonuses awarded to Mr. Christensen’s under his annual net profits based bonus plan with Granite Falls Energy.  The Company’s obligation to reimburse Granite Falls Energy for bonuses paid to Mr. Christensen is established by the management services agreement.

 

(2)Amounts consist of cash bonuses awarded to Ms. Schuler under Granite Falls Energy’s employee incentive program. The Company’s obligation to reimburse Granite Falls Energy for bonuses paid to Ms. Schuler is established by the management services agreement.

 

(3)All other compensation for Mr. Christensen includes compensation related to paid time off and vacation and personal use of a company vehicle provided by Granite Falls Energy.  The Company’s obligation to reimburse Granite Falls Energy for all other compensation paid to Mr. Christensen is established by the management services agreement.

 

(4)Other compensation for Ms. Schuler includes compensation related to paid time off and vacation. The Company’s obligation to reimburse Granite Falls Energy for all other compensation paid to Ms. Schuler is established by the management services agreement.

30


 

 

(5)The Company paid Granite Falls Energy, in the aggregate, approximately $375,000, $414,000 and $392,000 during each of fiscal years 2016, 2015, and 2014, respectively, for services provided pursuant the management services agreement, which included Mr. Christensen’s and Ms. Schuler’s services, and the services of a shared risk manager.

 

 

MEMBER PROPOSALS FOR 2018 ANNUAL MEETING

 

The proxy rules of the Securities and Exchange Commission permit equity owners of a company, after timely notice to the Company, to present proposals for action in the Company’s proxy statement where such proposals are consistent with applicable law, pertain to matters appropriate for action by equity owners and are not properly omitted by Company action in accordance with the proxy rules.

 

The 2018 annual meeting of members is expected to be held during the last half of March 2018, and proxy materials in connection with that meeting are expected to be mailed on or about the last business day of February 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, 191246 390th Avenue, Heron Lake, Minnesota 56137, no later than one-hundred and twenty (120) days prior to when we mailed the proxy materials for the 2017 annual meeting.  Accordingly, we determined that members must submit proposals related to the 2018 annual meeting of members to the Company by November 1, 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 November 1, 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 the nomination and governance committee at Heron Lake BioEnergy, LLC, 191246 390th Avenue, Heron Lake, Minnesota 56137. 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 nomination and governance committee will be considered in the same manner as those submitted by third-party search firms, if any, to the nomination and governance committee. Additionally, the Company will also be soliciting governor candidates by notifying members of a “Call for Board of Governors Nominations” in the fall of 2017.

 

ANNUAL REPORT AND AUDITED 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 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 Heron Lake BioEnergy, LLC, 191246 390th Avenue, Heron Lake, Minnesota 56137 or by calling us at (507) 793-0077.  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.heronlakebioenergy.com, under “SEC Filings,” which includes links to reports we have filed with the Securities and Exchange Commission.

 

 

 

 

31


 

 

APPENDIX A

 

FORM OF SECOND AMENDMENT TO THE

MEMBER CONTROL AGREEMENT OF

HERON LAKE BIOENERGY, LLC

(AS PREVIOUSLY AMENDED AUGUST 30, 2011 AND MARCH 19, 2014)

 

This SECOND AMENDMENT TO THE MEMBER CONTROL AGREEMENT OF HERON LAKE BIOENERGY, LLC (the Member Control Agreement of Heron Lake BioEnergy, LLC, as amended August 30, 2011, and as further amended by that certain First Amendment to the Member Control Agreement, collectively referred to as the “Member Control Agreement”), is adopted and approved effective as of the 22nd day of March, 2017, by the affirmative vote of a Majority in Interest of the Members of Heron Lake BioEnergy, LLC (the “Company”) pursuant to Section 322B.37 of the Minnesota Statutes and pursuant to Section 9.1 of the Member Control Agreement of the Company at a meeting of the Members held on March 22, 2017.

 

The Member Control Agreement is amended as follows:

 

 

 

Formation and Agreement.

 

The original Members have caused the Company to be formed as a Minnesota limited liability company pursuant to the provisions of the Chapter 322B of the Minnesota Statutes Act. The Members hereby agree that this Agreement constitutes the “member control agreement” within the meaning of Section 322B.37 of Chapter 322B and the “operating agreement” within the meaning of Section 322C.0102(17) of Chapter 322Cthe Act. From and after March 22, 2017, 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 22, 2017. To 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 provisions, this Agreement, to the extent permitted by the Act, shall control.

 

 

Amendment to Section 1.1

Section 1.1 is hereby deleted in its entirety and replaced with the following:

 

1.1Formation and Agreement.

 

The original Members have caused the Company to be formed as a Minnesota limited liability company pursuant to the provisions of the Chapter 322B of the Minnesota Statutes Act. The Members hereby agree that this Agreement constitutes the “member control agreement” within the meaning of Section 322B.37 of Chapter 322B and the “operating agreement” within the meaning of Section 322C.0102(17) of Chapter 322Cthe Act. From and after March 22, 2017, 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 22, 2017. To 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 provisions, this Agreement, to the extent permitted by the Act, shall control.

 

Amendment to Section 1.13

Section 1.13 is hereby amended by deleting, in their entirety, the definitions of “Act” and “Board” contained therein, and replacing such definitions with the following:

 

“Act” means the Minnesota Limited Liability Company Act as set forth in Chapter 322B of the Minnesota Statutes Annotated (commencing with Section 322B.01), as amended from time to time (or any corresponding provision or provisions of any succeeding law). Effective on and after March 22, 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).

 

“Board” means collectively the persons who are named as Governors of the Company in or designated or elected as Governors pursuant to this Agreement. “Governor” or “Governors” means any such person or persons.  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.

 

A-1


 

 

Amendment to Section 8.3

Section 8.3 is hereby deleted in its entirety and replaced with the following:

 

(a) Tax Elections. The Board shall, without any further consent of the Members being required (except as specifically required herein), make any and all elections for federal, state, local, and foreign tax purposes including, without limitation, any election, if permitted by applicable law: (i) to make the election provided for in Code Section 6231(a)(1)(B)(ii) or take any other action necessary to cause the provisions of Code Sections 6221 through 6231 to apply to the Company, as amended by the Bipartisan Budget Act of 2015 (“BBA”) [refers to election by certain “small partnerships” that are not covered by the TEFRA audit rules to have such rules apply to them] (ii) to adjust the basis of Property pursuant to Code Sections 754, 734(b) and 743(b), or comparable provisions of state, local or foreign law, in connection with Transfers of Units and Company distributions; (iii) with the consent of all of the Members, to extend the statute of limitations for assessment of tax deficiencies against the Unit Holders with respect to adjustments to the Company’s federal, state, local or foreign tax returns; and (iv) to the extent provided in Code Sections 6221 through 6231, as amended by the BBA, and similar provisions of federal, state, local, or foreign law, to represent the Company and the Unit Holders before taxing authorities or courts of competent jurisdiction in tax matters affecting the Company or the Unit Holders in their capacities as Unit Holders, and to file any tax returns and execute any agreements or other documents relating to or affecting such tax matters, including agreements or other documents that bind the Unit Holders with respect to such tax matters or otherwise affect the rights of the Company and the Unit Holders. The Board shall designate a qualifying Member to act as the tax matters partner within the meaning of and pursuant to Regulations Sections 301.6231(a)(7)-1 and —2 (prior to its amendment by the BBA) or any similar provision under state or local law.  Such “tax matters partner” shall become the “partnership representative” within the meaning of Section 6223(a) of the Code (as amended by the BBA) as in effect for the tax years beginning on or after January 1, 2018.

 

(b) Tax Information. Necessary tax information shall be delivered to each Unit Holder as soon as practicable after the end of each Fiscal Year of the Company but not later than five (5) months after the end of each Fiscal

Year.

 

(c) Tax Returns and Tax Deficiencies. Each Unit Holder agrees that such Unit Holder shall not treat any Company item inconsistently on such Unit Holder's federal, state, foreign, or other income tax return with the treatment of the item on the Company's return. Any deficiency for taxes imposed on any Unit Holder (including penalties, additions to tax, or interest imposed with respect to such taxes and taxes imposed pursuant to Code Section 6226 as amended by the BBA) will be paid by such Unit Holder and if required to be paid (and actually paid) by the Company, will be recoverable from such Unit Holder as provided in Section 4.2.

 

Amendment to Section 14.3

Section 14.3 is amended by adding the following after the last sentence thereof:

 

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.

 

 

 

 

A-2


 

 

 

 

 

 

Heron Lake BioEnergy, LLC

 

MEMBER NAME

 

2017 Annual Meeting - Wednesday, March 22, 2017

 

NUMBER OF UNITS

 

For Members as of February 28, 2017

 

TELEPHONE NUMBER

 

Proxy Solicited on Behalf of the Board of Governors

 

 

 

Vote by Mail or Facsimile:

 

 

1) Read the Proxy Statement

 

 

2) Check the appropriate boxes on the proxy card

 

 

3) Sign and date the proxy card

 

 

4) Return the proxy card in the envelope provided or via fax to (320) 235-5962 or mail to Christianson PLLP, Attention: Christina Boike at 302 SW 5th St, Willmar, MN 56201.  It must be received by Christianson PLLP no later than 5:00 p.m. on Tuesday, March 21, 2017.

 

 

PROPOSAL 2: Advisory Vote To Approve Executive Compensation (Say-On-Pay)

For

 

Against

 

Abstain

 

 

☐

 

☐

 

☐

 

 

PROPOSAL 2:  Election Of One Governor

 

For

 

Withhold / Abstain

PLEASE INDICATE YOUR SELECTION BY FIRMLY PLACING AN “X” IN THE APPROPRIATE BOX WITH BLUE OR BLACK INK

Michael Kunerth

☐

 

☐

 

 

 

 

 

 

 

 

 

PROPOSAL 3: Second Amendment To the Member Control Agreement To Adopt The New LLC Act And Certain Other Administrative Changes

For

 

Against

 

Abstain

 

 

☐

 

☐

 

☐

 

 

 

 

 

 

 

In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting or any adjournment thereof.

GRANT AUTHORITY

WITHHOLD AUTHORITY

 

A vote FOR Proposal 1, a vote FOR the incumbent nominee in Proposal 2, and FOR Proposals 3-4 and granting the proxy discretionary authority, is recommended by the Company’s board of governors. When properly executed, this proxy will be voted in the manner directed by the undersigned member(s). If no direction is given, the proxy will be voted FOR Proposal 1, FOR the incumbent nominees in Proposal 2 and FOR Proposals 3-4 and, at the discretion of the proxy holder, upon such other matters as may properly come before the meeting or any adjournment thereof. Proxies marked abstain are counted only for purposes of determining whether a quorum is present at the meeting. The proxies cannot vote your units unless you sign and return this card.  For your proxy card to be valid, it must be received by Christianson PLLP by 5:00 p.m. on Tuesday, March 21, 2017, or by submitting the proxy card in person when registering at the 2017 annual meeting.  You may revoke your proxy by: (1) Voting in person at the 2017 annual meeting; or (2) Giving written notice of revocation, which is received by Christianson PLLP by 5:00 p.m. on Tuesday, March 21, 2017.

 

 

 

 

 

 

 

Signature:

 

 

Signature:

 

Date:

 

 

Date:

 

 

Please date and sign exactly as name(s) appear(s) on your membership unit certificate(s). If membership units are held jointly, each owner should sign this proxy. If acting as an executor, administrator, trustee, custodian, guardian, etc., you should so indicate in signing. If the member is a corporation or other business entity, the proxy should indicate the full legal name of the corporation or entity, and be signed by a duly authorized officer (indicating his or her position).