P.O. Box 96
P.O. Box 96
In addition, a member may nominate a candidate for governor by following the procedures explained in Section 5.3(b) of the Member Control Agreement. Section 5.3(b) of the Member Control Agreement currently requires that written notice of a member's intent to nominate an individual for governor must be given, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the Company not less than 45 calendar days nor more than 90 calendar days prior to the annual meeting of the Company at which such elections are to be held.
Each notice must include: (i) the name and address of the member who is making the nomination; (ii) a representation that the member is a holder of units entitled to vote at such meeting and the member intends to appear in person or by proxy at the meeting to nominate the person specified in the notice; (iii) the name, age, address and principal occupation or employment of each nominee; (iv) a description of all arrangements or understandings between the member and each nominee; (v) any other information regarding the nominee as would be required to be included in a proxy statement filed pursuant to the rules of the Securities and Exchange Commission; and (vi) the consent of the nominee to serve as a governor of the Company if so elected.
Biographical Information for Nominees
George Goblish, Treasurer,Scott Brittenham, Incumbent Governor and Nominee - Age 42, 32866 Dayton Avenue, Vesta, Minnesota 56292.54
For the past five years, George GoblishScott Brittenham has been farming near Vesta, Minnesota where he currently raises cornpresident and soybeans. He is also an Asgro/Dekalb/Monsanto seed dealer.CEO of Clean Energy Capital LLC (formerly Ethanol Capital Management, LLC.) Mr. Goblish attended Willmar Technical College where he received his Associate's DegreeBrittenham's duties of president and CEO include actively managing the employees who prepare, audit or evaluate financial statements. His experience in Agricultural Productionthe financial services industry has provided him with the experience and Management.knowledge to evaluate financial statements. Mr. GoblishBrittenham has servedover 32 years of experience in the investment business with experience as a membermanaging director of leading Wall Street investment banks including Salomon Brothers, Credit Suisse, Prudential Securities, and Bear Stearns & Co. Mr. Brittenham serves as the chairman of the Board of Governors since May 2006. Heboard audit committee for Advanced BioEnergy, LLC, a public company. Mr. Brittenham also serves on the Governance, Fixed Assetsboard of directors and Executive Committeesthe audit committee for East Kansas Agri-Energy, LLC. Additionally, Mr. Brittenham serves as a trustee for the University of Nebraska.
On September 16, 2005, Mr. Brittenham, as President of Fidelity Mortgage Corporation, entered into a consent order with the State of Washington Department of Financial Institutions Consumer Services Division prohibiting Mr. Brittenham from participating in the conduct of the affairs of any mortgage broker licensed by the State of Washington Department of Financial Institutions or any mortgage broker exempt from such licensing requirements for a period of ten years.
Prior to being appointed to our Board of Governors.in August 2009, Mr. Goblish's term expires in 2012. Mr. Goblish has consented to serveBrittenham served on the Board of Governor's if he is elected at the 2012 Annual Meeting.Company's advisory board. He currently serves on our audit committee. Mr. GoblishBrittenham was selected as a nominee because ofbased on his vast agricultural experience as well as his history ofprior involvement with our Company and the Company.ethanol industry, his business experience and because Mr. Brittenham is the manager and corporate representative of Highwater Investment Partner, LLC, our second largest member.
Warren Pankonin, Secretary,Russell Derickson, Incumbent Governor and Nominee - Age 73, 40840 200th Street, Lamberton, Minnesota 56152.48
For the past five years, Warren PankoninRussell Derickson has owned and managed Double Diamond Ranch, Inc.,his own farming operation, which produces corn and soybeans. He has also been an Agricultural Advisor and Warehouse Examiner for the Minnesota Supreme Feeders, Inc.,Department of Agriculture of St. Paul, Minnesota. Mr. Derickson attended South Dakota State University where he buysreceived a M.Ed in Ag Education and sells cattle. He also crop farms with his son, Mark. Effective November 6, 2008,B.S. in Agricultural Education and Mechanized Agriculture. Mr. Derickson serves on the Boardboard of Governors appointed governors for Minnesota Soybean Processor.
Mr. Pankonin to replace Mr. Moldan as Secretary of the Board of Governors. Mr. PankoninDerickson has served as a member of theour Board of Governors since May 2006. He currently serves on the Marketing/Riskour fixed asset and Executive Committees of the Board of Governors.audit committees. Mr. Pankonin's term expires in 2012. Mr. Pankonin has consented to serve on the Board of Governor's if he is elected at the 2012 Annual Meeting. Mr. PankoninDerickson was selected as a nominee because ofbased on his immense agricultural experience as well as his history ofprior involvement with the Company.our Company and his agricultural and business experience.
Luke Spalj,Ronald Jorgenson, Incumbent Governor and Nominee - Age 47, P.O. Box 517, Deerwood, Minnesota 56244.52
For the past five years, Luke SpaljRonald Jorgenson has owned and operated Rice Lake Construction Grouphis own farming operation. In addition, Mr. Jorgenson attended the University of Deerwood, Minnesota which is a heavy industrial contractor specializing in water and wastewater treatment plants. of St. Paul, Minnesota.
Mr. Spalj has also been owner and director of Deerwood Bank Corp of Deerwood, Minnesota since 1997. Additionally, Mr. Spalj served as President of the Telecommunications and Cable TV Division of Quanta Services from January 2002 through 2004. Mr. SpaljJorgenson has served as a member of theour Board of Governors since August 2009.May 2006. He currently serves on the Fixed Assetsgovernance and Audit Committees of the Board of Governors.audit committees. Mr. Spalj's term expires in 2012. Mr. Spalj has consented to serve on the Board of Governor's if he is elected at the 2012 Annual Meeting. Mr. SpaljJorgenson was selected as a nominee because ofbased on his prior involvement with our Company and his agricultural and business experience and expertise relating to water and wastewater treatment.experience.
Required Vote and Board Recommendation
If you are entitled to vote and you do not submit a proxy card or attend the meeting or if you abstain from voting, your vote will not be counted either for or against any nominee because the governors will be elected by a plurality vote, meaning that those nominees receiving the greatest number of votes relative to the other nominees will be elected. Votes withheld or abstained for all governor nominees will be treated as present at the meeting for purposes of determining a quorum.
THE BOARD HAS DETERMINED THAT EACH NOMINEE IS QUALIFIED TO SERVE AS A GOVERNOR. YOU MAY VOTE FOR ONLY THREE NOMINEES. FOR EACH PROPERLY EXECUTED PROXY WHERE THE MEMBER DOES NOT MARK ANY CHOICES FOR GOVERNOR, THE PROXIES WILL VOTE FOR THE INCUMBENT GOVERNORS GEORGE GOBLISH, WARREN PANKONINSCOTT BRITTENHAM, RUSSELL DERICKSON AND LUKE SPALJ.RONALD JORGENSON.
Biographical Information for Non-nominee Governors
Scott Brittenham, Governor - Age 53, 5151 East Broadway Boulevard, Suite 510, Tucson, Arizona 85711.
For the past five years, Scott Brittenham has been President and CEO of Clean Energy Capital LLC (formerly Ethanol Capital Management, LLC.) Mr. Brittenham's duties of President and CEO include actively managing the employees who prepare, audit or evaluate financial statements. His experience in the financial services industry has provided him with the experience and knowledge to evaluate financial statements. Mr. Brittenham has over 32 years of experience in the investment business with experience as a managing director of leading Wall Street investment banks including Salomon Brothers, Credit Suisse, Prudential Securities, and Bear Stearns & Co. Mr. Brittenham serves as the Chairman of the Board of Directors and Chairman of the Audit Committee for Advanced BioEnergy, LLC . Mr. Brittenham also serves on the Board of Directors and the Audit Committee for East Kansas Agri-Energy, LLC. Additionally, Mr. Brittenham serves as a Trustee for the University of Nebraska.
On September 16, 2005, Mr. Brittenham, as President of Fidelity Mortgage Corporation, entered into a consent order with the State of Washington Department of Financial Institutions Consumer Services Division prohibiting Mr. Brittenham from participating in the conduct of the affairs of any mortgage broker licensed by the State of Washington Department of Financial Institutions or any mortgage broker exempt from such licensing requirements for a period of ten years.
Prior to being appointed to the Board of Governors on August 24, 2009, Mr. Brittenham served on the Company's advisory board. Mr. Brittenham has served as a member of the Board of Governors since August 2009. Mr. Brittenham's term expires in 2013.
Russell Derickson, Governor - Age 47, 37720 210th Street, Lamberton, Minnesota 56152.
For the past five years, Russell Derickson has owned and managed his own farming operation, which produced corn and soybeans. He has also been an Agricultural Advisor and Warehouse Examiner for the Minnesota Department of Agriculture of St. Paul, Minnesota. Mr. Derickson attended South Dakota State University where he received a M.Ed in Ag Education and B.S. in Agricultural Education and Mechanized Agriculture. Mr. Derickson serves on the Board of Governors for Minnesota Soybean Processor. Mr. Derickson has served as a member of the Board of Governors since May 2006. Mr. Derickson's term expires in 2013.
William Garth, Governor - Age 44, 600 North Buffalo Grove Road, Suite 300, Buffalo Grove, Illinois 60089.45
In December 2011 William Garth was appointed by the Board of Governors to replace Rex Roehl on the board and to serve out his term until the 2014 Annual Meeting. Mr. Garth has more than 1517 years experience in the energy industry. He iscurrently serves as the Directordirector of Economicsfinance for Indeck Energy Services, Inc. andwhere he oversees its financial analysis, modeling, budgeting and budgetingmarketing efforts. Mr. Garth has a successful track record in all aspects of energy project development including business development, project finance, acquisitions, contract restructuring and asset management. Prior to joining Indeck Energy Services, Inc., Mr. Garth was employed as a mechanical design engineer for the Superconducting Super Collider and as an industrial engineer for General Dynamics. He serves as a member of the board of directors for Big River Resources, LLC, Little Sioux Corn Processors, LLC and Cardinal Ethanol, LLC, a public company. Mr. Garth holds an MBA from the University of Dallas and a BSIE from Purdue University. Mr. Garth's term expires in 2014.Garth has served on our Board since November 2011 and is a corporate representative of Indeck Energy Services, Inc., our largest member. He currently serves on our risk management committee.
Ronald Jorgenson,George Goblish, Governor - Age 51, 33689 County Road 4, Jeffers, Minnesota 56145.43
For the past five years, Ronald JorgensonGeorge Goblish has ownedbeen farming near Vesta, Minnesota where he currently raises corn and operatedsoybeans. He is also an Asgro/Dekalb/Monsanto seed dealer. Mr. Goblish attended Willmar Technical College where he received his own farming operations. In addition,Associate's Degree in Agricultural Production and Management. Mr. Jorgenson attended the University of Minnesota of St. Paul, Minnesota. Mr. JorgensonGoblish has served as a member ofon our Board of Governors since May 2006. Mr. Jorgenson's term expires in 2013.He currently serves on our fixed asset, governance, nominating and audit committees. He previously served as our treasurer.
David Moldan, Chairman and Governor - Age 51, 25368 County Highway 4, Lamberton Minnesota 56152.52
Mr. Moldan serves on the Executive Committee and as Chairman of the Board. For the past five years, Mr. Moldan has been the Presidentpresident and Treasurertreasurer of Moldan & Sons, Inc., a farming operation of Lamberton, Minnesota. Mr. Moldan attended the University of Minnesota of Waseca, Minnesota where he received his Associate's Degree in Applied Science and Diversified Ag Production. Mr. Moldan has served on theour Board since the Company's inception. Mr. Moldan's term expires in 2014.Moldan serves as chairman of our Board and is expected to continue to serve as chairman at the pleasure of the Board. He also currently serves on our executive committee.
Warren Pankonin, Secretary, Governor - Age 74
For the past five years, Warren Pankonin has owned and managed Double Diamond Ranch, Inc., and Minnesota Supreme Feeders, Inc., where he buys and sells cattle. He also crop farms with his son, Mark. Mr. Pankonin has served on our Board since May 2006. Mr. Pankonin serves as secretary of our Board and is expected to continue to serve as secretary at the pleasure of the Board. He also currently serves on our risk management and executive committees.
Luke Spalj, Treasurer, Governor - Age 48
For the past five years, Luke Spalj has owned and operated Rice Lake Construction Group of Deerwood, Minnesota, which is a heavy industrial contractor specializing in water and wastewater treatment plants. Mr. Spalj has also been owner and director of Deerwood Bank Corp of Deerwood, Minnesota since 1997. Additionally, Mr. Spalj served as president of the Telecommunications and Cable TV Division of Quanta Services from January 2002 through 2004. Mr. Spalj has served on our Board since August 2009. He currently serves on our fixed asset and executive committees. Mr. Spalj also serves as our treasurer and is expected to continue to serve as treasurer at the pleasure of the Board.
Timothy VanDerWal, Vice Chairman and Governor - Age 45, 13347 U.S. Highway 71, Sanborn, Minnesota 56083.46
For the past fiveten years, Mr. VanDerWal has been an Ag Loan Officerag loan officer at the Wanda State Bank, Wanda, Minnesota. He had worked as a Beef Enterprise Consultantbeef enterprise consultant for the Land O Lakes Feed Division of Arden Hills, Minnesota prior to joining the bank. Effective October 16, 2008,Mr. VanDerWal has served on our Board since the Board of Governors appointedCompany's inception. Mr. VanDerWal serves as our vice chairman and is expected to continue to serve as principal financial officer.vice chairman at the pleasure of the Board. Mr. VanDerWal previously served as our principal financial officer from March 2008 until February 2009. Mr. VanDerWal has servedHe also currently serves on the Board since the Company's inception. Mr. VanDerWal's term expires in 2014.our risk management, fixed asset, nominating and executive committees.
Biographical Information Regarding Officers and Key Employees
Brian Kletscher, Chief Executive Officer - Age 50¸ 26161 140th Street, Lamberton, Minnesota 56152.51
Brian Kletscher was hired to serve as our Chief Executive Officer on November 6, 2008. Prior to November 6, 2008,Previously, Mr. Kletscher had served as Chairmanchairman of the Board of Governors.Board. Brian Kletscher served as County Commissionercounty commissioner of Redwood County, Minnesota until January 2, 2009. Mr. Kletscher's duties included but were not limited to, budgets, financial operations, approving capital purchases, personnel committee and building projects. Mr. Kletscher owned and operated Kletscher Farms until December 2008. Mr. Kletscher is expected to serve indefinitely at the pleasure of the Board or until his earlier death, disability or resignation.
Mark Peterson,Lucas Schneider, Chief Financial Officer - Age 48, 712 W. Victory Lane, Sioux Falls, South Dakota 57108.31
Mark PetersonLucas Schneider was hired to serve as chief financial officerour Chief Financial Officer on February 19, 2009.December 3, 2012. Prior to his employment with the Company,Highwater, Mr. PetersonSchneider served as a Project Managerthe Chief Financial Officer since December 2010 for Milo Belle Consultants,Heron Lake BioEnergy, LLC, for three years. Prior to that Mr. Peterson hadan ethanol plant located in Heron Lake, Minnesota. Previously, he served as an Insurance Agent with Farmers Insurance Group for two years. In addition, Mr. Peterson served as Controllerthe senior accountant of Accounting for Myrl & Roy's Paving, Inc. for two yearsHeron Lake BioEnergy, LLC since November 2008 and as the Accounting Manager for L.G. Everist, Inc. for five years.staff accountant from March 2008 to November 2008. Mr. Schneider was a staff accountant at Gerber and Haugen, an accounting firm located in Slayton, Minnesota, from April 2007 to March 2008. Mr. Schneider holds a Bachelor of Science degree from Southwest Minnesota State University in Marshall, Minnesota. Mr. Schneider is expected to serve indefinitely at the pleasure of the Board or until his earlier death, disability or resignation.
PROPOSAL TWO
ADVISORY VOTE ON EXECUTIVE COMPENSATION CALLED SAY-ON-PAY
The Company believes that our compensation policies and procedures are reasonable based on the size and complexity of the Company and are strongly aligned with the long-term interests of our members. Recently, Congress passed a law that requires publicly reporting companies to present to their members an advisory vote on the Company's executive compensation program. We urge you to read the "EXECUTIVE COMPENSATION" section of this proxy statement, including the Company's Compensation Discussion and Analysis section, for details on the Company's executive compensation, including the Company's compensation philosophy and objectives and the 2012 compensation of our executive officers. This advisory member vote, commonly known as "Say-on-Pay," gives you as a member the opportunity to endorse or not endorse our executive officer compensation program and policies through the following resolution:
"RESOLVED, that the members endorse the compensation of the Company's executive officers, as disclosed in the "Compensation Discussion and Analysis", the compensation tables, and the related disclosure contained under the caption "EXECUTIVE COMPENSATION" of this proxy statement."
Because your vote is advisory, it will not be binding on the Board. However, the Board will take into account the outcome of the vote when considering future executive compensation arrangements. We believe the Say-on-Pay proposal demonstrates our commitment to achieving a high level of total return for our members.
This proposal will be approved if the votes cast for the proposal exceed the votes cast againstthe proposal, regardless of whether either alternative receives approval from the members holding a majority of the membership units represented at the 2013 Annual Meeting and any adjournments thereof.
THE BOARD RECOMMENDS THAT YOU VOTE FOR ENDORSEMENT OF THE COMPENSATION OF OUR EXECUTIVE OFFICERS. FOR EACH PROPERLY EXECUTED PROXY WHERE THE MEMBER DOES NOT MARK ANY CHOICE, THE PROXIES WILL VOTE FOR THE APPROVAL OF PROPOSAL TWO.
PROPOSAL THREE
FREQUENCY OF SAY-ON-PAY VOTE
The Company is presenting the following proposal, which gives you as a member the opportunity to inform the Company as to how often you would like the Company to include a proposal, similar to Proposal Two, in the Company's proxy statement. This resolution is required pursuant to Section 14A of the Securities Exchange Act. While the Board intends to carefully consider the member vote resulting from this proposal, the final vote will not be binding on the Company and is advisory in nature.
"RESOLVED, that the members wish the Company to include an advisory vote on the compensation of the Company's executive officers pursuant to Section 14A of the Securities Exchange Act every: (i) year; (ii) two years; or (iii) three years."
The alternative that receives the greatest number of votes compared to the other alternatives, regardless of whether any alternative receives approval from members holding a majority of the membership units represented at the 2013 Annual Meeting and any adjournments thereof, will be the vote of the members.
THE BOARD RECOMMENDS THAT YOU VOTE TO HOLD AN ADVISORY VOTE ON EXECUTIVE COMPENSATION (SAY-ON-PAY) EVERY 3 YEARS.FOR EACH PROPERLY EXECUTED PROXY WHERE THE MEMBER DOES NOT MARK ANY CHOICE, THE PROXIES WILL VOTE EVERY 3 YEARS.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Beneficial ownership is determined in accordance with the rules of the SEC.Securities and Exchange Commission ("SEC"). Except as indicated by footnote, a person named in the tabletables below has sole voting and sole investment power for all units beneficially owned by that person.
As of January 25, 201217, 2013, the following beneficial owners owned or held 5% or more of our outstanding units:
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Title of Class | | Name and Address of Beneficial Owner(1) | | Amount and Nature of Beneficial Ownership | | Percent of Class |
Membership UnitUnits | | Indeck Renewable Energy, LLC(1)(2) 600 North Buffalo Grove Road
Suite 300
Buffalo Grove, IL 60089
| | 400 Units | | 8.1% |
Membership UnitUnits | | Highwater Investment Partner, LLC(2)(3) Rockefeller Center 7th Floor, 1230 Avenue of the Americans
New York, NY 10020
| | 250 Units | | 5.04% |
| |
(1) | William Garth beneficially owns 400 units owned by Indeck Renewable Energy, LLCThe address of which Mr. Gartheach Beneficial Owner is deemed to be the Directoraddress of Economics. Mr. Garth was elected by the Board of Governors in December 2011 to serve as Rex Roehl's replacement on the Company's Board of Governors.Company. |
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(2) | Scott Brittenham beneficially owns 250 units ownedWilliam Garth, our governor, is employed by Indeck Renewable Energy, LLC as the director of finance. Mr. Garth was appointed by the Board in December 2011 to fill the vacancy left by the resignation of Rex Roehl. |
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(3) | Clean Energy Capital, LLC is the manager of Highwater Investment Partner, LLCLLC. Scott Brittenham, our governor, is the president and CEO of which Mr. Brittenham is a managing member. Mr. Brittenham was elected at the 2010 Annual Meeting to serve on the Company's Board of Governors.Clean Energy Capital, LLC. |
Security Ownership of Management
As of January 25, 201217, 2013, members of our Board of Governors and executive officers own membership units as follows:
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| | | | | | |
Title of Class | | Name and Address of Beneficial Owner(1) | | Amount and Nature of Beneficial Ownership | | Percent of Class |
Membership Units | | Scott Brittenham, Governor(2) | | 250 Units | | 5.04% |
Membership Units | | Russell Derickson, Governor | | 11 Units | | * |
Membership Units | | William Garth, Governor (3) | | 400 Units | | 8.1% |
Membership Units | | George Goblish,(3)(4) Treasurer and Governor | | 50 Units | | 1.01% |
Membership Units | | Ronald Jorgenson, Governor | | 12 Units | | * |
Membership Units | | Brian Kletscher, CEO | | 8 Units | | * |
Membership Units | | David Moldan, Chairman and Governor | | 9 Units | | * |
Membership Units | | Warren Pankonin,(4)(5) Secretary and Governor | | 165 Units | | 3.33% |
Membership Units | | Mark Peterson,Lucas Schneider, CFO | | 0 Units | | * |
Membership Units | | William Garth, Governor (5)
| | 400 Units | | 8.1% |
Membership Units | | Luke Spalj, Treasurer and Governor | | 136.5 Units | | 2.75% |
Membership Units | | Timothy VanDerWal, Vice PresidentChairman and Governor (6) | | 3 Units | | * |
TOTAL: | | | | 1,044.5 Units | | 21.09% |
(*) Indicates that the membership units owned represent less than 1% of the outstanding units.
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(1) | The address of theeach beneficial owner is deemed to be the address of the Company. |
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(2) | Scott Brittenham beneficially ownsThis includes 250 units owned by Highwater Investment Partner, LLC. Clean Energy Capital, LLC is the manager of whichHighwater Investment Partner, LLC. Mr. Brittenham is a managing member.the president and CEO of Clean Energy Capital, LLC. |
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(3) | This includes 400 units owned by Indeck Energy, LLC where Mr. Garth is employed as the director of finance. |
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(4) | George Goblish shares investment and voting power with respect to 26 units with his wife. |
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(4)(5) | Warren Pankonin shares investment and voting power with respect to 150 units with his wife. |
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(5) | William Garth beneficially owns 400 units owned by Indeck Energy, LLC of which Mr. Garth is the Manager of Business Development. |
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(6) | Timothy VanDerWal shares investment and voting power with respect to 3 units with his wife. |
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's officers and governors, and persons who own more than 10% of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership with SEC. Officers, governors and greater than 10% beneficial owners are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file. To the Company's knowledge, based solely on a review of the copies of such reports furnished to the Company and written representations from our officers and governors, all Section 16(a) filing requirements were complied with during the fiscal year ended October 31, 2012.
BOARD OF GOVERNORS' MEETINGS AND COMMITTEESINDEPENDENCE
The Board generally meets once per month. The Board held twelve regularly scheduled meetings during the fiscal year ended October 31, 20112012. EachDuring the fiscal year ended October 31, 2012, each governor attended at least 75% of the aggregate of the total meetings of the boardBoard and the total meetings held by all committees of governors during the fiscal year ended October 31, 2011, except Rex Roehl and William Garth. William Garth was not appointed to the board of governors until December 2011.Board on which said governor served.
The Board of Governors does not have a formalized process for holders of membership units to send communications to the Board of Governors.Board. The Board of Governors feels this is reasonable given the accessibility of our governors. Members desiring to communicate with the Board of Governors are free to do so by contacting a governor.governor via our website, fax, phone or in writing. The names of our governors and their addresses are listed on the Company's website at www.highwaterethanol.com/board.htm or are available by calling the Company's office at (507) 752-6160.
The Board of Governors does not have a policy with regard to governors' attendance at annual meetings. Last year, all governors serving at the time of the annual meeting attended the Company's annual meeting with the exception of Scott Brittenham.William Garth. Due to this high attendance record, it is the view of the board of governorsBoard that such a policy is unnecessary.
Governor Independence
All of our governors are independent, as defined by NASDAQ Rule 5605(a)(2), with the exception of Luke Spalj. Mr. Spalj is not considered independent due to his ownership of Rice Lake Construction whowhich constructed our water treatment facility. In evaluating the independence of our governors, we considered the following factors: (i) the business relationships of our governors; (ii) positions our governors hold with other companies; (iii) family relationships between our governors and other individuals involved with the Company; (iv) transactions between our governors and the Company; and (v) compensation arrangements between our governors and the Company.
Board Leadership Structure and Role In Risk Oversight
The Company is managed by a Chief Executive Officer that is separate from the Chairmanchairman of the Board. The Board has determined that its leadership structure is effective to create checks and balances between the executive officers of the Company and the Board. The Board is actively involved in overseeing all material risks that face the Company, including risks related to changes in commodity prices. The Board administers its oversight functions by reviewing the operations of the Company, by overseeing the executive officers' management of the Company, and through its risk management committee.
Code of Ethics
The Board of Governors has adopted a Code of Ethics that sets forth standards regarding matters such as honest and ethical conduct, compliance with the law, and full, fair, accurate, and timely disclosure in reports and documents that we file with the SEC and in other public communications. The Code of Ethics applies to all of our employees, officers, and governors, including our Chief Executive Officer and Chief Financial Officer. The Code of Ethics was filed as an exhibit to our annual report of Form 10-K and is available free of charge on written request to Highwater Ethanol, LLC, 24500 US Highway 14, Lamberton, Minnesota 56152.
Audit CommitteeAUDIT COMMITTEE
The Company has a standing audit committee. The purpose of the audit committee is to monitor the integrity of the Company's financial reporting process and systems of internal controls. The audit committee appoints and monitors the independence and qualifications of the Company's independent auditors, monitors the performance of the Company's internal audit function, provides an avenue of communication among the independent auditors, management, and the Company's Board, of Governors, and prepares an audit committee report to be included in the Company's annual proxy statement.
The audit committee of the Board of Governors operates under a charter adopted by the board of governorsBoard in June 2008. A copy of the audit committee charter was attached as an exhibit to our 2010 proxy statement.
is available on the Company's website at www.highwaterethanol.com. Under the charter, the audit committee must have at least three members. The board of governors appointedOur audit committee members are currently Ronald Jorgenson, Scott Brittenham, Russell Derickson Scott Brittenham, Ronand George Goblish. Ronald Jorgenson and Luke Spalj tochairs our audit committee. Audit issues were specifically addressed by the audit committee in March 2011. during the four audit committee meetings that were held during the fiscal year ended October 31, 2012.
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. Nevertheless, all of our audit committee members are independent within the definition of independence provided by NASDAQ rules IM-5605(a)(2) and IM-5605(c)(2) with the exception of Luke Spalj. Mr. Spalj is not considered independent due his ownership of Rice Lake Construction who constructed our water treatment facility.. A governor would not be independent if they, or a family member, had been employed by the Company at any time during the last three years (unless such employment by a governor as an Executive Officer was on an interim basis, provided the interim employment did not last longer than one year), accepted any compensation from the Company in excess of $120,000 during the last three years, or was a partner in, or a controlling shareholder or an executive officer of any organization which had extensive business dealings with the Company. Additionally, governors serving on the audit committee must not have participated in the preparation of the financial statements of the Company at any time during the last three years.
The Board of Directors has determined that Mr. Brittenham will serve as the audit committee's financial expert as defined in Item 407 of Regulation S-K. Mr. Brittenham's qualifications to serve as the audit committee's financial expert are detailed in the section above entitled “"Biographical Information for Non-nominee Governors.” The audit committee held five meetings during the fiscal year ended October 31, 2011. All of our audit committee members attended at least 75% of the audit committee meetings during the fiscal year ended October 31, 2011, except Luke Spalj.Nominees."
Audit Committee Report
The following report of the audit committee was delivered to the Board of Governors and 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 of Governors.Board. Management has the primary responsibility for the financial statements and the reporting process. The Company's independent accountant isaccountants are responsible for expressing an opinion on the conformity of the audited financial statements to generally accepted accounting principles.
The audit committee has reviewed and discussed with management the Company's audited financial statements as of and for the fiscal year ended October 31, 2011.2012. The audit committee has discussed with Boulay, Heutmaker, Zibell & Co. P.L.L.P., its independent auditors,accountants, the matters required to be discussed by Statement on Auditing Standards No. 61 Communication with audit committees, as amended, by the Auditing Standards Board of the American Institute of Certified Public Accountants and as adopted by the Public Company Accounting Oversight Board in Rule 3200T. The committee has received and reviewedfrom the independent auditors written disclosures andregarding the letter to management from Boulay, Heutmaker, Zibell & Co. P.L.L.P., asauditors' independence required by the Public Company Accounting Oversight Board inand the Independence Rule 3600T,3526, Communication with Audit Committees Concerning Independence, and has discussed with the independent accountantauditors, the independent accountants'auditors' independence.
The committee has considered whether the provision of services by Boulay, Heutmaker, Zibell & Co. P.L.L.P., not related to the audit of the financial statements referred to above and to the reviews of the interim financial statements included in the Company's Forms 10-Q are compatible with maintaining Boulay, Heutmaker, Zibell & Co. P.L.L.P.'s, independence.
Based on the reviews and discussions referred to above, the Board of Governorsaudit committee determined that the audited financial statements referred to above be included in the Company's annual report on Form 10-K accompanying this proxy statement for the fiscal year ended October 31, 20112012.
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| Audit Committee |
| Ronald Jorgenson, Chair |
| Scott Brittenham |
| Russell Derickson |
| Ron Jorgenson |
| Luke SpaljGeorge Goblish |
Independent Registered Public Accounting Firm
The audit committee anticipates selecting Boulay, Heutmaker, Zibell & Co. P.L.L.P. as the independent registered public accountants for the fiscal year November 1, 20112012 to October 31, 2012.2013. A representative of Boulay, Heutmaker, Zibell & Co. P.L.L.P. is expected to be present at the 20122013 Annual Meeting to respond to appropriate questions from the members and will have an opportunity to make a statement if they desire.
Audit Fees
The fees charged by Boulay, Heutmaker, Zibell & Co. P.L.L.P. during the last two fiscal years are as follows:
| | Category | | Fiscal Year | | Fees | | Fiscal Year | | Fees |
Audit Fees(1) | | 2011 | | $ | 102,570 |
| |
Audit Fees(1) | | | 2012 | | $ | 116,225 |
|
| | 2010 | | $ | 123,127 |
| | 2011 | | $ | 102,570 |
|
Audit-Related Fees | | 2011 | | $ | — |
| | 2012 | | $ | — |
|
| | 2010 | | $ | — |
| | 2011 | | $ | — |
|
Tax Fees | | 2011 | | $ | 11,273 |
| | 2012 | | $ | 10,276 |
|
| | 2010 | | $ | 10,839 |
| | 2011 | | $ | 11,273 |
|
All Other Fees(2) | | 2011 | | $ | 6,144 |
| |
All Other Fees(2) | | | 2012 | | $ | 8,046 |
|
| | 2010 | | $ | 7,410 |
| | 2011 | | $ | 6,144 |
|
(1) The audit fees were incurred for the audit of the Company's annual financial statements included within Form 10-K and review of the financial statements included in the Company's quarterly reports on Form 10-Q. Also included are fees related to services in connection with consultations debt compliance and SEC comment letter for the fiscal years ended October 31, 20112012 and 2010.2011.
(2) These fees consist of general financial consulting services provided by Boulay, Heutmaker, Zibell & Co P.L.L.P.
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 the Company's 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.
Nominating CommitteeNOMINATING COMMITTEE
The nominating committee of the Board of Governors operates under a charter adopted by the Board of Governors in November 2009, which was included as an exhibit to our 2010 proxy statement. Under the charter, the nominating committee must have at least three members. The Boardmembers of Governors appointed Ron Jorgenson, David Moldanthe nominating committee are currently George Goblish, Timothy VanDerWal and John Buckley Jr.Michael Bents (who is not a governor) to the nominating committee.member of our Board). The nominating committee held one (1) meeting during the Fiscal Yearfiscal year ended October 31, 20112012. All of our nominating committee members attended 100% of the nominating committee meetings.
Based upon the size of the Company and the Board of Governor'sBoard's familiarity with the Company since inception, the Board of Governors has also determined that each of the governors is qualified to suggest nominees for consideration to the nominating committee. The major responsibilities of a nominating committee are to:
Develop a nomination process for candidates to the Board of Governors;Board;
Establish criteria and qualifications for membership to the Board of Governors;Board;
Identify and evaluate potential governor nominees;
FillRecommend nominees to the Board to fill vacancies on the Board of Governors;Board;
Recommend nominees to the Board of Governors for election or re-election.
The following list represents the types of criteria the nominating committee takes into account when identifying and evaluating potential nominees:
Agricultural, business and financial background;
Accounting experience;
Community or civic involvement;
Independence from the Company (i.e. free from any family, material business or professional relationship with the Company);
Lack of potential conflicts of interest with the Company;
Examples or references that demonstrate a candidate's integrity, good judgment, commitment and willingness to consider matters with objectivity and impartiality; and
Specific needs of the existing board relative to any particular candidate so that the overall board composition reflects a mix of talents, experience, expertise and perspectives appropriate to the Company's circumstances.
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. However, each member of the nominating committee is independent under the NASDAQ definition of independence.
The nominating committee does not have a policy with regard to the consideration of diversity when identifying nominees. A member may nominate a candidate for governor by following the procedures explained in Section 5.3(b) of the Member Control Agreement. Section 5.3(b) of the Member Control Agreement requires that written notice of a member's intent to nominate an individual for governor must be given, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the Company not less than 45 calendar days nor more than 90 calendar days prior to the annual meeting of the Company at which such elections are to be held.
The notice to the Secretary shall set forth: (a) the name and address of record of the member who intends to make the nomination; (b) a representation that the member is a holder of record of units of the Company entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) the name, age, business and residence addresses, and principal occupation or employment of each nominee; (d) a description of all arrangements or understandings between the member and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the member; (e) such other information regarding each nominee proposed by such member as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission and (f) the consent of each nominee to serve as a governor of the Company if so elected. The Company may require any proposed nominee to furnish such other information as may reasonably be required by the Company to determine the eligibility of such proposed nominee to serve as a governor of the Company. The presiding officer of the meeting may, if the facts warrant, determine that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded.
The Company solicited nominations for individuals to stand for election at the 20122013 Annual Meeting and posted a notice regarding member nominations for governors in the Company's December 20112012 newsletter which was distributed to the members
and posted on the Company's website. The Company received no nominations from the members for nominees to stand for election to the Company's Board of Governors at the 20122013 Annual Meeting. The nominating committee selected three nominees to stand for election at the 20122013 Annual Meeting.
Compensation CommitteeCOMPENSATION COMMITTEE
The members of our executive committee are currently David Moldan, Timothy VanDerWal, George Goblish and Warren Pankonin, sit on our executive committee.Luke Spalj and Timothy VanDerWal. Our executive committee comprises our compensation committee. The executive committee does not operate under a charter. The executive committee held twelve meetings during the fiscal year ended October 31, 2012.
The executive committee 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. All members of the executive committee are independent, as defined by NASDAQ Rule IM-5602(a)(2). The executive committee does with the exception of Luke Spalj. Mr. Spalj is not operate under a charter.considered independent due to his ownership of Rice Lake Construction which constructed our water treatment facility.
For additional information on the responsibilities and activities of the executive committee, including the process for determining executive compensation; see the section of this proxy statement entitled “Compensation"Compensation Discussion and Analysis.”Analysis."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
No family relationships currently exist between any of the governors, officers, or key employees of the Company.
We have not engaged in a transactiontransactions with a related party. The details of this transaction are discussed below.
Construction Services
In 2009, the Company entered into an agreement with Rice Lake Construction for improvements to the our water treatment facility. Luke Spalj, one of our governors is an owner of Rice Lake Construction. During the Company's fiscal year ended October 31, 2011, the company paid approximately $449,000.00 to Rice Lake Construction of which approximately $356,000.00 was accrued from September 2010.
The Company's Board of Governors reviews all transactions with related parties, as that term is defined by Item 404 of SEC Regulation S-K, or any transaction in which related persons have an indirect interest. The Company's Member Control Agreement includes a written policy that requires that any such related transaction be made on terms and conditions which are no less favorable to the Company than if the transaction had been made with an independent third party. Further, our Member Control Agreement requires our governors to disclose any potential financial interest in any transaction being considered by the board of governors.Board.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Overview
The executive committee of the Board has responsibility for establishing, implementing and regularly monitoring adherence to the Company's compensation philosophy and objectives. The executive committee ensures that the total compensation paid to the executive officers is fair, reasonable and competitive. Generally, the types of compensation and benefits provided to the Chief Executive Officer are similar in form to the compensation and benefits provided to our other executive officers.
The executive committee:
| |
(1) | establishes and administers a compensation policy for senior management; |
| |
(2) | reviews and approves the compensation policy for all or our employees other than senior management; |
| |
(3) | reviews and monitors our financial performance as it affects our compensation policies or the administration of those policies; and |
| |
(4) | reviews and monitors our succession plans. |
All of the committee's actions are reported to the Board and, where appropriate, submitted to the Board for ratification. In determining the Chief Executive Officer's compensation, the committee considers evaluations prepared by the directors.governors. From time to time, the executive committee may delegate to the Chief Executive Officer the authority to implement certain decisions of the committee, to set compensation for lower executive officers, including the Company's Chief Financial Officer, and Commodity Manager, or to fulfill administrative duties.
Compensation Philosophy and Objectives
The general philosophy of the Company is to provide competitive levels of compensation that are influenced by our performance, that reward individual achievements, and that enable us to retain qualified executives. Compensation consists
primarily of annual compensation, which includes base salary intended to provide a stable annual salary at a level consistent with individual contributions.
Compensation Committee Procedures
The executive committee of the Board is responsible for determining the nature and amount of compensation for the Company's executive officers. In our 2011 fiscal year, theOur executive committee consistedconsists of four non-employee directors: David Moldan, Timothy VanDerWal, Warren Pankonin and George Goblish.members of our Board.
The executive committee receives input from the Chief Executive Officer on the personal performance achievements of the executives and management employees who report to him. This individual performance assessment determines a portion of the annual compensation for each executive. In addition, the Chief Executive Officer provides input on salary increases, incentive compensation opportunities, and long-term incentive grants for the executives and management employees who report to him, which the committee considers when making executive compensation decisions.
The executive committee does its own performance review of the Chief Executive Officer, and discusses the performance
review with the Board. The executive committee annually evaluates the performance of our Chief Executive Officer in light of the goals and objectives of the Company's executive compensation plans, and determines and approves, or recommends to the Board for its approval, the Chief Executive Officer's compensation level based on this evaluation. The Chief Executive Officer is not present at either executive committee or board level deliberations concerning his compensation.
From time to time, the executive committee may delegate to the Chief Executive Officer the authority to implement certain decisions of the committee, to set compensation for lower executive officers, including the Company's Chief Financial Officer or to fulfill administrative duties.
Compensation Components
Base Salary
Base salaries for our executive officers are established based on the scope of their roles, responsibilities, experience levels and performance, and taking into account competitive market compensation paid by comparable companies for similar positions. Base salaries are reviewed approximately annually, and may be adjusted from time to time to realign salaries with market levels after taking into account individual performance and experience.
Bonus
In addition to the base salaries, the Board approved a bonus payable to our Chief Executive Officer and certain key employees. For our 2010 fiscal year, the bonus was paid to our Chief Executive Officer, Brian Kletscher. The bonus structure takes into account profitability, safety, production and cooperation. For our 2012 fiscal year, a bonus in the Fiscal Year ended October 31, 2010, the Board analyzed the project in 2008amount of $1,388 was paid to each of our Chief Executive Officer, Brian Kletscher, and 2009 and the key individuals who brought the project to completion. As a result,our former Chief Financial Officer, Mark Peterson. No bonuses were awarded for our 2011 fiscal year. For our 2010 fiscal year, a bonus in the amount of $4,000 was paid to our Chief Executive Officer. No bonuses were awarded for our 2011 fiscal year.Officer, Brian Kletscher.
Benefits and Perquisites
We do not provide any material executive perquisites. We have no supplemental retirement plans or pension plans and we have no intentions of implementing any such plans in our 20122013 fiscal year.
No Pension Benefit Plan, Change of Control or Severance Agreements
We offer no pension benefit plans to our executive officers. Brian Kletscher, ourOur Chief Executive Officer doesand our Chief Financial Officer do not have a change of control or severance agreement,agreements, which means the Board retains discretion over severance arrangements if it decides to terminate histheir employment. Mark Peterson, our Chief Financial Officer does have a severance arrangement whereby he would receive a severance package of one month's salary.
Accounting and Tax Treatment of Awards
None of our executive officers, directors,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.
Executive Compensation Committee Report
The executive committee has reviewed and discussed the Compensation Discussion and Analysis with management. Based upon this review and discussion, the compensation committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement.
|
| |
| Executive Committee |
| David Moldan, Chair |
| Warren Pankonin |
| Luke Spalj |
| Timothy VanDerWal |
Compensation Committee Interlocks and Insider Participation
None of the members of the executive committee is or has been an employee of the Company. There are no interlocking relationships between the Company and other entities that might affect the determination of the compensation of our executive officers.
Summary Compensation Table
The following table sets forth all compensation paid or payable by the Company during the last two fiscal years to our Chief Executive Officer, Chief Financial Officer and former Chief Financial Officer. We did not have any compensatory security option plan or other plan for long term compensation for our Executive Officers andexecutive officers or governors in place as of October 31, 2011.2012. Further, as of October 31, 2011,2012, none of our governors or executive officers had any options, warrants, or other similar rights to purchase securities of the Company. The Company does not have written employment agreements with either of the individuals named in the table below.our Chief Executive Officer and Chief Financial Officer.
Compensation of Named Executive Officers
| | Name and Principal Position | Year | Salary | Bonus | Stock Awards | Option Awards | Non-Equity Incentive Plan Compensation Earnings | Nonqualified Deferred Compensation Earnings | All Other Compensation | Total | Fiscal Year | Salary | Bonus | All Other Compensation | | Total |
Brian Kletscher, Chief Executive Officer(1) | Fiscal Year 2011 | $ | 105,711 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 6,948 |
| $ | 112,659 |
| 2012 | $ | 108,191 |
| $ | 1,388 |
| $ | 4,215 |
| (2) | $ | 113,794 |
|
| Fiscal Year 2010 | $ | 103,470 |
| $ | 4,000 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 9,299 |
| $ | 116,769 |
| 2011 | $ | 105,711 |
| $ | — |
| $ | 6,948 |
| (2) | $ | 112,659 |
|
| Fiscal Year 2009 | $ | 101,000 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 101,000 |
| 2010 | $ | 103,470 |
| $ | 4,000 |
| $ | 9,299 |
| (2) | $ | 116,769 |
|
Mark Peterson, Chief Financial Officer(2) | Fiscal Year 2011 | $ | 104,664 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 6,921 |
| $ | 111,585 |
| |
Lucas Schneider, Chief Financial Officer (3) | | 2012 | $ | — |
| $ | — |
| $ | — |
| | $ | — |
|
| Fiscal Year 2010 | $ | 102,446 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 8,977 |
| $ | 111,423 |
| 2011 | $ | — |
| $ | — |
| $ | — |
| | $ | — |
|
| Fiscal Year 2009 | $ | 100,000 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 2,075 |
| $ | 102,075 |
| 2010 | $ | — |
| $ | — |
| $ | — |
| | $ | — |
|
Mark Peterson, Former Chief Financial Officer(4) | | 2012 | $ | 75,386 |
| $ | 1,388 |
| $ | 10,366 |
| (5) | $ | 87,140 |
|
| | 2011 | $ | 104,664 |
| $ | — |
| $ | 6,921 |
| (2) | $ | 111,585 |
|
| | 2010 | $ | 102,446 |
| $ | — |
| $ | 8,977 |
| (2) | $ | 111,423 |
|
The Company will provide each member solicited a copy of the Form 10-K without charge. The written request for the Form 10-K should be directed to David Moldan, Chairman of Highwater Ethanol, LLC at 24500 U.S. Highway 14, Lamberton, Minnesota 56152. The Form 10-K is also available from the SEC at 6432 General Green Way, Mail Stop 0-5, Alexandria, VA 22312-2413, by email at foiapa@sec.gov or fax at (703) 914-2413 or available from the SEC's internet site (www.sec.gov).
The Securities and Exchange Commission has approved a rule governing the delivery of annual disclosure documents. The rule allows the Company to send a single set of our annual report and proxy statement to any household at which two or more members reside, unless the Company has received contrary instructions from one or more member(s). This practice, known as "householding", is designed to eliminate duplicate mailings, conserve natural resources and reduce printing and mailing costs. Each member will continue to receive a separate proxy card. If you wish to receive a separate annual report or proxy statement than that sent to your household either this year or in the future, you may contact the Company by telephone at (507) 752-6160 or by written request at Highwater Ethanol, LLC at 24500 US Highway 14, Lamberton, MN 56152. If members of your household receive multiple copies of our annual report and proxy statement, you may request householding by contacting the Company by telephone at (507) 752-6160 or by written request at Highwater Ethanol, LLC at 24500 US Highway 14, Lamberton, MN 56152.