Each fully executed proxy card will be counted for purposes of determining whether a quorum is present at the 20182022 Annual Meeting.
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.
If the Company does not receive notice of a member proposal intended to be submitted to the 20192023 annual meeting by December 19, 2018,12, 2022 the persons named on the proxy card accompanying the notice of meeting may vote on any such proposal in their discretion, provided the Company has included in its proxy statement an explanation of its intention with respect to voting on the proposal.
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| | | |
Name and Principal Occupation | Age | Year First Became a Governor | If Elected, Term will Expire |
George Goblish, Farmer | 48 | May 2006 | 2021 |
Mark Pankonin, Farmer | 49 | August 2017 | 2021 |
Luke Spalj, Businessman | 53 | August 2009 | 2021 |
Biographical Information for Nominees
George Goblish, IncumbentRussell Derickson, Governor and Nominee - Age 4857
For more than five years, Russell Derickson owns and manages his own farming operation, which produces corn and soybeans. He has served as a Soil Scientist, 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 Processors. Mr. Derickson has served on our Board since May 2006. He currently serves on our governance, fixed assets and audit committees. Mr. Derickson was selected as a nominee based on his prior involvement with our Company and the ethanol industry and his agricultural and business experience and has agreed to serve if elected.
Ronald Jorgenson, Vice Chairman and Governor and Nominee - Age 62
Ronald Jorgenson owns and operates his own farming operation. Mr. Jorgenson attended the University of Minnesota of St. Paul, Minnesota. Mr. Jorgenson has served on our Board since May 2006. Mr. Jorgenson serves as vice chairman of our Board and is expected to continue to serve as vice chairman at the pleasure of the Board. He also currently serves on our audit committee as the chairman and serves on our risk management and executive committees. Mr. Jorgenson was selected as a nominee based on his prior involvement with our Company and the ethanol industry and his agricultural and business experience and has agreed to serve if elected.
Michael Landuyt, Governor and Nominee - Age 46
Michael Landuyt owns and manages Landuyt Land and Livestock, a farming operation in Walnut Grove, Minnesota, that buys and sells cattle and feed ingredients and produces corn. Mr. Landuyt served on our Board from May 2006 until February 2010 and again since December 2014. He currently serves on our governance, fixed assets and audit committees. Mr. Landuyt was selected as a nominee based on his prior involvement with our Company and the ethanol industry and his agricultural and business experience and has agreed to serve if elected.
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 RECOMMENDS A VOTE FOR THE INCUMBENT GOVERNORS, RUSSELL DERICKSON, RONALD JORGENSON AND MICHAEL LANDUYT. FOR EACH PROPERLY EXECUTED PROXY WHERE THE MEMBER DOES NOT MARK ANY CHOICES FOR GOVERNOR, THE PROXIES WILL VOTE FOR THE INCUMBENT GOVERNORS RUSSELL DERICKSON, RONALD JORGENSON AND MICHAEL LANDUYT.
Biographical Information for Non-nominee Governors
David Eis, Governor, Secretary - Age 53
Mr. Eis is engaged in agricultural production which includes raising corn, soybeans and feeder cattle. He is a member of the Minnesota State Cattlemen, Redwood Area Cattlemen and the Minnesota Corn and Soybean Growers Association. Mr. Eis was employed as a crop insurance adjuster for Rural Community Insurance Services until March of 2014, when he left to expand his cattle operation. He currently serves on the Independent School District 640-Wabasso Public School Board. Mr. Eis has served on our Board since June 2015. Mr. Eis 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, executive, audit and nominating committees.
David Moldan, Chairman, Governor - Age 61
Mr. Moldan is the president and treasurer of Moldan & Sons, Inc., a farming operation in Lamberton, Minnesota. Mr. Moldan attended the University of Minnesota Waseca where he received his Associate Degree in Applied Science and Diversified Ag Production. Mr. Moldan has served on our Board since May 2006. Mr. 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 fixed assets and executive committees.
George Goblish, has been farmingGovernor - Age 52
George Goblish farms near Vesta, Minnesota where he raisesproduces corn and soybeans. He is also an Asgrow/Dekalb/Monsanto seed dealer. Mr. Goblish attended Willmar Technical College where he received his Associate'sAssociate Degree in Agricultural Production and Management. Mr. Goblish has served on our Board since May 2006. He currently serves on our governance, fixed assets, audit and nominating committees. He previously served as our treasurer. Mr. Goblish was selected as a nominee based on his prior involvement with our Company and the ethanol industry and his agricultural and business experience.
Mark Pankonin, IncumbentTreasurer and Governor and Nominee - Age 4953
Since 1990, Mr. Pankonin has owned and managed his own farming operation including the production of corn and soybeans and a beef finishing yard. In addition, he owns and operates Dry Creek Trucking, Inc., a small trucking company. He previously worked for L&S Construction. Mr. Pankonin attended Alexandria Technical College where he received his Associate'sAssociate Degree in Diesel Mechanics. Mr. Pankonin has served on our Board since August 2017 when he was appointed to fill a vacancy. Mr. Pankonin serves as our treasurer and is expected to continue to serve as treasurer at the pleasure of the Board. He currently serves on our fixed assets, and risk management committees. Mr. Pankonin was selected as a nominee based on his agricultural and business experience.executive committees.
Luke Spalj, Treasurer, Incumbent Governor and Nominee - Age 5357
Mr. Spalj has been in the construction business for over 30 years. Since 1993, 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 Bancorp of Deerwood, Minnesota since 1997. Additionally, Mr. Spalj also worked in various capacities for Quanta Services, Inc., a publicly traded specialty contractor serving the electric and gas utility, telecommunications and cable industries from 1998-2004 serving as president of the Telecommunications and Cable TV Division from January 2002 through 2004. Mr. Spalj has a B.S. in civil engineering from Michigan Technological University. Mr. Spalj has served on our Board since August 2009. He currently serves on our fixed assets committee.
Gerald Forsythe, Governor - Age 81
Mr. SpaljForsythe is currently the chairman and CEO of Indeck Energy Services, Inc., Indeck Capital, Inc. and Indeck Power Equipment Company. Mr. Forsythe began his career with Indeck Power Equipment Company in 1963 and has over fifty years of experience in the power industry. He founded Indeck Energy Services, Inc. in 1985 which constructed and operates gas fired co-generation facilities. Mr. Forsythe also founded Forsythe Racing, Inc. and formed the Forsythe Racing Team in 1982 to participate in open wheel racing. His team has won series championships in Formula Atlantic, Indy Lights and Champ Car. He has also been responsible for constructing racing venues in Mexico and England and is the owner of the Long Beach Grand Prix in California and Cosworth, Ltd. in England. Mr. Forsythe farms over 20,000 acres near his hometown of Marshall, Illinois. Mr. Forsythe also serves as our treasurerdirector for LincolnLand Agri-Energy, LLC and is expectedKaapa Ethanol Holdings, LLC. Mr. Forsythe was appointed by the Board in February 2021 to continue to serve as treasurer at the pleasure of the Board.fill a vacancy. He also currently serves on our fixed assets and executive committees. Mr. Spalj was selected as a nominee based on his prior involvement with our Company and the ethanol industry and his agricultural and business 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 RECOMMENDS A VOTE FOR THE INCUMBENT GOVERNORS, GEORGE GOBLISH, MARK PANKONIN AND LUKE SPALJ. 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, MARK PANKONIN AND LUKE SPALJ.
Biographical Information for Non-nominee Governors
Russell Derickson, Governor - Age 53
For more than five years, Russell Derickson has owned and managed his own farming operation, which produces corn and soybeans. He has served as a Soil Scientist, 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 Processors. Mr. Derickson has served on our Board since May 2006. He currently serves on our governance, fixed assets and audit committees.
David Eis, Governor and Secretary - Age 49
For the past five years, Mr. Eis has been engaged in agricultural production which includes raising corn, soybeans and feeder cattle. He is a member of the Minnesota State Cattlemen, Redwood Area Cattlemen and the Minnesota Corn and Soybean Growers Association. Mr. Eis was employed as a crop insurance adjuster for Rural Community Insurance Services until March of 2014, when he left to expand his cattle operation. He currently serves on Independent School District 640-Wabasso Public School Board. Mr. Eis has served on our Board since June 2015. Mr. Eis 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 executive and audit committees.
William Garth, Governor - Age 50
Mr. Garth has more than 20 years experience in the energy industry. He is currently the vice president of finance for Indeck Energy Services, Inc. where he oversees financial analysis, modeling, budgeting and marketing 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. in 1994, 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 Cardinal Ethanol, LLC, a public company. Mr. Garth holds an MBA from the University of Dallas and a BSIE from Purdue University. Mr. Garth has served on our Board since December 2011. He is a corporate representative of Indeck Renewable Energy, LLC, our largest member. He currently serves on our risk management committee.
Ronald Jorgenson, Vice Chairman and Governor - Age 58
For more than five years, Ronald Jorgenson has owned and operated his own farming operation. Mr. Jorgenson attended the University of Minnesota of St. Paul, Minnesota. Mr. Jorgenson has served on our Board since May 2006. Mr. Jorgenson serves as vice chairman of our Board and is expected to continue to serve as vice chairman at the pleasure of the Board. He also currently serves on our audit committee as the chairman and serves on our risk management and executive committees.
Michael Landuyt, Governor - Age 42
For more than five years, Michael Landuyt has owned and managed Landuyt Land and Livestock, a farming operation in Walnut Grove, Minnesota, that buys and sells cattle and feed ingredients and produces corn. Mr. Landuyt served on our Board from May 2006 until February 2010 and again since December 2014. He currently serves on our governance, nominating and fixed assets committees.
David Moldan, Chairman and Governor - Age 57
For more than five years, Mr. Moldan has been the president and treasurer of Moldan & Sons, Inc., a farming operation in Lamberton, Minnesota. Mr. Moldan attended the University of Minnesota Waseca where he received his Associate's Degree in Applied Science and Diversified Ag Production. Mr. Moldan has served on our Board since May 2006. Mr. 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 fixed assets and executive committees.
Biographical Information Regarding Executive Officers and Key Employees
Brian Kletscher, Chief Executive Officer - Age 5660
Brian Kletscher was hired to serve as our Chief Executive Officer on November 6, 2008. Previously, Mr. Kletscher had served as chairman of the Board. Brian Kletscher served as county commissioner of Redwood County, Minnesota until January 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 serves on the board of directors of Renewable Products Marketing Group and Minnesota Biofuels Association. Mr. Kletscher is expected to serve as our Chief Executive Officer indefinitely at the pleasure of the Board or until his earlier death, disability or resignation.
Lucas Schneider, Chief Financial Officer - Age 3640
Lucas Schneider was hired to serve as our Chief Financial Officer on December 3, 2012. Prior to his employment with Highwater, Mr. Schneider served as the Chief Financial Officer since December 2010 for Heron Lake BioEnergy, LLC, an ethanol plant located in Heron Lake, Minnesota. Previously, he served as the senior accountant of Heron Lake BioEnergy, LLC since November 2008 and as the 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 degreeB.S. from Southwest Minnesota State University in Marshall, Minnesota. Mr. Schneider is expected to serve as our Chief Financial Officer indefinitely at the pleasure of the Board or until his earlier death, disability or resignation.
PROPOSAL TWO
ADVISORY APPROVAL OF THE PROPOSED AMENDMENTS TO THE MEMBER CONTROL AGREEMENTCOMPANY'S EXECUTIVE COMPENSATION (SAY-ON-PAY)
TO AFFIRMATIVELY ELECT GOVERNANCE UNDER THE NEW LLC ACT AND MAKE CHANGES CONSISTENT WITH THE NEW LLC ACT
The Company was organized as a Minnesota limited liability company under Chapter 322B ofbelieves that our compensation policies and procedures are reasonable based on the Minnesota Statutes (the "Old Act"). However, the new LLC Act was signed into law on April 8, 2014size and became effective August 1, 2015. As of January 1, 2018, the new LLC Act applies to all Minnesota limited liability companies, regardless of when they were formed. As such, the Board has concluded that it is in the best interestcomplexity of the Company and are strongly aligned with the long-term interests of our members. Publicly reporting companies are required to affirmatively elect governancepresent to their members the opportunity to provide 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 compensation of our executive officers for the 2021 fiscal year. This advisory member vote, commonly known as "Say-on-Pay", gives you as a member the opportunity to endorse or not endorse our executive officers 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 related disclosure contained under the new LLC Act and make various changes tocaption "EXECUTIVE COMPENSATION" of this proxy statement."
Because your vote is advisory, it will not be binding on the member control agreement to be consistent withBoard. However, the new LLC Act including revisions toBoard will take into account the dutiesoutcome of the governors, limitationvote when considering future executive compensation arrangements. We believe the Say-on-Pay proposal demonstrates our commitment to achieving a high level of liability and indemnification language and making minor consistency and wording changes.
The proposed amendments are as follows:
Replace the term "Member Control Agreement" with the term "Operating Agreement" throughout to reflect governance under the new LLC Act.
Remove references to the Old Act and replace with references to the new LLC Act.
Amend Section 1.5 to affirmatively elect governance under the new LLC Act.
Amend Section 5.1 to clarify that the Company shall be governed by a board of governors.
Amend Section 5.19 to clarify the duties and obligations of the governors owed to the Company as allowed by the new LLC Act.
Amend Section 5.22 to limit the liability of governors and officerstotal return for acts or omissions performed in good faith on behalf of the Company except that governors and officers shall be liable for acts of fraud, gross negligence, intentional infliction of harm, intentional violation of criminal law, breach of fiduciary duties, or any ultra vires acts consistent with the new LLC Act.
Add Section 5.23 to clarify rights to indemnification of governors and officers (which was previously contained in Section 5.22), to add language to allow for indemnification of governors and officers by the Company to the fullest extent provided by the new LLC Act and to specifically provide that governors and officers will not be
indemnified by the Company for acts for which governors and officers are liable to the Company as set forth in Section 5.22.
Incorporate certain formatting changes and other minor consistency and wording changes that do not change the substantive terms of the member control agreement.
The express language of the proposed amendments to the member control agreement summarized above is set forth in its entirety in the Form of Third Amended and Restated Operating Agreement in Appendix A, in a marked format, with deletions shown by strikethroughs and additions by underlines.
Required Vote and Board Recommendation
our members.
If a quorum is present, Proposal Two
This proposal will be approved if itthe votes cast FOR the proposal exceed the votes cast AGAINST the proposal, regardless of whether either alternative receives affirmative votesapproval from the members holding a majority of the membership units represented at the 20182022 Annual Meeting and entitled to vote on the matter. If you fail to mark a vote, the proxies solicited by the Board will be voted FOR Proposal Two. If you mark contradicting choices on your proxy card such as a vote both for and against Proposal Two, your vote will have the effect of a vote AGAINST Proposal Two. If you abstain from voting, your vote will have the effect of a vote AGAINST Proposal Two but will be included in the determination of whether a quorum is present. If you do not submit a proxy card or attend the 2018 Annual Meeting, your vote will not be counted as a vote either for or against Proposal Two. The approval of the proposed amendments set forth above in Proposal Two is independent of and is not conditioned on member approval of Proposals Three and Four.any adjournments thereof.
THE BOARD RECOMMENDS THAT YOU VOTE FOR ENDORSEMENT OF THE PROPOSED AMENDMENTS TO THE MEMBER CONTROL AGREEMENT TO ELECT GOVERNANCE UNDER THE NEW LLC ACT AND MAKE OTHER CHANGES CONSISTENT WITH THE NEW LLC ACT.COMPENSATION OF OUR EXECUTIVE OFFICERS. FOR EACH PROPERLY EXECUTED PROXY WHERE THE MEMBER DOES NOT MARK ANY CHOICES,CHOICE, THE PROXIES WILL VOTE FOR THE APPROVAL OF THE AMENDMENTS TO THE MEMBER CONTROL AGREEMENT TO ELECT GOVERNANCE UNDER THE NEW LLC ACT AND MAKE OTHER CHANGES CONSISTENT WITH THE NEW LLC ACT.PROPOSAL TWO.
PROPOSAL THREE
APPROVAL OF THE PROPOSED AMENDMENT TO SECTION 5.3(b)
OF THE MEMBER CONTROL AGREEMENT
Section 5.3(b) of our member control agreement sets forth the process by which a member may nominate a candidate for governor. Section 5.3(b) 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. However, the Board has concluded that it is in the best interests of the Company to amend Section 5.3(b) of our member control agreement in order to give the Company additional time following the receipt of a nomination from a member before the Company files and delivers its proxy statement for that year's annual meeting in order to handle any such nominations in a more efficient manner and to establish consistency in the requirements for receipt of member nominations for governor elections and for member proposals. The proposed amendment would require members to give written notice of a member's intent to nominate an individual not less than 120 days prior to the one year anniversary of the date the Company's proxy statement was released in connection with the previous year's annual meeting beginning with the election of governors for the 2019 annual meeting and thereafter. The proposed amendment would also require the Board to set a reasonable deadline for nominations in the event the date of the annual meeting is changed by more than 30 days from the anniversary date of the previous year's annual meeting.
The express language of the proposed amendment to Section 5.3(b) is set forth in its entirety in the Form of Third Amended and Restated Operating Agreement in Appendix A, in a marked format, with deletions shown by strikethroughs and additions by underlines.
Required Vote and Board Recommendation
Proposal Three will be approved if it receives affirmative votes from members holding a majority of the total outstanding membership units entitled to vote on the matter. If you fail to mark a vote, the proxies solicited by the Board of Directors will be voted FOR Proposal Three. If you mark contradicting choices on your proxy card such as a vote both for and against Proposal Three, your vote will have the effect of a vote AGAINST Proposal Three. If you abstain from voting your vote will have the effect of a vote AGAINST Proposal Three but will be included in the determination of whether a quorum is present. If you do not submit a proxy card or attend the 2018 Annual Meeting, your vote will not be counted as a vote either for or against Proposal
Three. The approval of the proposed amendments set forth above in Proposal Three is independent of and is not conditioned on member approval of Proposals Two and Four.
THE BOARD RECOMMENDS THAT YOU VOTE FOR THE AMENDMENT TO SECTION 5.3(b) OF THE MEMBER CONTROL AGREEMENT. FOR EACH PROPERLY EXECUTED PROXY WHERE THE MEMBER DOES NOT MARK ANY CHOICES, THE PROXIES WILL VOTE FOR THE APPROVAL OF THE AMENDMENT TO SECTION 5.3(b) OF THE MEMBER CONTROL AGREEMENT.
PROPOSAL FOUR
APPROVAL OF THE PROPOSED AMENDMENT TO SECTION 7.4
OF THE MEMBER CONTROL AGREEMENT
The Board has concluded that it is in the best interests of the Company to amend Section 7.4 to revise the current tax matters provisions and adopt tax audit procedures in order to ensure the Company’s tax audit procedures are consistent with recent IRS regulatory changes to large partnership audit procedures.
The express language of the proposed amendment to Section 7.4 is set forth in its entirety in the Form of Third Amended and Restated Operating Agreement in Appendix A, in a marked format, with deletions shown by strikethroughs and additions by underlines.
Required Vote and Board Recommendation
If a quorum is present, Proposal Four will be approved if it receives affirmative votes from members holding a majority of the membership units represented at the 2018 Annual Meeting and entitled to vote on the matter. If you fail to mark a vote, the proxies solicited by the Board will be voted FOR Proposal Four. If you mark contradicting choices on your proxy card such as a vote both for and against Proposal Four, your vote will have the effect of a vote AGAINST Proposal Four. If you abstain from voting your vote will have the effect of a vote AGAINST Proposal Four but will be included in the determination of whether a quorum is present. If you do not submit a proxy card or attend the 2018 Annual Meeting, your vote will not be counted as a vote either for or against Proposal Four. The approval of the proposed amendments set forth above in Proposal Four is independent of and is not conditioned on member approval of Proposals Two and Three.
THE BOARD RECOMMENDS THAT YOU VOTE FOR THE AMENDMENT TO SECTION 7.4 OF THE MEMBER CONTROL AGREEMENT. FOR EACH PROPERLY EXECUTED PROXY WHERE THE MEMBER DOES NOT MARK ANY CHOICES, THE PROXIES WILL VOTE FOR THE APPROVAL OF THE AMENDMENT TO SECTION 7.4 OF THE MEMBER CONTROL AGREEMENT.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission ("SEC"). Except as indicated by footnote, a person named in the tables below has sole voting and sole investment power for all units beneficially owned by that person.
As of January 24, 2018,19, 2022, the following beneficial owner 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 Units | | Indeck Renewable Energy, LLC(2)
| | 400 Units | | 8.31%8.39% |
Membership Units | | Gerald Forsythe(3) | | 445 Units | | 9.33% |
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(1) | (1) The address of each beneficial owner is deemed to be the address of the Company at P.O. Box 96, 24500 US Highway 14, Lamberton, Minnesota 56152. |
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(2) | William Garth, our governor, is employed by Indeck Energy Services, Inc. and is a corporate representative of Indeck Renewable Energy, LLC. |
(2) Gerald Forsythe, our governor, may be deemed to be a beneficial owner of these units because he is a director and executive officer of Indeck Renewable Energy, LLC and may be deemed to share investment and voting power.
(3) In addition to the four hundred units held by Indeck Renewable Energy, LLC listed above, Mr. Forsythe is the owner of an additional forty-five units giving him total beneficial ownership of four hundred forty-five units.
Security Ownership of Management
As of January 24, 2018,19, 2022, members of our Board, former members of our former governor,Board, nominees 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 | | Russell Derickson,Governor and Nominee | | 1316 Units | | * |
Membership Units | | David Eis,Secretary and Governor(2) | | 1 Unit3 Units | | * |
Membership Units | | William Garth,Gerald Forsythe, Governor (3)
| | 445 Units | | 9.33% |
Membership Units | | William Garth, Former Governor(4) | | 400 Units | | 8.31%8.39% |
Membership Units | | George Goblish, Governor(4)(5) | | 50 Units | | 1.04%1.05% |
Membership Units | | Ronald Jorgenson, Vice Chairman, Governor and GovernorNominee | | 14 Units | | * |
Membership Units | | Brian Kletscher, CEO(6) | | 818 Units | | * |
Membership Units | | Michael Landuyt, Governor and Nominee(5)(7) | | 4 Units | | * |
Membership Units | | David Moldan, Chairman and Governor | | 912 Units | | * |
Membership Units | | Mark Pankonin, Treasurer and Governor | | 5 Units | | * |
Membership Units | | Warren Pankonin, Former Governor(6)
| | 170 Units | | 3.53% |
Membership Units | | Lucas Schneider, CFO | | 0 Units | | * |
Membership Units | | Luke Spalj, Treasurer and Governor | | 136.5 Units | | 2.84%2.86% |
TOTAL: | | | | 810.5703.5 Units | | 16.84%14.75% |
(*) Indicates that the membership units owned represent less than 1% of the outstanding units.
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(1) | The address of each beneficial owner is deemed to be the address of the Company. |
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(2) | Mr. Eis shares investment and voting power with his wife. |
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(3) | This includes 400 units owned by Indeck Renewable Energy, LLC. |
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(4) | Mr. Goblish shares investment and voting power with respect to 26 units with his wife. |
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(5) | One unit is owned by Mr. Landuyt's wife. Mr. Landuyt shares investment and voting power with respect to that unit with his wife. |
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(6) | Warren Pankonin shares investment and voting power with his wife. He served as a governor until August 2017. |
(1)The address of each beneficial owner is deemed to be the address of the Company.
(2)Mr. Eis shares investment and voting power with respect to two units with his wife.
(3)This includes four hundred units owned by Indeck Renewable Energy, LLC. Those units listed are the same units listed below for Mr. Garth and are only counted once for purposes of calculating the aggregate units owned by members of our Board, former members of our Board, nominees and executive officers as a group.
(4)This includes four hundred units owned by Indeck Renewable Energy, LLC. Those four hundred units listed are the same units listed above for Mr. Forsythe and are only counted once for purposes of calculating the aggregate units owned by members of our Board, former members of our Board, nominees and executive officers as a group.
(5)Mr. Goblish shares investment and voting power with respect to these units with his wife.
(6)Mr. Kletscher shares investment and voting power with respect to nine units with his wife.
(7)One unit is owned by Mr. Landuyt's wife. Mr. Landuyt shares investment and voting power with respect to that unit with his wife.
DELINQUENT SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
REPORTS
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, 2017.2021 except that Mr. Forsythe filed two late Form 4s failing to report seven transactions on a timely basis.
BOARD OF GOVERNORS' MEETINGS AND INDEPENDENCE
The Board generally meets once per month. The Board held twelve regularly scheduled meetings and one special meeting during the fiscal year ended October 31, 2017.2021. During the fiscal year ended October 31, 2017,2021, each governor attended at least 75% of the aggregate of the total meetings of the Board and the total meetings held by all committees of the Board on which said governor served except William Garth.served.
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. The names of our governors and their addresses are listed on the Company's website at www.highwaterethanol.com/board.htmwww.highwaterethanol.com or are available by calling the Company's office at (507) 752-6160.
The Board does not have a policy with regard to governors' attendance at annual meetings. Last year, seveneight 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.
Governor Independence
All of our governors, former governors and governor nominees are independent, as defined by NASDAQ Rule 5605(a)(2), with the exception of Russell Derickson, David Eis, George Goblish, Michael Landuyt, David Moldan and Mark Pankonin, Warren PankoninPankonin. Mr. Derickson, Mr. Eis and Luke Spalj. MarkMr. Goblish are not considered independent because each sold corn to the Company in excess of $120,000 in at least one of the last three fiscal years. Mr. Landuyt is not considered independent because a company owned and operated by him sold corn to the Company in excess of $200,000 in at least one of the last three fiscal years. Mr. Moldan is not considered independent because a company owned and operated by him sold corn to the Company in excess of $200,000 in at least one of the last three fiscal years. Mr. Pankonin is not considered independent because companies owned and operated by him and his father Warren Pankonin, purchased distillers grains from the Company in excess of $200,000 in at least one of the last three fiscal years. Our former governor, Warren Pankonin,The Board believes that allowing these governors to serve is not considered independent forreasonable due to the same reason. Mr. Spalj is not considered independent because his construction company, Rice Lake Construction Group, received in excessfact that the purchases of $200,000 fromcorn and sales of distillers grains by the Company were made in at least onethe ordinary course of business and are substantially based on the last three fiscal years in connection with the constructionprevailing market value of a water pipeline.such commodities. 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.
Policy Regarding Employee, Officer and Governor Hedging
We do not have a policy prohibiting our governors, officers or employees from purchasing financial instruments that are designed to hedge or offset any decrease in the market value of the Company's membership units held by such persons. As a limited liability company, we are required to restrict the transfers of our membership units in order to preserve our partnership tax status. Our membership units may not be traded on any established securities market or readily traded on a secondary market (or the substantial equivalent thereof). Because there is no public market for our units, it is the view of the Board that such a policy is unnecessary.
Board Leadership Structure and Role In Risk Oversight
The Company is managed by a Chief Executive Officer that is separate from the chairman 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 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 filed with the SEC on January 29, 2013 and is also available free of charge on written request to Highwater Ethanol, LLC, 24500 US Highway 14, Lamberton, Minnesota 56152.
AUDIT 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 registered public accounting firm, monitors the performance of the Company's internal audit function, provides an avenue of communication among the independent registered public accounting firm, management, and the Company's Board, and prepares an audit committee report to be included in the Company's annual proxy statement.
The audit committee of the Board operates under a charter adopted by the Board in 2008. A copy of the audit committee charter is available on the Company's website at www.highwaterethanol.com. Under the charter, the audit committee must have at least three members. Our audit committee members are currently Ronald Jorgenson, Russell Derickson, David Eis, George Goblish and George Goblish.Michael Landuyt. Ronald Jorgenson chairs our audit committee. Audit issues were
specifically addressed by the audit committee during the four audit committee meetings that were held during the fiscal year ended October 31, 2017.2021.
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 would be considered independent within the definition of independence provided by NASDAQ Rules 5605(a)(2) and 5605(c)(2). except for Russell Derickson, David Eis, Geroge Goblish and Michael Landuyt. Mr. Derickson, Mr. Goblish and Mr. Eis would not be considered independent because each sold corn to the Company in excess of $120,000 in at least one of the last three fiscal years. Mr. Landuyt would not be considered independent because a company owned and operated by him sold corn to the Company in excess of $200,000 in at least one of the last three fiscal years. However, the Board believes that including these governors on the audit committee is reasonable due to the fact that the purchases of corn and sales of distillers grains by the Company were made in the ordinary course of business and are substantially based on the prevailing market value of such commodities. 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 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, was a partner in, or a controlling shareholder or an executive officer of any organization which had extensive business dealings with the Company or was an affiliate of the
Company. Additionally, governors serving on the audit committee must not have participated in the preparation of the Company's financial statements during the last three years.
The Board has determined that thewe do not currently have an audit committee does not presently have a financial expert because none of the currentserving on our audit committee. We do not have an audit committee members satisfyfinancial expert serving on our audit committee because no member of our audit committee has the requirements set forthrequisite experience and education to qualify as an audit committee financial expert as defined in Item 407401 of Regulation S-K. The nominating committeeBoard intends to take into account financial expertiseconsider such qualifications in evaluating future nomineesnominations to our Board and appointments to the Board.audit committee.
Audit Committee Report
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 SEC 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 registered public accounting firm is responsible for expressing an opinion on the conformity of the audited financial statements to generally accepted accounting principles. The committee reviewed and discussed with management the Company's audited financial statements as of and for the fiscal year ended October 31, 2017.2021. The committee has discussed with RSM US LLP, its independent registered public accounting firm, the matters required to be discussed byunder the applicable requirements of the Public Company Accounting Oversight Board Auditing Standard AS 1301, Communications with Audit Committees("PCAOB"). The committee has received from the independent registered public accounting firm written disclosures regarding the auditors' independence required by Public Company Accounting Oversight Board and the Independence Rule 3526, Communications with Audit Committees Concerning Independence,applicable requirements of the PCAOB and has discussed with the independent registered public accounting firm, the independent registered public accounting firm's independence. The committee has considered whether the provision of services by RSM US LLP, 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 RSM US LLP's independence.
Based on the reviews and discussions referred to above, the audit 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, 2017.
|
| | | | |
| Audit Committee |
| Ronald Jorgenson, Chair |
| Russell Derickson |
| David Eis |
| George Goblish |
| Michael Landuyt |
Independent Registered Public Accounting Firm
The audit committee has selected RSM US LLP as its independent registered public accounting firm for the fiscal year November 1, 20172021 to October 31, 2018.2022. A representative of RSM US LLP is expected to be present at the 20182022 Annual Meeting to respond to appropriate questions from the members and will have an opportunity to make a statement if desired.
Audit Fees
The fees charged by our principal independent registered public accounting firm, RSM US LLP, during the last two fiscal years are as follows:
| | | | | | | | | | | | | | | | | |
Category | | Fiscal Year | | Fees |
Audit Fees | | 2021 | | $ | 124,931 | |
| | 2020 | | $ | 125,325 | |
Audit-Related Fees | | 2021 | | $ | — | |
| | 2020 | | $ | — | |
Tax Fees(1) | | 2021 | | $ | 87,595 | |
| | 2020 | | $ | 171,849 | |
All Other Fees | | 2021 | | $ | — | |
| | 2020 | | $ | — | |
|
| | | | | | |
Category | | Fiscal Year | | Fees |
Audit Fees | | 2017 | | $ | 112,518 |
|
| | 2016 | | $ | 112,727 |
|
Audit-Related Fees | | 2017 | | $ | — |
|
| | 2016 | | $ | — |
|
Tax Fees(1) | | 2017 | | $ | 142,706 |
|
| | 2016 | | $ | 34,977 |
|
All Other Fees | | 2017 | | $ | — |
|
| | 2016 | | $ | — |
|
(1) Tax fees relate primarily to professional services rendered in connection with research and developmenttax credit studies, and related amendment of Form 1065 for 2013 and 2015, along with the preparation of the Company’s corporate income tax return and related tax planning and tax advice.
Prior to engagement of the principal independent registered public accounting firm to perform audit and tax services for the Company, the principal accountantregistered public accounting firm 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 COMMITTEE
The nominating committee of the Board operates under a charter adopted by the Board in 2009. A copy of the nominating committee charter is available on the Company's website at www.highwatereathanol.com. Under the charter, the nominating committee must have at least three members. The members of the nominating committee are currently David Eis, George Goblish Michael Landuyt and Michael Bents (who is not a member of our Board). The nominating committee held two meetings during the fiscal year ended October 31, 2017.2021.
Based upon the size of the Company and the Board's familiarity with the Company since inception, the Board 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;
•Establish criteria and qualifications for membership to the Board;
•Identify and evaluate potential governor nominees;
•Recommend nominees to the Board to fill vacancies on the Board;
•Recommend nominees to the Board 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. Nevertheless, each member of the nominating committee would be considered to be independent within the definition of independence provided by NASDAQ Rules 5605(a)(2). except David Eis and George Goblish. Mr. Eis and Mr. Goblish would not be considered independent because each sold corn to the Company in excess of $120,000 in at least one of the last three fiscal years. However, the Board believes that including these governors on the nominating committee is reasonable due to the fact that the purchases of corn and sales of distillers grains by the Company were made in the ordinary course of business and are substantially based on the prevailing market value of such commodities. The nominating committee does not have a policy with regard to the consideration of diversity when identifying nominees.
Although theThe nominating committee does not have a policy for receiving nominations for governor positions from the Company's members, the Company solicited nominations for individuals to stand for election at the 2018 Annual Meeting by posting a notice regarding member nominations for governors in the Company's December 2017 newsletter which was distributed to the members and posted on the Company's website. The Company received the names of the three incumbents whose terms were expiring from the members to stand for election to the Company's Board at the 2018 Annual Meeting. The nominating committee determined to nominate those three candidates.
members. The Company believes that it is reasonable not to have a policy for receiving nominations for governor positions from the Company's members because the member controloperating agreement provides a procedure for the members to nominate individuals to stand for election as governors. Notice of member nominations for candidates for governor must be given by following the procedures explained in Section 5.3(b) of the member controloperating agreement. Section 5.3(b) of the member controloperating 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. However, the proposed amendment to Section 5.3(b) of the member control agreement would require members to give written notice of a member's intent to nominate an individual not less than 120 days prior to the one year anniversary of the date the Company's proxy statement was released in connection with the previous year's annual meeting. If this amendment is approved at the 2018 Annual Meeting, this would be applicable for nominations for the 2019 annual meeting.
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.
COMPENSATION COMMITTEE
The members of our executive comitteecommittee are currently David Eis, Ronald Jorgenson, David Moldan and Luke Spalj.Mark Pankonin. Our executive committee comprises our compensation committee. The executive committee does not operate under a charter. The executive committee held one meetingtwo meetings during the fiscal year ended October 31, 20172021 to discuss compensation.
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. However, all members of the executive committee would be considered to be independent within the definition of independence provided by NASDAQ Rules 5605(a)(2) with the exception of Luke Spalj.David Eis, David Moldan and Mark Pankonin. Mr. Spalj isEis would not be considered independent because his construction company, Rice Lake Construction Group, receivedhe sold corn to the Company in excess of $200,000 from the Company$120,000 in at least one of the last three fiscal yearsyears. Mr. Moldan would not be considered independent because a company owned and operated by him sold corn to the Company in connection withexcess of $200,000 in at least one of the constructionlast three fiscal years. Mr. Pankonin would not be considered independent because companies owned and operated by him and his father purchased distillers grains from the Company in excess of a water pipeline.
$200,000 in at least one of the last three fiscal years. However, the Board believes that including these governors on the compensation committee is reasonable due to the fact that the purchases of corn and sales of distillers grains by the Company were made in the ordinary course of business and are substantially based on the prevailing market value of such commodities.
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 Discussion and Analysis."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
No family relationships currently exist between any of the governors, nominees, officers, or key employees of the Company. We have engaged in transactions with related parties during the fiscal year ended October 31, 2017.2021. Our governor, Russell Derickson sold corn to the Company in the approximate amount of $354,000 during the fiscal year ended October 31, 2021. Our governor, David Eis, sold corn to the Company in the approximate amount of $278,000 during the fiscal year ended October 31, 2021. Our governor, George Goblish, sold corn to the Company in the approximate amount of $359,000 during the fiscal year ended October 31, 2021. Landuyt Land & Livestock, a company owned and operated by our governor, Michael Landuyt, sold corn to the Company in the approximate amount of $927,000 and purchased distillers grains from the Company in the approximate amount of $193,000 during the fiscal year ended October 31, 2021. Moldan & Sons, Inc., a company owned and operated by our governor, David Moldan, sold corn to the Company in the approximate amount of $397,000 during the fiscal year ended October 31, 2021. Minnesota Supreme Feeders, Inc., a company owned and operated by our former governor, WarrenMark Pankonin, and our current governor, Mark Pankonin,his father purchased distillers grains from the Company in the approximate amount of $541,000$586,000 during the fiscal year ended October 31, 2017. Warren Pankonin is also the father of our current governor, Mark Pankonin.2021. In addition, Double Diamond, Inc., a company owned and operated by Mark Pankonin, purchased distillers grains from the Company in the approximate amount of $151,000$222,000 during the fiscal year ended October 31, 2017. 2021.
The Company's Board reviews all transactions with related parties, as that term is
defined by Item 404 of Regulation S-K, or any transaction in which related persons have an indirect interest. The Company's member controloperating 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 controloperating agreement requires our governors to disclose any potential financial interest in any transaction being considered by the Board.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Overview
Brian Kletscher serves as our Chief Executive Officer and Lucas Schneider serves as our Chief Financial Officer. These individuals are referred to in this proxy statement as our "executive officers". The executive committee 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.
The executive committee:
| |
(1) | establishes and administers a compensation policy for the executive officers; |
| |
(2) | reviews and approves the compensation policy for all or our employees other than the executive officers; |
| |
(3) | reviews and monitors our financial performance as it affects our compensation policies or the administration of those policies; |
| |
(4) | reviews and monitors our succession plans; and |
| |
(5) | approves awards to our executive officers pursuant to our incentive plans. |
(1)establishes and administers a compensation policy for the executive officers;
(2)reviews and approves the compensation policy for all or our employees other than the executive officers;
(3)reviews and monitors our financial performance as it affects our compensation policies or the administration of those policies;
(4)reviews and monitors our succession plans; and
(5)approves awards to our executive officers pursuant to our incentive plans.
All of the executive committee's actions are reported to the Board and, where appropriate, submitted to the Board for ratification. In determining the executive officers' compensation, the executive committee considers evaluations prepared by the governors. From time to time, the executive committee may delegate to the Chief Executive Officer the authority to implement certain decisions of the committee and to fulfill administrative duties.
In setting compensation, the executive committee took into account the member vote at our 20162019 annual meeting called the "Say-on-Pay" proposal, where the members overwhelmingly voted to endorse the Company's system of compensating its executive officers. We anticipate that theOur next "Say-on-Pay" proposal will occur at our 2025 Annual Meeting and the advisory vote as to frequency of the "Say-on-Pay" proposal will also occur at our 2019 annual meeting.2025 Annual Meeting.
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 of annual compensation, which includes base salary intended to provide a stable annual salary at a level consistent with individual
contributions. In addition, the executive committee expects to maintain compensation plans which tie a portion of executive compensation to the Company's performance.
Compensation Committee Procedures
The executive committee is responsible for determining the nature and amount of compensation for the Company's executive officers. Our executive committee consists of four non-employee members of our Board.
The executive committee receives input from the executives on the personal performance achievements of the executives and management employees who report to them. These individual performance assessments determine a portion of the annual compensation for each executive. In addition, the executives provide input on salary increases, incentive compensation opportunities, and long-term incentive grants for the executives and management employees who report to them, which the executive committee considers when making executive compensation decisions.
The executive committee annually evaluates the performance of the executives 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 compensation levels based on these evaluations. The executives are not present at either executive committee or Board-level
deliberations concerning their own compensation. However, the Chief Executive Officer is present at deliberations concerning the Chief Financial Officer's compensation. The executive committee does its own performance review of the Chief Executive Officer and discusses the performance review with the Board. The Chief Executive Officer conducts the performance review of the Chief Financial Officer.
From time to time, the executive committee may delegate to the Chief Executive Officer the authority to implement certain decisions of the executive committee or to fulfill administrative duties.
Compensation Committee Report
The executive committee has reviewed and discussed the Compensation Discussion and Analysis with management. Based upon this review and discussion, the executive committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement.
|
| | | | |
| Executive Committee |
| David Moldan, Chair |
| David Eis |
| Ronald Jorgenson
|
| Luke Spalj
Mark Pankonin |
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 takingtake 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
The Board adopted a bonus plan for the executives for the fiscal year ended October 31, 20172021 (the "2017"2021 Bonus Plan"). The purpose of the 20172021 Bonus Plan is to reward the executives for their contributions that directly impact financial results and also to encourage compliance with certain legal and financial matters. Under the 20172021 Bonus Plan, the Chief Executive Officer can earn an annual bonus of up to 35% of his base salary and the Chief Financial Officer can earn an annual bonus of up to 32% of his base salary based on the Company meeting certain goals related to EBITDA, debt service,unit value, net income, yield, and compliance. The Chief Financial Officer can earn an annual bonus up to 30% of his base salary based on the Company meeting certain goals related to EBITDA, unit value, net income, financial reporting and compliance. These goals were generally assessed as of the end of our fiscal year on October 31, 2017.2021.
The Board approved a bonus payable to our Chief Executive Officer in the amount of $32,878$76,080 and a bonus to our Chief Financial Officer in the amount of $21,197$45,288 under the 20172021 Bonus Plan. The Board approved a bonus payable to our Chief Executive Officer in the amount of $21,424$17,734 and a bonus to our Chief Financial Officer in the amount of $12,618$7,293 under the bonus plan for the fiscal year ended October 31, 2016.2020. The Board approved a bonus payable to our Chief Executive Officer in the amount of $20,800$15,066 and a bonus to our Chief Financial Officer in the amount of $17,150$7,080 under the bonus plan for the fiscal year ended October 31, 2015.2019.
The Board adopted a bonus plan for the executives for the fiscal year ended October 31, 20182022 (the "2018"2022 Bonus Plan") similar to the 20172021 Bonus Plan described above.
Employment Agreements with Executive Officers; Change of Control Agreements
On February 26, 2014, we entered into Employment Agreements (the "Agreements") with our Chief Executive Officer and our Chief Financial Officer. The Agreements provide for an initial base salary which is subject to review and adjustment on an annual basis and may be terminated upon thirty days written notice by the executive or the Company. However, the executives are each entitled to eighteen months continued salary and paid health care benefits in the event of their dismissal by the Company without cause with such amounts to be reduced by any salary earned in other employment during that period. If our Chief Executive Officer would have been dismissed without cause on October 31, 2017,2021, and assuming that there was no reduction for salary earned in other employment, the Company estimates that it would have provided salary and health care benefits over an eighteen month period of approximately $318,000.$379,269. If our Chief Financial Officer would have been dismissed without cause on October 31, 2017,
2021, and assuming that there was no reduction for salary earned in other employment, the Company estimates that it would have provided salary and health care benefits over an eighteen month period of approximately $213,000.$245,305.
In addition, we may terminate the Agreements upon sixty days notice and payment of three years salary in the event of certain change in control events which include the sale of substantially all of the Company's assets, the sale of a majority of the Company's outstanding membership units and the merger or consolidation of the Company with another. Assuming that our Chief Executive Officer would have been dismissed due to a change in control event on October 31, 2017,2021, the Company estimates that it would have paid a lump sum in the amount of $609,000.$722,762. Assuming that our Chief Financial Officer would have been dismissed due to a change in control event on October 31, 2017,2021, the Company estimates that it would have paid a lump sum in the amount of $412,000.$473,264.
The executives are each entitled to an additional $10,000 for each completed year of employment following the execution of the Agreements to be invested in a life insurance or investment plan which vests in accordance with a vesting schedule over eight years of service with the Company. The Company is responsible for payment of income taxes in connection with the award. The award is paid on an annual basis at the fiscal year end. Upon disability of the executive or termination of employment, except for a termination by the Company for cause, the amounts would immediately vest. Assuming that our Chief Executive Officer would have become disabled or would have been dismissed other than for cause on October 31, 2017,2021, the Company estimates that the amount vested would have been approximately $30,000.$70,000. Assuming that our Chief Financial Officer would have become disabled or would have been dismissed other than for cause on October 31, 2017,2021, the Company estimates that the amount vested would have been approximately $30,000.$70,000.
The Agreements prohibit the executives from competing with the Company within thirty miles of the Company's facility during the term of the Agreements and for one year thereafter. The Agreements also restrict the executives from disclosing certain Company information, interfering with the Company and soliciting customers, suppliers or past or present employees of the Company in connection with a competitive business operating within thirty miles of the Company's facility.
CEO Pay Ratio
As a result of rules adopted by the SEC, we are disclosing the following information regarding the relationship of the annual total compensation of our employees and the annual total compensation of our Chief Executive Officer for the fiscal year ended October 31, 2021:
•The median of the annual total compensation of all of our employees (excluding the Chief Executive Officer) was $71,680.
•The annual total compensation of our Chief Executive Officer, as reported on our Summary Compensation Table, was $360,934.
•Based on this information, the ratio of our Chief Executive Officer's annual total compensation to our median employee was 5:1.
Our employee population as of October 31, 2021 (the date we selected to identify our median employee), consisted of 42 individuals, with all of these individuals located in the United States. We identified our median employee based on the annual total compensation paid during the fiscal year ended October 31, 2021, calculated consistent with the disclosure requirements of executive compensation under Item 402(c)(2)(x) of Regulation S-K.
In addition, for purposes of reporting the ratio of annual total compensation of the Chief Executive Officer to the median employee, both the Chief Executive Officer and median employee’s total compensation paid during the fiscal year ended October 31, 2021, were calculated consistent with the disclosure requirements of executive compensation under Item 402(c)(2)(x) of Regulation S-K. The Company has not made any of the adjustments permissible by the SEC, nor have any material assumptions or estimates been made to identify the median employee or to determine annual total compensation.
Perquisites
We do not provide any material executive perquisites.
Accounting and Tax Treatment of Awards
None of our executive officers, governors, or employees receives compensation in excess of $1,000,000 and therefore the entire amount of their compensation is deductible by the Company as a business expense. Certain large executive compensation awards are not tax deductible by companies making such awards. None of our compensation arrangements are likely to reach this cap in the foreseeable future.
Compensation Committee 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 three fiscal years to our executives. As of October 31, 2017,2021, none of our executives had any options, warrants, or other similar rights to purchase securities of the Company.
| | | | | | | | | | | | | | | | | | | | |
Name and Principal Position | Fiscal Year | Salary | Bonus | All Other Compensation (1) | | Total |
Brian Kletscher, Chief Executuve Officer | 2021 | $ | 254,485 | | $ | 76,080 | | $ | 30,369 | | | $ | 360,934 | |
| 2020 | $ | 250,417 | | $ | 17,734 | | $ | 30,141 | | | $ | 298,292 | |
| 2019 | $ | 234,744 | | $ | 15,066 | | $ | 29,518 | | | $ | 279,327 | |
Lucas Schneider, Chief Financial Officer | 2021 | $ | 164,314 | | $ | 45,288 | | $ | 28,609 | | | $ | 238,211 | |
| 2020 | $ | 163,082 | | $ | 7,293 | | $ | 26,266 | | | $ | 196,641 | |
| 2019 | $ | 151,879 | | $ | 7,080 | | $ | 25,178 | | | $ | 184,137 | |
|
| | | | | | | | | | | | | | |
Name and Principal Position | Fiscal Year | Salary | Bonus | All Other Compensation (1) | | Total |
Brian Kletscher, Chief Executive Officer | 2017 | $ | 183,267 |
| $ | 32,878 |
| $ | 27,195 |
| | $ | 243,340 |
|
| 2016 | $ | 178,849 |
| $ | 21,424 |
| $ | 26,856 |
| | $ | 227,129 |
|
| 2015 | $ | 168,029 |
| $ | 20,800 |
| $ | 46,672 |
| | $ | 235,501 |
|
Lucas Schneider, Chief Financial Officer | 2017 | $ | 141,333 |
| $ | 21,197 |
| $ | 24,573 |
| | $ | 187,103 |
|
| 2016 | $ | 136,931 |
| $ | 12,618 |
| $ | 24,517 |
| | $ | 174,066 |
|
| 2015 | $ | 129,351 |
| $ | 17,150 |
| $ | 42,225 |
| | $ | 188,726 |
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(1)These amounts include contributions by the Company to the defined contribution plan, allowance for non-participation in the Company insurance plans, payments to be used for insurance premiums and reimbursement for payment of taxes.
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(1) | These amounts include contributions by the Company to the defined contribution plan, allowance for non-participation in the Company insurance plans, payments to be used for insurance premiums and reimbursement for payment of taxes. |
GOVERNOR COMPENSATION
We do not have a separate compensation committee for our Board. The Board has direct responsibility with respect to the compensation of the Company's governors. For the 20172021 fiscal year, the governors received $450$750 for each regular board meeting attended and $250 for each committee meetingsmeeting attended. Mileage and other reasonable travel expenses will be paid when attending Board meetings, committee meetings or representing the Company at the Company's request. David Moldan is currently serving as our chairman and receives compensation in the amount of $1,250$1,400 per month for his services as chairman of our Board in addition to compensation for attending regular board meetings and committee meetings. The vice chairman, Ronald Jorgenson, secretary, David Eis, and treasurer, Luke SpaljMark Pankonin, each receive compensation in the amount of $500 per month in addition to compensation for attending regular board meetings and committee meetings. Warren Pankonin served as our secretary until August 2017 and received compensation in the amount of $500 per month in addition to compensation for attending regular board meetings and committee meetings. Following the appointment of David Eis to secretary in August 2017, he received compensation in the amount of $500$750 per month in addition to compensation for attending regular board meetings and committee meetings. The additional compensation for each is paid if present for the monthly executive committee meeting.
The table below shows the compensation paid to each of our governors and our former governor for the fiscal year ended October 31, 2017.2021. As of October 31, 2017,2021, none of our governors had any options, warrants, or other similar rights to purchase securities of the Company.
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Name | Fiscal Year | Fees Earned or Paid in Cash (1) | All Other Compensation(2) | | Total Compensation |
Russell Derickson | 2021 | $ | 11,000 | | $ | — | | | $ | 11,000 | |
David Eis | 2021 | $ | 22,750 | | $ | 595 | | | $ | 23,345 | |
Gerald Forsythe (3) | 2021 | $ | — | | $ | — | | | $ | — | |
William Garth(4) | 2021 | $ | 1,750 | | $ | — | | | $ | 1,750 | |
George Goblish | 2021 | $ | 11,250 | | $ | 202 | | | $ | 11,452 | |
Ronald Jorgenson | 2021 | $ | 21,500 | | $ | 516 | | | $ | 22,016 | |
Michael Landuyt | 2021 | $ | 11,750 | | $ | 121 | | | $ | 11,871 | |
David Moldan | 2021 | $ | 28,800 | | $ | 258 | | | $ | 29,058 | |
Mark Pankonin | 2021 | $ | 21,000 | | $ | 259 | | | $ | 21,259 | |
Luke Spalj | 2021 | $ | 7,500 | | $ | — | | | $ | 7,500 | |
(1)Includes payment for regular Board meetings, committee meetings and additional monthly compensation for the chairman, vice chairman, treasurer and secretary. |
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Name | Fiscal Year | Fees Earned or Paid in Cash (1) | All Other Compensation(2) | | Total Compensation |
Russell Derickson | 2017 | $ | 10,100 |
| $ | 484 |
| | $ | 10,584 |
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David Eis | 2017 | $ | 12,650 |
| $ | 716 |
| | $ | 13,366 |
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William Garth (3) | 2017 | $ | 5,800 |
| $ | 353 |
| | $ | 6,153 |
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George Goblish | 2017 | $ | 10,150 |
| $ | 1,565 |
| | $ | 11,715 |
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Ronald Jorgenson | 2017 | $ | 15,600 |
| $ | 1,771 |
| | $ | 17,371 |
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Michael Landuyt | 2017 | $ | 9,600 |
| $ | 512 |
| | $ | 10,112 |
|
David Moldan | 2017 | $ | 23,600 |
| $ | 2,047 |
| | $ | 25,647 |
|
Mark Pankonin(4) | 2017 | $ | 1,900 |
| $ | 193 |
| | $ | 2,093 |
|
Warren Pankonin(5) | 2017 | $ | 7,650 |
| $ | 113 |
| | $ | 7,763 |
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Luke Spalj | 2017 | $ | 10,700 |
| $ | 612 |
| | $ | 11,312 |
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(2)Includes reimbursement for mileage and other reasonable travel expenses incurred in connection with services rendered to the Company.
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(1) | Includes payment for regular Board meetings, committee meetings and additional monthly compensation for the chairman, vice chairman, treasurer and secretary. |
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(2) | Includes reimbursement for mileage and other reasonable travel expenses incurred in connection with services rendered to the Company. |
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(3) | The compensation is paid to Indeck Renewable Energy, LLC. |
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(4) | Mark Pankonin became a governor in August 2017 when he was appointed to fill a vacancy. |
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(5) | Warren Pankonin served as a governor until August 2017. |
(3)Mr. Forsythe was appointed to the Board in February 2021 but has declined to accept compensation for his service on the board.
(4)The compensation was paid to Indeck Renewable Energy, LLC. Mr. Garth resigned in December 2020.
ANNUAL REPORT AND FINANCIAL STATEMENTS
The Company's annual report to the Securities and Exchange Commission on Form 10-K, including the financial statements and the notes thereto, for the fiscal year ended October 31, 2017,2021, accompanies the mailing of this proxy statement. 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 to Highwater Ethanol, LLC at 24500 US Highway 14, Lamberton, MN 56152 and the Company will promptly deliver a separate copy of the proxy materials. 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 to Highwater Ethanol, LLC at 24500 US Highway 14, Lamberton, MN 56152.
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HIGHWATER ETHANOL, LLC | | 1) Read the Proxy Statement. |
20182022 Annual Meeting - Thursday, March 8, 201810, 2022 | | 2) Check the appropriate boxes on the proxy card below. |
For Unit Holders as of January 24, 201819, 2022 | | 3) Sign and date the proxy card. |
Proxy Solicited on Behalf of the Board of Governors | | 4) Return the proxy card by mail to P.O. Box 96, 24500 US Highway 14, Lamberton, MN 56152 or via fax to (507) 752-6162. |
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| | To be certain that your membership units will be represented at the 20182022 Annual Meeting and any adjournments thereof, please return your proxy card by 5:00 p.m. on Wednesday, March 7, 2018.9, 2022. However, proxy cards may still be accepted by the Company at any time prior to the polls officially closing. |
PROPOSAL ONE: ELECTION OF THREE GOVERNORS
**You may vote for THREE (3) nominees**
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| For | Abstain/Withhold |
George GoblishRussell Derickson | o | o |
Mark PankoninRonald Jorgenson | o | o |
Luke SpaljMichael Landuyt | o | o |
PROPOSAL TWOTWO::ADVISORY APPROVAL OF THE PROPOSED AMENDMENTS TO THE MEMBER CONTROL AGREEMENT TO AFFIRMATIVELY ELECT GOVERNANCE UNDER THE NEW LLC ACT AND MAKE CHANGES CONSISTENT WITH THE NEW LLC ACT.COMPANY'S EXECUTIVE COMPENSATION (SAY-ON-PAY)
THE BOARD RECOMMENDS A VOTEFOR FORoAGAINST THIS PROPOSAL.o
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For | Against | Abstain |
ABSTAINo | o | o |
PROPOSAL THREE: APPROVAL OF THE AMENDMENT TO SECTION 5.3(b) OF THE MEMBER CONTROL AGREEMENT.
THE BOARD RECOMMENDS A VOTE
FOR THIS PROPOSAL.
PROPOSAL FOUR: APPROVAL OF THE AMENDMENT TO SECTION 7.4 OF THE MEMBER CONTROL AGREEMENT.
THE BOARD RECOMMENDS A VOTE FOR THIS PROPOSAL.
By signing this proxy card, you appoint Ronald JorgensonDavid Moldan and David Moldan,Mark Pankonin, jointly and severally, each with full power of substitution, as proxies to represent you at the 20182022 Annual Meeting of the Members to be held on Thursday, March 8, 2018, at the American Legion, 106 1st Avenue West, Lamberton, MN 56152,10, 2022, and at any adjournments thereof, on any matters coming before the meeting. Registration for the meeting will begin at 8:30 a.m. The 20182022 Annual Meeting will commence at approximately 9:30 a.m. Please specify your choices by marking the appropriate boxes above. The proxies cannot vote your units unless you sign and return this card. To be certain that your membership units will be represented at the 20182022 Annual Meeting, please return your proxy card by 5:00 p.m. on Wednesday, March 7, 2018.9, 2022. However, proxy cards may still be accepted by the Company at any time prior to the polls officially closing.
This proxy, when properly executed, will be voted in the manner directed herein and authorizes the proxies to take action in their discretion upon other matters that may properly come before the 20182022 Annual Meeting. If you do not mark any boxes, the proxies will vote your units will be voted FOR for the incumbents George Goblish, Mark Pankoninincumbent governors Russell Derickson, Ronald Jorgenson, and Luke Spalj, FOR Proposal Two, FOR Proposal Three,Michael Landuyt and FOR Proposal Four.Say-on-Pay. If you chose less than three nominees, then the proxies will vote your units only for the nominee(s) you chose. If you mark contradicting choices on the proxy card such as both FOR and ABSTAIN/WITHHOLDfor a nominee or FOR and AGAINSTwith regard to a proposal, your votes will not be counted with respect to the governor nominee or the proposal for whichwhom you marked contradicting choices. However, each fully executed proxy card will be counted to determine whether a quorum is present at the 20182022 Annual Meeting and any adjournments thereof.
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Signature: | | | Joint Owner Signature: | |
Print Name: | | | Print Joint Owner Name: | |
Date: | | | Date: | |
Number of Units Held: | | | | |
Please sign exactly as your name appears above. When signing as attorney, executor, administrator, trustee or guardian, please note that fact.