Solarus Shareholders to Decide Future of Board

Wisconsin Rapids, Wis. (WFHR, WIRI) – A small group of Solarus Shareholders are speaking out to other Shareholders. The group, led by former CEO Justin Huebner, wants Shareholders to know there’s another option when it comes to the future of the company. The current Board of Directors is telling Shareholders, while that option may sound good, it could threaten local control of the company. Shareholders now have the opportunity to cast a proxy vote to decide the future of Solarus.

History of what led to this proxy vote

Roughly two years ago, then current CEO and Shareholder Justin Huebner and the Solarus Board of Directors discussed some of the issues facing the company. These included governance challenges such as the number of Shareholders dropping over the past 20 years and questions about treasury stock. The possibility of creating an Employee Stock Ownership Plan (ESOP) was discussed at that Board Retreat and several meetings that followed. Huebner said he was then told he didn’t need to look into the possibility of an ESOP any further. He believes this happened after he explained to the Board there would be a change in control when the ESOP got more than half of the shares in the company.

ESOP controlling shares

Huebner said that when an ESOP reaches 51%, the Trust becomes the main fiduciary. The trustee, with fiduciary responsibilities to employees, would then have control over what the Operating Board would look like. Board President Doug Wenzlaff said the idea of an ESOP might sound good, but the fact that it would be funded by a bank is a cause for concern. He said the Board believes as soon as the ESOP got a significant number of shares, the trustee of the bank running the ESOP would, in essence, be running the company. The Board believes an ESOP would not be local control because it would be controlled by a bank not in the central Wisconsin area.

Brief explanation of an ESOP

Huebner said an ESOP creates a fair market value ability for Shareholders to know the value of their shares and be able to sell with confidence. It also provides an opportunity to create employee owners. Employees would receive a small portion of the company each year as a brand new benefit. Employees would then potentially feel more invested and increase performance because they feel ownership in the company. Huebner believes an ESOP ensures that decision-making is done by a team of people who live in the community.

Board of Directors plan for Return on Investment

The current Board’s intent is to continue to provide what they think are great returns on Shareholder’s investments. They’ve paid $8/share or more on stock that has a par value of $100 for the past 25-plus years. This is an 8-percent return or better. The Board also plans to continue supporting and investing in community organizations and events. They also intend to keep the company locally owned and locally controlled so that their 114 employees still have jobs.

Project Renewal

Huebner and several Shareholders are presenting what’s being called, “Project Renewal” to fellow Shareholders. They believe this would increase the returns on Shareholder’s investments because they would be able to sell shares based on fair market value which is currently higher than par value. Project Renewal would be an alternative plan to how the company is currently being run. The current Board of Directors would be removed immediately and replaced with an interim board to begin the implementation of an ESOP. A conservative proposed timeline for the implementation of an ESOP is three to five years. The Project Renewal plan includes reducing the amount of annual Board compensation and reinstate Justin Huebner as CEO.

Why was Huebner terminated

Justin Huebner was terminated without cause the day after the Annual Meeting in May. He was offered an amount approximately equivalent to what a year of employing him would cost, according to Solarus, as part of a proposed separation agreement. Taking that offer would prevent him from contacting Shareholders about any form of acquisition or value-creating action. That would have included talking about forming an ESOP. Huebner turned down the Board’s offer. Board President Doug Wenzlaff didn’t give a reason why Huebner was terminated, just saying that at the beginning of the year, the board was pretty busy dealing with the problems with Mr. Huebner. It required research before they made the decision to terminate him.

What happened in January 2024

Doug Wenzlaff explained that the financial situation in the company changed significantly at the beginning of 2024. He said it will change even more in January of 2025. This change will happen because they were able to lock in their broadband support dollars beginning on January 1st, 2024. The company has never been able to do this before, it was always a year by year basis. The broadband support dollars are now locked in for 9 years. This change created a significant positive financial impact on Solarus. Additionally, after 2024, the fiber network build will basically be completed. This will cause the capital expenditures to drop by $3 to $4 million dollars per year going forward into 2025 and beyond. These two reasons will allow the company more cash flow in 2025 and beyond to pay more dividends going forward.

Timeline of communication and why the sudden changes

Solarus Shareholders have recently been inundated with communications from both sides of this issue. They’ve received letters and packets of information from the current Solarus Board of Directors and also from Project Renewal. Two questions have been raised. Why was a special dividend issued in July? And, why did the Board lower their compensation in September after all this started and not before?

Special Dividend in July

Wenzlaff said the Board turned back to looking at their financial situation, which had changed significantly at the beginning of the year, after they finished dealing with the problems with Mr. Huebner. Wenzlaff said a special dividend was an easy thing they had done before. It was a way to get some of that return back into the Shareholder’s hands. They then started looking into a longer-term plan to return earnings to Shareholders.

Why compensation was lowered in Sept

Huebner said that once a year over the course of the past four years while he was CEO, he would tactfully bring up his concerns to the Board about their level of compensation. On the proxy vote paperwork from Project Renewal, it states that right-sizing annual Board compensation will increase dividends. Board compensation has been a target of the back and forth between the current Board and the proponents of Project Renewal. The Board reduced their compensation in September, 2024. When asked why, Wenzlaff said primarily so it wouldn’t be a lightning rod for Mr. Huebner to get people to listen to his story. Before that, Board compensation was set at the median of the salary survey that they do. They reduced it to about 25% of the survey. He said the dollar amount that the board was being paid tends to lack perspective unless compared to the former CEOs salary. If one looks through the same lens Huebner is using, reducing the CEO’s salary would have a similar effect of increasing dividends.

Thoughts on communication

Current Board of Directors

Doug said the actions of the board have been clear. They’ve written letters and explained the timing of their actions as related to the changes in the company’s financial situation. He said they borrowed money to pay dividends because they felt it was important to continue to provide returns to their Shareholders. With the capital expenditures going down in 2025, the Board believes they will be able to pay dividends out of regular cash flow without borrowing money. Doug added that any communication coming from the Board included all of the Board member’s names and personal telephone numbers. He said it’s important to Board members that Shareholders feel they can reach out with questions.  

Project Renewal

Huebner feels that if they’re able to activate this change to an ESOP, the Shareholders will kind of be the heroes of the story. They’ll show they have the power to vote and make this step forward. Change is always scary for people. He said they’re just trying to enable Shareholders to make the best informed decision they can. The group wants Shareholders to do what makes sense for them. The issues are complex and they’re trying to answer questions people have. He said whichever way that means for Shareholders, they’re ok with that.

When will the decision be made

Shareholders have a proxy vote from both sides. The one they send in with the latest date will be the one counted. The meeting will be set before mid-October to count the proxy votes. Once the votes are counted, Shareholders will have decided the future of Solarus.