Goldstein reacts to Warwick Valley's planned transformation with another letter to the board

By Lisa Kerner

Charlotte, N.C., April 13 - Santa Monica Partners, LP's Lawrence J. Goldstein responded to Warwick Valley Telephone Co.'s 2007 proxy statement by writing another letter to the board of directors.

In the statement, Warwick included an outline of its over 100-year history of providing "reliable phone service" and "customer responsiveness," according to a company news release. The company said it plans to "transform itself within its historic building and its heritage of great customer service. The company's story is a lesson in American competitiveness."

The company highlighted its installation of the first Voice over Internet Protocol (VoIP) switching platform in New York's Hudson Valley, a new computer system to support new services and the use of state-of-the-art fiber optic transmission to reach important new customers in Northern New Jersey.

In response to increased cable competition, Warwick offered new prices, faster broadband access and a major capital program to extend video service to all its local customers, the release stated.

Warwick's transformation includes tailored cell phone services, video on demand and expansion to other markets later this year and into 2008.

"Many believe [Friday the 13th] to be a very unlucky date. For Warwick Valley Telephone Co. shareholders who as I may have just received and read the Warwick 2007 proxy statement with all of its revelations, all of us are finding out just how very unlucky we are to have all of you on the board of directors representing we shareholders," Goldstein stated in the April 13 letter included in a schedule 13D filing with the Securities and Exchange Commission.

In the letter, Goldstein took issue with the board's payment of $400,000 to its former president and former chief financial officer as part of a retention agreement.

"By the way, in a wonderful display of gratitude for being paid $200,000 for absolutely no reason, less than a month later CFO Michael Cutler actually quit, on Dec. 1, 2006, once he had our money in his pocket," the letter stated.

On Dec. 11, chief executive officer Herb Gareiss announced he was also resigning.

Goldstein blasted the board for its vote to triple its basic annual compensation in 2007 in light of declining sales and falling stock prices.

In the letter, the investor highlighted the amount of free service board members living near Warwick received.

"And Herb Gareiss took $1,573 worth of free service for himself because he probably couldn't get along on just his $456,216 in pay last year and because he had so much free time to talk, watch TV and use his computer at home, which of course clearly showed up in that under his leadership the company has been posting operating losses the past several years," Goldstein wrote.

On April 12, Goldstein sent a strongly worded letter to Warwick's board criticizing the company's management and direction.

Over the past few weeks, Goldstein has written to the board drawing attention to the fact that over half of the board never invested any of their own "hard-earned money" in the stock of the company they control. He has also berated the board for the lack of a strategic plan and the decline of Warwick Valley's stock.

Goldstein has also urged the company to sell.

The reporting persons beneficially own 144,689 shares, or 2.1%, of the Warwick, N.Y., communication services company's stock.

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