August 4, 2005

Unlisted Numbers: Warwick, Warring with Santa Monica, Requests Nasdaq Extension

WARWICK, New York (HedgeWorld.com)--Having failed to achieve a goal about which its chief executive had seemed quite confident in late May, Warwick Valley Telephone Company said that it has requested that the Nasdaq National Market allow it an extension of the July 29 deadline for the filing of its annual report for 2004.

"The Company does not know whether its request will be granted or, if it is, when any new deadline might be," Warwick warned investors in an Aug. 1 statement. It added that it understands that its common shares won't be delisted until Nasdaq considers the request for an extension. Nobody at Warwick could be reached for further comment Tuesday morning.

On May 31, Herbert Gareiss Jr., the chief executive, addressed a letter to stockholders in which he sought to refute allegations of mismanagement leveled at company management by a hedge fund manager, Lawrence J. Goldstein of Santa Monica Partners LP . In this letter, Mr. Gareiss acknowledged that Warwick had been "unable to file our Annual Report" and that "NASDAQ [had begun] its process to investigate why." Mr. Gareiss attributed the problem to difficulty "in meeting the new requirements mandated by section 404 of the Sarbanes Oxley Act...."

At the time of this letter, the Nasdaq Listing Qualifications Panel had only recently granted a request for continued listing of Warwick's stock, on the condition that the annual report and the first quarter report be filed by July 29. Mr. Gareiss confidently put the following assurance to company shareholders in bold-faced print: "We strongly believe that the company will be in a position to file these reports well in advance of that date."

On Aug. 1, not only did Warwick Valley have to acknowledge that it hadn't met that deadline and was requesting another extension, but it and its shareholders heard again from Santa Monica, which controls a little more than 2% of its equity.

"The bold-faced print 'strongly believe' has evaporated into thin air," Mr. Goldstein wrote in his own letter to shareholders, filed with the Securities and Exchange Commission, roughly two and a half hours before the company's own filing acknowledging the passage of the deadline. "Clearly as anyone will see, it is Mr. Gareiss's statements to shareholders about WVR and its operations that have proven to be misleading, far from reassuring and without merit."

Interviewed Monday, Mr. Goldstein said that Warwick generally has held its annual meetings in the spring, but that the spring and much of the summer of 2005 have come and gone without a meeting or any date for one.

"It's a matter of public record," he said, "that we've submitted a shareholder proposal for the next annual meeting, whenever that might be." The proposal involves separating the company's successful passive investment, its 7.5% interest in the Orange County/Poughkeepsie Cellular LP, from its "plain old telephone system" ("POTS"). Santa Monica objects to the ongoing practice of subsidizing POTS with the proceeds of OCP.

Mr. Goldstein believes the circumstances are improving for corporate dissidents in this situation, because the nature of the shareholder base is changing year by year. Well-known shareholder activists such as Michael Price have bought into Warwick's equity, he said Monday.

CFaille@HedgeWorld.com

Contact Bob Keane with questions or comments at: bkeaneinvestmentadvisor.com.

Reprints Discuss this story
This is where the comments go.