Schedule 14A Information
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [ ]
Filed by a party other than the Registrant [x]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as
permitted by Rule 14A-6 (e)(2))
[X] Definitive Proxy Statement
[ ] Deifinitive Additional Materials
[ ] Soliciting Materials Pursuant to ss.240.14a-11c or
SS.240.14a-12
Warwick Valley Telephone Company
(Name of Registrant as Specified In Its Charter)
Phillip Goldstein
(Name of Person(s) Filing Proxy Statement if other then the
Registrant)
60 Heritage Drive, Pleasantville, NY 10570
(914) 747-5262 // Fax (914) 747-5258 // oplp@optonline.net
April 9, 2003
Dear Fellow Warwick Stockholder:
I am an investment advisor and a fellow shareholder of Warwick
Valley Telephone Company ("Warwick"). I am writing to you
because I think Warwick's shares could be worth substantially
more than their current market value of about $77 per share. How
much more? I think Warwick is worth at least $100 per share and
possibly more than $125 per share. The question is how can
shareholders realize this value?
In my opinion, Warwick's market price does not fully reflect its
intrinsic value because shareholders have not been able to enjoy
the full benefit of Warwick's investment in an extremely
profitable cellular partnership managed by Verizon (the "Cellular
Partnership"). Even though the Cellular Partnership is a purely
passive investment, it is so profitable that in 2002 it generated
44% more income than all of Warwick's operating income combined!
Furthermore, the income of the Cellular Partnership was up by 50%
from 2001 while Warwick's operating income was down by 22%.
Not only is the Cellular Partnership very profitable, it is a
cash machine that distributes the bulk of its income to Warwick
and its other partners. Last year, for example, Warwick "earned"
$7.6 million from the Cellular Partnership and received cash
distributions of $6.0 million (or $3.33 per share). That is the
good news. The bad news is that the distributions from the
Cellular Partnership have not been entirely passed through to
Warwick's shareholders. Instead, Warwick's managers invest much
of the cash received from the Cellular Partnership in speculative
projects like digital television, hoping to take market share
from cable and satellite providers. In addition, Warwick has to
pay a hefty 33% tax on any distributions that it receives from
the Cellular Partnership before it can pay any of it out to
shareholders as dividends.
In my opinion, Warwick is a classic example of an undervalued
company that needs a catalyst to unlock its intrinsic value.
Without a catalyst to bring out the value of its investment in
the Cellular Partnership, I believe Warwick's stock price is
likely to remain well below its intrinsic value. I am asking
shareholders to sign the enclosed GREEN proxy card which is
intended to serve as such a catalyst.
There are several ways to increase the value of our shares: (1)
sell the company, (2) sell the company's investment in the
Cellular Partnership, (3) spin off the company's investment in
the Cellular Partnership to shareholders, and (4) register
Warwick as an investment company. Let us consider each one.
Sell the company - I believe Warwick would make an attractive
acquisition for a number of large telephone companies. The
days of the small independent telephone company are numbered.
It is getting more and more difficult to compete with larger
companies with greater resources, a lower cost structure and
greater access to capital. While Warwick's managers
acknowledge the trend toward consolidation in the local
telephone business, they say that they intend to "continue to
be fiercely independent." Toward that end, they are proposing
to increase the number of unissued preferred shares from 2,500
to 10 million! These preferred shares could be used to deter
an acquisition of Warwick at a significant premium to market -
even if shareholders overwhelmingly favored it. That may be
good for Warwick's managers who are looking to protect their
jobs but it is bad for shareholders who want to maximize the
value of their investment. Another concern about such a
massive increase in the number of unissued preferred shares is
that it could lead to a radical increase in the Company's
financial leverage and hence much more financial risk for the
Common shareholders. If you do not want Warwick to take on
more risk or deter the possibility of a lucrative buyout
offer, I strongly urge you to vote AGAINST Proposal IIC on the
enclosed GREEN proxy card.
Sell the company's investment in the Cellular Partnership -
The Cellular Partnership generated income of $7.6 million for
Warwick last year, up from $5.0 in 2001. Assuming a
capitalization rate of 5% yields a value of $152 million for
this investment. If it could be sold for even 75% of that
amount and the after-tax proceeds were distributed to
Warwick's shareholders, we could receive a distribution of
more than $40 per share in cash and still hold shares in
Warwick's operating businesses.
Spin off the company's investment in the Cellular Partnership
to shareholders - As I said, a big problem with the status quo
is that shareholders are being taxed twice on the cash
distributions from the Cellular Partnership to Warwick. I
think it would be great if a spin-off of Warwick's investment
in the Cellular Partnership could be accomplished so that
shareholders could receive all of the cash distributions from
the Cellular Partnership without being subjected to double
taxation. When added to dividends from Warwick's operating
earnings, the net result could be a doubling (or more) of our
dividend income. Management has stated that a shareholder may
present a non-binding proposal (Proposal III) to spin off
Warwick's investment in the Cellular Partnership. If that
happens, I intend to vote my shares for Proposal III and I
urge you to do the same.
WARNING - The Board of Directors will not permit a
shareholder who returns their proxy card to vote his or her
shares for Proposal III. Therefore, unless you return the
enclosed GREEN proxy card (or attend the meeting in person),
you will not be able to vote for Proposal III. If a proxy
solicitor for management calls you, ask him why the Board
does not want you to be able to vote on Proposal III.
Register Warwick as an investment company -- Under the
Investment Company Act of 1940 ("ICA"), a company that owns
investment securities having a value exceeding 40% of the
value of its total assets is required to register with the
Securities and Exchange Commission ("SEC") as an investment
company. Based on the income it generates, Warwick's interest
in the Cellular Partnership alone appears to be worth
significantly more than 40% of its total assets. Recently,
Warwick attempted to convince the SEC to exempt it from
registration as an investment company but aborted its efforts,
saying only that it wasn't "necessary." In my opinion, the
SEC probably discouraged the Company from continuing down that
road because of the unrealistically low value Warwick's board
of directors placed on its investment in Cellular Partnership
- only $22.5 million. Does that seem like a reasonable
valuation for a rapidly growing company that earned $7.6
million last year?
If the SEC were to determine that Warwick is an investment
company, it might file a lawsuit to compel it to register.
Such a lawsuit could have an adverse effect on Warwick's stock
price. Moreover, registering as an investment company would
give shareholders additional protection from theft, self-
dealing, fraud, excessive fees, excessive leverage and breach
of fiduciary duty. For example, if a manager of an investment
company commits a breach of fiduciary duty, the SEC can bring
an enforcement action against him. If you have been reading
the newspapers for the last year or two you will appreciate
how important these protections can be to investors. For
example, had Enron been registered as an investment company,
its board of directors would have been required to regularly
value all of its investments and the shenanigans with off-
balance sheet entities that occurred there might not have been
attempted.
Another advantage of registering as an investment company is
that Warwick's board of directors would be required to
determine the fair value of every investment each quarter.
If the board publicly disclosed that the fair value of the
Cellular Partnership was closer to my estimate of $152
million than $22.5 million, that could have a very positive
effect on Warwick's stock price.
We have an opportunity right now to begin to increase stockholder
value. If you believe Warwick's shares are undervalued and want
to see a higher price you have two choices. You can hope that
management's speculative growth plans work out. Or, you can send
a message to the board of directors that you want to benefit more
from the intrinsic value of the Company, especially from its
investment in the Cellular Partnership. If you agree that the
latter option is more likely to maximize stockholder value than
keeping the status quo, please sign and return the enclosed GREEN
proxy card today.
If you have any questions, please call me at (914) 747-5262 or e-
mail me at oplp@optonline.net.
Very truly yours,
Phillip Goldstein
PROXY STATEMENT IN OPPOSITION TO THE SOLICITATION BY THE BOARD OF
DIRECTORS OF WARWICK VALLEY TELEPHONE COMPANY
ANNUAL MEETING OF STOCKHOLDERS (To be held on April 25, 2003)
My name is Phillip Goldstein. I am a common shareholder of
Warwick Valley Telephone Company, Inc. (the "Company") and an
investment advisor. I am sending this proxy statement and the
enclosed GREEN proxy card to all stockholders of record on March
18, 2003 (the "Record Date") of the Company. I am soliciting a
proxy to vote your shares at the 2003 Annual Meeting of
Stockholders of the Company (the "Meeting") and at any and all
adjournments or postponements of the Meeting. Please refer to the
Company's proxy soliciting material for additional information
concerning the Meeting and the matters to be considered by the
shareholders including the election of directors.
This proxy statement and the enclosed GREEN proxy card are first
being sent to shareholders of the Company on or about April 9,
2003.
INTRODUCTION
The following are the matters that the Company has stated may be
voted upon at the meeting:
I. The election of three persons to serve as directors until
2006.
IA. To fix the number of directors at nine.
The following amendments to the Company's Certificate of
Incorporation:
IIA. To increase the number of authorized common shares and
change from no-par to $0.01 par.
IIB. To effect a 3-for-1 split of the common shares
IIC. To increase the number of authorized unissued preferred
shares from 2,500 to 10,00,000, change the par value of unissued
preferred shares and allow the board of directors to issue
additional preferred stock for the purpose of deterring an
acquisition of the Company.
IID. To revise the Company's purpose clause.
IIE. To change the number of directors.
IIF. To give the board of directors the ability to remove
directors for cause.
IIG. To delete obsolete provisions from the Company's Certificate
of Incorporation.
III. If presented, a shareholder proposal recommending that the
Company spin off its interest in the Orange County-
Poughkeepsie Cellular Partnership.
IV. My proposal recommending that the Company register with the
Securities and Exchange Commission as an investment company.
With respect to these matters, I am soliciting a proxy to vote
your shares FOR the election of one nominee, FOR Proposals III
and IV and AGAINST Proposal IIC. I am making no recommendation
with respect to the remaining proposals.
How Proxies Will Be Voted
All of the proposals scheduled by the Company to be voted upon at
the meeting are included on the enclosed GREEN proxy card. If you
return a GREEN proxy card to me or to my agent, your shares will
be voted on each matter as you indicate. If you do not indicate
how your shares are to be voted on a matter, they will be voted
FOR the election of my nominee to the Board, FOR Proposal IV,
AGAINST Proposal IIC and will ABSTAIN on the remaining proposals.
If you return a GREEN proxy card, you will be granting the proxy
holder(s) discretionary authority to vote on any other matters of
which they are not now aware that may come before the meeting
including matters relating to the conduct of the meeting.
Voting Requirements
I do not intend to propose an adjournment of the meeting. If an
adjournment is proposed, the proxy holder(s) will vote for or
against such adjournment in their discretion. Please refer to the
Company's proxy statement for the quorum requirements and the
voting requirements for each proposal it will present. The
Company has stated that none of Proposals IIA, B or C will be
adopted unless all of them are approved by shareholders.
Proposals III and IV each require a majority of the votes cast
for approval.
Revocation of Proxies
You may revoke any proxy prior to its exercise by (i) delivering
a written revocation of your proxy to any person who will present
it at the meeting; (ii) executing and delivering a later dated
proxy to me or to the Company or to our respective agents; or
(iii) voting in person at the meeting. (Attendance at the meeting
will not in and of itself revoke a proxy.) There is no limit on
the number of times you may revoke your proxy prior to the
meeting. Only the latest dated, properly signed proxy card will
be counted.
Information Concerning the Soliciting Shareholder
I, Phillip Goldstein, am the Soliciting Shareholder. My address
is 60 Heritage Drive, Pleasantville, NY 10570. I am an investment
manager who presently manages investment portfolios with assets
in excess of $75 million. Since December 1, 1992, I have been the
president and 50% shareholder of Kimball & Winthrop, Inc., the
general partner of Opportunity Partners L.P., a private
investment partnership. I am also the portfolio manager of
Opportunity Partners. Since 1996, I have taken an active role in
urging the management of other companies to take various actions
that I believe would benefit those companies and their
shareholders. My actions have included discussions with
management, submitting shareholder proposals, conducting a proxy
contest and filing a lawsuit alleging breach of fiduciary duty.
I am deemed to be the beneficial owner of 42,660 shares of Common
Stock owned by my clients and me including 23,357 shares owned by
Opportunity Partners and 1,000 shares owned jointly by my wife
and me. All of our purchases of Common Stock have been within the
past two years. There have been no sales of Common Stock.
REASONS FOR THE SOLICITATION
For the reasons stated below, I believe that (1) the Company
should register with the Securities and Exchange Commission
("SEC") as an investment company (Proposal IV), and (2)
shareholders should not approve management's proposal for a
massive increase in the number of authorized preferred shares
(Proposal IIC). Therefore, I am soliciting proxies for Proposal
IV and against Proposal IIC and to elect a director who supports
these objectives.
PROPOSAL 1: ELECTION OF DIRECTORS
At the meeting, I will nominate the following person for election
as a director for a term expiring in 2006.
Gerald Hellerman (Age 65), 10965 Eight Bells Lane, Columbia, MD
21044
Gerald Hellerman, 65, has been the principal of Hellerman
Associates, a financial and corporate consulting firm since he
founded the firm in 1993. Present clients of Hellerman
Associates include the U.S. Department of Justice, and the
National Oceanic and Atmospheric Administration, a unit of the
U.S. Department of Commerce. Mr. Hellerman has served as a
trustee or director of Third Avenue Value
Trust from 1993 until 2002, and trustee of Third Avenue Variable
Series Trust from 1999 until 2002. Mr. Hellerman is a director
and president of The Mexico Equity and Income Fund, a position he
has held since 2001. He also serves as a director of Innovative
Clinical Solutions, Inc., and Frank's Nursery & Crafts, Inc.
During March 2003 he was elected a director and chairman of the
board of meVC Draper Fisher Jurvetson Fund I, Inc., and a
director of Brantley Capital Corporation. During the past five
years, he also served as a director of Clemente Global Growth
Fund, Inc.
Mr. Hellerman does not own any shares and he does not have any
arrangement or understanding with any person with respect to any
future employment by the Company or by any affiliate of the
Company.
The persons named as proxies on the enclosed GREEN proxy card
intend, in the absence of contrary instructions, to vote all
proxies they are entitled to vote IN FAVOR of the election of Mr.
Hellerman who has consented to stand for election and to serve if
elected. If Mr. Hellerman is unable to serve, an event not now
anticipated, the proxies will be voted for such other person, if
any, as is designated by the proxy holder(s). In addition, I
intend to vote all Green proxies for the election of Robert J.
DeValentino and M. Lynn Pike, who are management's nominees
unless you indicate that you wish to withhold authority to vote
for either or both of them. I have not requested permission to
name Mr. DeValentino or Mr. Pike in my proxy materials nor have
they granted me such permission. I do not intend to vote any
proxies for any other management nominee. You should refer to
management's proxy statement for information regarding the
qualifications and background of its nominees. There is no
assurance that any of management's nominees will serve as
directors if any of my nominees are elected.
PROPOSAL IIC
Approval of this proposal would authorize an increase in the
number of unissued preferred shares from 2,500 to 10,000,000,
change the par value of unissued preferred shares and allow the
board of directors to issue additional preferred stock for the
purpose of deterring an acquisition of the Company. I am opposed
to this proposal for two reasons: (1) It could lead to a dramatic
increase in the Company's financial leverage and consequently the
financial risk to the Company's Common shareholders; and (2) If
an offer for the Common shares is made by a third party at a
price much higher than the market price and the Common
shareholders wish to accept it, the board of directors, who may
be concerned about losing their positions, could issue preferred
stock to prevent the offer from being consummated. In the
absence of contrary instructions, the proxy holder(s) will vote
your shares AGAINST this proposal. The Company has stated that
none of Proposals IIA, B or C will be adopted unless all of them
are approved by shareholders.
PROPOSAL III
The Company has stated that a shareholder may present a non-
binding proposal recommending that the Company spin off its
interest in the Orange County-Poughkeepsie Cellular Partnership
(the "OCP Partnership"). I favor this proposal because: (1) it
would allow stockholders to get the full benefit of the income
distributed by the OCP Partnership in an efficient manner and
without the double taxation to which they are now subjected, and
(2) it will virtually eliminate the possibility that the SEC will
sue the Company to compel it to register as an investment
company. However, you should make up your own mind. In the
absence of contrary instructions, the proxies will vote your
shares TO ABSTAIN on this proposal if it is presented.
PROPOSAL IV
I intend to introduce a non-binding proposal recommending that
the Company register with the Securities and Exchange Commission
as an investment company. Under the Investment Company Act of
1940 ("ICA"), a company that owns investment securities having a
value exceeding 40% of the value of its total assets is an
investment company and is required to register with the
Securities and Exchange Commission ("SEC") as an investment
company. The Company's interest in the Orange County-Poughkeepsie
Cellular Partnership alone appears to be worth significantly more
than 40% of its total assets because of the income it is
currently generating. In 2002, approximately 60% of the
Company's income came from its investment in the Cellular
Partnership. Therefore, it is very likely that the Company is an
investment company and as such, is required to register with the
SEC. The Company attempted to convince the SEC to exempt it from
registration as an investment company but aborted its efforts to
do, saying only that it wasn't "necessary." In my opinion, the
real reason was probably that the SEC discouraged the Company
from continuing down that road. If the SEC were to determine
that the Company is an investment company, it could file a
lawsuit to compel it to register. Such a lawsuit could have an
adverse effect on the company's stock price. Moreover,
registering as an investment company will result in special
protection for the Company's shareholders to protect them from
theft, self-dealing, fraud, excessive fees, excessive leverage
and breach of fiduciary duty. If you have been reading the
newspapers for the last year or two you will appreciate how
important these protections can be to investors. For example, had
Enron been registered as an investment company, its board of
directors would have been required to regularly value all of its
investments and the shenanigans that occurred might not have been
attempted. I know of no undue hardship that the Company would
incur if it registered as an investment company. In the absence
of contrary instructions, the proxy holder(s) will vote your
shares FOR this proposal.
THE SOLICITATION
I am making this solicitation personally. However, the following
persons may be deemed to be "participants" in this solicitation:
Kimball & Winthrop, Opportunity Partners, Andrew Dakos, an
investment advisor who is deemed to beneficially own 1,800 shares
on behalf of clients and Lawrence J. Goldstein, an investment
advisor not related to me who is deemed to beneficially own
39,700 shares on behalf of clients. Banks, brokerage houses and
other custodians, nominees and fiduciaries will be requested to
forward this proxy statement and the enclosed GREEN proxy card to
the beneficial owners of shares of Common Stock for whom they
hold shares of record. I will reimburse these organizations for
their reasonable out-of-pocket expenses.
Initially, I will personally bear all of the expenses related to
this proxy solicitation. Because I believe that the shareholders
will benefit from this solicitation, I intend to seek
reimbursement of these expenses from the Company. Shareholders
will not be asked to vote on the reimbursement of solicitation
expenses incurred by either the incumbent directors or me. I
estimate that my expenses will be about $6,000. As of April 9,
2003, my expenses have been approximately $4,000.
There is no arrangement or understanding involving me or any
affiliate of mine that relates to future employment by the
Company or any future transaction with the Company.
ADDITIONAL PROPOSALS
I know of no business that will be presented for consideration at
the meeting other than that set forth in this proxy statement and
in the Company's proxy statement. Unless instructed otherwise, if
any other matters are properly presented for consideration at the
meeting, it is the intention of the persons named as proxies in
the enclosed GREEN proxy card to vote in accordance with their
own best judgment on such matters.
DATED: April 9, 2003
PROXY CARD
PROXY SOLICITED IN OPPOSITION TO THE BOARD OF DIRECTORS OF
WARWICK VALLEY TELEPHONE COMPANY, INC. BY PHILLIP GOLDSTEIN FOR
THE ANNUAL MEETING OF STOCKHOLDERS ON APRIL 25, 2003
The undersigned hereby appoints Andrew Dakos and Phillip
Goldstein, and each of them, as the undersigned's proxies, with
full power of substitution, to attend the Annual Meeting of
Shareholders of Warwick Valley Telephone Company, Inc. at 2:00
p.m. on April 25, 2003, (the "Meeting"), and any adjournment or
postponement thereof, and to vote on all matters that may come
before the Meeting and any such adjournment or postponement the
number of shares that the undersigned would be entitled to vote
if present in person, as specified below.
(INSTRUCTIONS: Mark votes by placing an "x" in the appropriate
[]).
I. ELECTION OF THREE DIRECTORS
[ ] FOR GERALD HELLERMAN [ ] WITHHOLD AUTHORITY
Note: It is intended that this proxy will be voted for the
election of Robert J. DeValentino and M. Lynn Pike, management's
nominees (in addition to Mr. Hellerman) unless you indicate that
you wish to withhold authority to vote for either or both of them
by crossing out their name(s) in this sentence. Permission has
not been requested to name Mr. DeValentino or Mr. Pike in the
accompanying proxy materials nor have they granted such
permission. There is no intention to vote this proxy for any
other management nominee. Please refer to management's proxy
statement for information regarding the qualifications and
background of its nominees. There is no assurance that any of
management's nominees will serve as directors if Mr. Hellerman is
elected.
IA. TO FIX THE NUMBER OF DIRECTORS AT NINE.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
TO CONSIDER THE FOLLOWING AMENDMENTS TO THE COMPANY'S CERTIFICATE
OF INCORPORATION:
IIA. TO INCREASE THE NUMBER OF AUTHORIZED COMMON SHARES AND
CHANGE FROM NO-PAR TO $0.01 PAR.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
IIB. TO EFFECT A 3-FOR-1 SPLIT OF THE COMMON SHARES.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
IIC. TO INCREASE THE NUMBER OF AUTHORIZED UNISSUED PREFERRED
SHARES FROM 2,500 to 10,000,000, CHANGE THE PAR VALUE OF UNISSUED
SHARES AND ALLOW THE BOARD OF DIRECTORS TO ISSUE ADDITIONAL
PREFERRED STOCK FOR THE PURPOSE OF DETERRING AN ACQUISITION OF
THE COMPANY.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
IID. TO REVISE THE COMPANY'S PURPOSE CLAUSE.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
IIE. TO CHANGE THE NUMBER OF DIRECTORS.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
IIF. TO GIVE THE BOARD OF DIRECTORS THE ABILITY TO REMOVE
DIRECTORS FOR CAUSE.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
IIG. TO DELETE OBSOLETE PROVISIONS FROM THE CERTIFICATE OF
INCORPORATION.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
III. TO RECOMMEND THAT THE COMPANY SPIN OFF ITS INTEREST IN THE
ORANGE COUNTY-POUGHKEEPSIE CELLULAR PARTNERSHIP.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
IV. TO RECOMMEND THAT THE COMPANY REGISTER WITH THE SECURITIES
AND EXCHANGE COMMISSION AS AN INVESTMENT COMPANY.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Please sign and date below. Your shares will be voted as
directed. If no direction is made, this proxy will be voted FOR
the election of the nominee named above in Proposals I, FOR
Proposal IV, AGAINST Proposal IIC and will ABSTAIN on the
remaining proposals. The undersigned hereby acknowledges receipt
of the proxy statement dated April 9, 2003 of Phillip Goldstein
and revokes any proxy previously executed. (Important - Please be
sure to enter date.)
..
SIGNATURE(S)__________________________Dated: _______________