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Forum Report: North State Telecommunications Corporation


Shareholder Interests for Discussion at Annual Meeting

Copied below is the text of a letter sent earlier this morning to the chairman of North State's board of directors, summarizing shareholder reactions to the company's recently distributed "2010 Operations & Financial Summary" and suggesting issues including the questions that some of you had asked the Forum to present that might be addressed at Wednesday's annual meeting.

The essential question that is raised in both of the issues summarized in the letter has become clearly defined, partly by your responses to the recent survey and then in reactions to the company's 2010 report:

How will North State balance its investor interests while making the transition from a local service utility to management's vision of a technology innovator? 

You will see that I have also asked the chairman to tell me what arrangements will be made to provide the same information to shareholders other than the holders of Class A stock who may attend the annual meeting. (The company stated in its notice of the meeting that "[a]ttendance at the Meeting is limited to holders of Shares of Class A Voting Common Stock.") I will of course report the company's response.

GL – April 4, 2011


Gary Lutin

Chairman, The Shareholder Forum

c/o Lutin & Company

575 Madison Avenue, 10th Floor

New York, New York 10022

Tel: 212-605-0335



The Shareholder Forum

c/o Lutin & Company

575 Madison Avenue – 10th Floor, New York, New York 10022

Telephone: (212) 605-0335


April 4, 2011

By email


Mr. C. Hayden McKenzie

Chairman, Board of Directors

North State Telecommunications Corporation

111 North Main Street

High Point, North Carolina 27260


Dear Mr. McKenzie:

For your consideration in addressing shareholder interests at the annual meeting later this week, investor reactions to North State’s recently distributed 2010 Operations & Financial Summary seemed to focus on these issues:

   Sustainability of dividend – Some shareholders were concerned that 2010 was the second year in a row in which the company did not generate enough net income to cover its dividends. Counting just the “regular” $1.30 quarterly dividends, without last year’s “special one-time dividend,” only 60% of that long-standing $5.20 annual distribution came from the company’s $3.08 earnings per share. (Even the theoretical $4.63 “Normalized Earnings Per Share” reported in your Summary, calculated to eliminate results of investments and discontinued projects addressed below, would cover less than 90% of dividends.) This raises the question of how the company will continue dividend payments at recent levels without further draining of the company’s previously accumulated capital.

   Risks of technology investments – The report of a “one-time charge of $11 million due to the write-down of an unsuccessful IT project” was viewed by some shareholders as the kind of investment loss that has to be expected from time to time in a technology company. This experience makes it clear that the funding of these experimental projects is actually an essential element of North State’s planned transformation from a traditional utility to an innovative technology company. Shareholders therefore need to know how the company will manage these unpredictable costs without sacrificing either its capital expenditures for existing service maintenance or its regular dividends.

These issues are of course related, and should be considered in the context of the importance of dividends to a very high proportion of your shareholders who responded to the Forum’s recent survey.[*]

Please let me know how your responses to these issues or any other shareholder questions, including those presented in the Forum’s survey, will be made available to shareholders other than the holders of Class A shares who are allowed to attend this week’s annual meeting.

Your commitment to improved investor reporting, as promised in your introduction of the new Operations & Financial Summary, should be widely appreciated by North State’s shareholders. I will of course welcome any opportunity for the Forum to support your efforts to provide all of your shareholders with fair, timely access to the information they need for their investment decisions.


The Shareholder Forum




Gary Lutin, Chairman


[*] The report of survey results that was sent to you a week ago, including its appended list of the questions shareholders had submitted for presentation to the company, is attached. It is also available on the Shareholder Forum’s website at

is managed by

The Shareholder Forum, Inc.

[For the attachment, see March 28, 2011 Forum Report: Survey of North State Telecommunications Shareholders - Ranking the Importance of Investor Interests]



This Forum program is open to all shareholders of North State Telecommunications Corporation, and to any fiduciaries or professionals concerned with their investment decisions. Participation is free of charge, according to the Forum's standard Conditions of Participation.

The purpose of the program is to provide shareholders with access to information and a free exchange of views relating to their consideration of issues described in the Forum Summary. As stated in the Conditions, all Forum participants are expected to make independent use of information obtained through the Forum, subject to the privacy rights of other participants. Forum polices are intended to support anonymous communication, and provide that participants will not be identified or quoted without their explicit permission.

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