-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MMxs5qfFWEWBCuEdB2qp5VOe7oEe858vr7lTJtfoqFgJwLWfXlDr1jgWGI2hfy8u u8SW9XywzISBGYJxcAZt+w== 0000892917-02-000006.txt : 20020414 0000892917-02-000006.hdr.sgml : 20020414 ACCESSION NUMBER: 0000892917-02-000006 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 20020124 GROUP MEMBERS: WYNNEFIELD PARTNERS SMALL CAP VALUE, LP GROUP MEMBERS: WYNNEFIELD PARTNERS SMALL CAP VALUE, LP I GROUP MEMBERS: WYNNEFIELD SMALL CAP VALUE OFFSHORE FUND, LTD. SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: PHOENIX GOLD INTERNATIONAL INC CENTRAL INDEX KEY: 0000943032 STANDARD INDUSTRIAL CLASSIFICATION: HOUSEHOLD AUDIO & VIDEO EQUIPMENT [3651] IRS NUMBER: 931066325 STATE OF INCORPORATION: OR FISCAL YEAR END: 0924 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-48898 FILM NUMBER: 02516558 BUSINESS ADDRESS: STREET 1: 9300 N DECATUR ST CITY: PORTLAND STATE: OR ZIP: 97203 BUSINESS PHONE: 5032882008 MAIL ADDRESS: STREET 1: 9300 N DECATUR STREET CITY: PORTLAND STATE: OR ZIP: 97203 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: WYNNEFIELD PARTNERS SMALL CAP VALUE LP CENTRAL INDEX KEY: 0000899083 IRS NUMBER: 133688497 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: ONE PENN PLAZA STREET 2: SUITE 4720 CITY: NEW YORK STATE: NY ZIP: 10119 BUSINESS PHONE: 2127600814 MAIL ADDRESS: STREET 1: ONE PENN PLAZA STREET 2: SUITE 4720 CITY: NEW YORK STATE: NY ZIP: 10119 SC 13D/A 1 wcsch13-d.txt SCHEDULE 13D/A - -------------------------------------------------------------------------------- CUSIP No. 719068 10 8 SCHEDULE 13D/A Page 1 of 11 - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D Under the Securities Exchange Act of 1934 (Amendment No. 5) PHOENIX GOLD INTERNATIONAL, INC. (Name of Issuer) Common Stock, par value $0.01 per share (Title of Class of Securities) 719068 10 8 (CUSIP Number) Nelson Obus Wynnefield Capital, Inc. 450 7th Avenue, Suite 509 New York, New York 10123 (212) 760-0134 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) January 23, 2002 (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of ss.ss.240.13d-1(e), 240.13d-(f) or 240.13d-1(g), check the following box. [ ] The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). - -------------------------------------------------------------------------------- CUSIP No. 719068 10 8 SCHEDULE 13D/A Page 2 of 11 - -------------------------------------------------------------------------------- - ---------------------------------------------------------------------------- 1. Names of Reporting Persons. I.R.S. Identification Nos. of above persons (entities only). Wynnefield Partners Small Cap Value, L.P. - ---------------------------------------------------------------------------- 2. Check the Appropriate Box if a Member of a Group (See Instructions) (a) [X] (b) - ---------------------------------------------------------------------------- 3. SEC Use Only - ---------------------------------------------------------------------------- 4. Source of Funds (See Instructions) WC - ---------------------------------------------------------------------------- 5. Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) [ ] - ---------------------------------------------------------------------------- 6. Citizenship or Place of Organization: Delaware - ---------------------------------------------------------------------------- 7. Sole Voting Power: NUMBER OF 194,636 SHARES ------------------------------------------------------------ BENEFICIALLY 8. Shared Voting Power OWNED BY 221,314 ------------------------------------------------------------ EACH 9. Sole Dispositive Power: REPORTING 194,636 PERSON ------------------------------------------------------------ 10. Shared Dispositive Power: WITH 221,314 - --------------------------------------------------------------------------- 11. Aggregate Amount Beneficially Owned by Each Reporting Person: 415,950 - ---------------------------------------------------------------------------- 12. Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) [ ] - ---------------------------------------------------------------------------- 13. Percent of Class Represented by Amount in Row (11): 13.8% - ---------------------------------------------------------------------------- 14. Type of Reporting Person (See Instructions) PN - ---------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CUSIP No. 719068 10 8 SCHEDULE 13D/A Page 3 of 11 - -------------------------------------------------------------------------------- - ---------------------------------------------------------------------------- 1. Names of Reporting Persons. I.R.S. Identification Nos. of above persons (entities only). Wynnefield Partners Small Cap Value, L.P. I - ---------------------------------------------------------------------------- 2. Check the Appropriate Box if a Member of a Group (See Instructions) (a) [X] (b) - ---------------------------------------------------------------------------- 3. SEC Use Only - ---------------------------------------------------------------------------- 4. Source of Funds (See Instructions) WC - ---------------------------------------------------------------------------- 5. Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) [ ] - ---------------------------------------------------------------------------- 6. Citizenship or Place of Organization: Delaware - ---------------------------------------------------------------------------- 7. Sole Voting Power: NUMBER OF 135,764 SHARES ------------------------------------------------------------ BENEFICIALLY 8. Shared Voting Power OWNED BY 280,186 ------------------------------------------------------------ EACH 9. Sole Dispositive Power: REPORTING 135,764 PERSON ------------------------------------------------------------ 10. Shared Dispositive Power: WITH 280,186 - --------------------------------------------------------------------------- 11. Aggregate Amount Beneficially Owned by Each Reporting Person: 415,950 - ---------------------------------------------------------------------------- 12. Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) [ ] - ---------------------------------------------------------------------------- 13. Percent of Class Represented by Amount in Row (11): 13.8% - ---------------------------------------------------------------------------- 14. Type of Reporting Person (See Instructions) PN - ---------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CUSIP No. 719068 10 8 SCHEDULE 13D/A Page 4 of 11 - -------------------------------------------------------------------------------- - ---------------------------------------------------------------------------- 1. Names of Reporting Persons. I.R.S. Identification Nos. of above persons (entities only). Wynnefield Partners Small Cap Value Offshore Fund, Ltd. - ---------------------------------------------------------------------------- 2. Check the Appropriate Box if a Member of a Group (See Instructions) (a) [X] (b) - ---------------------------------------------------------------------------- 3. SEC Use Only - ---------------------------------------------------------------------------- 4. Source of Funds (See Instructions) WC - ---------------------------------------------------------------------------- 5. Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) [ ] - ---------------------------------------------------------------------------- 6. Citizenship or Place of Organization: Cayman Islands - ---------------------------------------------------------------------------- 7. Sole Voting Power: NUMBER OF 85,550 SHARES ------------------------------------------------------------ BENEFICIALLY 8. Shared Voting Power OWNED BY 330,400 ------------------------------------------------------------ EACH 9. Sole Dispositive Power: REPORTING 85,550 PERSON ------------------------------------------------------------ 10. Shared Dispositive Power: WITH 330,400 - --------------------------------------------------------------------------- 11. Aggregate Amount Beneficially Owned by Each Reporting Person: 415,950 - ---------------------------------------------------------------------------- 12. Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) [ ] - ---------------------------------------------------------------------------- 13. Percent of Class Represented by Amount in Row (11): 13.8% - ---------------------------------------------------------------------------- 14. Type of Reporting Person (See Instructions) PN - ---------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CUSIP No. 719068 10 8 SCHEDULE 13D/A Page 5 of 11 - -------------------------------------------------------------------------------- SCHEDULE 13D/A Filed pursuant to Rule 13d-2 Item 1. Security and Issuer This Statement on Schedule 13D/A (this "Statement") relates to common stock, $0.01 par value per share (the "Common Stock"), of PHOENIX GOLD INTERNATIONAL, INC., an Oregon corporation ("Issuer"). The principal executive offices of the Issuer are located at 9300 North Decatur Street, Portland, Oregon 97203. This statement amends and restates in its entirety that certain Schedule 13D/A filed by the "Reporting Persons" on September 21, 2000. The aggregate number of shares beneficially owned by the members of the Group identified in this filing is 415,950 shares, or 13.8% of the Common Stock shown as outstanding on the Issuer's most recent Form 10-K. Item 2. Identity and Background This Statement is filed by Wynnefield Partners Small Cap Value, L.P. ("Wynnefield"), Wynnefield Partners Small Cap Value, L.P. I ("Wynnefield I"), and Wynnefield Small Cap Value Offshore Fund, Ltd. ("Wynnefield Offshore") (collectively the "Reporting Persons" and/or the "Wynnefield Group"). This Statement also includes information about the following persons (collectively, the "Controlling Persons"): Wynnefield Capital Management, LLC ("WCM"), Wynnefield Capital, Inc. ("Capital"), Nelson Obus ("Obus") and Joshua Landes ("Landes"). The Reporting Persons and the Controlling Persons are sometimes collectively referred to as the "Item 2 Persons." The Reporting Persons have included as APPENDIX A to this Statement on Schedule 13D an agreement in writing that this Statement is filed on behalf of each of them. REPORTING PERSONS Wynnefield and Wynnefield I are Delaware limited partnerships. Wynnefield Offshore is a Cayman Island private investment company. The principal business of each Reporting Person is the purchase, sale, exchange, acquisition and holding of investment securities. The principal address of each Reporting Person, which also serves as its principal office, is 450 7th Avenue, Suite 509, New York, New York 10123. CONTROLLING PERSONS The principal address of each Controlling Person, which also serves as such person's principal office, is 450 7th Avenue, Suite 509, New York, New York 10123. Wynnefield: WCM, a New York limited liability company, is the general partner of Wynnefield. The principal business of WCM is money management and acting as an advisor to Wynnefield and other entities and activities related thereto. - -------------------------------------------------------------------------------- CUSIP No. 719068 10 8 SCHEDULE 13D/A Page 6 of 11 - -------------------------------------------------------------------------------- Obus and Landes, directly and through WCM, control Wynnefield. The principal occupation of Obus and Landes is financial management. Wynnefield I: WCM, a New York limited liability company, is the general partner of Wynnefield I. The principal business of WCM is money management and acting as an advisor to Wynnefield I and other entities and activities related thereto. Obus and Landes, directly and through WCM, control Wynnefield I. The principal occupation of Obus and Landes is financial management. Wynnefield Offshore: Capital, a Delaware corporation, is the investment manager of Wynnefield Offshore. The principal business of Capital is money management and acting as an advisor to Wynnefield Offshore and other entities and activities related thereto. Obus and Landes are the directors, principal executive officers and controlling shareholders of Capital. The principal occupation of Obus and Landes is financial management. During the last five (5) years, no Item 2 Person has been convicted in any criminal proceeding (excluding traffic violations or similar misdemeanors) and no Item 2 Person was a party to a civil proceeding of a judicial or administrative body of competent jurisdiction such that, as a result of such proceeding, any Item 2 Person was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. Obus and Landes are citizens of the United States. Item 3. Source and Amount of Funds or Other Consideration The source of the funds used by each of the Reporting Persons to purchase the securities as described below was working capital. Wynnefield acquired 194,636 shares of Common Stock from May 3, 1995 through December 21, 1999 on the open market or in private transactions at prices ranging from $1.25 to $10.00. Wynnefield I acquired 135,764 shares of Common Stock from November 4, 1997 through December 21, 1999 on the open market or in private transactions at prices ranging from $1.25 to $5.37. Wynnefield Offshore acquired 85,550 shares of Common Stock from February 4, 1997 through December 30, 1998 on the open market or in private transactions at prices ranging from $1.26 to $5.75. - -------------------------------------------------------------------------------- CUSIP No. 719068 10 8 SCHEDULE 13D/A Page 7 of 11 - -------------------------------------------------------------------------------- Item 4. Purpose of Transaction Each member of the Wynnefield Group originally acquired the Shares reported in Item 5 below for investment purposes only and has continued to monitor the efforts of the Issuer. The Wynnefield Group believes that management and the directors have not taken effective steps to remedy the lack of shareholder value. Wynnefield has been dissatisfied with the lack of effective management initiatives to create shareholder value and has frequently expressed its views to management directors of the Issuer to no avail. On January 22, 2002, the Wynnefield Group sent the letter attached hereto as Exhibit 99.1 to the Issuer's executive management and directors. The letter sets forth Wynnefield's reasons for submitting a shareholder proposal that will be considered at the Issuer's Annual Meeting of Shareholders on February 12, 2002. That shareholder proposal, like an earlier proposal submitted by the Wynnefield Group on September 6, 2000, requests the implementation of cumulative voting to elect the Issuer's Board of Directors. If the shareholder proposal is approved by the shareholders and cumulative voting is implemented, the Wynnefield Group may nominate an individual for director. Cumulative voting would permit the Wynnefield Group to vote its shares with those of other outside minority shareholders representing approximately three percent of the outstanding shares in order to elect an independent director to the Issuer's Board of Directors. The Wynnefield Group wishes to utilize cumulative voting to elect a single independent director with the purpose of further encouraging the Board and management to enhance shareholder value. The Wynnefield Group has also urged management to consider measures to enhance shareholder value, such as engaging in the sale of the corporation, seeking strategic partnerships or combinations to improve the Issuer's position in the industry, or a "going private" transaction in which shares of all minority holders would be purchased at a fair price. The Wynnefield Group may in the future determine to: (i) acquire additional securities of the Issuer through open market purchases, private agreements or otherwise, (ii) dispose of all or a portion of the securities of the Issuer owned by them, or (iii) consider plans or proposals which would relate to or result in: (a) the acquisition by any person of additional securities of the Issuer; (b) any extraordinary corporate transaction such as a merger, reorganization or liquidation, involving the Issuer or any of its subsidiaries; (c) the sale or transfer of a material amount of assets of the Issuer or any of its subsidiaries; (d) any change in the board of directors or management of the Issuer, including any plans or proposals to change the number or terms of directors or to fill any existing vacancies on the board of directors of the Issuer; (e) any material change in the present capitalization or dividend policy of the Issuer; (f) any other material change in the Issuer's business or corporate structure; (g) changes in the Issuer's charter, bylaws or instruments; and (h) any other action whether or not similar to those enumerated above. The Reporting Persons also reserve the right to take other actions to influence the management of the Issuer should they deem such actions appropriate. - -------------------------------------------------------------------------------- CUSIP No. 719068 10 8 SCHEDULE 13D/A Page 8 of 11 - -------------------------------------------------------------------------------- Item 5. Interest in Securities of the Issuer (a) The following table provides the aggregate number and percentage of Common Stock beneficially owned by the Reporting Persons on January 23, 2002 (based on 3,006,945 shares of Common Stock outstanding as reported in the Issuer's Form 10-K for fiscal year 2001). - -------------------------------------------------------------------------------- Wynnefield Wynnefield I Wynnefield Total Offshore - -------------------------------------------------------------------------------- Common Stock 194,636 135,764 85,550 415,950 - -------------------------------------------------------------------------------- Percentage 6.5% 4.5% 2.8% 13.8% - -------------------------------------------------------------------------------- *Common Stock beneficially owned as a percent of 3,006,945 shares of Common Stock. Controlling Persons Each of WCM, Obus and Landes may be deemed to be the beneficial owner of the reported securities beneficially owned by Wynnefield. Each of WCM, Obus and Landes may be deemed to be the beneficial owner of the reported securities beneficially owned by Wynnefield I. Each of Capital, Obus and Landes may be deemed to be beneficial owners of the securities owned by Wynnefield Offshore. (b) Reporting Persons Each of the Reporting Persons has the sole power to vote or direct the vote and to dispose or direct the disposition of the reported securities it holds. (c) Not applicable. (d) Not applicable. Item 6. Contracts, Arrangements, Understandings or Relationships with Respect to Securities of the Issuer. On September 6, 2000, the Wynnefield Group submitted to the Issuer a shareholder proposal to be voted on at the 2001 Annual Meeting of the Shareholders of the Issuer. The shareholder proposal requested the implementation of cumulative voting to elect the Issuer's Board of Directors, and was omitted by the Issuer from its proxy materials for the 2001 Annual Meeting. On September 5, 2001, the Wynnefield Group submitted a substantially identical proposal that will be considered at the 2002 Annual Meeting of Shareholders on February 12, 2002. If the shareholder proposal is approved by the shareholders and cumulative voting is implemented, the Wynnefield Group may nominate an individual for director. Cumulative voting - -------------------------------------------------------------------------------- CUSIP No. 719068 10 8 SCHEDULE 13D/A Page 9 of 11 - -------------------------------------------------------------------------------- would permit the Wynnefield Group to vote its shares with those of other outside minority shareholders representing approximately three percent of the outstanding shares in order to elect an independent director to the Issuer's Board of Directors. The Wynnefield Group wishes to utilize cumulative voting to elect a single independent director with the purpose of further encouraging the Board and management to enhance shareholder value. Item 7. Material to be filed as Exhibits Exhibit No. Description 99.1 Letter to Issuer's management and Board of Directors, dated January 23, 2002. - -------------------------------------------------------------------------------- CUSIP No. 719068 10 8 SCHEDULE 13D/A Page 10 of 11 - -------------------------------------------------------------------------------- SIGNATURES After reasonable inquiry and to the best of their knowledge and belief, the undersigned certify that the information set forth in this Statement is true, complete, and correct. Date: January 24, 2002. WYNNEFIELD PARTNERS SMALL CAP VALUE, LP By: Wynnefield Capital Management, LLC, its general partner /s/ Nelson Obus ------------------------------------ Name: Nelson Obus Title: Managing Member WYNNEFIELD PARTNERS SMALL CAP VALUE, LP I By: Wynnefield Capital Management, LLC, its general partner /s/ Nelson Obus ------------------------------------ Name: Nelson Obus Title: Managing Member WYNNEFIELD SMALL CAP VALUE OFFSHORE FUND, LTD. By: Wynnefield Capital, Inc., its general partner /s/ Nelson Obus ------------------------------------ Name: Nelson Obus Title: President Attention: Intentional misstatements or omissions of fact constitute federal criminal violations (See 18 U.S.C. 1001). - -------------------------------------------------------------------------------- CUSIP No. 719068 10 8 SCHEDULE 13D/A Page 11 of 11 - -------------------------------------------------------------------------------- APPENDIX A JOINT FILING AGREEMENT In accordance with Rule 13d-1(k) under the Securities Exchange Act of 1934, as amended, the persons named below agree to the joint filing on behalf of each of them of a Statement on Schedule 13D/A (including amendments thereto) with respect to the common stock and depository receipts of Phoenix Gold International, Inc. This Joint Filing Agreement shall be included as an exhibit to such filing. In evidence thereof, each of the undersigned, being duly authorized where appropriate, hereby executes this Joint Filing Agreement as of the 24th day of January, 2002. WYNNEFIELD PARTNERS SMALL CAP VALUE, LP By: Wynnefield Capital Management, LLC, its general partner /s/ Nelson Obus ------------------------------------ Name: Nelson Obus Title: Managing Member WYNNEFIELD PARTNERS SMALL CAP VALUE, LP I By: Wynnefield Capital Management, LLC, its general partner /s/ Nelson Obus ------------------------------------ Name: Nelson Obus Title: Managing Member WYNNEFIELD SMALL CAP VALUE OFFSHORE FUND, LTD. By: Wynnefield Capital, Inc., its general partner /s/ Nelson Obus ------------------------------------ Name: Nelson Obus Title: President EX-99 3 wcletter.txt EX 99.1 - LETTER TO ISSUER'S MANAGEMENT AND BOD [GRAPHIC OMITTED] Wynnefield Capital, Inc. 450 7th Avenue, Suite 509 New York, NY 10123 Nelson Obus (212)760-0134 Tel: (212) 760-0814 Joshua Landes (212)760-0814 Fax: (212) 760-0824 Max Batzer (212)760-0330 Peter Black (212)760-0724 www.wynnefieldcapital.com Stephen Zelkowicz (212)760-0278 January 23, 2002 Mr. Keith A. Peterson, Chairman, President, and CEO Mr. Timothy G. Johnson, Executive Vice President and COO Mr. Joseph K. O'Brien, Vice President, CFO, and Secretary Phoenix Gold International, Inc. 9300 North Decatur Portland, OR 97203 Dear Messrs. Peterson, Johnson, and O'Brien: We are writing this letter to communicate directly to you and your board why we felt it necessary to submit the shareholder proposal for cumulative voting that will be considered at the Phoenix Gold ("PGLD") annual meeting on February 12th. As you well know, we have been increasingly frustrated by the company's lack of positive direction and management's inability to create (or even slow the dramatic reduction in) shareholder value. The stock price has dropped from over $12 in 1996 to a closing bid of $1.07 on January 18, 2002 -- a decline of over 90 percent. PGLD stock would have been delisted from the Nasdaq SmallCap Market had Nasdaq not imposed a moratorium on its public float requirement following the events of September 11. We have no reason to believe that the company will be able to meet the public float requirement when the moratorium is lifted. You acknowledged the seriousness of this situation in the company's most recent 10-K report when you admitted there can be "no assurance" the company will meet these listing requirements in the future. You have also assured shareholders in the past that the situation would improve, particularly with the AudioSource acquisition in December 2000. But since the acquisition, overall company performance has in fact been worse. Although sales increased slightly in the third quarter of 2001, these sales appear to have been largely offset by declining sales of the company's established product lines. In fact, you explain in the 10-K that gross profit (as a percentage of gross sales) actually decreased in 2001 because gross margins on sales of AudioSource products are less than gross margins on the company's other product lines. Overall, fiscal year 2001 was very disappointing as net earnings turned to losses, administrative costs increased both absolutely and as a percentage of sales, and the company went from having almost $1,654,000 in cash and cash equivalents to having a mere $1,002. It appears to us that the AudioSource acquisition, like the company's earlier Carver acquisition, has had no positive effect on the creation of shareholder value. In the face of declining company performance and shareholder value over the last several years, management continues to increase its financial benefit from the company. Messrs. Peterson and Johnson, as CEO and COO respectively, continue to collect substantial salaries and, in fact, received generous raises in July of 1999, an apparent reward for holding the stock price flat in the $2 range for several months. In May of last year, the company provided Mr. Johnson with an opportunity to benefit from a momentary increase in stock price by repurchasing 20,000 shares of his PGLD stock outside of any publicly announced repurchase program, as described in the supporting statement to our shareholder proposal found in the proxy statement for the upcoming PGLD shareholder meeting. Liquidity in the marketplace, as opposed to that supplied by the company for benefit of its officers, is increasingly a serious issue. The last of the original underwriters associated with the company, D.A. Davison & Company, Inc. (formally Jensen & Company), who co-managed the PGLD IPO in 1995, has recently ceased making a market in the stock. PGLD is no longer viable as a standalone public entity. Being public results in no capital for the company, no value and little liquidity for outside shareholders, and expenses that must be paid from a rapidly depleting cash account. Your failure to acknowledge these problems and accept our past offers to help improve the situation causes us to doubt your commitment to working with outside shareholders in the manner expected of a publicly owned company that has been less than successful in creating shareholder value. We have repeatedly offered our assistance in finding a strategic buyer or developing alternative strategies for realizing value for outside shareholders who have suffered from continuously disappearing value. An example is our 1999 proposal to the board outlining how PGLD could be "taken private" at a fair price when it actually had the necessary cash and borrowing power. Now the company lacks the financial resources to purchase the shares of minority investors at a fair price. Accordingly, there is little choice left to PGLD but to seek a buyer or strategic partner before the company faces even more extreme financial exigencies. Since you have not taken meaningful steps to convince us you are committed to protecting minority shareholders, we are forced to pursue our shareholder proposal for cumulative voting in hopes of gaining at least a single voice on the PGLD board. This proposal, like our earlier attempts to improve the situation, has of course been met by you with resistance. We have come to expect this by now. What we don't understand is how you can oppose our proposal in the company's proxy materials while contradicting this position in your 10-K by acknowledging the extreme degree of insider control necessitating cumulative voting. In the proxy materials, you claim that the company's current voting structure "is most likely to produce a Board of Directors that will effectively represent the interests of all the Company's shareholders." You then mischaracterize our proposal as "introduc[ing] the possibility of a director being committed to serve the special interests of the small fraction of shareholders responsible for the director's election rather than the best interests of the shareholders as a whole." In other words, you criticize our proposal because it would purportedly permit election of a director by a small number of shareholders, and you defend the current voting structure as the best way to assure adequate representation of all shareholders. In the company's most recent 10-K, however, you admit that Messrs. Peterson and Johnson own enough shares to elect every single director on the board and make the most important company decisions. You explain: "[Messrs. Peterson and Johnson] own approximately 67% of the Company's outstanding common stock. They have the power to control the vote on most issues submitted to the Company's shareholders, including the election of the Company's directors and approval or disapproval of fundamental corporate changes such as mergers, dissolution and changes in control. As shareholders, Messrs. Peterson and Johnson may act in their own self-interest with respect to, among other things, the voting or disposal of their shares of Company common stock." (Emphasis added.) In fact, this has happened. Control of the company is even more concentrated than you suggest. Because Mr. Peterson alone owns over 50 percent of the company's stock, he can elect the entire board by himself. Our proposal, in contrast, would create at least a possibility that shareholders other than the company's CEO could elect a director. It is disingenuous for you to oppose this proposal because it allegedly places too much power in the hands of a small number of shareholders when, under the current system, one executive officer can elect the entire board. We want you to understand that, though frustrated, we have been and will remain committed to making the best of our investment in the company and trying through every means available to cause you to address the issue of value preservation for minority investors. We again offer our assistance in exploring options to salvage some value for ourselves and other minority shareholders who have even less of a voice than we do. We urge you to seek buyers, explore strategic partnerships or combinations, and nominate directors dedicated primarily to enhancing value for minority shareholders. Sincerely, /s/ Nelson Obus Nelson Obus cc: Mr. Edward A. Foehl Mr. Frank G. Magdlen Mr. Robert A. Brown -----END PRIVACY-ENHANCED MESSAGE-----