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ANCSA Shareholders Lose Rights and Protections ANCSA The Alaska Native Claims Settlement Act was enacted December 18, 1971.1 Of approximately 76,526 Alaska Natives, only 567 Alaska Natives voted on the legislation and 56 of them voted against the Act.2 Very few Alaska Natives read and understood the provisions in ANCSA. Natives were viewed by Congress as unsophisticated as stockholders. 3 Section 2(b) of ANCSA said: the settlement should be accomplished in conformance with the real economic and social needs of Natives, without litigation, maximum participation by Natives in decisions affecting their rights and property, without establishing any permanent racially defined institutions, rights, privileges, or obligations, without creating a reservation system or lengthy ward-ship or trusteeship, without adding to the categories of property and institutions enjoying special tax privileges or legislation establishing special relationships between the United States Government and the State of Alaska. Adoption of ANCSA was costly for Alaska Natives they: gave up their claims to all of Alaska; aboriginal hunting and fishing rights that existed at the time of adoption of ANCSA were terminated their rights to establish Indian Reservations like those in the lower 48 states were terminated; the Indian Allotment Act was terminated and Natives could no longer file for allotments up to 160 acres of land after ANCSA was enacted; and Indian Reservations in Alaska were revoked except for Annette Island Reserve. Section 2(c) of ANCSA said: No provision of this Act shall replace or diminish any right, privilege, or obligation to Natives as citizens of the United States or of Alaska, or relieve, replace, or diminish any obligation of the United States or of Alaska to protect and promote the rights or welfare of Natives as citizens of the United States or of Alaska. As U.S. and Alaska citizens ANCSA shareholders fall under Article 1 of the U.S. Constitution which says: Congress shall make no law…prohibiting the free exercise thereof; or abridging the freedom of speech, or the press…Article V says: "A person shall not be deprived of life, liberty, or property without due process of law nor shall private property be taken for public use, without just compensation." Article XIV says: "No State shall make or enforce any law that abridges the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty or property, without due process of law; nor shall private property be taken for public use without just compensation. Article 1, Section 1 of Alaska's Constitution says: "This Constitution is dedicated to the principles that all persons have a natural right to life, liberty, the pursuit of happiness, and the enjoyment of their own industry; that all persons are equal and entitled to equal rights, opportunities, and protection under the law: and that all persons have corresponding obligations to the people of the State." Article 1, Section 7 says: "No person shall be deprived of life, liberty, or property without due process of law. The right of all persons to fair and just treatment in the course of legislative and executive investigations shall not be infringed." 1 P.L. 92-203, Alaska Native Claims Settlement Act (ANCSA) December 18, 1971. 2 Alaska Native land Claims, 1978, Alaska Native Foundation, page 166 showed 76,526 Alaska Native enrollees. 3 U.S. Code – 1975 Congressional and Administrative News – page 2385. 1 Section 3(g) "Regional Corporation" means an Alaska Native Regional Corporation established under the laws of the State of Alaska in accordance with the provisions of this Act. Section 4(b) of ANCSA: Extinguished all aboriginal titles, claims of aboriginal title in Alaska based on use and occupancy, including submerged land underneath all water areas, both inland and offshore, and included any aboriginal hunting or fishing rights that may exist are hereby extinguished. Section 7(h)(1) of ANCSA said: Stock issued pursuant to subsection (g) shall carry a right to vote in elections for the board of directors and on such other questions as may properly be presented to the shareholder, shall permit the holder to receive dividends or other distributions from the Regional Corporation, and shall vest in the holder all rights of a stockholder in a business corporation organized under the laws of the State of Alaska except for 20 years Native stock could not be sold or traded. Section 7 (h)(3) cancelled stock restrictions on January 1, 1991. Section 7(i) 70% of all revenues received by each Regional Corporation from the timber resources, and subsurface estate patented to it pursuant to this Act shall be divided annually by the Regional Corporation among all 12 Regional Corporations organized pursuant to this section according to the number of Natives enrolled in each region pursuant to section 5. The provisions of this subsection shall not apply to the 13th Regional Corporation if organized by section (c) hereof. CIRI's share of the 70% was 8.43%. Section 18(a) revoked the Indian Allotment Act for Alaska Natives and they could no longer apply for Indian Allotments of up to 160 acres. Section 19(a) revoked Indian reservations in Alaska except for the Annette Island Reserve. Section 21(c) the basis for computing gain or loss on subsequent sale or other disposition of such land or interest in land for purposes of any Federal, State or local tax imposed on or measured by income shall be the fair value of such land or interest in land at the time of receipt. To show tax losses or gain, lands, and the natural resources had to be appraised at the time of conveyance and the time of sale. Section 28 of P.L. 94-204---temporarily exempted Native corporations from the provisions of the investment Act of 1940 and the Securities Act of 1933 and the Securities Exchange Act of 1934, as amended, through December 1991. Nothing in this section, however, shall be construed to mean that any such corporation shall or shall not, after such date, be subject to the provisions of such Acts. Any corporation which, but for this provision, would be subject to the provisions of the Securities Exchange Act of 1934 shall transmit to its shareholders each year a report containing substantially all the information required to be included in an annual report to stockholders by a corporation which is subject to the provisions of the SEC. Department of Commerce and Economic Development, Division of Banking, Securities, 2 and Corporations, Alaska Native Corporation issues relating to Proxy Solicitations,4 page 5 says: Temporary restrictions were placed on corporations' stock in that the stock was inalienable and could not be publicly traded before 1991. Subsequent congressional amendments provided that stock would remain inalienable until July 16, 1993. Corporate shareholders presently can lift this restriction if at least a majority of the shareholders favor alienable stock. Since Native stock was inalienable, congress felt that regulations by SEC were not applicable until corporate stock became alienable. Stock ownership was extremely diffused as ANCSA required that no more than 100 shares of the original stock could be issues to each qualified enrollee. Shareholders were considered unsophisticated in business acumen and corporate affairs. ANCSA left the task of protecting shareholders from corporate mismanagement and misrepresentation to the State of Alaska and Native Corporations. Neither the corporations nor the State has provided adequate protections from corporate mismanagement and misrepresentations. Even though congress temporarily exempted Native Corporations from federal securities laws, it recognized the importance of information made available to stockholders by SEC regulated corporations' annual reports so it required Native Corporations to furnish such reports to each Native stockholder. The annual reports are essentially made up of financial statements audited by an outside certified public accountant and corporate management's analysis of corporate financial performance activities Other than this disclosure requirement, congress left the task of ensuring that management's communication to shareholders regarding corporate affairs and related activities were without bias to the State of Alaska. As noted in former attorney general letter to former securities administrator: 5 This exemption from federal securities law was expressly conditioned upon the adoption of similar state requirements and regulations. Further, the congressional House Report of the Interior and Insular Affairs Committee received assurance from Native corporations and Alaska State officials that additional state legislation would be pursued to provide any appropriate additional protection. The Committee report in 1975 U.S Congressional and Administrative News, pages 2386-87 stated: Finally, the Committee understands that the general provision of Alaska Law Provide protection for Native stockholders from any corporate mismanagement And misrepresentations or omissions to represent in connection with sales of Securities, and that Alaska courts would look to precedents under federal Securities laws for appropriate standards of conduct by management and other persons connected with securities transactions. Native corporations have assured the Committee that they do not intend to seek any exemption from state securities laws on the basis of this exemption from federal laws and intend to pursue the passage of State Legislation to the extent necessary to provide any appropriate additional protection. Therefore it is not necessary at this time to impose additional federal requirements. 4 Jan. 4, 1999, Audit Control No. 08-4572-99, Division of Legislative Audit. 5 Wilson L. Condon to Willis Kirkpatrick dated November 12, 1981. 3 It is obvious that congress did not intend to limit the amount of protection the State of Alaska was to provide in shielding Native shareholders from corporate mismanagement and misrepresentation. Congress accepted the assurances of Native leaders and the State of Alaska as reflected in its intent language, "the passage of State legislation to the extent necessary to provide appropriate additional protection." With all other proxy related regulations left to the State of Alaska, it became imperative that the State establish disclosure rules that would result in shareholders being well-informed about corporate matters. Also, rules were required to ensure that an informed vote could be cast, whether it be for the election of directors or approving a corporate proposal. Are ANCSA Corporations Subject to State Law? August 26, 1992 letter to Robert W. Rude from Lawrence F. Carroll stated: "With respect to your final question, these corporations are, in fact, formed under Alaska law and are fully subject to the Alaska Corporations Code. If there is a conflict between the Alaska Corporations Code and ANCSA, the federal law takes precedence. The U.S. Supreme Court issued an opinion in Alaska v. Native Village of Venetie Tribal Government.6 The court concluded that Venetie was not "Indian Country." In their opinion the court noted that Congress conveyed ANCSA land to State chartered and state regulated private business corporations." In Hansen v. Kake Corporation the Alaska Supreme Court ruled ANCSA corporations are subject to the same laws as other corporations. 7 In a September 2, 1998 letter to a CIRI shareholder, the Department of Interior wrote: "The ANCSA corporations are for-profit corporations governed by state law. Thus, the matters you raise are state law issues and you need to contact the appropriate state agencies. Neither this office nor the other Interior offices I contacted have any oversight responsibilities in these matters."8 September 29, 1998 letter to Robert Rude from the Assistant Secretary of the Interior stated: "I have been informed by the Solicitor's office that the ANCSA amendments of 1987, P.L. 100-241, repealed the audit requirement contained in subsection 7(o) of the original legislation. Prior to the amendments, Regional corporations were required to submit annual reports to the Secretary of the Interior. With repeal of the audit provision, we are unaware of any current authority which would permit Federal audits of the corporations." Currently ANCSA shareholders do not have protections and oversight from the Department of Interior, Federal security laws, nor does the State of Alaska enforce Title 10 (Corporate Code) for Native corporations. Shareholders are advised to seek legal counsel but few if any Native shareholders have funds to legally challenge their corporations who come 6 Feb. 25, 1998 Alaska v. Native Village of Venetie Tribal Government. 7 (No. 1PE-90-72 CI) May 23, 1997; Alaska Supreme Ct. No. 6189/6239 Opinion No. 48822). 8 Letter to Amy L. Lefor from Deborah H. Williams, Special Assistant for Secretary for Alaska. 4 against them with multiple law firms. ANCSA stockholders are without federal and State shareholder protections and there is lack of shareholder participation in the corporations. As noted by Waggaman: Absent some other forms of protection, the State should pattern its laws after the federal proxy laws. 9 A rule patterned after Rule 14a-7 is, therefore, warranted. Currently, management in the Native corporations has the advantage in a proxy fight, and every effort should be made to minimize this inherent leverage to allow dissidents a fair opportunity to present their policies and views to the shareholders. In addition, until the stock restrictions is lifted on Native shareholders' stock, Banking, Securities and Corporations should seek legislative changes to the Alaska Securities Act to place BSC in a position to assist shareholders to enforce shareholder rights to timely and accurate votes lists.10 P.L. 100-24111 Section 2(9) said: ANCSA and this Act are Indian Legislation enacted by Congress pursuant to its plenary authority under the Constitution of the United States to regulate Indian affairs. If ANCSA and the ANCSA Amendments were Indian Legislation Native stockholders would still have Constitutional rights, including property rights, and due process of law under the Indian Civil Rights Act of 1968 and the Indian Citizenship Act of 1924.12 Section 26(c) (1) said a Native corporation that, but for this section, would be subject to the provisions of the Securities Exchange Act of 1934 shall annually prepare and transmit to its shareholders a report that contains substantially all the information required to be in an annual report to shareholders by a corporation subject to that Act. Section 37(a) continued stock restrictions until terminated. These amendments were approved without the knowledge or approval of ANCSA shareholders. This provision of the Act was a "taking" of Native property rights, and was a "taking" of rights and privileges given Natives under the Constitutions of the United States and of Alaska. These inequities must be corrected and Natives given the same rights and privileges of other non-Native stockholders. Congress used the Commerce Clause to take away rights given Alaska Natives under the U.S. Constitution, Alaska Constitution and Indian law. The Commerce Clause provides that Congress shall have the power to regulate commerce with foreign nations, and among several states, and with Indian tribes. The regional corporations are not recognized as Indian tribes they are recognized as Alaskan business corporations. 9 Douglas Waggaman, State Regulations of Proxies in Alaska Native Corporations, Alaska Law Review, Vol. 12, No. 1 & 2 Fall 1982 and Spring 1983. 10 Div. of Legislative Audit #08-4572-99, page 33-34. 11 ANCSA Amendment of Feb. 3, 1988. 12 Section 2(b) of ANCSA prohibited Alaska Natives from creating any reservation systems or any permanent racially defined institutions, yet Section 2(9) of P.L. 100-241 took away our stockholder rights using the theory ANCSA was Indian legislation. For example, See Section 1302 of Indian Civil Rights Act of 1968.. 5 On December 17, 1987, the Anchorage News quoted Assistant Secretary William Horn as saying: "We have no trust obligations to Native corporations." 13 Also, Section 2(b) and Section 19(a) of ANCSA eliminated Alaska Natives rights to create reservations and revoked reservations in Alaska except for Annette Island Reserve. Indian Citizenship Act of 1924 provided rights and privileges to Alaska Natives as citizens of Alaska and the United States.14 Indian Civil Rights Act of 1968 imposes on tribes a number of substantive protections of individual rights taken from the U.S. Constitution, including due process protections for property rights. 15 Stock restrictions include in ANCSA were extended without full disclosure and without a formal majority vote of the shareholders and the full value of CIRI assets was not disclosed to the shareholders at the time of the advisory vote.16 Shareholders were not informed of all the provisions included in P.L. 100-241 and they were not informed as to how those provisions affected their rights and stockholdings. In addition, shareholders were not informed of the values of CIRI's natural resources and ANSCA land values. In late 1990 CIRI sent a Special 1991 Shareholder Advisory Ballot to its shareholders which gave them a choice of two options. The first option was for CIRI to remain as it is – a Native owned and controlled corporation; therefore, no official vote should be taken. The second option was CIRI should be changed so CIRI stock can be sold to anyone; therefore, an official vote should be taken. CIRI's December 1990 newsletter reported 6209 ballots were mailed and 3261 were returned; over 52% of all shareholders responded. Of those responding 78.5% (2560) agreed that CIRI should remain as it is – a Native owned and controlled corporation and no vote should be taken. The advisory ballot did not fully disclose the provisions in P.L. 100-241 and how those affected shareholder and property rights, and there was no valuation of CIRI's land and natural resources disclosed to shareholders who were not even given a formal vote on this major property right of shareholders. In 1997 CIRI presented an advisory ballot with four options. Option 1 was continue stock restrictions; Option 2 was lift stock restrictions; Option 3 was stock buy-back and Option 4 was issue Bonds. The options that received the most votes were Option 1 and Option 3. CIRI letter dated April 8, 1998 by CIRI's CEO, informed the shareholders of the informal vote on stock restrictions. Option 1: To continue stock restrictions received 191,194 votes and Option 3: Stock Buy-back received 178,414 votes. CIRI had 627,800 shares at the time of the vote so the vote to continue stock restrictions was approved by a vote approximately 30%. The letter went on to say: Because Option 1 was the highest vote-getter in each the first two rounds of voting, and because it does not require any formal change to CIRI's articles of incorporation or other similar action to implement, a further round of voting is not going to be necessary. This was a misrepresentation because CIRI Article VI(k) cancelled stock restrictions in 1991. 13 Id. At footnote 4 (Section 2(b) of ANCSA, and footnote 18 (Venetie Decision). 14 Indian Citizenship Act of 1924, 18 U.S.C. Stat.1401(b). 15 25 U,S,C SS 1301-03. 16 43 U.S.C. Stat. 1606(h). 6 When restrictions were extended by the ANCSA corporations the shareholders did not get to vote on the amendment of corporate articles. The articles were instead amended by a vote of the board of directors. CIRI's articles includes under Article III: "The amendments set out above were approved by the Board of CIRI on February 15, 1991. Under provisions of AS 10.06.960(c), shareholder approval of such amendments is not required and was not sought." P.L. 102-201 (Dec. 10, 1991) the last paragraph under Title III---Section 301 Extension of Alienability Restrictions on Settlement Common Stock: Section 37(a) of Public Law 92-203, the Alaska Native Claims Settlement Act (43 U.S.C. 1629(a) is amended by striking "December 18, 1991," and inserting in lieu thereof "July 16, 1993: Provided, however, that this prohibition shall not apply to a Native Corporation whose board of directors approves, no later than March 1, 1992, a resolution (certified by the corporate secretary of such corporation), electing to decline the application of such prohibition.17 Procedures for Considering Amendments and Resolutions---Section 36(d)---(2)(B): the board of directors of a Native Corporation electing application of this subsection shall, at least once prior to January 1, 1991, approve, and submit to the shareholders, an amendment to the articles of incorporation of the corporation to extend alienability restrictions. If the amendment is not approved by the shareholders, the board of directors may submit another such amendment to the shareholders once or more a year until December 18, 1991. CIRI shareholders did not get to vote on the amendment to CIRI's Articles. AS 10.06.504(d): The requirement of an affirmative vote of at least two-thirds of the shares entitled to vote for the adoption of an amendment to the articles of incorporation as provided in former AS 10.05.276 shall remain in force for corporations existing before July 1, 1991. CIRI did not submit a Resolution to the shareholders to change its Articles of Incorporation. CIRI executives knew that it would be difficult, if not impossible, to obtain a two-thirds vote of their shareholders to amend the corporation's Articles and By-laws by a shareholder vote. Management had data from the ANCSA 1985 Study 18 which stated on page III-85: that Congress provided that they (corporations) would be organized "under the laws of Alaska," and the regional corporations would be "conduct business for profit." Page IV-35: For example, the young appear least likely to sell both regional and village stock. However, the strength of this pattern diminishes when one rules that over 60% of this group appears in the "may sell" category---the gray area. Page IV-46: Individuals feel the need for more information about ANCSA and about activities of the corporations. When asked if they were interested in learning more about ANCSA, 84% said yes. CIRI 1984 Survey Report sent to shareholders: On December 31, 1984,, questionnaires were mailed by first class postage to each shareholder CIRI's 5,148 adult shareholders. A letter explaining the purpose of the survey and a postage-paid business reply envelop were included 17 Approved December 10, 1991. 18 Department of Interior, June 29, 1985. 7 with each questionnaire. By the February 12 cutoff date, 1127 completed surveys were returned to the Anchorage office of a Research Company, representing 22% of all adult CIRI shareholders. Survey results: 42% wanted unrestricted stock; 56% wanted to be free to sell/use their own stock; and 65% wanted to make their own decisions on 1991, only 14% wanted the CIRI Board to make the decision on the 1991 matters. Knowing that a large segment of their shareholders wanted restrictions lifted on their stock, CIRI management obtained an amendment to ANCSA whereby the CIRI Board of Directors could continue restrictions without a 66 2/3% vote of their shareholders to change CIRI's Articles of Incorporation and Bylaws. 19 But shareholders petitioning to lift stock restrictions would still be required to obtain approval of 66 2/3% of the CIRI shares to amend the corporation's Articles and Bylaws. 20 The efforts of CIRI management and the use or corporate moneys to obtain amendments to ANCSA continuing stock restrictions has effectively "locked in" the CIRI shareholders to remain under the control and domination of corporate management. In order for shareholders to gain ownership rights to their stock and access the value of their stock, shareholders have to mount a campaign to secure 25% of the voting shareholders to sign a petition.21 The cost of securing the 25% of the voting shareholders, and then to secure a majority of the shareholders to vote in favor of lifting stock restrictions will be extremely costly to anyone attempting to do so. There is no provision in the law which would reimburse those who present and lobby for a vote to lift restrictions. If a shareholder group did get a favorable vote, it would be nearly impossible for them to secure a 66 2/3% vote to change the CIRI Articles and Bylaws. CIRI management failed to disclose these material facts and in doing so, they "took away" their shareholder rights to receive unrestricted stock in 1991 as in Section 7(h)(3) of ANCSA. . This is a violation of shareholder property rights. CIRI's lobbying and other costs of securing the ANCSA amendments were not disclosed to shareholders. Section 36 Procedures for Considering Amendments and Resolutions. (B):The board of directors may, but not be required to appraise or otherwise determine the value of: (i) any land conveyed to the corporation pursuant to section 14(h)(1) or other land used as a cemetery; and (ii) the surface estate of any land that is both—(I) exempt from real taxation pursuant to section 907(d)(1)(A) of the Alaska National Interest Conservation Act (lands placed in the Land Bank), and (II) used by shareholders of the corporation for subsistence uses (as defined in section 803 of the Alaska National Conservation Act;22 or (iii) any land or interest in land which the board of directors believes to be only speculative value. Section 38 (B) (2) (A) A demand for payment made pursuant to paragraph (1)(A) shall be honored only if at the same time as the vote giving rise to the demand, the shareholders of the corporation approving a resolution providing for the purchase of Settlement Common Stock from dissenting shareholders. (B) A demand for payment made to paragraph (1)(B) to paragraph (B) shall be honored. 19 P.L. 102-301 (12-10-91). 20 See AS 10.06.54(d). 21 Alaska Statute 10.06,405(c) requires 10% of the shares to call a Special Meeting. 22 CIRI has not set aside any corporate land for subsistence uses of shareholders. 8 (b) Relationship to State Procedure governing the right of a dissenting shareholder to demand and receive payment for is or her shares shall apply to demands for payment honored pursuant to subsection (a)(2). The board of directors of a Native Corporation may approve a resolution to provide dissenting shareholder periods of time longer than those provided under the laws of the State to take actions for his or her shares. (c) Valuation of stock—(1) Prior to a vote described in subsection (a)(1), the board of directors of a Native Corporation may approve a resolution to provide that one or more the following conditions will apply in the event a demand for payment is honored pursuant to subsection (a)(2) (A) The Settlement Common Stock shall be valued as restricted stock; and (ii) the value of (1) any land conveyed to the corporation pursuant to section 14(h)(1) or any other land used as a cemetery; and (ii) the surface estate of any land that is both—(i) exempt from real estate taxation pursuant to section 907 (d)(1)(A) if the Alaska Conservation Act and, (ii) used by the shareholders of the corporation for subsistence uses (as defined in section 803 of the Alaska National Interest Lands Conservation Act); or any land or interest in land which the board of directors believes to be only of speculative value; shall be excluded by the shareholder making the demand for payment, the corporation purchasing the Settlement Common stock of the shareholder; and any court determining the fair value of the shares of Settlement Common Stock to be purchased. (2) No person shall have a claim against a Native Corporation or its board of directors based upon the failure of the board to approve a resolution authorized by this subsection. CIRI management using the above provisions could effectively strip the value of a dissenter's stock and they would receive a small fraction of the true worth of their stock. Section 16 (a) barred challenges to the constitutionally of an amendment made in P.L. 100-241 for one year. Challenges on other provisions of the amendments were limited to two years. Section 16(2)(c)(2) Statement of Purpose---The purpose of the limitation on civil actions established by this section is to eliminate the possibility that the United States will incur a monetary liability as a result of the enactment of this Act. This provision was not disclosed or explained to CIRI shareholders and the one year statute for filing constitutional claims had expired before Natives found out about it. This provision violates Alaska Natives equal rights. A December 16, 1987 letter from the Secretary of the Interior to Virginia Rude included: "We have also opposed these proposed amendments from a standpoint of individual stockholder's rights, the retention of the original settlement, protection of the land assets, and potential constitutional taking of property rights without compensation… When the corporations were formed, they had to abide by the Alaska State Corporate laws which mean that the elected board of directors controls the corporations. The individual shareholders elect members to the board of directors and vote on Articles of Incorporation and major corporate ventures involving the assets of the Corporation. ..This Administration strongly opposes these proposed amendments to ANCSA and the Secretary has stated this opposition on at least three separate occasions." 23 23 December 16, 1987 letter to Virginia Rude in regards to ANCSA stock restrictions. 9 H.B. 421 House of Representatives to amend ANCSA24 authorizing CIRI, with approval of the shareholders a repurchase of corporation stock from those who want to sell their shares to the corporation. A section of H.B. would hold harmless any director of CIRI and any firm or member of a firm of investment bankers or valuation experts who assist in the determination of the terms of an offer to purchase, from damages for terms made in an offer. We oppose this provision. As to directors we do not believe that we should change through a federal act the terms of state law as the standards of responsibility for directors of corporations, particularly as to Native corporations in which shareholders cannot as easily shed their interests as shareholders in most corporations can do. We should not weaken the protections afforded shareholders. Moreover, we fail to see the rational for absolving bankers and valuation experts for responsibility for doing precisely what they are hired and well paid to do and we believe this holds unnecessary risks to the shareholders. Representative George Miller was quoted: I'm concerned, however, that the bill favors CIRI management over the shareholders. As introduced, H.B. 421 provides immunity from notwithstanding any other provisions of law for CIRI, its board, and any firm or member of a firm of investment bankers or valuation experts involved an offer to purchase shareholder stock if they act in "good faith." Clearly, terminating participation in the corporation established pursuant to the Alaska Native Claims Settlement Act would be a major decision for the CIRI shareholders…Valuation of its assets for purposes of a shareholder buy-out could be a complex endeavor. At a minimum, each shareholder needs to know whether a stock buy-back offer reflects its full and fair value. To better protect the shareholder, I offered an amendment which was accepted by the Committee to eliminate the 'notwithstanding any other provision of law' language and also to delete the immunity from damages for outside investment bankers or valuation experts. As a matter of federal law, the board and officers of CIRI may act in good faith reliance on advice from investment bankers or evaluation experts. By eliminating the reference to notwithstanding any other provision of law,' the amendment will continue to apply to CIRI and its board's activities. Testimony of William Horn Assistant Secretary of Interior: 25 Section 4 would provide for the automatic and indefinite extension of alienation restrictions on all Native stock. While a corporation could vote to remove these restrictions, the extension of the restrictions would occur as a matter of Federal law with no corporate action required. This is a major change in the property rights and interests of current shareholders. This results from the fact that ANCSA was a settlement of both individual and group Native land claims. It Is now 15 years into its execution. To change a shareholder's rights and expectations to be able to alienate his or her stock from 1991 to now much later, if ever, in our view is not fair to the individual Native shareholder and could expose the Federal Government to substantial litigation. Our objection to this automatic extension of alienation restrictions is compounded by the fact the bill does not ensure that a vote on these restrictions will ever occur. If and when 24 Report 104-40 Feb. 2-21-95. 25 Before the Senate Energy Subcommittee on S.2065 a Bill to amend ANCSA. 10 it does the dissenter's rights provided for minority shareholders are very minimal, if not illusory. Dissenting shareholder are not given a right to be bought out unless the corporation expressly so provides. Therefore, minority shareholders could be placed in the position where their shares, which represents their portion of the settlement of claims contemplated by ANCSA, are rendered valueless. Even if dissenters are compensated, the bill would permit the value placed on such stock not to take into account most of the assets of the corporation (on the theory they are difficult to value) or would reduce the value by reason of the provision which says that certain dissenter's stock is to valued as "restricted stock;" i.e., stock subject to restrictions on transfer, is not as valuable as stock not subject to restrictions against alienability from which the dissenting shareholder is dissenting. To reduce the value of the dissenter's shares by reason of restrictions he opposes is both ironic and unfair. Finally, the bill would eliminate the requirement that the dissenter's shares be paid in cash. These changes eliminate several shareholder protections provided under existing Alaska corporate law. Under Alaska law (and under the laws of most all jurisdictions) shareholders are entitled to be bought out if they dissent from major corporate actions and must receive fair value for their shares in cash, Under S.2065, all such rights are eliminated, so that individual shareholders have no assurance of their ability ever to realize actual value for their shares received in settlement of their land claims. We object to this abrogation of individual shareholder interests. The effect of these provisions is to move ANCSA corporations further away from the economic institutions and closer to closed membership entities…It therefore jeopardizes some of the fundamental premises under lying the use of the corporation in the original Act. The accumulative impact of provisions such as the extension of alienation restrictions for all Native stock and elimination of meaningful dissenter's rights could lead to a court to hold that the Federal Government is responsible for any loss to the shareholders. Even if that were not the case, such provisions are not good public policy insofar as basic shareholder rights are concerned. AS 10.06.576(c) gives shareholders a right to dissent and demand payment of the fair value of their stock. Section 38 of P.L. 100-241 does not give ANCSA shareholders the same rights and privileges offered non-Native stockholders. The provision in section 38 greatly reduces the value of a dissenter's stock. AS 10.06.305(b) states: "All shares of a class shall have the same voting, conversation and redemption rights, and other rights, preferences, privileges, and restrictions, unless the class is divided into series. If a class is divided into series, all the shares of a series shall have the same voting, conversation, and redemption rights and other preferences, privileges, and restrictions. AS 10.06.313: Provides that all shares of the same class must be identical. State Legislative Audit 26 The Alaska Division of Legislative Audit recommended changes to proxy laws and said regulations should be considered to require more financial performance disclosure of Native 26 Jan. 4, 1999 State Legislative Audit # 08-4572-99 audit of Native corporations relating to proxy solicitations. 11 corporation financial performances, to ensure "balance" between rights of shareholders and management and to ensure that corporate information is readily accessible to shareholders. In recommendations, the audit discussed regulatory changes and the need for more uniform and detailed disclosure regarding corporate officer and director remuneration, the lack of financial performance that needs to be disclosed to Native shareholders so that corporate puffery and assertions can be measured and evaluated, the need for ensuring that shareholders are given access to corporate records, and that regulations that all shareholders pursuing board positions should be treated equally in regards to resources provided by the corporation. The unique characteristics of regional Native corporations and the technical nature of financial statement reporting demands better financial performance disclosure so that Native shareholders can be accurately and objectively informed of corporate financial operations.27 AS 3 AAC 08.345(f) states: A proxy may confer discretionary authority to vote only with respect to the following (4) a proposal omitted from the proxy statement and proxy, if solicited for an annual meeting by participants other than the board. SEC Rule 14a-8(a)(3)(i) says: A proposal to be presented at an annual meeting must be submitted at least 120 days in advance of the date that the prior year's proxy materials were mailed to shareholders. A proponent is limited to submitting one proposal per year. The proposal, together with a supporting statement, may be no longer than 500 words. Since ANCSA corporations are exempt from SEC regulations this provision is not available to ANCSA shareholders. NOL Legislation---Net operating losses (NOLs). CIRI had sold an undisclosed number of assets below appraised values to acquire $102 million in NOL sales. The loss sales were authorized by the 1986 Tax Reform Act which allowed only Alaska Native corporations to sell taxes. Up to 80% of the tax savings were then funneled back to the Native corporations. Senator Stevens sponsored the legislation. A depletion loss would occur when Native resources were sold at a price lower than their value when acquired from the federal government. CIRI never disclosed what assets were sold to generate the $102.3 million. CIRI referred to its tax losses in a footnote in its 1987 annual report but did not qualify them. The Institute of Social and Economic Research, University of Alaska Anchorage report by Steve Colt included: Section 1804(e)(4) of the Tax Reform Act of 1986 was introduced on the Senate floor on a quiet afternoon in 1986, passed by voice vote with no debate, and down- played as a "clarifying amendment." It gave Alaska Natives more than $1 billion in cash, distributed in less than 3 years in haphazard amounts ranging from zero to almost $200,000 per person. Congressman Rostenkowski was upset because the bill to the treasury had passed $300 million, or 6 times the estimate stated by Senator Stevens, who suggested a $50 million revenue impact. In fact, by the time all the deals were wrapped up, over $ 1 billion in readily identified costs to the treasury had been rung up. Counting the 190 other village corporations, 27 Id footnote 20. Page 21. 12 it is quite likely that transfers to the Natives topped $1 billion and costs to the treasury topped $1.25 billion. CIRI Board minutes of April 19, 1991 say: IRS---Steve Hillard briefed the Board on the current tax and GAAP positions relating to the $1,122 billion in sold and generated NOLs. Under GAPP, $112 million in tax sharing payments have been booked ($83 million of which has been placed in escrow. The information as to what CIRI assets were sold and the value of those assets were never disclosed to CIRI shareholders. As a founder of CIRI and a long-time director, I have never been informed as to which assets were sold and the values of those assets. This is material information that was omitted from shareholders. In CIRI's 2003 annual report shareholder equity is stated as $620,478,000 and CIRI does not list the values of its ANCSA lands and natural resources. On page 46 it says: In 2000, the Company sold interests in several producing and prospective oil and gas properties and a prospective mineral property. In 2003, the Company sold an additional oil and gas property. The basis of these properties for income tax purposes was determined in accordance with applicable provisions of ANCSA based on the greater of fair value of the properties at the date of conveyance or fair value at first commercial development. Income tax basis substantially exceeded carrying value of the properties for financial purposes. Sales of the properties in 2000 and 2003 resulted in substantial income tax deductions. CIRI did not disclose the values of the properties sold, the sales prices, and the buyers of the properties. This is a serious misrepresentation. CIRI's annual report for 1999 showed the company had NOLs carried forward of $260 million. CIRI's 2000 annual report showed loss carry forwards of $615 million. CIRI's 2000 annual report (page 23) listed net income of $102,456,000. On (page 31): During 2000, the Company sold a number of interests in producing and prospective oil and gas and mineral properties resulting in substantial income tax deductions. As a result of these sales, the Company did not have positive earnings and profits for income tax reporting purposes for 2000 or on a cumulative basis through the end of 2000. The corporate managers did well on compensation awards for not having positive earnings and profits in 2000. The five managers were compensated $2,075,357 in 2000 for salaries, bonuses, profit sharing and long term compensation. The CEO was paid $673,583 in 2000. Senator Stevens assisted CIRI in gaining minority bidding rights in Telecommunication Investments. CIRI produced Telecommunications revenue of $649,262,000 28 in 2001 after Senator Stevens got special legislation for CIRI to be able to sell their interests in Voicestream Wireless Corporation to Deutache Telekom without complying with a five year holding statute. The liquidation of CIRI's oil, gas and mineral properties in 2000/2003 and the big gain in the Voicestream sale brought the CIRI five senior managers 172,000 shares of Voicestream stock pursuant to the settlement of long-term compensation plan. Each of the five managers were paid: base salaries Bonuses Profit sharing long-term comp. Total Comp. Carl Marrs $316,011 $168,859 $17,000 $3,399,800 $3,899,661 Barbara Donatelli 205,352 90,000 17,000 2,954,800 3,264,152 28 CIRI 2001 Annual Report page 23. 13 Mark Kroloff 203,569 90,000 17,000 2,954,800 3,265,369 Kirk McKee 193,120 65,000 17,000 2,954,800 3,229,920 Craig Floerchinger 171,946 70,000 17,000 2.954,800 3,213,746 Total paid 5: $16,875,848. On page 23 of CIRI's 2001 Annual Report CIRI lists net income of $432,336,000 for 2001. CIRI's 2000 annual report stated the Company had $615,000,000 of Loss Carry forwards. On page 25 gain on disposal of assets is listed at loss of ($652,243,000). It would appear that CIRI did not have net income as stated on page 23 of CIRI's 2001 Annual Report.29 Instead of net income CIRI would have had a loss and the compensation awarded CIRI senior managers is questionable and CIRI's failure to disclose this material information could be damaging to the shareholders. Checking records I found the long term compensation was flawed; the managers did not sign long-term contracts, the compensation expert had make errors in his calculations and under AS 10.06.342 Stock rights and options it says: If the rights or options are to be issued to directors, officers, or employees of the corporation or of a subsidiary of the corporation and not to the shareholders generally, their issuance shall be authorized by the approval of the outstanding shares or must be consistent with a plan so approved or ratified. In the absence of fraud in the transaction, judgment of the board as to the adequacy of the consideration received for the rights or options is conclusive. The five CIRI managers received unrestricted stock yet CIRI shareholders still retained restrictions on their stock 30 years after passage of ANCSA and 10 years after 1991 when their stock restrictions were supposed to be lifted. Duty of Disclosure30 The requirement that a director disclose to shareholders all material facts bearing upon a particular transaction arises under the duties of care and loyalty. Directors and officers of a corporation stand in a sufficiently confidential relation to the shareholders to impose a duty upon them to reveal all facts material to the corporate transactions, especially with regard to membership corporations or cooperatives, and actionable fraud may result from the concealment of material facts, such as in the annual reports, as well as from false statements of material facts. A board's duty of complete candor to its shareholders to disclose all germane or material information applies to matters of corporate governance as well as to corporate transactions. Directors are under a fiduciary duty to disclose fully and fairly all material information within the board's control when it seeks shareholder action. In acquisition transactions, Delaware law imposes upon a board of directors the fiduciary duty to disclose fully and fairly all material facts within its control that would have a significant effect upon a shareholder vote. The materially standard, a mainstay of Delaware law, requires disclosure of all facts which 29 See page 31 of CIRI's 2000 Annual Report. 30 Fletcher Cyclopedia of the Law of Corporations, William Meade Fletcher, Vol. 3, Stat. 837.70, page 186,187,188.. 14 would have been viewed by the reasonable investor as having a significantly altered the total mix of information available. The Delaware Supreme Court has also addressed the issue of fiduciary duty of partial disclosure. Decisions have held that a partial disclosure encompasses the materially standard in that it is implicated only where the omission of a related fact renders the partially disclosed information materially misleading…It is more appropriate to speak of a duty of disclosure based on a materially standard rather than as a duty of candor. In addition, to the common law duty to make full disclosure, the federal and state Securities laws impose duties to disclose upon directors and officers.31 full and with complete candor all material facts when they solicit proxies from stockholders, where the omitted information goes to the independence or disinterest of the directors, the relevant inquiry is not whether an actual conflict of interest exists, but rather whether full disclosure of potential conflicts of interest has been made.32 A corporation that chooses to make disclosure in proxy materials may bear the responsibility of completeness and accuracy, even absent an affirmative duty to disclose.33 [13} Item 15: Acquisition or Disposition of Property Item 15 requires disclosure of the registrant's acquisition or disposition of any property, the general character and location of that property, and the nature and amount of consideration to be paid or received by the registrant or a subsidiary in the transaction.34 "To the extent practical," the registrant should "outline briefly" the facts bearing on the fairness of the consideration.35 Depending on whether the transaction involves an acquisition or disposition, the registrant also must identify by name and address the putative purchaser or seller of the subject property, and describe any "material relationship" between such person and the registrant or any of its affiliates. 36 A catch-all provision mandates a brief description of "any other material features of the contract or transaction. (See Item 15(d) of Schedule 14A) A.S. Section 45.55.160 Disclosure Imposed on Board of Directors: 37 On assessing the adequacy of proxy 31 See Stat. 840.10 (Section 838). 32 Millenco L.P. v VC Draper Fisher Jur-vetson Fund I, Inc. 824 A2d 11 (Del. Ch. 2002). 33 Royal Business Group, Inc. v Realist, Inc., 933 F2d 1056 (1st Cir. 1991) (applying Del. and Massachusetts law). 34 See Items 15(a) of Schedule 14A. According to the SEC's staff, this line-item might be triggered without also implicating Item 14 of the schedule where shareholder approval is required not by applicable state law, but instead by stock exchange rules. See Proxy Rules Reference Book, supra note 7. At 62-63. In addition, state-law considerations might prompt the submission for shareholder approval or ratification of a transaction involving the registrant in which any of its officers or directors has a financial interest. See, e.g. Del. Code Ann. Tit. 8, Stat. 144(a) (1995). 35 Item 15(b) of Schedule 14A. 36 See Item 15(c) of Schedule 14A. For purposes of the Exchange Act, the term "affiliate" is defined to mean "a person that directly, or indirectly though one or more intermediaries, controls, or is controlled by, or is under common control with," the registrant or other specific person. See Rule 12b-2 {17 C.F. R. Stat. 240.12b (1995). 37 Corporations 18A AM JUR 2d 15 materials, the duty of full disclosure is imposed upon the board of directors. 38 It is the right and responsibility of corporate management in a proxy contest to inform the stockholders fully and fairly concerning the corporate affairs and the issues at stake. 39 Generally, a proxy statement must include information that a reasonable shareholder would consider important in deciding whether to sell or retain stock.40 For purposes of directors' fiduciary duty to disclose A person may not, in a document filed with the administrator or in a proceeding under this chapter, make or cause to be made an untrue statement of a material fact or omit to state a material fact necessary in order to make the statement made, in the light of the circumstances under which they are made, not misleading.41 3 AAC 08.315 False or Misleading Statements (a): A solicitation may not be made by means of a proxy statement, proxy, notice of meeting, or other communication that contains a material misrepresentation. A misrepresentation is a statement that, at the time and under the circumstances in which it is made (1) is false and misleading with respect to a material fact; (2) omits a material fact necessary in order to made a statement made in the solicitation not false and misleading; or (3) omits a material fact necessary to correct a statement, in an earlier communication regarding the solicitation of a proxy for the same meeting or subject matter, which has become false and misleading. A misrepresentation is material if there is substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote. CIRI has appraisals on its ANCAS lands and natural resources since the 1980s but the values were not disclosed to shareholders. This is an omission of material information for CIRI stockholders. They have a right to know the value of their stockholdings. Recording the Value of lands CIRI's 2008 annual report says on page 22: Fair value of the surface and subsurface estate received pursuant to ANCSA, other than certain federal properties, was not determinable within reasonable limits at the time of conveyance and, therefore, no value has been recorded in the accompanying consolidated financial statements for these assets. Federal surplus, excess and certain other properties received pursuant to settlement of the Company's ANCSA entitlement were recorded as an addition to property and paid in capital at fair value, either as agreed between the Company and the federal government or as determined by a successful bid of acre-equivalent values. The Company's basis in surface and subsurface estate for financial statement purposes may differ from the basis for income tax reporting purposes. Because the fair value of land received pursuant to ANCSA, other than certain federal properties, has not been recorded, the accompanying consolidated financial statements do not reflect depletion as a charge against production revenues from lands received pursuant to ANCSA. Early Values of CIRI Properties 38 Stroud v. Grace, 606 A2d 75 (Del. 1992) 39 Begleiter v. Moreland, 33 Misc. 2d 118, 225 N.Y.S. 2d 577 (Sup. 1961). 40 Casey v Brennan, 344 N.J. Super. 83, 780 A2d 553 (App. Div. 2001), aff'd, 173 N.J. 177, 801 A2d 245 (2002). 41 Stat. 304 ch 198 SLA 1959; am Stat. 15 ch 86 SLA 1972. 16 The main Moquawkie area prospect had potential for oil reserves of 23.4 million barrels of oil ("MMBO") CIRI's ownership of the oil prospect was worth $12.9 million ("MM") as of the conveyance date, March 3, 1978. Not disclosed to shareholders. The East Moquawki Prospect had potential for oil reserves of 47.7 million barrels of oil ("MMBO"). CIRI's ownership of the East Moquawkie Oil prospect was worth $36 million as of the conveyance date, March 3, 1979. Not disclosed to shareholders. A 1982 summary of gas reserves in Cook Inlet listed CIRI's gas assets at 254.7 billion cu. ft. of natural gas. Not disclosed to shareholders. In 1982 CIRI began to evaluate ANCSA properties to determine shareholders' tax basis in stockholdings, valuation for estate tax purposes, taxable portion of distributions, and for disclosure of value of corporation's land and subsurface holdings in financial statements in order to give stockholders insight into their corporate CIRI stockholdings.42 Development of CIRI lands: Bringing CIRI lands into status where the economic value of the lands is known and to the extent possible is income generating is crucial to the shareholders in 1991 if they receive "full value of their stockholdings."43 At a press conference on Feb. 25, 1984, Anaconda Minerals Company and CIRI announced that Anaconda has discovered significant gold, zinc, copper, and lead deposits at the Johnson River Prospect on the west side of Cook Inlet 60 miles southwest of Kenai. The land is owned by CIRI.44 CIRI sold the Johnson lands, camp and equipment for $25,000 in 2000. The property estimated tax appraisal of $147,000,000. Not disclosed to shareholders. CIRI, in conjunction with Union Oil and Marathon Oil, successfully acquired a 22.79 acre State oil and gas lease located in the Cannery Loop Unit. This parcel is estimated to contain 11 BCF of natural gas reserve and will add to CIRI's reserves for future development and sale. The information was not disclosed to shareholders. Pursuant to amendments to the Act, CIRI may fulfill, though various mechanisms, up to 138,240 acres of it's in region acreage entitlement and all but 230,400 acres of its out-of-region acreage entitlement by means of acquisition of Federal Surplus and excess properties. The in- region acres entitlement may be utilized on the basis of one acre being surrendered for every $500 in appraised or bidding value and the out-of-region acreage entitlement may be utilized on the basis of one acre being surrendered for every $250 in appraised or bidding value. When CIRI exchanged ANCSA land entitlements for federal surplus properties shareholders "lost a vested property interest" in section 7(i) sharing for the subsurface lands exchanged.45 November 8, 1984 letter from CIRI's attorney to Larry Carroll, State Securities Office, stated: By 1991 CIRI's land and resources would be fully valued and disclosed. 42 August 9, 1982 memo from CIRI V.P. Finance. 43 July 5, 1984 memo from Lance Anderson (CFO) to Roy Huhndorf (CEO). 44 Feb. 1984 CIRI Newsletter. 45 CIRI 1984 Annual Report, page 18. 17 Anchorage News (Dec. 22, 1985) included: CIRI got oil and gas worth as much as $500 million. The story said the State conveyed more than 2,000 acres in the Cannery Loop Gas Field without knowing it was worth $50 to $120 million. Today because of increases in the price of natural gas, the land could be worth $300 million to $720 million. Newspaper article on Dec. 23, 1985, continued reporting on the misrepresentations by CIRI officials involving CIRI's land exchange with the State. Anchorage News story Dec. 25, 1985: Huhndorf stated: The corporate land---more than 1 million acres of surface and subsurface estate---has never been appraised. (This was a misrepresentation). The State contributed 115,000 acres in the Kenai Peninsula and 310,000 acres in the Beluga area. The Beluga lands contained more than 550 million tons of known coal reserves. The Alaska legislature approved the deal after Huhndorf and others testified that CIRI had abandoned its claims to Swanson River and other oil fields "so the present income of the state of Alaska could be maintained." In late 1985 CIRI retained DeGoyer & McNaughton to prepare estimates of proved, probable, and speculative reserves of the Kenai Unit, Kenai Deep Unit, Kenai Beluga Sand, Beaver Creek gas reservoir Beaver Creek oil reservoir and the oil reservoir of the Swanson River and Soldotna Creek units. The estimates were to be as the conveyance dates and as of Dec. 31, 1984.The DeGoyer & McNaughton evaluations showed: Net Proven Reserves: oil 641.0 MBBL; NGL: 8.5 MBBL; gas: 57,699.8 MMCF; Net Probable: oil 327.3 MMBL; gas 9,692.3 MMCF; Net Possible: oil 575.0 MBBL; gas 1,075.2 MMCF. I was allowed to read the report but was denied a copy of it so I took the above notes on the evaluations. This was not disclosed to shareholders. CIRI 1986 Annual Report (page 7): The interests acquired by CIRI and UNOCAL include substantial working interests in the Cannery Loop Unit, as well as interests in several shut-in fields in close proximity to Anchorage and other South-central Alaska markets. These gas reserves have promising additional development potential if markets improve in the next decade. (Several shareholders working on drilling rigs called me in the past saying there were commercial discoveries of gas but the wells were capped. They were afraid to give me their names). Delice Calcote (CIRI Shareholder) said her and others visited the drill sites and were shown more than 25 capped wells. Page 29: "It has not been possible within reasonable limits to place a value at the time of conveyance only some of the Company's producing oil and gas interests received under ANCSA. Other producing oil and gas interests so received have not yet been valued, nor has any value as of the conveyance date been placed within reasonable limits on any of the Company's other subsurface and timber resources received under Act. Even those oil and gas interests that have been appraised, the remaining, proved, probable and potential reserves associated with those interests have not been determined by the Company on a reasonable current basis. The Company is working on developing the data that will permit it to present information to shareholders about its reserves. This is a false and misleading statement.46 1986 letter to Bob Rude from CIRI: Finally you complain about not receiving a copy of the DeGoyer & McNaughton evaluation of CIRI's oil and gas interests. Until recently, all of their 46 See DeGoyer & McNaughton appraisal on page 17. 18 work had only been preliminary. We now have received their final reports, describing as of the date of conveyance of those interests to CIRI, as well as a second report on the remaining reserves as of Dec. 31, 1984. None of these reports puts a dollar figure on the value of those reserves, but instead merely states the remaining volumes of production from those interests. October 1987 CIRI Newsletter: At the end of 1986, the book value of shareholder's equity per share was $324.53. However, that figure may have little relationship to what the market value of the stock would be, were a market to exist. One problem in relying on shareholder's equity as a measure of stock value as it appears on CIRI' books is the fact that much of the land that CIRI was entitled to under the original Settlement Act has not yet been received and therefore not valued on the books. Another problem is that even lands and other resources (minerals, gas and oil) which have been received, in many cases, have not been valued and placed on CIRI's books because of the large expense entailed in doing so. The open market is the only relevant measure of the value of stock for any enterprise. 1987 Annual Report (page 6): CIRI is a major royalty owner as well as a working interest owner in the Cannery Loop natural gas field near Kenai. In a series of acquisitions commenced in 1979 and culminating in 1987, CIRI added substantially to its ownership in this unit, boosting its overall interest in the field to over 30%. Cannery Loop is scheduled to begin production in early 1988 at an initial production rage of approximately 27,000 mcf per day. Production is expected to increase steadily as additional production wells are drilled in 1988 and 1989. CIRI shareholder Informational meeting 11-27-87: Sale of NOLs was the major reason for majority of CIRI's net profits in 1987.Oil and gas investments: Endicott $7,366,000; Cannery Loop: $31,892,000 (7(i) purchase – 36% of this was CIRI funds; Endicott Pipeline $574,000. Endicott $3 million a year projected income for CIRI (not 7(i) sharable. CIRI receives $100,000 per year for pipeline. CIRI owns 24% of Cannery Loop, plus 5% over-riding royalty (about 31% total) CIRI owns about one-sixth of 3 trillion cf. of natural gas. A question was asked about appraisals of natural resources and ANCSA lands. Answer: Appraisals are not needed because values change. DeGoyer/McNaughton did evaluate some of CIRI's natural gas but the evaluations were for barrels and cubic feet of gas. This information was not disclosed to shareholders not in attendance at the CIRI meeting. September 1987 CIRI's share of Endicott is estimated to be about 700 barrels of oil per day. Endicott will be supplying 110,000 barrels per day and contains approximately 350 million barrels of recoverable oil. In 1998 CIRI sold its interest in Duck Island Unit and Endicott Pipeline for a gain on sale of $272,790. As of 2009 the field is still producing tens of thousands of barrels of oil per day. CIRI Feb. 15, 1991 minutes: West Fork---Early tests have produced gas at rates of up to 10 million cu. ft. of gas per day, a rate considered good by industry standards. The North Moquawkie Prospect had potential for oil reserves of 19.4 million barrels of oil ("MMBO") from the Tyonek MGC "C" formation and an additional 18.2 MMBO from the 19 Hemlock Formation. CIRI's ownership of the North Moquawkie oil prospect was worth $40.4 million ("MM") as of the conveyance date, February 27, 1995. The Kaldachabuna Prospect had potential for oil reserves of 20 million barrels of oil. CIRI's share of the Kaldachabuna prospect was worth $5.0 million as of the conveyance date, 1978. Based on appraisal of the fair market value of the Capps (coal) property on February 7, 1979 was $86 million. In 1987 CIRI sold this property plus 8,240 acres of surface estate for $3 million. The value of the 8,240 was never reported to shareholders. Based on appraisal of the fair market value of the 912 acres of coal rights to Drill Creek as of February 7, 1979 was $13 million. In 2000, CIRI sold its interests in property for $10,000. June 24, 1988, CIRI Board meeting: George Kriste explained that CIRI managers had revised the 1988 plan to reflect the NOL transactions which have been and will be accomplished. He explained that his presentation would consist of an overview of the company's financial and strategic plans for the next six years. In short, it showed that CIRI is a different company. That in six years it is anticipated that the company will produce over $100 million in annual income from more than $1 billion in assets. Anchorage News article on November 20, 1988 in an interview with George Kriste a CIRI Vice President, state: the total market value of the company's assets, including oil and gas holdings not appraised in year-end reports, approaches $1 billion. Anchorage News article on February 16, 1989 reported: CIRI has retained earnings of more than $120 million. Its assets, including natural gas and oil holdings not appraised in year- end reports, are worth nearly $1 billion according to George Kriste CIRI Vice President. Shareholder equity was listed at $283,838,581 in CIRI's 1988 annual report. CIRI does not report the values of its ANCSA lands and natural resources. Adding a billion to CIRI's shareholder equity would increase shareholders equity for 100 shares to a worth of approximately $205,000 and if CIRI's ANCSA lands and natural resources were added I estimate that each shareholder's equity for 100 shares would be somewhere in the range of $300,000 to $400,000 or more. CIRI management says they have not appraised the corporation's ANCSA lands and natural resources. CIRI's failure to report known values of lands and natural resources is a major misrepresentation. . November 12, 1990 Forbes, interview with Roy Huhndorf, he said: that 100 shares of CIRI stock was valued at $52,000. That figure did not include CIRI's huge landholdings in Alaska; include the Alaska real estate and shares might well be worth $100,000 or more. Status of IRS/NOL Procedures: As a result of the aggregate effect of the (IRS) agreed adjustments, CIRI would have a net operating loss carry forward from 1988 in excess of $758 million. Of the five unresolved matters, the IRS has proposed disallowing two (oil and gas depletion - $60.3 million; and deduction for payments under 7(i) in respect to pre-conveyance revenues - $27.6 million). 20 April 19, 1991: IRS –CIRI's in-house attorney briefed the Board on the current tax and GAAP positions relating to the $1.122 billion in sold and generated NOLs. 47 Under GAAP, $112 million in tax sharing payments have been booked ($83 million of which has been placed in escrow). Shareholders were not disclosed the values of the assets that were sold, the prices they were sold for or who purchased the assets. Structure and Performance of Alaska Native Corporation48 The accounting method of these operations, in general, and in ANCSA firms particularly, tends to overstate the profitability of such land-related operations. ANCSA firms usually do not capitalize land; therefore, the asset base on which they calculate returns is lower then it ought to be. Also, they charge no cost for depletion of land values when trees are cut down or oil is removed. Such accounting implies that when land is used for resource extraction, the revenues received involve no land costs and no assets. The revenues largely appear to be manna from heaven, and such flows of manna necessarily involve a high computed rate of return. However, one must not confuse the measured accounting performance with favorable economic performance of the firms involved. By not recording the values of CIRI lands and natural resources, CIRI's net profits are material misrepresentations and their net profits are much larger than they should be, and since CIRI management compensation is based on corporate net profits the managers at CIRI have been overpaid for many years. I believe shareholders were also harmed when CIRI did not capitalize and use depletion causing them to pay taxes on dividends they should not have. On July 24, 1992 Stewart Petroleum Company announced tests that showed up to 3,400 barrels a day was discovered on the west side of Cook Inlet the test well---West McArthur Unit 1---was drilled directionally from the inlet's West Foreland, about 20 miles west of Kenai. The well is located on land owned by CIRI. In Feb. 18, 1997 CEO 4th Quarter report Land Valuation Project: Completed indexing all of CIRI' in-state land holdings and finalized estimate of value. The values of CIRI land holdings were not disclosed to shareholders. In terms of the volume of gas that CIRI or CPC (CIRI sub.) would have control over, the working interests in Cannery Loop North and royalty interests of 16 2/3% of all of the prospects would have un-risked gas reserves of 36 BCF. A 20% royalty interest in the 3 prospects (Kenai Loop, Cannery Loop North, and Sterling North) would have un-risked gas reserves of 31 BCF. This information was not disclosed to shareholders. West Fork Property---the purpose of this sale will trigger a $9 million NOL with the timing of the sale yet to be determined. PR Newswire Oct. 26, 1998: The Moquawkie discovery well, known as the Lone Creek 47CIRI never disclosed what properties or natural resources were sold to produce $1.112 billion in NOLs. 48Johathan M. Kropoff & Edward M. Rice, Associated Professors Finance, U. Wash., Contemporary Policy Issues, Vol. X, July 1992, page 80. 21 No. 1, flowed 10.6 million cu. ft. of natural gas per day. The well is located on lands leased from CIRI. December 10, 1999 CEO 4th Quarter Report: A project has been initiated to determine if there are additional tax losses that could be realized from the deposition of ANCSA resource properties. Several possible oil and gas properties have been identified. Recent discoveries of gas on CIRI land by Anadarko and Mokwaukie by Marathon on the Kenai Peninsula may create opportunities for determining tax basis at "first commercial production." Disposition of the properties may be good tax shelter in the years that Voicestream gains are realized. This information was not disclosed to shareholders. Third Quarter Report 2000: Resource Transactions – In order to shelter future taxable gains from telecommunications and as part of planning shareholder dividends, we have worked with appraisers and tax counsel to value several oil and gas properties to establish tax basis. Appraisals are nearly complete and planning is in progress to sell the properties to recognize income tax losses. This was not disclosed to shareholders. Summary of CIRI Gas Reserves as of July 1, 2000. Field Reservoir Reserve Classification Gross Gas (BCF) CIRI % Interest Net Gas (BCF) Kenai Sterling 3 Producing 31.6 3.8733 1.86 Sterling 4 Producing 35.9 5.8733 2.11 Sterling 5.1 Producing 41.7 5.8733 2.45 Sterling 6 Producing 58.0 5.8733 3.41 Beluga Producing 26.3 11.9791 3.15 Beluga Undeveloped 39.0 11.9791 4.67 Tyonek Producing 29.2 12.31 3.60 Tyonek Undeveloped 18.0 12.3 2.25 Subtotal 279.7 23.50 Beaver Creek Sterling Producing 7.0 4.1736 .29 Beluga Producing 22.1 2.5309 .56 Beluga Undeveloped 8.7 2.5309 .22 Tyonek Producing 4.0 2.1484 .09 Tyonek Undeveloped 13.3 2.1484 .29 Subtotal 55.1 1.45 Total 334.8 24.95 Summary of Oil Reserves as of July 1, 2000 Field Reservoir Reserve Classification Gross Oil (MBO) CIRI Interest(%) Net Oil ) Beaver Creek Hemlock Producing 1871.6 2.14844 40.21 Summary Gas Production Forecast for CIRI's interest in the Kenai and Beaver Creek Fields. Year CIRI Net Oil Production (MBO) CIRI Net Gas Producing (MMCF Undeveloped (MMCF) 2000 1.0 589.9 0.0 22 2001 1.9 1124.8 536.2 2002 1.7 1049.4 752.2 2003 1.6 955.0 838.9 2004 1.5 936.7 847.5 2005 1.5 883.4 730.9 2006 1.4 834.0 634.7 2007 1.3 787.4 554.3 2008 1.2 737.6 486.2 2009 1.2 698.9 427.9 2010 1.1 662.7 376.1 2011 1.0 628.8 327.8 2012 1.0 594.1 271.9 2013 0.9 559.5 219.0 2014 0.9 532.2 175.2 2015 0.8 506.5 133.2 2016 0.8 482.2 88.9 2017 0.8 401.4 24.9 2018 0.7 377.8 0.0 2019 0.7 358.4 0.0 Letter to CIRI General Counsel from CIRI V.P land: As summarized on the attached, 13 properties, totaling 58,195 acres would generate approximately $419,940,309 in claimed tax losses…The values of the producing properties of the Beaver Creek and Kenai Unit are not difficult to figure as they have years of history and are well known in the industry. The potential buyers include Marathon, Unocal, Enstar and Aurora, who are basically the users of the gas in Cook Inlet. The bids will be competitive and we can expect a fair price, but under Section 7(i), we keep only 36% of the revenue. All the tax attributes belong to CIRI. 49 Drill Creek: is a coal lease on which ICF did a preliminary appraisal in 1988. Their conclusion was a value of $10 million. Johnson River gold prospect CIRI received as part of the T&C…CIRI owns the property which consists of 11,342 acres of surface and subsurface (with restrictions to only use the surface for mining), and another 9,600 acres of subsurface to the north surrounding the Difficult Creek Prospect. Despite the lack of proven amount of minable ore, geologists still believe there is potential here and would recommend future exploration before giving it away. RAA calculated the value of $147 million in 1988. CIRI Tax Basis Project as of 9/25/00 Preliminary values of CIRI natural resource properties sold in 2000: Property Estimated Sales Price Estimated Tax Value Estimated Loss Drill Creek Coal $1,000 $ 10,000,000 ($9,999,630) Johnson Prospect $25,000 $147,000,000 ($146,990,750) Moose River Deep $1,000 $ 2,100,000 ($2,099,630) 49ANCSA 1985 Study (June 29, 1984), page lll-90: Regional corporation receipts of Section 7(i) revenues which must be redistributed are not income and hence are not subject to taxation; and that similarly, any interest earned on cash receipts that be distributed is not income and therefore is not subject to taxation. 23 Wolf Lake-Matan $1,000 $12,000,000 ($11,999,630) Wolf Lake-Hemlock $1,000 $14,800,000 ($14,599,630) Coffee Creek Deep $1,000 $103,574,000 ($103,574,510) Coffee Creek Shallow $1,000 $ 22,815,000 ($22,814,990) Moquawkie/Kaloa (oil) $1,000 $ 15,300,000 ($15,299,630) Lone Creek Deep (moq North) $1,000 $22,000,000 ($21,999,630) Moquawkie Kaldachabuna $1,000 $ 4,900,000 ($4,899,630) Moquawkie East $100,000 $43,600,000 ($43,563,000) The above properties were sold at a loss of ($464,760,991) in 2000. CIRI sold an additional oil and gas property at a loss of ($17,506,082) in 2003. Total loss for 2000/2003 amounted to ($482,267,073). Adding the accumulated losses of $1,122,000,000 to those of 2000/2003 would total $1,694,267,073. This material information was not disclosed to the CIRI shareholders. Since land and natural resources are the primary providers of the value of CIRI stock. Reporting the values of those assets is material to the stockholders. Sept. 29, 2003 Wolf Lake Resource Property Sale: Wolf Lake lies 3 miles south of the Swanson River field and 3 miles east of the Beaver Creek field. Originally, we had leased the property to ARCO who drilled 3 wells for oil, gas was discovered, but was uneconomic at the time. The 2 (Wolf Lake) Leases issued to Marathon in 1997 encompass 1,920 acres…Wolf Lake is currently being produced…The second Galena prospect is expected to be drilled in 2004. Marathon believe both prospects contain 10-15 BCF of gas each. They expect it to produce for at least 10 years. They expect the Wolf Lake to produce 1.35 mmcf per day for a total of .5 BCF in 2004. Marathon Oil – Wolf Lake Unit Gas Production Summary Month Tyonek Beluga Total Production CIRI 20% share Total CIRI $ Average $ per share 2001 Total 114,211 22,842 $48,331 $2.1159 2002 Total 295,574 59,115 $134,793 $2.2777 2003 Total 162,123 32,425 $73,519 $2.7963 Total (Inception to Date) 571,908 114,382 $256,634* $2.3924 Lease value adjustment increased $256,634 to $273,648. CIRI 2003 Annual Report (page 46): CIRI sold an additional oil and gas property. The basis of these properties for income tax purposes was determined in accordance with applicable provisions of ANCSA base on the greater of fair value of the properties at the date of conveyance or fair value at first commercial development. Income tax basis substantially exceeded carrying value of the properties for financial purposes. Sales of the properties in 2000 and 2003 resulted in substantial income tax deductions. A valuation of the property determined its tax basis was $17,900,000. Book basis in the property was zero. The property sold for $1,000,000 on 12-8-03. Net basis of this property was $17,506,082 for a tax loss of $16,506,082. Books reported a gain of $1,000,050 on the disposition. 24 CIRI 2003 Tax Return: Tax loss on the 2003 sale was $16,506,082. 2003 Tax losses on the sale of ANCSA properties was $17,506,082. The oil and gas property sold was not disclosed to shareholders nor was the appraisals, selling price, and purchasers. From 2000 and 2003 CIRI sold natural resource properties at a loss of $482,267,073. On page 35 of the 1999 CIRI Annual Report it said: The Company has net operating loss carry forwards of approximately $260,000,000. On page 38 of CIRI's 2000 Annual Report CIRI had net operating loss carry forwards of $615,000,000. It appears that CIRI sold more natural resource properties then was necessary. The sales of the properties at a loss of $482,267,073 most likely cost shareholders much more because the price of oil and gas increased substantially since the properties were sold. In addition, the NOLs declared by CIRI were rejected by the IRS. Page 37 of CIRI's 2006 Annual Report stated: The major issue raised during the IRS audit relate to the tax basis, as calculated under ANCSA, of several resource properties sold in 2000, which resulted in substantial income tax losses. The IRS disputed the Company's tax basis of these resource properties contending that the tax basis was substantially lower than that claimed on the Company's tax return. In October 2005, the IRS issued a Statutory Notice of Deficiency claiming additional tax due of $1,507,000 for 2000 and $138,193,000 for 2001. In late 2005, the Company placed $100,000 deposit with the IRS pursuant to a regulation which suspends interest due on any amounts deposited and pays interest to the taxpayer on all deposits ultimately returned to the taxpayer following resolution of the tax dispute. The Company's settlement with the IRS reduced the tax deficiencies from $1,507,000 to zero for 2000 and from $138,193,000 to $51,085,000 plus interest for 2000. In CIRI'S May 1996 newsletter was the last time CIRI reported to its shareholders our landholdings. The newsletter reported our ANCSA land entitlement of 1,301,515 acres of surface and 2,366,685 acres if subsurface estate, and of that 602,399 acres of surface and subsurface estate was traded under provisions of ANCSA amendments for federal surplus properties, shareholders were not compensated for ANCSA section 7(i) sharing rights. 50 A May 1, 2006 land manager's report was given to Mr. Rude and Mr. Rudolph that showed CIRI sold the federal surplus properties for $300,542,720. Shareholders were not disclosed this information nor were they compensated for their ANCSA Section 7(i) sharing rights. The May 1, 2006 CIRI land manager's report stated: CIRI owned 605,060 acres of surface and 1,344,432 acres of subsurface estate; that CIRI sold 11,625 acres of surface estate for $305,238,924 (includes federal properties sold); and sold 118,511 acres of subsurface estate for $31,105,256. Total ANCSA land entitlements sold: $336,344,180. Shareholders were not informed of this material information in any annual reports or newsletters nor were they informed about their loss of section 7(i) sharing rights. CIRI annual reports only say we own more than 600,000 acres of surface, approximately 1.3 million acres of subsurface estate, and that CIRI has received more than 90% of its land entitlement. 51 50Under Section 7(i) of ANCSA CIRI was required to share 70% of subsurface revenues with all 12 Alaska regional corporations, including itself. Out the 70%, CIRI got back 8.43% and kept 30% of the revenues. Shareholders were entitled to share in one-half (50%) of the 38.5% received by CIRI. 25 In CIRI's 2000 and 2003 Annual Report stated it sold interests in several producing and prospective oil and gas properties and a prospective mineral property. In 2003, the Company sold an additional oil and gas property. Sales of the properties in 2000 and 2003 resulted in substantial income tax deductions. CIRI did not disclose to shareholders that the properties were sold $482,267,073 below the tax appraisals.52 When the properties were sold shareholders were not informed that they lost section 7(i) sharing rights. After the properties were sold, the price of oil and gas interested substantially. In 1987 CIRI sold 8,240 acres of surface estate and their ownership interests in the Capps Coal Field for $3,000,000 and purchased 10% interest in the Beluga Coal Company which purchased the property. CIRI paid section 7(i) payments as required on the $3 million but just the Capps Coal was valued at $86,000,000 in 1979 when CIRI acquired the property and that value did not include the 8,240 acres of surface estate sold. This information was not disclosed to CIRI shareholders. CIRI also sold 912 acres of coal rights for $10,000 in 2000. The property was appraised in February 7, 1979 for $13,000,000.53 The Capps coal and 8,240 acres of surface estate was sold to generate net operating Losses, which were sold to profitable companies for tax write offs. The special legislation was obtained by Senator Ted Stevens. Only the Native corporations were allowed to sell their NOLs to unrelated third parties for a specific period of time during the mid – 1980s.54 According to Karpoff, since no value was assigned or recorded on the corporate books, values could be arbitrarily assigned when the land resources were disposed of which created values for tax purposes that differed from those that were recorded on the books. Tax implications regarding NOLs were very complex and difficult to understand.55 The ability of not recording significant assets on corporate balance sheets has numerous financial performance reporting ramifications such as over reporting true earning performance since depletion is not recognized when the unrecorded assets are sold. For many of the Native corporations these assets were/are material. For example, according to a University of Alaska, Anchorage, Institute of Social and Economic Research (ISER) report, 56 in 1983 Sealaska had booked the value of timber conveyed to them in the amount of $279 million. In 1985 it reduced the book value of those resource assets to zero because management no longer felt it could be establish a reasonable value for the timber. Also, the recording of NOLs created many disclosure complexities. With congress authorizing Native corporations the ability to sell NOLs, ISER has estimated that NOL proceeds 51 CIRI 2008 Annual Report pages 8, 10, and 20. 52 CIRI 2000 and 2003 tax returns. 53 Page 88 of Estimated Fair Market Value of 2-7-1979 valued Capps property at $86 million and Drill Creek property at $13 million. 54 1987 – 1988. 55 Alaska Native Corporations by Jonathan M. Karpoff and Edward M. Rice published in Contemporary Policy Issues, July 1992. 56 Alaska Review of Social and Economic Conditions – Financial Performance of Native Regional Corporations, ISER, December 1991, Vol. XXVIII, No. 2. 26 infused over $600 million into the regional corporations. Since proceeds from NOL sales have been recognized as income under GAAP, this brings up the question of whether the true performance of a corporation, that includes NOL proceeds in its income streams, should be measured in terms of net income curing those years NOL sales were allowed. NOLs also created tax implications that were difficult to understand. In the ISER report referenced above it was noted: What were the corporations' NOLs made up of? While some sold actual accrued Losses of cash, most claimed losses resulting from sales of natural resources on their land. But since the corporations paid no money for the resources and assigned them a value of zero on their books, most of the tax loss claimed did not show up on the books as a current or accumulated loss of financial wealth. 57 The ISER findings included: Petroleum and timber resources owned by CIRI, Arctic Slope Regional Corporation, and Sealaska contributed almost $400 million in the total net resource revenues the corporations collected through 1991. All three corporations acquired the resource lands in negotiations after ANCSA was passed. Selling resources to produce income is, in effect, liquidating assets, and may not be sustainable. In our review of selected regional corporations' financial statements, without the benefit of the corporations' internal accounting documents, we experienced difficulty in assessing certain types of financial presentations. One example included a significant entry in CIRI's 1991 annual report. For that year, CIRI's audited financial report indicated that CIRI had recognized approximately $17 million in net income after a $26,465,613 loss attributed to losses in a broadcast company. Included within the notes to the financial statements and recognized in its cash flow Statements was $39.4 million booked as revenue to reflect the value of "land settlement adjustments." These adjustments were explained as relating to CIRI's 1976 – 1986 original land entitlements resulting from settlement claims. Apparently, during 1991 CIRI successfully acquired a number of properties resulting from these prior claims. Also included in the notes to the financial statements was a statement that, "Included in other assets approximately $33,300,000 in amounts to be exchanged for tangible assets." CIRI management briefly explained the transaction stating. Therefore, included in other assets is $33,231,380 in entitlement amounts to be exchanged for tangible assets subsequent to 1991. In addition, the Company has recognized revenue of $39,400,000 in 1991 to reflect the asset value of a land entitlement settlement realized in 1991. This significant entry is extremely difficult to comprehend. As noted in other sections of this report. Native corporations have chosen not to book settlement assets and recognize revenue only after the assets have been sold. In this case, CIRI appears to be booking a significant revenue adjustment based upon anticipated assets that it had not received or sold. Even more troubling is the limited detail that exists in its MD&A section of the annual report. 57 Div. of Legislative Audit #08-4572-99, January 4, 1999, pages 25-26. 27 When considering reported net income of approximately $17 million for 1991, the $39.4 million overshadows these reporting net earnings and certainly deserves extensive explanation for an approximately $22.4 million ($17 million less $39.4 million).58 A memo from a Sealaska officer says: While CIRI goes into great detail in their annual report about the $26.5 million dollar loss I broadcasting and how they would have made $443.5 million without the broadcasting unit and how much they made everywhere else, they FORGOT to include one other item in their discussion. 1) Net Come: $17,005,588; 2) Less Income* : $39,400,000; Adjusted income: ($22,394,412). * CIRI during 1991 recorded a "NON-CASH" transaction with the name of "land Entitlement settlement adjustments" for $39,400,000 into their revenues and net income representing certain readjustments of its original land entitlements through congressional amendments resulting from settlement of claims related to the Company's efforts to fulfill its original ANCSA entitlements during the period from 1976 to 1986.---"this is booking assets as revenues." October 29, 2007: We have completed tax basis valuations on two gas fields of moderate size (28 BCF and 11 BCF), which began producing on CIRI land in 2003 and 2004. The combined fields were valued approximately $37 million in tax savings which can be recognized through depletion or sale.59 CIRI CEO's Fourth Quarter Report: IRS Audit management provided documents in response to IRS information document requests related to the IRS audits of CIRI's consolidated tax returns for 2004, as amended, and 2005. The documents included the appraisals and other information pertaining to Lone Creek and Happy Valley, two resource revenue producing properties, which are the focus of the IRS audits. CIRI had these two properties appraised and calculated its deduction for tax depletion based on the appraised values.60 CIRI's dividend policy is based on 3.5% of shareholder equity; shareholder equity does not include the value of CIRI's ANCSA lands and natural resources; and therefore, CIRI's dividend policy is false and misleading. One of primary basis for determining management compensation is corporate profits and if those profits are not artificial they should not be used to determine management compensation. Request for Disclosure In March 13, 2008, five CIRI Directors (1/3th of the Board) request that CIRI fully disclose the following issues to the shareholders: 1) The sale of ANCSA lands and natural resources through 2007; 2) The accumulated amount paid lobbyists and consultants from 1996 through 2007; 58 Id., footnote 33, page 26. 59 CIRI Board Quarterly Report, October 29, 2007. 60 CIRI Annual 2007 Report (page 23): Because the fair value of lands received pursuant to ANCSA, other than certain federal properties has not been recorded, the accompanying consolidated financial states do not reflect depletion as a charge against production revenues received pursuant to ANCSA. 28 3) The accumulated business transactions between current and former directors, staff members or politicians; 4) The breakdown of annual meeting costs for years 2002 through 2007; 5) The accumulated donations to CIRI non-profits and other entities through 2007; 6) The accumulated amounts CIRI paid to sue or bring legal actions against shareholders from 1997- 2007; 7) The accumulated expenses paid by CIRI for executives and board members to travel in corporate jets and entertain at Golden Horn Lodge from 1996 – 2004; 8) The identification of staff and board members who used the corporate jets and lodges; 9) Reviews completed by management to compare the costs of using commercial aircraft compared to using corporate jets and reviews comparing the costs of using lodges to the use of corporate facilities located close to Anchorage. These nine requests were not disclosed by CIRI to shareholders even though five directors made the request. Withholding material information is a false and misleading statement and management should be made to fully disclose all material information on the value of CIRI's assets. Shareholders should be fully informed of the numerous sale or disposition of ANCSA lands and natural resources, especially when they are being sold for billions of dollars below the tax appraisals. Shareholders also should be informed of the huge amount of shareholder money that is being donated, paid to lobbyists, consultants, or given for political means. Shareholder Participation On March 5, 2001, directors Harold Rudolph and Bob Rude presented 10 shareholder resolutions to CIRI requesting that the resolutions be included in corporate proxy materials for the corporation's June 2, 2001 Annual Meeting. Another shareholder also presented 5 resolutions. CIRI sent back a letter on March 30, 2001, saying that CIRI would not include the resolutions in its proxy materials sent to share- holders nor was they under any legal obligation to do so. CIRI's attorney wrote: "You of course are welcome to introduce your resolutions at the annual meeting. If you do so, CIRI will be free to exercise its discretionary authority with respect to such resolutions to the full extent permitted by law." In 2008 five CIRI Directors (1/3 of the Board) submitted a written request that CIRI place on the company's proxy a resolution so shareholders could vote on a distribution of a Special Dividend of $50 per share ($5000 per 100 shares). Their request was denied. In 2009 more than 10% of voting shares signed a Petition to call a Special Meeting to vote on six Shareholder Resolutions. CIRI called a meeting but refused to present the resolutions before its shareholders for an advisory vote. In order for shareholders to get an opportunity to vote on the resolutions former directors Rude and Rudolph was expected to pay for a mailing that would cost approximately $6,000. When they requested email addresses of the shareholders that were used in the past by management to solicit proxies they were denied, and they were also informed they could no longer request a shareholder list on computer disk unless we used two printing and mail service companies that were used by CIRI. That would mean Rude and Rudolph would have to hand copy approximately 7,000 names and 29 addresses to envelops after they had resolution materials printed and inserted into envelops which would drive up the cost of giving shareholders an opportunity to vote on advisory resolutions that can be ignored by the CIRI Board. Other shareholders have submitted resolutions to CIRI but they are not included in corporate proxy materials. CIRI's failure to print shareholder resolutions in corporate proxy mailing takes away shareholder participation because they would have to pay approximately $7500 to $8500 for one mailing to the shareholders. If the corporation uses their proxies to vote against the shareholder resolutions the resolutions have little or no chance of being approved. Even if the resolution receives a majority vote, the resolution is advisory to the board of directors. Discretionary Authority. CIRI proxies have this statement at the bottom of the proxy and if any shareholder signs the CIRI proxy they are giving the Board majority discretionary authority to vote for or against any resolutions presented by independent candidates or which come off the floor at the annual meeting. This limits approval of shareholder resolutions to those that are introduced by the Board majority. CIRI's 2009 Proxy has a blank space to fill in the name of another candidate but none of the other candidates' names are on the proxy. There is no process available to shareholders to include resolutions on the CIRI proxy. If a shareholder fills in the name of a "Other Candidate" or votes for the board endorsed candidates, the proxy holders are authorized to vote in their discretion upon all resolutions and other matters as may properly come before the annual meeting. Although the heading of the proxy states the proxy is being solicited by the board of directors, the proxy holders are CIRI's Executive Committee which was all board majority directors, three of which are board-endorsed candidates. The five minority directors (one-third of the board) are not on the Executive Committee. In 2007 – 2008 the five minority directors requested disclosure of material information regarding CIRI lands, natural resources, and moneys but their request was denied. They also tried to get CIRI to include a resolution to distribute a $50 per share special dividend but it was denied, and they requested that CIRI disclose to the shareholders how they would vote proxies on the resolutions but that too was denied. CIRI's proxy statement contains the names, pictures and statements of incumbents and "Other Candidates" but all other corporate proxy materials contain information only on the board endorsed candidates. Corporate proxy mailings and newsletters feature the board- endorsed candidates and only they get to travel at corporate expense to meet and speak to shareholders at meetings in and outside of Alaska. CIRI pays the costs for these meetings including free lunches, and the corporation does all the work necessary to get the board- endorsed candidates elected. CIRI even hired Dittman Research Corporation to provide consulting services related to the annual meeting and election of directors. An independent candidate pays his own campaign expenses and does his own work. It will cost up to $40-50,000 for a successful campaign by group of independent candidates, and if an independent candidate is elected his costs of election are not reimbursed. Holding annual meetings out of Alaska increases the costs for election of independent candidates. Anchorage, Alaska, is the city where the largest segment of CIRI shareholders reside or it accessible to most 30 of CIRI shareholders. CIRI has moved the annual meetings originally held in Anchorage to Kenai, Alaska, and Washington State. The annual meetings are now rotated every three years to these cities. CIRI also changed the dates of annual meetings from April to June. When CIRI was first formed CIRI most of our shareholders worked summer jobs and their subsistence activities were done in the summer months so we had our annual meetings in April so more shareholders would be able to attend. Square Pegs in Round Holes, by Douglas Branson 61 included: "Each Native received 100 shares in a regional corporation. Hence, the share distribution is wide and even. Since the shares are inalienable until 1991 no shareholder can aggregate a block of voting shares in one or several hands. The existence of such concentration in share ownership acts as a countervailing force, or check, upon incumbent management. Directors know that if their stewardship does not measure up there is at least a likely starting point for a campaign to unseat them. Since ownership is diffused, no such countervailing force exists in Native corporations. Moreover, distance and lack of adequate communications between shareholder groups that do form makes it unlikely they will be able to blend together or act as an effective check on regional corporation management. Telephone communications often do not exist. Airfare between many points in Alaska exceeds the fare between Alaska and western states. Language barriers exist between shareholders in the same regional corporation. Where adequate communications do exist, there is still a question of shareholders ability to organize on a regional basis. Many Native shareholders cannot read. Even if they can read, they consider the spoken rather than the written word more worthy of consideration and response. Many Natives lack the experience or sophistication to understand or evaluate an insurgent shareholder group's critique of management. " "All these factors: wide dispersal of shareholdings, lack of communications, and lack of shareholder sophistication, indicate that the usual pattern of corporate checks and balances does not exist and that in Native regional corporations abnormal, entrenched management is likely. Incompatible Goals in Unconventional Organizations: The Politics of Alaska Native Corporations by Gary C. Anders and Kathleen Anders 62 wrote the following statements in their study: 1) As established, Native corporations leave important decision-making power in the hands of a few corporate leaders. 2) Because of the elite positions of Native corporate executives and the lack of sophistication of shareholders, symbolic manipulation of shareholder concerns had become an important management tool. 3) Native organizations in Alaska can accurately be characterized as heavily political. 4) Over time, prominent Native leaders who had spearheaded the land claims settlement negotiations were replaced by extremely astute politicians who officially or unofficially moved into corporate hierarchy after ANCSA was passed. 61U.C.L.A. Law Review, Vol., No. 2, spring 1979. University Puget Sound, University Notre Dame. 621987, Gary C. Andrews, Associate Professor, University of Alaska, Juneau, and Kathleen Anders, visiting instructor University of Alaska, Juneau. 31 5) All too often some Native businesses hide information, blame others, and rely upon personal relationships to affect corporate decision-making. 6) Eventually, a few Native leaders banded together to establish a working concept of their core mission, but often this consuming effort did not reconcile the inconsistency between maximization of shareholder wealth and traditional Native values of sharing and cooperation. Subsequent manipulation of shareholders in several cases creates an atmosphere of distrust and confrontation. 7) The corporate decision-making processes must balance shareholder concerns with important long-term goals. Shareholders Sued by Corporations Whenever a shareholder group attempts to run candidates against the CIRI Board- endorsed candidates or attempts to present a resolution, CIRI brings false and misleading charges against them at the State Banking, Securities and Corporations, or files a lawsuit against them. In 1997 CIRI filed a lawsuit against independent candidate Harold Rudolph and independent elected director Robert Rude. Over six years after the lawsuit was filed by CIRI, claiming our proxy solicitations were false and misleading, the lawsuit was settled. The lawsuit cost CIRI $2,098,951. CIRI quit pulling legal bills at this figure. Included in the settlement was $50,000 to Rude/Rudolph. They accepted the $50,000 settlement on the basis that there would be fair elections where all candidates were treated equal. Those fair elections still are not available at CIRI. Their costs to respond to CIRI's lawsuit were in excess of appropriately $400,000. In 2008 CIRI again sued the non-profit corporation the New Alliance but only the four New Alliance candidates running against the board-endorsed candidates were sued. The lawsuit is continuing as of January 2010, but out of nine New Alliance members that solicited proxies and were proxy holders only Robert Rude is still being sued by CIRI. The CIRI Board majority approved a motion to give the Executive Committee authority to take Administrative or legal action on the New Alliance proxies claiming they were false and misleading. Of the 8 person committee only one member of the New Alliance was on the Executive Committee. Five the committee members voted to sue the New Alliance on June 2, 2008, four of them voting to sue were candidates endorsed by the board majority. When the one member of the New Alliance who was wealthy threatened to do legal battle with CIRI the Executive Committee meet June 4, 2008 and voted to sue just the four New Alliance candidates. Of the four candidates sued only Robert Rude is remaining in the lawsuit. The others accepted an agreement to accept a settlement that they agree their proxies were false and misleading CIRI would not go after legal fees for the group. The cost of the lawsuits against shareholders has not been disclosed to CIRI shareholders. Although, one-third of the CIRI Board requested that CIRI provide shareholders with a breakdown of annual meeting costs and the cost of lawsuits against shareholders who run against the board-endorsed candidates. 32 On December 30, 2009 and January 4, 2010 CIRI served Mr. Rudolph and Mr. Rude with a new lawsuit in federal court charging us with violating CIRI's confidentiality agreement 63 and that we made false statements in three mailings to shareholders in which we sent them a petition to call a special meeting to vote on 6 advisory resolutions and a resolution to lift stock restrictions. CIRI is attempting to void the shareholder signatures for the petition to call a special meeting to vote on six advisory resolutions. The amendments found in P.L. 100-241 makes it more difficult for shareholders to call a special meeting to vote on lifting stock restrictions. State law requires 10% of shares but the ANCSA amendments obtained by corporate managements increased the amount to 25% of the shares. Confidentiality Agreements Native corporations such as CIRI, require directors and employees to sign confidentiality agreements. Even after Mr. Rude and Mr. Rudolph signed an agreement, they received an email from CIRI's chairman which stated: "All information, papers, and materials provided by CIRI are considered "confidential, even if they are not specifically marked as such. This includes e- mail sent through the CIRI system. Such confidential information is for the use of CIRI, its board, and comes under the confidentiality agreement which we all signed. This policy has not changed, and we will not begin to mark 'confidential' on any documents whether they be hard copy or electronic." Confidentiality agreements muffle directors. There are needs to keep some issues confidential but shareholders have a right to know what is going on in their corporations. Misuse of Corporate Assets CIRI has used corporate aircraft for use of directors in the majority and senior managers. They had access to a number of private corporate jets that flew them and their guests around Alaska and the other 49 states. In the CIRI/Nabors lawsuit against John Ellsworth (PDI) it came out that CIRI people had use of numerous corporate jets and also utilized them to fly politicians around the state and to other destinations. In addition to the corporate jets they had use of three other aircraft for entertaining at Golden Horn Lodge. The audited cost for entertaining at the lodge was $2,432,948 for use of the lodge from 2000 to 2004. The costs included lease payments, guided fishing trips, boat and watercraft rentals, food, Liquor (approximately $49,687), and various other entertainment expenses. The cost of the corporate jets were in the tens of millions of dollars. The Nabors Drilling Company chief when on the stand said neither he or his staff used the corporate jets nor did they use Golden Horn Lodge and he expected CIRI to reimburse his company for the expenses that were charged to Nabors. He informed CIRI he wanted reimbursement of $4.5 million for Carl's jets and $600,000 for Golden Horn Lodge expenses that were billed Nabors Drilling. 63In the 3 mailings to shareholders we exposed material information that was withheld from shareholders for many years. By doing so, we were charged with violating a confidentiality agreement and making false and misleading statements. The statements we made were derived from CIRI records and CIRI misrepresented to get us to sign a confidentiality agreement in 2000. 33 CIRI's and Nabors auditor said that the Golden Horn Lodge expenses were an improper business expense. The IRS agreed and denied AIC business expense deductions of $557,966 as improper business deduction. Donations CIRI has donated over $58,000,000 of shareholder monies without the approval of its shareholders. In the 1990s CIRI presented a resolution to shareholders giving them an opportunity to vote on a $5 million donation to the CIRI Foundation. The shareholders rejected the resolution. In a Nov/Dec. 2003 CIRI newsletter CIRI's CEO mentioned that CIRI was able to provide the CIRI Foundation and many other needy charities throughout the state over $52 million. Shareholders were not allowed to vote on the donations and they did not know which entities got their shareholder moneys. From December 31, 2000 to June 30, 2002 CIRI donated $28,727,000 to the CIRI Foundation, and for that period donated $29,819.840 to Native non-profit organizations and donated $2,917,940 to other non-profit organizations. Total donations for the period was $32,737,786. CIRI shareholders were not given an opportunity to vote on these massive donations and they were not informed who received the shareholder funds. CIRI paid lobbyists over $5.4 million from 1996 through 2007. Shareholders were not told the amounts or who were paid these millions of dollars. They also were not informed as to what the individuals were lobbying for. Shareholders were not informed that CIRI made political donations of approximately $551,000 from 1996 through 2003. CIRI paid $227,000 for a political redistricting lawsuit. Shareholders were not informed that CIRI spent over $2,098,851 suing Mr. Rude and Mr. Rudolph in a lawsuit that lasted 6 ½ years and they are spending more suing us again in 2008 and 2010. We are being sued in State court and Federal Court. Although, most shareholders cannot understand CIRI's financial statement, CIRI reported that the Company lost $62,297,073 in private equities and investment securities in 2009. They did not inform shareholders that the CIRI Foundation lost $15.1 million and the CIRI Elder's Trust lost $3.6 million. These entities were funded with funds donated by CIRI. CIRI did not inform shareholders that the CIRI lent a Casino operator leasing space in the Hyatt Hotel at Lake Las Vegas $2.5 million and the casino operator did not pay back the loan. CIRI was one of three investors in the Hyatt and none of them participated in the loan and to top it off, CIRI had their own casino across the lake that lost tens of millions of dollars. CIRI was partners with Enron in Cook Inlet Energy Supply and owned 55% of the partnership with Enron Minority Development and Houston Natural Gas owned the other 45%. Using its minority status the company built up a business dealing in energy market. The company business operations were not disclosed to CIRI shareholders. In the mid-1990s CIRI transferred 10% of its ownership to a young CIRI shareholder as a form of compensating him as 34 chief executive, and Enron signed an employment agreement with the person for $110,000 per month. In January 1998 the partnership landed a government contract to deliver 200 billion cu. ft. of gas to Mexico. In May 1998, CIRI Finance and Investment Committee voted to sell CIRI's interest in CIES for $1.75 million to our partners Enron Minority Corp., Houston Natural Gas and Inupiat Energy. As a director I was not on the Fin/Inv. Committee and did not learn of the sale until months later. I requested a copy of an appraisal of CIES but did not get one. I did research on CIES and found a memo from CIRI's in-house attorney and the chief executive of CIES which stated a conservative value of CIES would be 6 to 8 times cash flow and sometimes up to 14%. The cash flows for CIES in 1997 were $10,317,367 and for 1996 were $5,486,304. Articles and New Releases on CIES and web-site said the company had grown into the nation's largest minority owned energy business with 1998 sales of roughly $1.2 billion and the company marketed over 3.0 billion cubic feet of natural gas per day. Several months later Enron's subsidiaries sold their interests in CIES for $7.75 million. Then in May 2000, CIES sold 49% of ownership to Harvard Private Capital Holdings Company and its CEO retained 51% of the company. The sale and business transactions of CIES were not reported to CIRI shareholders. In order to determine a fair sales price CIRI should have demanded an appraisal of the company before selling. This is a very questionable transaction. Original CIRI shareholders are passing away and stockholdings are diminishing. Over 28% of CIRI original stockholders have died and more than 960 shareholders own 10 or less shares. In addition, more than 470 shareholders own non-voting shares. As more and more of our original shareholders pass away CIRI shares will become smaller and smaller and owning 10 shares will not provide worthwhile dividends. At the same time stockholdings are diminishing, CIRI's lands and natural resources are diminishing. This will eventually be cause for lifting stock restrictions. Alaska Native stockholders need: 1) Their rights and privileges restored as originally included in ANCSA; 2) Their rights of participation restored; 3) Oversight and protections of federal and state securities laws restored; 4) Their stockholder rights restored; and they need the same rights and privileges as any other citizen and stockholder in America. Additional information and documents on any of the issues presented here will be provided by request. If you wish to contact me you can do so at: Robert W. Rude Email: firstname.lastname@example.com 14940 Woodland Ave. Phone: 907-696-3429 Eagle River, Ak. 99577 Fax: 907-696-3429 35
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