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ANCSA Shareholders Lose Rights and Protections - The Human


									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.

        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

        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,

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

        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.

       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

        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.

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..

        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).

        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

        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.

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.

        (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.

        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.

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

        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.

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

        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

        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

        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.

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.

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

        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

        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..

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)
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

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.

         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.

        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.

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

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,


        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).

        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

         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.

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

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.

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.

        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

        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.

       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.

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

        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.

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.

   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
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

        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

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

       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

     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.

   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

        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

        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.

        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.

       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.


        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

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

        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:
14940 Woodland Ave.                                        Phone: 907-696-3429
Eagle River, Ak. 99577                                     Fax: 907-696-3429


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