CURRENT. the ALEUTIAN SPECIAL NEWSLETTER. Considering the idea of opening enrollment for descendants of Original TAC shareholders

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1 the ALEUTIAN CURRENT SPECIAL NEWSLETTER Considering the idea of opening enrollment for descendants of Original TAC shareholders May 2011 Dear Shareholders, For some time now, The Aleut Corporation management and Board of Directors have been hearing from shareholders asking about the idea of opening a new enrollment for descendants of Original TAC shareholders. The question is a big one. Currently only Original TAC shareholders, and those they ve gifted or willed shares to, can be TAC shareholders. Some people say that this is fine just the way it should be. While other people say TAC is losing contact with most of our younger generation who cannot vote, and are otherwise disconnected from TAC. The idea of opening enrollment is completely wide open at this time, and your Board of Directors wants to help all shareholders understand what it would mean if we do or do not open enrollment. The Board is currently remaining neutral on this topic and takes it very seriously. They are going to be very thorough on educating shareholders on all aspects of opening enrollment. So, with that in mind, we ve put together this educational newsletter to open the discussion and help answer some of these questions. Please read and study this newsletter and keep it handy for future reference. Talk about this with your family and other shareholders. Discuss some of the questions and consider where you want your corporation to be in the years ahead. There will be more discussion about enrollment in the future. And, as always, we welcome your comments and input. Please return the enclosed postcard with your questions and comments. We value and read every one! Sincerely, Thomas Mack President BACKGROUND: Ownership of Stock in TAC The Alaska Native Claims Settlement Act of 1971 (ANCSA) provided that each Original shareholder in a Native Regional Corporation would receive 100 shares of stock. These shares were to be restricted for 20 years, which meant that they could not be bought or sold during that time. The only way shares could change ownership was through inheritance when an Original shareholder passed on. After 20 years, all Original ownership shares were to become unrestricted, which meant that they would be available for sale to the public. In 1987, Congress passed the 1991 Amendments to extend the restricted status of Alaska Native Corporation stock forever unless shareholders of a particular corporation voted to unrestrict their corporation s stock. At that time, it was also recognized that inheritance was not bringing in many of the children being born in the 1970 s and 1980 s, so the 1991 Amendments provided that shares could be transferred by gifting, which meant an Original shareholder could give some or all of their shares to their children, nieces, nephews, grandchildren and great-grandchildren. The 1991 Amendments also provided that each Native corporation could decide whether it would offer new shares of stock to the descendants of its Original shareholders.

2 PURPOSE: Why are we talking about open enrollment now? This year (2011) marks the 40th anniversary of the 1971 Alaska Native Claims Settlement Act (ANCSA), and the 20th anniversary of the 1991 Amendments to ANCSA. Questions regarding the future of TAC and the other Alaska Native Regional Corporations (ANCs) are coming up more and more often. One of our most frequent questions involves what, if anything, should be done about the increasing number of descendants of Original shareholders who do not have ownership, cannot vote and are disconnected from TAC and our Aleut culture Amendments to ANCSA The 1991 Amendments made most of the features of descendant enrollment optional the choices are up to each Alaska Native Regional Corporation (ANC) to decide which works best for them. It is important that we all understand these decisions that will need to be made if we decide to vote on opening enrollment. Listed below are some of the options: How many shares to give descendants? Corporations may offer up to 100 shares to each new enrollee. There may be some concern that if descendants receive 100 new shares, some of them may have more shares than the Original shareholders since the Original shareholders may have been gifting their shares to their descendants already. Once Original shares have been gifted, they cannot be taken back or re-gifted to someone else. If that turns out to be a major concern, TAC could offer less than 100 shares to each new enrollee. Should the new stock be inheritable or not? New stock may be made inheritable which means it can be passed on to descendants just as Original stock is allowed to be now; or life estate which means that when the new enrollee dies, the stock is retired, or dies too. This option was created to help protect the Original stock forever. Original stock will always be inheritable and giftable as it is now. That will never change. By creating the new stock as life estate, it offers the stock owner a chance to be connected to the corporation, receive dividends, vote in annual meetings and enjoy all the benefits of being a shareholder without a permanent change to the Original stock. Should there be a blood quantum restriction? This is another option provided by the 1991 Amendments. New stock can be made available to descendants who are at least ¼ Alaska Native blood quantum like the Original stock is now; or the new stock can be made available to a direct descendant such as a child, grandchild or great-grandchild as long as the new enrollee has a direct line to an Original shareholder. It would be up to TAC shareholders to decide. Should shareholders of other ANCs be able to apply to TAC? Another important decision will be whether or not to allow shareholders of other ANCs to apply to enroll in TAC. All five of the corporations that are now doing an enrollment do not allow descendant enrollment for those who belong to another ANC. When should new enrollees receive their shares of TAC stock? Some restrictions may be applied to when new enrollees receive their stock. For example, one ANC allows a new enrollee to receive their shares once they turn 18 IF they have graduated from high school; otherwise, they must wait until they are 21. Another ANC gives 30 shares immediately upon enrollment and the remaining 70 of their 100 total when the enrollee turns 18. (They do this to reduce the impact of dilution see page 5 for a clear discussion regarding dilution.) How long should we open enrollment? We have the option of opening enrollment indefinitely which means we would continue enrolling descendants as they are born forever, or until such time that the shareholders vote to close it. Or, we could establish a number of shares we want to distribute, and when we reach that number we would stop enrollment. Or, another option is to offer enrollment for a specified period of time such as 10 or 20 years. 2

3 QUESTIONS AND CONSIDERATIONS Listed below are some basic questions for your consideration. There is much more to this issue, but these are some ideas to get us started. Please use the comment card to share your thoughts, concerns, ideas and questions. Q. What, if anything, do we know about open enrollment now? A. In the 2010 survey of our shareholders, we asked a question about whether or not to consider offering a descendant enrollment to our descendants. The majority (67%) said they would support opening enrollment. The Board of Directors is listening to TAC shareholders and this newsletter is designed to help us all understand what that might mean. This does not mean it will happen for sure, this important decision can only be made by the shareholders, in a vote. After a period of time to study the issue, the Board will decide whether or not to bring this to a vote on a ballot in the future. Nothing will change now. Q. What will TAC look like in years if we decide to not open enrollment to the descendants of original shareholders? A. It is difficult to say for sure. But so far it appears that the younger generations will have very limited future participation in TAC. The initial plan that future generations would receive Original shares through gifting and inheritance hasn t worked very well. Today, forty years after Original TAC shares were distributed, only 15% of those shares have been passed through to the next generations age 40 and younger. So TAC may continue to be a corporation of older shareholders. Q. What will TAC look like in years if we do decide to open enrollment to the descendants of Original shareholders? A. Again, it is difficult to say for sure. But it will increase the membership of TAC to include the next generations. This will provide our children with a stronger connection to our culture and provide a larger base for future leadership. Q. Reduced to just a few words, what could be some of the possible reasons to not enroll descendants of Original shareholders? A. Dilution of dividends Dilution of voting power Sometimes it s difficult to change Q. Reduced to just a few words, what could be some possible reasons to enroll descendants of Original shareholders? A. Include our children in TAC Connect descendants with our culture Expand shareholder base for future leaders Q. What about other Alaska Native Corporations (ANCs), what are they doing about descendant enrollment? A. Five of the Alaska Native Corporations have voted to enroll their descendants. They are: ASRC, Ahtna, Doyon, NANA, and Sealaska. Q. Why aren t we just leaving it as it is now with inheritance and gifting bringing in the next generation of shareholders? A. With those two ways, it was assumed that descendants would have ample opportunity to become shareholders. However, in TAC we find that 84% of the Original shares are owned by shareholders older than age 40 while only 15% of Original shares are owned by shareholders younger than 40. 3

4 Q. What will opening enrollment mean to my Original shares? A. It will probably mean that your dividends will be reduced by some amount as the profits of TAC continue to grow, your dividends will also continue to grow, but maybe not as fast as they would have without opening enrollment. Q. Would enrollment remain open indefinitely or would it just be for those alive at the time of the enrollment? A. That is up to shareholders. One of the options that would need to be decided by shareholders is whether or not to open enrollment for a specific date or indefinitely. Q. Would descendants need to be at least ¼ Alaska Native blood? A. This is another option that must be decided by TAC shareholders. The 1991 Amendments left these particulars up to each ANC to determine for themselves what is best for them. Of the five ANCs that have opened enrollment, one has opened it to all descendants and the other four require at least ¼ Alaska Native blood quantum. Q. Where would the money come from to pay dividends for these new shares? A. From TAC profits as dividends for Original stock does now. At first, it would mean a reduction in TAC dividend amounts, but as TAC profits continue to grow, so would the dividends. Q. How would this benefit me, an Original shareholder? A. As an Aleut Alaska Native, it will increase the membership of TAC to include the next generations of our people part of our way of sharing and caring for each other. It will also ensure the continued growth of our corporation. 4

5 What is dilution? How does it affect dividends? As far as stock dividends are concerned, dilution is determined by the number of new shares that are added to the number of Original shares. Example: Let s assume a corporation has a total pay-out of $4.00 to distribute in dividends. If there are four shares, each share would receive a dividend of $1.00. $4.00 = $ If one new share is added, there would be five shares, and each share would receive a dividend of $.80. $4.00 = $.80 5 In this example, the difference between a $1.00 dividend and an $.80 dividend is the result of dilution. The overall $4.00 amount distributed to shareholders remains the same. 4 shares X $1.00 = $ shares X $.80 = $4.00 Example: As an example, if TAC had $5,000,000 to distribute to 324,900 shares, each share would have received a $15.39 dividend. A shareholder with 100 shares would have received $1,539. If, after enrolling descendants, TAC had 487,300 shares, each share would have received a $10.26 dividend. A shareholder with 100 shares would have received $1,026. $5,000,000 = $15.39 dividend 100 shares = $1, ,900 $5,000,000 = $10.26 dividend 100 shares = $1, ,300 How many shareholders do we think will be enrolled? That is hard to say. If we look at those ANCs that have been enrolling descendants for awhile, we learn that some have tripled in size while others have added about one-third more shareholders. We can probably assume TAC will be somewhere in between. For this example, let s use a calculation of adding ½ as many shareholders as we currently have. So, if we began in 1971 with 3,249 Original TAC shareholders, and we add ½ of that number for new enrollment (1,624), we would estimate that TAC would have 4,873 shareholders through open enrollment.* *Note: The exact amount of dilution cannot be predicted with 100% accuracy because the number of new shareholders is not precisely known, and because of hypothetical earning projections in future dividend estimates. 5

6 One Aleut Plaza 4000 Old Seward Highway, Suite 300 Anchorage, AK PRSRT STD US Postage PAID Anchorage, AK Permit #69 Important Information! Should TAC Open Enrollment? Your input is important! LOOKING AHEAD: In future newsletters these and other topics will be covered in more detail. Please use the comment card to share your ideas, questions and recommendations.