13th Regional Corp. lays out its difficulties

FINANCIAL SINKHOLES: Board will work with creditors to repay debts.

December 3, 2008 

The directors of a struggling Alaska Native corporation this week announced their plans to bring the company back from financial disaster.

The 13th Regional Corp., based in a Seattle suburb, has about 5,500 Native shareholders, some of whom live in Alaska and the others, Outside. Unlike other Native corporations, the 13th doesn't own any land in Alaska and it doesn't receive cash from resource development on other Native corporation lands.

The 13th -- created for Natives who had left Alaska -- received roughly $54 million out of the $963 million distributed to settle Native claims to most of the land in Alaska. But in recent years, the company's profit-making ventures have fizzled. This year, the 13th failed to submit its required financial reports or hold an annual meeting, causing alarm among shareholders.

This week, the 13th finally spoke out about its troubles.

Its five directors posted an unsigned, undated six-page letter on the company's Web site. In the letter, the directors said they no longer are being paid and claimed they are not responsible for the company's ills, although some of them have been on the board for at least several years. They also laid out some of the company's failures as well as their strategy to turn the 13th around.

The company's woes have included:

• A questionable investment in a western Alaska seafood company, called Alaska Catch, that resulted in millions of dollars of debt and costly litigation. In 2006, the expensive legal fight over whether the 13th was liable for the seafood company's debt nearly forced the 13th to shut down, the directors said. Settling the case was the "only solution" but "severely limited" the corporation's ability to maintain its other businesses, the directors said.

• The failure of the 13th's construction subsidiary, which the directors blamed on "aggressive" prime contractors who didn't reimburse the 13th in a timely manner.

• Poorly designed contracts with business partners that resulted in inadequate reimbursement of the 13th's business expenses.

Among the 13th's plans for digging itself out of its hole:

• Working with creditors to repay the 13th's remaining debts.

• Finding new business partnerships using the federal government's contracting program for small and disadvantaged minority-owned firms.

• Continuing the 13th's decades-long lobbying of federal officials to obtain Alaska land for development. So far the 13th has spent over $1 million on that effort, the directors said.

The directors also said that they will preserve shareholder records by turning them over to the 13th Heritage Foundation, a nonprofit set up by a previous board that mainly provides scholarships to shareholders and their descendants.

ASKING QUESTIONS

Several shareholder activists said this week that they were concerned about the directors' plans for the shareholder records. The nonprofit has been run out of the same office as the 13th, located in an office park in Tukwila, Wash., they said. They said the letter didn't specify whether the directors plan to use the nonprofit's assets for corporate expenses.

"The question is, can this (nonprofit) be the vehicle to do the recovery work for the corporation?" said Eric Chiappinelli, an expert in Washington state corporate law and dean of the Creighton University School of Law in Nebraska.

He said if the 13th was planning to use money that had been donated to the nonprofit, it would have to first ensure that using the money didn't violate the donors' intent.

A spokesman for the 13th's board, director Mike Rawley, did not return a call for comment on Wednesday.

Chiappinelli said the 13th's goals look reasonable. Whether the directors have the will or the resources to fix the company's problems is "another question," he said.

In 2006, the last year the company reported its financials, its revenue fell to $9 million and its losses dropped to $2.5 million. Several shareholder activists said they think the corporation needs to focus on getting its finances in order, file its annual reports and stop putting so much effort into its attempt to obtain land in Alaska. In the past few years, a couple of bills to help the 13th gain land have expired without Congress taking action.

"Lands are beside the point. ... They are required by law to have an annual (shareholder) meeting. It's been more than two years," said 13th shareholder Debbie Kellogg, of Shoreline, Wash.


Find Elizabeth Bluemink online at adn.com/contact/ebluemink or call 257-4317.

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