Some Klukwan, Inc. shareholders seeking election to its board of directors say they’re concerned about repeated transfers from the corporation’s three trusts, including a recent $2 million loan to the Chilkat Indian Village.

The tribe plans to use the money from the corporation’s general income trust to buy the Chilkat Cruises dock and shuttle ferry, owned and formerly operated by Klukwan, Inc.

Election of board members will be held at the village Native corporation’s annual shareholder meeting noon July 31 at the Haines ANB Hall. Four seats on the nine-member board are up for grabs.

“The beneficiaries of the trust are concerned about the loan. Quite a few of us feel it’s in violation of the trust agreement,” said shareholder Rosemarie Hotch, an Anchorage-based real estate investor who is seeking a seat on the board.

“When they established those trusts, they told us, ‘There’s no way Klukwan, Inc. could spend any of that money.’” Hotch said she favors liquidating the trusts. At the least, she’d protect them, she said.

Klukwan, Inc. officials and seated board members this week didn’t return calls or declined to discuss the assertions of shareholders with the Chilkat Valley News.

Hotch and shareholder David Strong Sr., who also is running for a seat on the corporation board, say the corporation’s board of directors, who also serve as trustees, has spent down the trusts in recent years.

The transfers came at a time when the corporation was stuggling to keep its business ventures alive.

The general income trust – established during a restructuring of the company in 1995 – contains about $17.5 million, according to a 2008 financial report. The company set the trust aside as an investment account for making distributions to beneficiaries.

The corporation also holds two other trusts – an education trust for scholarships ($788,214 in 2008) and a trust for reforesting timber-rich Long Island near Ketchikan ($377,500 in 2008), the site of the company’s first big profits in the early 1980s.

Including the $2 million loan to the village, at least $6.5 million has been moved from the trusts to corporation operations since 2006, according to Hotch. “The trusts need to be going back to how they were managed before 2005.”

Hotch provided the CVN with company financial statements from 2007 and 2008 that appear to support her claim. The documents show “numerous transfers” totaling $306,533 from the education trust to the corporation in 2007. The statements, prepared by certified public accountants Mikunda, Cottrell & Co., describe the transfers as “specifically prohibited” under the trust agreement.

The statements also describe $2.4 million in “specifically prohibited” transfers to Klukwan, Inc. and its subsidiaries from the general income trust in 2007-2008, and $765,167 in prohibited transfers from the Long Island Trust to Klukwan, Inc. In addition, the Long Island Trust apparently bought a loan from company subsidiary K-Ply for $795,453 in 2007, according to the statements.

Hotch said beneficiaries didn’t receive the combined financial reports for 2007 and 2008 until after July 15, 2009. The 2008-2009 combined reports came in June 2009, she said.

Fees paid by the trusts back to Klukwan, Inc. for accounting and management services – about $460,000 since 2007 – also have been excessive, Hotch said. She said the education trust distributed $82,460 in scholarships last year but paid the corporation $66,182 for management. “The management contract with Klukwan, Inc. needs to be canceled,” she said.

Hotch also said she believed shareholder distributions in recent years are in violation of trust agreement wording that no distribution be made if the principal in the general income trust dips below $28.6 million, a minimum amount set in 1999.

Hotch said she wanted to protect the general income trust and to see the corporation’s books. “I’m curious to see where Klukwan, Inc. spent that money.”

Explaining the $2 million loan to the tribe in a June 17 letter to shareholders, corporation president Bob Hamilton characterized it as a “good investment” that would prevent foreclosure on the boat and dock which are needed to bring tourists to a village cultural center.

The 7 percent loan is a better return than what Klukwan, Inc. makes on U.S. Treasury bonds, he said. Hamilton cited a section of the general trust agreement he said grants authority for the loan.

Hotch was skeptical such a loan would qualify as an “investment” by rules of the trust. She said the corporation has interpreted the trust agreement to suit its needs over the years. “We were told we couldn’t go into the principal of the (general income trust) at all, and if we did, we had to pay it back. Restrictions on use of the general trust “can’t fluctuate this much,” she said.

The corporation has previously blamed transfers from the trusts on previous corporate CEOs, but Hotch called that a “smokescreen,” saying staff could not have acted alone.

David Strong, in letters to shareholders in April and May, said the corporation “used the trusts as a checking account” on numerous occasions. “There is no guarantee that this will not happen again. For that reason, the trusts need to be liquidated and returned back to the beneficiaries,” Strong wrote.

This week, Strong expressed dismay that the CVN acquired his letters, which he characterized as private correspondence. He said his intent was not to diminish the public’s view of the corporation, but simply to ask questions.

“When I don’t get information, I suggest they give me information so I can understand what they’re doing… I am expecting responses back from the board,” Strong said.

The general trust agreement allows a vote every five years on liquidating the trust. The date for that vote comes up Dec. 9. Such action would require approval by six of nine trustees and a majority of shares.

Current Klukwan, Inc. directors include Les Katzeek, chair, Ralph Strong, Dave Berry, Edward Hotch, Janice Hotch, Chad Strong and John Katzeek. Board members Irene Rowan and Evangeline Willard Hoy recently resigned.

Seats open on the board include those of Rowan and Willard Hoy and Chad Strong and John Katzeek.

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