2024 Proxy Ballot Measures
Establishing an Aleut Settlement Trust and Removing the Debt Ceiling
2024 Proxy Ballot Measures
This year’s annual meeting is pivotal for Aleut shareholders, with two new measures up for a vote:
The Aleut Board of Directors has approved resolutions to establish an Aleut Settlement Trust and remove the debt ceiling, reflecting the Corporation’s growth and forward momentum. With several ANC counterparts already benefiting from settlement trusts, and no other regional ANC having a debt ceiling, these measures are crucial for Aleut’s continued success.
Settlement Trust
Establishment of an ANCSA Settlement Trust
At this year’s Annual Meeting of Shareholders, Aleut’s Board of Directors is placing a vote before the shareholders on the establishment of an Alaska Native Claims Settlement Act (“ANCSA”) Settlement Trust. A Settlement Trust is a separate legal entity that can provide various benefits to its beneficiaries, such as cash distributions, elder benefits, cultural programs, and community programs. Generally speaking, cash distributions are tax free to the Settlement Trust’s beneficiaries. In recent years, a number of our sister Alaska Native corporations have established Settlement Trusts as a means to provide benefits.
At the May 17-18, 2024, meeting of the Aleut Board of Directors, the Board unanimously adopted a resolution to establish an ANCSA settlement trust (“Aleut Settlement Trust”), subject to approval by the shareholders. A majority of the shares represented in person or by proxy at the Annual Meeting must approve the Resolution of the Shareholders of The Aleut Corporation to Establish an ANCSA Settlement Trust in order for the Settlement Trust to be established. This Resolution appears on the proxy card as Shareholder Resolution 2024-01.
The Board of Directors recommends that shareholders vote YES on Shareholder Resolution 2024-01 to approve the creation of the Aleut Settlement Trust.
General Information
An ANCSA Settlement Trust is a trust organized and existing under Alaska state law. This trust is a legally separate entity from the Alaska Native corporation that establishes the trust. A Settlement Trust is governed by a trust agreement and is managed by its trustees. Trustees are responsible for administering the property of the trust for the benefit of the trust’s beneficiaries and in accordance with the trust agreement. Because settlement trusts are a legally separate entity from the Alaska Native corporation that establishes them, settlement trusts are responsible for filing their own income tax returns, reporting to their beneficiaries, investing their assets, paying their expenses, and making distributions to their beneficiaries.
Background
As set forth in the 1987 amendments to ANCSA, Alaska Native corporations can establish one or more ANCSA Settlement Trusts, through which benefits (monetary or otherwise) can be provided to beneficiaries. In 2017, the Tax Cuts and Job Act changed certain aspects of federal tax law and provided significant advantages to ANCSA Settlement Trusts, including but not limited to the possibility of tax free distributions to beneficiaries, tax deductions for the Alaska Native corporation for assets contributed to the trust, the trust’s ability to defer recognition of certain income (in some cases indefinitely), and preferential tax rates on investments held by the trust.
Because of these tax benefits, other Alaska Native corporations have formed a Settlement Trust in recent years, including many of our counterparts and some Aleut village corporations.
Funding the Aleut Settlement Trust
Upon shareholder approval of the establishment of the Aleut Settlement Trust, Aleut will form the Aleut Settlement Trust in the State of Alaska. The Board of Directors will have discretion to determine the amount, timing, and nature of property to contribute to the Aleut Settlement Trust. Aleut’s Board of Directors can contribute cash, investment securities, and land to the Aleut Settlement Trust, with the exception of subsurface estate of land, which may not be conveyed to a settlement trust. Aleut’s Board of Directors is not required to obtain shareholder approval for any contributions to the Aleut Settlement Trust, unless a proposed contribution includes “all or substantially all” of the assets of Aleut. In that circumstance, shareholders must approve any such transfers to be effective.
Aleut’s Board of Directors Recommendation and Position
Aleut’s Board of Directors supports this Resolution and is asking shareholders to approve creating the Aleut Settlement Trust. Aleut’s Board of Directors recommends voting YES on the Shareholder Resolution.
Settlement Trust Overview
What is a Settlement Trust?
A settlement trust is a legal entity designed to manage and safeguard assets for beneficiaries, providing financial, educational, cultural, or health-related benefits. For Aleut, the beneficiaries would be shareholders and registered descendants.
Benefits of Establishing a Settlement Trust
The Aleut Board and Management advocate for the Settlement Trust due to its numerous benefits:
- Tax Advantages: Distributions from the trust to shareholders are generally not taxable. Contributions by the corporation are tax-deductible, reducing overall taxable income.
- Asset Protection: Trust assets are shielded from corporate creditors.
- Long-term Stability: Ensures financial stability for future generations.
- Increased Growth: Favorable tax treatment can lead to enhanced asset growth.
How to Vote
- Vote YES: Support establishing the Aleut Settlement Trust. Cast your vote on the proxy ballot this year, either online or by mail. Early-bird voting opens in early September.
- Majority Needed: The resolution requires a majority of YES shares represented in person or by proxy. If no box is checked but the proxy is signed and dated, it counts as a YES vote.
Trustee Information
Aleut’s nine Board of Directors will serve as Trustees without compensation, ensuring dedicated oversight of the Settlement Trust.
Consequences of a NO Vote
If the measure does not pass, the Aleut Settlement Trust will not be established, and shareholders will miss out on the significant benefits it offers.
Removing the Debt Ceiling
Removing the Debt Ceiling by Amending Aleut’s Articles of Incorporation
At this year’s Annual Meeting of Shareholders, Aleut’s Board of Directors is placing a vote before shareholders on whether to remove the debt ceiling by amending the Articles of Incorporation (as Amended and Restated).
Aleut is the only Alaska Native regional corporation with this type of a debt ceiling written into its current Articles of Incorporation (AOI). This debt ceiling is not required by the Alaska Native corporations Code. It is prohibitive, limits the Corporation’s future growth and opportunities, and does not keep pace with inflation.
At the May 17-18, 2024 meeting, Aleut’s Board of Directors unanimously adopted a resolution to amend Aleut’s AOI to delete Article VI in its entirety to remove the debt ceiling. A majority of the outstanding shares of Aleut must approve the proposed Amendment to the AOI in order for it to take effect. This proposal appears on the proxy card as Shareholder Resolution 2024-02.
The Board of Directors recommends that shareholders vote YES on Shareholder Resolution 2024-02 to remove the debt ceiling by amending Aleut’s Articles of Incorporation.
Background
A debt ceiling is an established limit on the maximum amount of debt a corporation can legally owe. The language from Article VI in Aleut’s original AOI, drafted in 1972, states: “The highest amount of indebtedness or liability for which this corporation shall at any time be subject is Fifty Million Dollars ($50,000,000.00).” The Aleut Corporation is the only Alaska Native regional corporation that has this type of permanent debt ceiling. This debt ceiling does not provide for increases with inflation or the current economic climate. It restricts Aleut’s future growth by constraining the corporation’s ability to finance operations and operations acquisitions. Shareholder Resolution 2024-02 seeks to remove the debt ceiling so that the Corporation may operate similar to other Alaska Native regional corporations.
The debt ceiling does not control how decisions are made regarding investment or acquisitions. There are several established mechanisms and safeguards in place to govern how the Corporation spends money.
Why Remove the Debt Ceiling
- The Corporation has the same authority and discretion as other regional corporations organized under the Alaska Native Claims Settlement Act, 43 U.S.C. 1601 et seq., as amended, to incur debt without any limit on the amount or ratio.
- Greater capacity and flexibility to obtain, increase, or modify finance arrangements and credit facilities for growth opportunities such as acquisitions, expansions, or diversifications of the Corporation’s operations or assets.
- The Corporation has the ability and prerogative to adjust its debt level according to changing economic circumstances or opportunities.
Aleut’s Board of Directors Recommendation and Position
The Board of Directors recommends that shareholders vote YES on Shareholder Resolution 2024-02 to remove the debt ceiling by amending Aleut’s Articles of Incorporation.
Removing the Debt Ceiling Overview
What is a Debt Ceiling?
A debt ceiling is a cap set on the maximum amount of debt a corporation can legally owe, similar to a credit limit for a company. It determines how much money the company can borrow.
Why Remove the Debt Ceiling?
- Growth and Flexibility: Aleut is growing, and to support disciplined and balanced growth, we need to remove our overly restrictive debt ceiling. The original debt ceiling was set when Aleut was much smaller and during different economic conditions. It’s now hindering our ability to grow.
- Alignment with Other ANCs: No other regional Alaska Native corporation has a debt ceiling restricting their business operations. Aleut’s Articles of incorporation is not the appropriate vehicle for managing debt. Removing this ceiling will align Aleut with how other ANCs operate.
- Greater Financial Flexibility: As Aleut expands, we need access to more capital to invest in new acquisitions, expand operations, or enter new markets. Removing the debt ceiling provides the flexibility to secure additional financing as needed.
- Adaptation to Economic Conditions: Economic conditions and market opportunities change. Removing a fixed debt limit allows Aleut to adapt dynamically to financial needs and long-term growth strategies. Recent global upheavals like COVID-19 have shown the importance of financial adaptability.
Is This Risky?
Removing the debt ceiling does not mean Aleut will take on unwise amounts of debt. Several safeguards will remain in place to ensure financial health and stability:
- Board Oversight: The Board of Directors oversees and approves the Corporation’s process and any decisions related to borrowing and debt management.
- Debt Covenants or Lender Restrictions: Banks will only loan up to a certain amount based on Aleut’s financial health, including asset value, earnings, and cash flow.
- Regular Financial Audits: Annual external audits ensure adherence to sound financial practices, identify risks associated with debt levels, and assess compliance with financial policies and covenants.
- Internal Policies and Risk Management: Aleut’s risk management assessments evaluate the level of risk associated with incurring debt, allowing for informed decisions about leveraging opportunities versus potential financial risks.
Vote Yes
- A YES vote supports removing Aleut’s debt ceiling.
- This resolution must receive a majority of the outstanding shares of Aleut.
- If a shareholder’s proxy is signed and dated but no boxes are checked, the shares will be voted and counted as a YES vote in favor of removing Aleut’s debt ceiling.
Frequently Asked Questions
Settlement Trust & Debt Ceiling
The concern is that the Articles of Incorporation is the wrong vehicle to determine the appropriate debt ceiling, and no other regional Alaska Native corporation manages their debt in this manner. There are other means to manage debt to ensure the Corporation remains in a healthy balance with our revenue.
No, the Aleut Settlement Trust will be a legal trust formed and organized in the State of Alaska under Alaska law, and will be a separate legal entity from Aleut. It will file its own taxes, maintain its own books and records and maintain its own bank accounts.
Yes, over the past several years, multiple Alaska Native corporations, including Alaska Native Village Corporations in the Aleut Region have established settlement trusts.
No, this will be Aleut’s first and sole settlement trust.
The Aleut Settlement Trust will be governed by a Trust Agreement. A copy of the proposed Trust Agreement accompanies the 2024 Aleut Proxy Statement.
The Aleut Settlement Trust will be governed by Trustees because it is a trust under Alaska law.
There will be nine (9) Trustees of Aleut’s Board of Directors who will serve as the Trustees of Aleut’s Settlement Trust. If a person is elected to Aleut’s Board of Directors, that person automatically becomes a Trustee of Aleut’s Settlement Trust. Pursuant to ANCSA, Aleut’s Board of Directors is the only body with the authority to appoint Trustees. Shareholders do not vote on who serves as a Trustee of Aleut’s Settlement Trust. Aleut’s Board of Directors retains exclusive authority to appoint and remove trustees, for cause, of the Aleut Settlement Trust.
The Trustees of the Aleut Settlement Trust manage and operate the Aleut Settlement Trust. They will make independent decisions regarding the management of the Aleut Settlement Trust. As Trustees, they will owe a fiduciary duty to the beneficiaries of the Aleut Settlement Trust and must act in good faith, as a prudent person would, using reasonable care, skills, and caution in the best interests of the beneficiaries of any fund created by Aleut’s Settlement Trust. When investing any Aleut Settlement Trust assets, Trustees are required to invest the assets as a prudent investor would. Aleut may provide administrative services to the Aleut Settlement Trust, and the Trustees can hire accountants, advisors, attorneys, financial consultants, managers, and agents as necessary. The Trustees of the Aleut Settlement Trust will maintain ultimate control over the Aleut Settlement Trust and the basic fiduciary responsibility for overseeing the Aleut Settlement Trust.
No Trustee of the Aleut Settlement Trust shall be paid compensation for services as a Trustee.
The eligible beneficiaries of Aleut’s Settlement Trust would be the shareholders of Aleut. If a person acquires one or more shares of Aleut stock after the establishment of the Aleut Settlement Trust, that person then automatically becomes a beneficiary of the Aleut Settlement Trust. If a person who owns one or more shares of Aleut stock transfers, by gift, all of that person’s shares, then that person will automatically no longer be a beneficiary of the Aleut Settlement Trust.
The Trustees will decide what benefits will be administered by the Aleut Settlement Trust. The Aleut Settlement Trust permits the Trustees, in their absolute discretion, to pay any income and principal of the Aleut Settlement Trust to the beneficiaries of the Aleut Settlement Trust, either per capita (equally among the beneficiaries, regardless of the number of shares of stock in Aleut they own) or pro rata (according to the number of Aleut shares owned). The Trust Agreement also authorizes the Trustees to adopt other programs that are consistent with the Aleut Settlement Trust’s purpose of promoting health, education and welfare of the beneficiaries and preserving the heritage and culture of Alaska Native people – including defining the programs’ purposes and beneficiaries and to modify or terminate benefit programs.
There is no necessary action; Aleut shareholders automatically become beneficiaries of the Aleut Settlement Trust.
Yes, when Aleut shares are transferred or issued (for example through stock gifting or inheritance, or through issuance of new shares to Descendants), the transferred or issued stock will automatically include interest in the Aleut Settlement Trust.
Aleut will create the Aleut Settlement Trust and will contribute assets to it. If the Aleut Settlement Trust is approved by shareholders, Aleut’s Board of Directors will have the discretion to determine the amount, timing, and nature of any additional contribution to the Aleut Settlement Trust. Aleut’s Board of Directors will not have to obtain the approval of Aleut’s shareholders for any additional contribution to the Aleut Settlement Trust, unless the proposed contribution is of “all or substantially all” of the assets of Aleut. In that case, Aleut shareholders would have to approve transfer of those assets in order for the transfer to be effective.
Aleut can contribute cash, stocks, land, and any other assets of Aleut to Aleut’s Settlement Trust, except that Aleut cannot contribute any subsurface estate of land to the Aleut Settlement Trust. Alaska state law also prohibits Aleut from transferring assets to the Aleut Settlement Trust that violate the fiduciary duties of Aleut’s Board of Directors such as a transfer of assets to the Aleut Settlement Trust that would render Aleut insolvent or unable to pay its debts. Aleut cannot contribute all, or substantially all, of its assets to the Aleut Settlement Trust without the approval of shareholders. Contributions of less than all, or substantially all, of Aleut’s assets to the Aleut Settlement Trust do not require shareholder approval.
The Aleut Settlement Trust could last in perpetuity but is authorized to be terminated by the Trustees if the value of the Aleut Settlement Trust is less than $50,000.
The Trustees will decide what other benefits, if any, will be provided by the Aleut Settlement Trust. The Trust Agreement permits the Trustees, in their absolute discretion, to pay any income and principal of the Aleut Settlement Trust to the beneficiaries of the Aleut Settlement Trust, either per capita (equally among the beneficiaries, regardless of the number of shares of stock in Aleut that they own) or pro rata (according to the number of Aleut shares owned). The Trustees may also adopt other programs that are consistent with the Aleut Settlement Trust’s purpose of promoting health, education, and welfare of the beneficiaries and preserving the heritage and culture of Alaska Native people (including defining the programs’ purposes and beneficiaries) and to modify or terminate benefit programs. There is no requirement that the Aleut Settlement Trust distribute a specific amount in any one year, nor any limit (except as imposed by the amount of assets available to the Aleut Settlement Trust) on the amount that the Aleut Settlement Trust may distribute.
Contributions to the Aleut Settlement Trust are tax deductible for Aleut and taxable to the Aleut Settlement Trust. The Aleut Settlement Trust will be taxed at a very favorable rate of 10% on ordinary income such as interest income, and zero percent on capital gains and dividends. By contrast, Alaska Native corporations are normally taxed at 21% unless they have the ability to offset their taxable income. This alone produces a significant tax savings on income earned by a settlement trust versus income earned by Aleut.
Under present law, distributions by the Aleut Settlement Trust are not anticipated to be taxable to the beneficiaries and would not have to be reported on their individual tax returns. By contrast, current dividends and other distributions and benefits paid by Aleut are normally taxable to Aleut shareholders.
Shareholders will not be able to sell their interest in the Aleut Settlement Trust. A shareholder may only transfer his or her interest in the Aleut Settlement Trust by transferring his or her Aleut shares as permitted by ANCSA. For example, once shares are gifted to or inherited by someone, the recipient would become an Aleut shareholder and a new Aleut Settlement Trust beneficiary. If a shareholder gives away all of his or her Aleut shares, he or she will cease to be an Aleut shareholder and will also cease to be an Aleut Settlement Trust beneficiary.
Yes, one of the benefits that the Settlement Trust can provide is in the form of distributions to the beneficiaries of the Aleut Settlement Trust, who are also shareholders of Aleut. While dividends paid by Aleut are generally taxable to its shareholders, distributions by the Aleut Settlement Trust will not be taxable in most circumstances. The Trustees will decide the timing and amount of any distribution.
A shareholders’ interest in the Aleut Settlement Trust and distributions from the Aleut Settlement Trust are subject to creditor action (including, without limitation, levy attachment, pledge, lien, judgement execution, assignment, and the insolvency and bankruptcy laws) only to the extent that Settlement Common Stock and the distributions thereon are subject to such creditor action under Section 1606(h) of ANCSA.
Except in limited circumstances, the Aleut Settlement Trust will only be liable for its own debts and not be liable for the debts of Aleut. Debts and obligations of Aleut that arise after an asset is conveyed to the Aleut Settlement Trust cannot be recovered from the Aleut Settlement Trust. Moreover, if Aleut conveys land to the Aleut Settlement Trust that was conveyed to Aleut pursuant to ANCSA, that land retains the same protections it would have if it were continued to be owned by Aleut, so long as the land is not developed, leased, or sold to third parties.
ANCSA is clear that a beneficiary’s interest in a settlement trust is not to be counted in determining eligibility, but it’s unclear whether cash distributions from a settlement trust can be excluded in the same way that the first $2,000 of cash distributions from an Alaska Native corporation are excluded.
No, Aleut is obligated by law to make 7(j) payments to at-large shareholders and Village Corporations from the funds it receives.
The Aleut Settlement Trust will be a trust governed by and subject to Alaska’s laws governing trusts. ANCSA also sets certain limitations on the management, operations, and authorities of settlement trusts. For example, settlement trusts are prohibited from:
- Operating as a business;
- Alienating land or any interest in land received from the Alaska Native corporation (except if the recipient of the land is the settlor corporation or the land is conveyed for a homesite by the trust to a beneficiary of the trust who is also a legal resident under Alaska law of the Native Village of the settlor corporation and the conveyance does not exceed 1.5 acres); or
- Discriminating in favor of a group of individuals composed only or principally of employees, officers, or directors of the Alaska Native corporation.
Aleut’s Board of Directors is requesting shareholders vote YES to establish an ANCSA Settlement Trust.
The Aleut Settlement Trust will not be established, and Aleut shareholders would not be able to enjoy the benefits, especially the tax benefits, of a settlement trust.