Marvin & Linda Summerfield
"STILWELL - A $550,000 unsecured loan that Cherokee Nation Industires'
President Ross Swimmer made to an investment group from CNO funds and
without CNI board approval is nine months past due.
Swimmer made the loan on Nov. 16, 1993, to Simulation Technologies
Corp., a Delaware corporation.
Collection appears doubtful, according to documents filed in a lawsuit
to recover funds that indicate STC has no money.
If the money isn't repaid by STC or its principals, CNI is obligated
for the funds. CNI posted its first net loss in a decade in 1993
($193,000), audit reports show, Swimmer said the firm made less than
CNI last declared a dividend to the tribe in 1992, but $200,000 of that
STC closed its doors in May 1994. It apparently not only can't repay
CNI but passed out worthless IOUs for back wages due executives in May 1994,
according to a letter Thomas Perkins, an STC vice president of marketing,
wrote to Swimmer.
Five STC principals, one of whom is Perkins, signed personal guarantees
on the CNI lean but haven't paid CNI a dime, Swimmer has confirmed.
The five principals either couldn't be reached for comment or didn't
return phone calls to the Phoenix.
CNI filed a lawsuit in Tulsa County District Court on April 25 against
the five principals to recover the $550,000.
Court records show judgments have been issued against two of the five
STC principals. A judge has granted the other three principals additional
time to file motions as to why judgments shouldn't be issued against them.
Swimmer said he failed to request financial statements from any of the
five principals before he made the loan, although he said they all "were
strangers to me."
In hindsight, he said, he wishes he had sought financial statments.
He also said he made the loan thinking it would ensure a "super deal"
for CNI.
"I was looking to them to repay," Swimmer said. "Those guys had put
together a business but were new and had no track record."
He went on to describe them all as being good people involved in
different industries and with good contacts. They "all had degrees-MBAs or
financial degrees or were software engineers and management-type people,"
Swimmer said.
One principal, Albert C. Zapanta, chairman of the board of STC, is the
executive director of the U.S.-Mexico Chamber of Commerce. Zapanta served
as assistant secretary of the U.S. Department of Interior in 1976. He had a
long career with Atlantic Richfield Co.
A Tulsa district judge has given Zapanta until Tuesday to show why a
judgment shouldn't be issued against him.
Swimmer served as assistant secretary of the Interior in charge of the
Bureau of Indian Affairs in the mid-1980s. He had resigned as principal
chief of the Cherokee Nation to take the appointment by then President
Ronald Reagan.
Swimmer, an attorney, later worked for a Tulsa law firm before quitting
to take the reins of CNI in March 1992. He owns part interest in a Hulbert
bank.
Swimmer said he didn't consult the CNI board before handing $550,000 in
CNI working capital to STC because he deemed it "urgent" STC get a down
payment together to purchase Westinghouse Electric Corp's Nuclear Simulator
Business Division. Supposedly a competitor was about to step in and take
the deal away, he said he was informed.
STC needed the software and technology in order to manufacture
simulators that would enable purchasers to learn how to check systems and
controls for nuclear power plants.
Former Cherokee Principal Chief Wilma Mankiller, who was on the CNI
board at the time the loan was made, now has an unlisted phone number and
couldn't be reached for comment. She refused to return calls to the Phoenix
for several weeks before she changed her number.
Swimmer said $300,000 of the loan proceeds went toward a down payment
for a STC technological and software agreement with Westinghouse. The
remaining $250,000 went toward STC operating expenses, Swimmer said.
Swimmer first said he thought he notified the CNI board of the loan in
the first quarterly meeting after the loan was made. But Cherokee Nation
Principal Chief Joe Byrd said CNI board minutes reflect no mention of the
loan until it was long overdue.
Byrd, who was sworn in as chief on Aug. 14, said Friday he wanted to
reserve comment until he is fully versed by CNI. He said he does plan to
appoint a new CNI board within a week or so.
Harold DeMoss, a CNI board member and tribal council member, said
earlier he had heard something about the loan but really couldn't recall the
particulars.
Harold "Jiggs" Phillips, a CNI board member and tribal council member,
refused to discuss CNI.
It was Swimmer's opinion that the CNI loan to STC was going to enusre
STC first right of refusal to purchase the Westinghouse unit, he said.
Swimmer was convinced Westinghouse technology would enable STC to
manufacture nuclear simulators it planned to sell to nuclear power plants
here and abroad. A full-scope similator could be used as a marketing and
training tool to ensure the success of a nuclear power plant program.
CNI, in turn, was to build some of the electrical componenets for the
simulators, Swimmer said. Although he acknowledged nothing in the credit
agreement between CNI and STC indicates that, Swimmer said he hadn't worried
at all about not having a formal commitment.
"I was convinced the deal was a good deal," Swimmer said. "I was
wrong. I've bought stock on the market before and I was wrong."
He said he understood all along STC needed an additional $8 million to
make the deal work.
"Their commitment to me was that they (STC) had raised another $2
million," Swimmer said.
Swimmer said he also was led to believe STC had commitments for another
agreement with Westinghouse or manufactured anything, Swimmer said.
Now he is of the opinion he repeatedly was misled about STC financing
commitments, Swimmer said.
"I'm not happy with the deal. I made mistakes," he said.
Yet he delayed filing the lawsuit seeking judgment against the
guarantors until April 25. He said he had been trying to stay friendly with
everyone and kept "relying on the guarantors to get me paid."
Perkins is a $25,000 guarantor on the CNI loan to STC. When pushed for
payment, Perkins wrote Swimmer that he had worked for STC without
compensation from mid-December 1993 (which was one month after STC received
the CNI loan) until May 1994, "at which time the doors were locked and I was
laid off."
Perkins noted he was issued an IOU from STC for approximately $25,000
for back wages and expenses.
"I do not expect to ever be able to collect the $25,000 owed me by
STC," he wrote.
A copy of Perkin's letter is filed in the court case. It states
Perkins remained unemployed until March 1995, incurring significant debt
resulting in his inability to pay CNI.
Perkins suggested he be hired as a consultant to CNI for a year to wipe
out his CNI debt.
Court judgments in favor of CNI were issued in July and August against
two of the guarantors:
-----John L. Williams of Alexandria, VA.-$50,000 plus 17 percent interest
until paid in full and cost.
Swimmer said he has agreed to allow Williams, formerly of Tulsa, to
settle for $40,000, although he agreed anyone able to pay $40,000 probably
could raise $50,000.
Williams served 20 years in management positions with Atlantic
Richfield Company. He couldn't be reached for comment.
-----Dr. Long Chen of Belleville, Md.,-$25,000. Swimmer said he doesn't
know if Chen has the ability to pay. Chen didn't answer phone messages left
on a recorder at his home.
Zapanta had asked a judge to throw out CNI's motion for judgment
against him. The judge denied that request on Aug. 16 and gave Zapanta
until Tuesday to present additional arguements.
Another principal, David Pemberton (who was president and chief
operating officer of STC), also has been given until Tuesday to convince the
judge not to hold him liable for loan repayment.
CNI is asking the judge to hold Zapanta and Pemberton liable for the
full amount due CNI, which is now more than $600,000.
Pemberton no longer has a phone listing in Edgewater, MD., the address
listed for him in court filings.
Swimmer said Pemberton earlier told him:"I can't do it-'I don't have
that kind of money. You'll have to look to Zapanta."
Williams told Swimmer that Zapanta could pay, Swimmer said. "Zapanta
says he's got a couple of deals working and tells me, 'I'll try to get you
some money,'" Swimmer said.
Zapanta did not return repeated phone messages left at his work place.
A Bethesdam Md., home phone listed in the court file has been disconnected.
An information operator said Zapanta's new home phone is unlisted.
Perkins also has been given additional time to show why he shouldn't be
held liable. Perkins, too, has refused to return repeated phone messages
left on a recorder and with relatives at his home in Laurel, Md.
Loan documents filed in court show the $550,000 loan to STC plus 10
percent interest was due on or before Nov. 16, 1994. Interest has been
accruing since that date at 17 percent annually.
Funds Swimmer loaned to STC were channeled through Tahlequah Bank IV
and originated from a $1.2 million line of credit to CNI guaranteed by the
Bureau of Indian Affairs, Swimmer confirmed.
Another $2.5 million line of credit for CNI guaranteed by the BIA had
been received just before that, Swimmer said.
Both lines of credit were authorized by the Cherokee Nation of
Oklahoma, but CNI had control of the finances, Swimmer said.
He confirmed Tahlequah Bank IV received a $50,000 loan origination fee,
which Swimmer said was from funds advanced through CNI's line of credit and
paid to the bank to handle transactions in connection with the $2.5 million
line of credit.
Swimmer said he is not a stockholder at Tahlequah Bank IV and has no
personal loans there.
Swimmer formerly worked for the firm he hired to represent CNI in the
case against STC, Hall Estill Hardwick Gable Golden & Nelson PC. Swimmer's
wife, attorney Margaret A. Swimmer, works for Hall Estill but is not one of
the attorneys of record for Hall Estill representing CNI in its lawsuit
against STC guarantors.
Swimmer said he sees no ethical problem with CNI using Hall Estill
attorneys."