SCN: Put up or shut up.

[Kenneth Crandall]

Hi again Rich,

   You are a tough task master!  I believe that you will note that the
earlier comments I made were relative to the bylaw provisions on
indemnification that you strongly suggested that I read, post and
understand.  The indemnification provisions in the Articles of Incorporation
that you are now asking me to comment on are very complex compared to the
simple provisions of the bylaws.  It is obvious that you were basing your
previous arguments on these Articles of Incorporation while referring to the
bylaws as your basis of fact.  That threw us off a bit there.

    These Articles of Incorporation (I have included the total wording of
Section 7 below in place of your limited reference to this section since the
other sections appeared to be relevant as well) use legal language that
gladden the hearts of attorneys.  The words in sections, "7.2.2  Such right
of indemnification shall not exist where the act or omission of the
Indemnitee involves (i) intentional misconduct or a knowing violation of the
law" and "7.2.3 Such right of indemnification shall also not exist where the
act or omission of the Indemnitee involves recklessness or gross
negligence", have specific meaning before the law.  I do not claim to be
able to fully understand the total significance of these words.  However,
like Steve's previous comments, I do not believe that they apply to failure
to follow internal procedures.  My belief is meaningless though and these
provisions would have to be judged in a court of law to see what exact acts
are covered by this language.  I know that I would not take the
interpretation of the claimant as a valid assessment of the meaning of these
words.

    I also find wording in section 7.3 (which you some how failed to include
but I have added below) to be equally interesting and subject to legal
interpretation (not interpretation by a novice like myself).  Starting about
half way down the section 7.3 I found these words; "The claimant shall be
presumed to be entitled to indemnification under this Article upon
submission of a written claim (and, in an action brought to enforce a claim
for expenses incurred in defending any
proceeding in advance of its final disposition, where the required
undertaking has been tendered to the Corporation), and thereafter the
Corporation shall have the burden of proving by a preponderance of the
evidence that the claimant is not so entitled.  Neither the failure of
the Corporation (including the Board of Directors, independent legal
counsel, or its shareholders) to have made a determination prior to the
commencement of such action that indemnification of or reimbursement or
advancement of expenses to the claimant is proper in the circumstances
nor an actual determination by the Corporation (including the Board of
Directors, independent legal counsel, or its shareholders) that the
claimant is not entitled to indemnification or to the reimbursement or
advancement of expenses shall be a defense to the action or create a
presumption that the claimant is not so entitled."   Now isn't that a mouth
full and a half?  Don't you just love the way these lawyers communicate?

    So I guess I my novice's interpretation all of this mess of legalize
would be to imply a significant obligation of the Corporation (SCNA) to
indemnify their officers or else "the Corporation shall have the burden of
proving by a preponderance of the evidence that the claimant is not so
entitled."

What is your interpretation?
								Ken Crandall
								bd252 at scn.org

-----Original Message-----
From: Rich Littleton [mailto:be718 at scn.org]
Sent: Sunday, June 25, 2000 4:25 AM
To: Kenneth Crandall
Cc: Joe Mabel; 'J. Johnson'; scn at scn.org
Subject: RE: SCN: Put up or shut up.

Ken,

I'd be interested in your interpretation of the following.  Read your
earlier stuff in connection with this.



ARTICLE 7. INDEMNIFICATION

7.1.	Indemnitee.  The term "Indemnitee" as used in this Article
shall mean any person who was or is threatened to be made a party to or
is otherwise involved (including, without limitation, as a witness) in
any actual or threatened action, suit, or proceeding, whether civil,
criminal, administrative, or investigative, by reason of the fact that
he or she is or was a director or officer of the Corporation or, being
or having been a director or officer, he or she is or was serving at the
request of the Corporation as a director, trustee, officer, employee, or
agent of another corporation or a partnership, joint venture, trust, or
other enterprise, including service with respect to employee benefit
plans, whether the basis of such proceeding is alleged action in an
official capacity as a director, trustee, officer, employee, or agent or
in any other capacity while serving as a director, trustee, officer,
employee, or agent.

7.2.	Right to Indemnification.

7.2.1.	Each Indemnitee shall be indemnified and held
harmless by the Corporation, to the full extent permitted by applicable
law as then in effect, against all expenses, liability, and loss
(including attorneys' fees, judgments, fines, penalties, and amounts to
be paid in settlement) actually and reasonably incurred or suffered by
such person in connection therewith, except as otherwise provided in
this Section 7.2.

7.2.2.	Such right of indemnification shall not exist
where the act or omission of the Indemnitee involves (i) intentional
misconduct or a knowing violation of the law, (ii) distributions or
loans contrary to the Articles of Incorporation or applicable law, or
(iii) any transaction in which the Indemnitee has received or will
receive a benefit in money, property, or services to which he or she is
not legally entitled.

7.2.3.	Such right of indemnification shall also not
exist where the act or omission of the Indemnitee involves recklessness
or gross negligence.

7.2.4.	Such right of indemnification shall continue as
to a person who has ceased to be a director, trustee, officer, employee,
or agent and shall inure to the benefit of his or her heirs, executors,
and administrators.

7.2.5.	Except as provided in Section 7.3, such right of
indemnification shall not exist where the Indemnitee seeks
indemnification in connection with a proceeding (or part thereof)
initiated by such Indemnitee unless such proceeding (or part thereof)
was authorized by the Board of Directors prior to its initiation.

7.2.6.	The right of indemnification conferred in this
Section 7.2 shall be a contract right and shall include the right to
have the Corporation pay the expenses incurred in defending any such
proceeding in advance of its final disposition; provided, however, that
the payment of such expenses in advance of the final disposition of a
proceeding shall be made only upon delivery to the Corporation of an
undertaking, by or on behalf of the Indemnitee, to repay all amounts so
advanced if it shall ultimately be determined that the Indemnitee is not
entitled to be indemnified under this Section 7.2 or otherwise.

7.3.	Right of Claimant to Bring Suit.  If a claim under Section
7.2 is not paid in full by the Corporation within sixty (60) days after
a written claim has been received by the Corporation, except in the case
of a claim for expenses incurred in defending a proceeding in advance of
its final disposition, in which case the applicable period shall be
twenty (20) days, the claimant may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim and,
to the extent successful in whole or in part, the claimant shall also be
entitled to reimbursement for the expenses of prosecuting such claim.
The claimant shall be presumed to be entitled to indemnification under
this Article upon submission of a written claim (and, in an action
brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition, where the required
undertaking has been tendered to the Corporation), and thereafter the
Corporation shall have the burden of proving by a preponderance of the
evidence that the claimant is not so entitled.  Neither the failure of
the Corporation (including the Board of Directors, independent legal
counsel, or its shareholders) to have made a determination prior to the
commencement of such action that indemnification of or reimbursement or
advancement of expenses to the claimant is proper in the circumstances
nor an actual determination by the Corporation (including the Board of
Directors, independent legal counsel, or its shareholders) that the
claimant is not entitled to indemnification or to the reimbursement or
advancement of expenses shall be a defense to the action or create a
presumption that the claimant is not so entitled.

7.4.	Nonexclusivity of Rights.  The right to indemnification and
the payment of expenses incurred in defending a proceeding in advance of
its final disposition conferred in this Article shall not be exclusive
of any other right which any person may have or hereafter acquire under
any statute, provision of the Articles of Incorporation, Bylaws,
agreement, vote or consent of shareholders or disinterested directors,
or otherwise.

7.5.	Insurance, Contract, and Funding.  The Corporation may
maintain insurance at its own expense to protect itself and any
Indemnitee against any expense, liability, or loss against which the
Corporation has the power to indemnify pursuant to this Article.  In
addition, the Corporation may maintain insurance against such expense,
liability, or loss whether or not the Corporation would have the power
to provide indemnification under the Washington Business Corporation
Act.  The Corporation may, without further shareholder action, enter
into contracts with any director or officer of the Corporation in
furtherance of the provisions of this Article and may create trust
funds, grant security interests in corporate assets, provide letters of
credit, and use such other means as the Corporation deems necessary or
appropriate to ensure that indemnification is provided under this
Article.

7.6.	Indemnification of Employees and Agents of the Corporation.
The Corporation may, by action of the Board from time to time, provide
indemnification and pay expenses in advance of the final disposition of
a proceeding to or on behalf of employees and agents of the Corporation
with the same scope and effect as the provisions of this Article with
respect to the indemnification and advancement of expenses of directors
and officers of the Corporation or pursuant to rights granted pursuant
to, or provided by, the Washington Business Corporation Act or
otherwise.


7.2.    Right to Indemnification.

7.2.1.  Each Indemnitee shall be indemnified and held
harmless by the Corporation, to the full extent permitted by applicable
law as then in effect, against all expenses, liability, and loss
(including attorneys' fees, judgments, fines, penalties, and amounts to
be paid in settlement) actually and reasonably incurred or suffered by
such person in connection therewith, except as otherwise provided in
this Section 7.2.

7.2.2.  Such right of indemnification shall not exist
where the act or omission of the Indemnitee involves (i) intentional
misconduct or a knowing violation of the law, (ii) distributions or
loans contrary to the Articles of Incorporation or applicable law, or
(iii) any transaction in which the Indemnitee has received or will
receive a benefit in money, property, or services to which he or she is
not legally entitled.

7.2.3.  Such right of indemnification shall also not
exist where the act or omission of the Indemnitee involves recklessness
or gross negligence.

7.2.4.  Such right of indemnification shall continue as
to a person who has ceased to be a director, trustee, officer, employee,
or agent and shall inure to the benefit of his or her heirs, executors,
and administrators.

7.2.5.  Except as provided in Section 7.3, such right of
indemnification shall not exist where the Indemnitee seeks
indemnification in connection with a proceeding (or part thereof)
initiated by such Indemnitee unless such proceeding (or part thereof)
was authorized by the Board of Directors prior to its initiation.

Rich


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