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LAW OFFICES

DRINKER BIDDLE & REATH

PHILADELPHIA NATIONAL BANK BUILDING        
BROAD AND CHESTNUT STREETS                     
PHILADELPHIA, PA 19107                          
(215)988-2700                                   

135 EAST 57TH STREET
NEW YORK, NY 10022                                                                                                                                                                       
(212)308-8639    

SUITE 900 
901 FIFTEENTH STREET, N.W.
WASHINGTON, D.C. 20005
TELEPHONE: (202)842-8800
FAX: (202)842-8465  

SUITE 400
47 HULFISH STREET
PRINCETON, NJ 08542
(609)921-6336

SUITE 300
1000 WESTLAKES DRIVE
BERWYN, PA 19312                                                                                                                                                                             (215)993-2200

JOSEPH F. JOHNSTON, JR.
(202)842-8838

May 13, 1991                                                                     

Mrs. Carmen E. Turner
Under Secretary
Smithsonian Institution
Washington, D.C. 20560

Dear Mrs. Turner:

You have asked for our views as to recommended policies and procedures to be followed with respect to advancement of legal expenses pursuant to the Smithsonian's Revised Indemnification Resolution of May 3, 1982. The Resolution is set forth in full in Exhibit A to this letter.

There are sound policy reasons supporting indemnification of directors, officers and employees. Historically, there was little perceived need for explicit provisions with respect to the indemnification of directors, officers and employees of nonprofit organizations because such persons were rarely sued. In recent years, however, the increased incidence of litigation against directors, officers and employees of both business and nonprofit entities, together with well-publicized findings of liability, have made the existence of indemnification an important aspect of protecting such persons from lawsuits arising out of the performance of their jobs. See, for example, Stern v Lucy Webb Hayes National Training School, 381 F. Supp. 1003 (D.D.C. 1974) (directors of nonprofit hospital held liable for failure to properly supervise investments and allowing hospital to enter into transactions with other entities in which directors had an interest). Nonprofit corporations as well as business corporations must attract qualified persons to perform difficult assignments which, in today's litigious society, expose them to the risk of civil and criminal proceedings. It would be unfair to ask such persons to bear the heavy expense and the increased exposure to liability whenever their conduct is challenged. See Introductory comment to Subchapter E, "Indemnification," Revised Model Nonprofit Business Corporation Act (1988). In order to give directors and officers an appropriate degree of protection,