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-91- 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,