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DRINKER BIDDLE & REATH

Mrs. Carmen E. Turner
May 13, 1991
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the Revised Model Nonprofit Corporation Act (which serves as a model for state statutes), as well as recent statutes adopted in many states, provide that directors and officers who meet a statutory standard will be indemnified against both judgments and expenses. The standard set forth in the Revised Model Nonprofit Corporation Act is very similar to that contained in the Smithsonian's Revised Indemnification Resolution. Thus, the Smithsonian's Resolution reflects generally accepted practice among nonprofit corporations.

The Resolution distinguishes between indemnification and advancement of expenses. Indemnification is governed by the first two paragraphs of the Resolution and advancement of expenses by the third paragraph of the Resolution.

The second paragraph of the Resolution specifies the procedures for indemnification. A person who has been successful, on the merits or otherwise, with respect to a claim, action, suit or proceeding of the character described in the first paragraph shall be entitled to indemnification as of right. In other cases, indemnification may be made only by the Board or a committee of the Board, or on advice of independent counsel in the absence of a disinterested quorum, in each case upon a finding that the person has met the application standards of conduct. 1 In making such a finding, of course, the Board, committee or counsel should adequately inform itself as to the facts upon which its finding is based.

With respect to advancement of expenses, the third paragraph of the Resolution does not require action by the Board or a committee of the Board. Nor is there any reason why Board or committee action should be required in the case of litigation in the ordinary course of business, any more than in the case of any other day-to-day operating decision. In such cases, it is appropriate for the decision to advance


1. The standards of conduct set forth in the first paragraph provide that the person to be indemnified shall have acted "in good faith, in what he reasonably believed to be in the best interests of the Smithsonian . . . and, in addition, in any criminal action or proceeding, had no reasonable cause to believe that his conduct was unlawful."