[Federal Register Volume 60, Number 129 (Thursday, July 6, 1995)]
[Proposed Rules]
[Pages 35162-35166]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-16548]



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NATIONAL FOUNDATION ON THE ARTS AND THE HUMANITIES

45 CFR Part 1160

RIN 3154-AAoo


Indemnities Under the Arts and Artifacts Indemnity Act

AGENCY: Federal Council on the Arts and the Humanities.

ACTION: Notice of Proposed Rulemaking.

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SUMMARY: This Notice of Proposed Rulemaking advises the public that the 
Federal Council on the Arts and the Humanities is proposing to amend 
the regulations implementing the Arts and Artifacts Indemnity Act, as 
amended (20 U.S.C. 971-977) (the ``Act''). The principal change is to 
permit the indemnification of eligible items from the United States 
while on exhibition in this country in connection with an exhibition of 
eligible items from outside of the United States. The proposed rule 
also includes illustrations of exhibitions eligible for indemnification 
which are intended to provide further guidance to persons considering 
applying for the indemnification of an international exhibition. The 
proposed amendment is not intended to bring about a major shift in 
emphasis of the current policy or practice of the indemnity program.
    This notice invites comments on the proposed amendment to the 
regulations. The Federal Council particularly invites comments from 
groups, individuals, and governmental agencies involved in the 
exhibition process, including museums, private insurers, and 
professional and scholarly organizations. The revised rules will be 
published in the Federal Register and will be included in guideline 
packages for prospective applicants and in Certificates of Indemnity.

DATES: Comments should be received by August 7, 1995.

ADDRESSES: Interested persons should submit ten copies of their written 
comments to the Federal Council on the Arts and the Humanities, c/o 
Alice M. Whelihan, Indemnity Administrator, National Endowment for the 
Arts, 1100 Pennsylvania Avenue, N.W., Washington, D.C. 20506.

FOR FURTHER INFORMATION CONTACT:Alice Whelihan, 202-682-5442.

SUPPLEMENTARY INFORMATION:

I. Background

A. Statutory Background

    In 1975, the United States Congress enacted the Arts and Artifacts 
Indemnity Act which established an indemnity program administered by 
the Federal Council on the Arts and the Humanities (the ``Federal 
Council''). 20 U.S.C. Sections 971-977. The Federal Council is composed 
of the heads of nineteen federal agencies and was established by 
Congress, among other things, to coordinate the policies and operations 
of the National Endowment for the Arts, the National Endowment for the 
Humanities, and the Institute of Museum Services, including the joint 
support of activities. 20 U.S.C. Section 971.
    Under the indemnification program, the United States Government 
guarantees to pay loss or damage claims, subject to certain 
limitations, arising out of exhibitions containing items determined by 
the Federal Council to be of educational, cultural, historical or 
scientific value the exhibition of which must be certified by the 
Director of the United States Information Agency as being in the 
national interest. In order to be eligible for indemnification, the 
objects must be on exhibition in the United States, or if outside this 
country preferably as part of an exchange of exhibitions.

B. Legislative History

    On May 21, 1975, Senators Claiborne Pell (D, RI) and Jacob Javits 
(R, NY) introduced the Arts and Artifacts Indemnity Act as an amendment 
to the reauthorization of the National Foundation on the Arts and 
Humanities Act of 1965. According to the House Committee report, the 
purpose of the statute was ``to provide indemnities for exhibitions of 
artistic and humanistic endeavors, and for other purposes.'' \1\ The 
Senate Committee stated that it believed that this purpose could be 
advanced ``through the exchange of cultural activities and sharing by 
nations of the world of their cultural institutions and national wealth 
and treasure.'' \2\

    \1\ Id.
    \2\ Id.
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    The broad purpose of the Act is echoed throughout the Act's 
language and legislative history. For example, in testifying at joint 
hearings before the House Subcommittee on Select Education and the 
Senate Special Subcommittee on Arts and Humanities, Nancy Hanks, 
Chairman, National Endowment for the Arts, stated:

    Cultural exhibitions and exchanges of high quality should be 
encouraged by the laws and policies of the United States Government. 
They are in the national interest because of the personal, 
aesthetic, intellectual, and cultural benefits accruing to every 
man, woman and child of this nation who has the opportunity to 
experience these beautiful and enlightening presentations. We 
believe that this country should do as much as any nation in the 
world to insure that these vitally important programs are 
strengthened.\3\

    \3\ H.R. Rep. No. 680, 94th Cong., 1st Sess., at 5.

    There was concern in Congress that such exchanges were impeded by 
prohibitively high insurance costs. The Senate noted that ``anywhere 
from half to two-thirds of the cost of an international exhibition is 
the cost of insuring the material to be exhibited.'' \4\ Ronald Berman, 
Chairman of the Federal Council, testified that without indemnification 
provided in special legislation enacted by the 93rd Congress, the 
insurance costs in connection with several widely attended exhibitions 
would have been prohibitive.\5\

    \4\ S. Rep. No. 289, 94th Cong., 1st Sess., at 1.
    \5\ H.R. Rep. No. 680, 94th Cong., 1st Sess., at 5.
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C. Regulatory Background

    The Federal Council is the agency charged by Congress with the 
responsibility to administer the Arts and Artifacts Indemnity Act. In 
practice, the Indemnity Program is administered for the Federal Council 
by the Museum Program of the National Endowment for the Arts under the 
``Indemnities Under the Arts and Artifacts Indemnity Act'' regulations 
(the ``Regulations''), which are set forth at 45 CFR Part 1160.
    These Regulations have been promulgated, and amended from time to 
time, by the Federal Council pursuant to the express and implied 
rulemaking authorities granted by Congress to make and amend rules 
needed for the effective administration of the indemnity program. Among 
other things, Congress expressly granted to the Federal Council the 
authorities to establish the terms and conditions of indemnity 
agreements; to set 

[[Page 35163]]
application procedures; and to establish claim adjustment procedures. 
20 U.S.C. Sections 971(a)(2), 973(a), 975(a).
    For a number of years, the Federal Council has considered the 
desirability of amending the Regulations to permit the indemnification 
of U.S.-owned loans on exhibition in the United States in connection 
with certified international exhibitions. As currently drafted, the 
Regulations do not cover domestic objects on loan to an international 
exhibition in the United States. The Regulations provide, in pertinent 
part:

An indemnity agreement made under these regulations shall cover:
    (1) Eligible items from outside the United States while on 
exhibition in the United States or
    (2) Eligible items from the United States while on exhibition 
outside this country, preferably when they are part of an exchange 
of exhibitions. 45 C.F.R. Section 1160.1

    On February 25, 1993, during a lengthy discussion of the 
application of the National Gallery of Art for the indemnification of 
the exhibition ``Great French Paintings from the Barnes Foundation: 
Impressionist, Post-Impressionist and Early Modern,'' the Federal 
Council concluded that the eligibility criteria set forth in the 
Regulations were more narrowly drawn then required under the Act. While 
the Council approved the indemnification of the Barnes exhibition, 
which consisted of one foreign-owned object and 80 domestically owned 
objects, a Certificate of Indemnity ultimately did not issue because of 
legal uncertainties related to the Council's action under its current 
Regulations. To clarify eligibility issues for future actions, the 
Federal Council voted to amend its regulations.
    After extensive discussion of the issue, the Federal Council 
resolved that the proposed amendment to the Regulations would 
significantly enhance its ability to provide the American public with 
the benefits of a high quality program of international exhibitions 
while not significantly increasing the exposure of the Federal 
government to pay loss or damage claims nor significantly adding to the 
administrative burdens or costs of the program.
    The Federal Council concluded that widening the eligibility 
criteria under the Indemnity Program to include coverage of U.S.-owned 
objects in exhibitions that also include foreign-owned loans would 
provide an important benefit to U.S. cultural institutions and to the 
American public. Under the current guidelines, U.S.-owned loans may be 
indemnified only when exhibited abroad. The Federal Council concluded 
that if items from abroad are of educational, cultural, historical or 
scientific value, and their exhibition has been certified by the 
Director of the United States Information Agency as being in the 
national interest, thereby making them eligible for indemnification 
coverage, the U.S.-owned loans to the exhibition also should be 
eligible for indemnification.
    The Federal Council stressed that the proposed amendment is not 
intended to bring about a major shift in the emphasis of the current 
policy or practice of the indemnity program. Under the proposed amended 
Regulations, indemnity coverage would continue to be available 
primarily for the exhibition of items coming from outside the United 
States. In determining whether to indemnify international exhibitions 
that also include U.S. loans, the Federal Council would continue to 
apply the same general standard of review--whether the exhibition taken 
as a whole is of educational, cultural, historical or scientific 
significance. However, to guard against potential abuses, the Federal 
Council will require that the foreign loans be an integral or essential 
component of the exhibition. Exhibitions consisting solely of domestic 
items would continue to be ineligible for indemnification.
    The Federal Council concluded that because of the overall statutory 
cap on the program the proposed modification would not significantly 
increase the exposure of the Federal government to claims for loss or 
damage while providing important additional relief for U.S. borrowing 
institutions. Under the statutory cap, the Federal Council may not 
issue indemnity agreements covering losses of more than an aggregate of 
$3,000,000,000 at any one time. The cap--and thereby the total 
government exposure--remains the same whether the indemnity agreements 
cover foreign or domestic content. Moreover, the fact that coverage 
during international transit, the time of the greatest risk, would not 
be required for loans from the U.S. lending institutions greatly 
reduces the risk of additional losses.
    The Federal Council further concluded that the proposed amendment 
would not cause a significant increase in either the number 
applications to the program or the administrative burdens associated 
with applying reviewing indemnification applications. This is the case 
because under the current practice, applicants already are required to 
include information on domestic loans in their applications, and 
indemnity panels consider the educational, cultural, historical or 
scientific value of both the domestic and foreign items in determining 
whether to indemnify an exhibition.
    While the need to determine whether indemnification of the domestic 
content is appropriate would require an additional judgment made by the 
Federal Council, it is similar in character to the determinations 
already made by the Federal Council in determining the appropriateness 
of indemnification of foreign content moreover, the same options for 
technical assistance and resubmission would be available for the 
rejected applicant as are currently available.
    On June 16, 1993, on the basis of these conclusions, the Federal 
Council reaffirmed its vote of February 25, 1993 to amend the 
Regulations to permit the coverage of domestic items in connection with 
international exhibitions in the United States. Specifically, the 
Federal Council approved a motion to promulgate regulations revising 45 
CFR Part 1160.1 (``Purpose and Scope'') by adding the following 
language:

    (3) eligible items from the United States while on exhibition in 
the United States if the exhibition includes other eligible items 
from outside the United States.

    On April 6, 1994, the Federal Council published in the Federal 
Register an advance notice of proposed rulemaking (ANPR) regarding the 
indemnification of eligible items from the United States while on 
exhibition in this country in connection with an exhibition of items 
from outside the United States. 59 FR 16162-64, April 6, 1994.
II. Discussion of Comments Received

    In response to the ANPR, the Federal Council received thirty-four 
(34) comments. Thirty-one (31) comments were received from 
representatives of museums and galleries, both public and private, two 
comments were received from representatives of museum service 
organizations, and one comment was received from a federal agency. The 
museums submitting comments are located in fifteen states and the 
District of Columbia.
    The vast majority of the commenters strongly supported the Federal 
Council's proposal to extend indemnification to eligible items from the 
United States while on exhibition in this country in connection with an 
exhibition of foreign-owned items. While the public comments include a 
broad range of issues, they can be 

[[Page 35164]]
summarized under six general topics: (1) Scope of coverage of the 
proposed amendments, (2) organizing international exhibitions, (3) 
benefits to the museum community, (4) benefits to the public, (5) 
further guidance on eligibility, and (6) the role of the United States 
Information Agency.

(1) Scope of Coverage of Proposed Amendments

    Two commenters requested that the Federal Council consider 
extending the proposed changes to the indemnity program to include 
indemnification of exhibitions even where there is no foreign loans, 
so-called ``full domestic indemnity.'' The Federal Council decided 
against pursuing full domestic indemnity at this time for a number of 
reasons. The principal reason involves the availability of 
administrative resources. Under a full domestic indemnity program, the 
Federal Council anticipates a dramatic increase the number of eligible 
exhibitions and, thereby, the number of applicants. Such an increase 
could not be accommodated by the resources currently available for the 
administration of the indemnity program.

(2) Organizing International Exhibitions

    A number of commenters noted that the ``internationalization'' of 
collecting and exhibiting works of art has greatly increased. This 
trend, in the words of one museum director, has greatly increased the 
likelihood that ``major works by artists outside the United States will 
be owned by major museums and private collectors in the U.S.'' These 
commenters believed that indemnifying foreign works owned by American 
museums was consistent with the goals of the indemnity program to 
provide the public access to high quality international exhibitions. 
Further, some commenters suggested that it may be necessary to include 
items owned by U.S. institutions in order to organize a comprehensive 
international exhibition. Another commenter described how the proposed 
amendment might facilitate organizing international exhibitions: ``[B]y 
securing fine domestic loans, potential foreign lenders are encouraged 
to lend their works of art.''

(3) Benefits to U.S. Museums

    Several commenters noted the proposed change would result in 
significant savings for American museums and galleries which are 
currently required to obtain private insurance for U.S. loans in 
connection with an indemnified international exhibition. At least two 
commenters stated that this benefit would come at little or no cost to 
the taxpayers because technological advances are making the 
preservation and transportation of art safer, thereby further reducing 
the already extremely low risk of claims. According to some commenters, 
the proposed change would not impose new administrative burdens on 
applicants because, under current guidelines, all applicants already 
must submit detailed information on both foreign and domestic loans. 
Under the current system, many commenters noted, museums often must 
expend scarce resources to prepare the same documentation for the 
Federal Council and private insurers.

(4) Benefits to the Public

    A few commenters anticipated that the change in the Regulations 
would improve the quality of the exhibitions available to the public. 
One commenter said that allowing the indemnification of limited 
domestic content would remove any incentive for curators to choose an 
inferior foreign-owned work over a superior U.S.-owned work in order to 
effect a savings in insurance premiums. Thus, according to this 
commenter, the proposed amendment would have the added benefit of 
helping to ensure that all items selected for exhibition were chosen 
solely on the basis of educational, cultural, historical or scientific 
significance. Another museum director pointed out that providing 
limited domestic content indemnification would bring the United States 
closer to conformity with a number of other countries, such as Great 
Britain, which provide full domestic indemnification.

(5) Further Guidance on Eligibility Criterion

    While a number of commenters were able to identify examples of 
exhibitions which, in all likelihood, would have qualified for 
indemnification under the revised rules, two commenters suggested the 
need for providing further guidance to persons considering applying for 
the indemnification of an international exhibition under the new 
eligibility criterion. Specifically, one commenter felt that the 
Federal Council should clarify the amount and/or character of the 
domestic items in an international exhibition that would be appropriate 
for indemnification under the amended Regulations. Another commenter 
stated that, without any additional guidance, the only exhibitions that 
would appear to be ineligible for indemnification would be those that 
do not include a single foreign-owned work. While this commenter did 
not propose any specific changes, another suggested specifying that 
only exhibitions which contain a ``majority'' of foreign-owned works 
would be eligible.
    The Federal Council considered at length the question of whether to 
incorporate a strict percentage test within the new eligibility 
criterion. The Federal Council decided not to incorporate such a 
percentage test in the proposed rule. While the Federal Council 
acknowledges that a number of commenters believe that the proposed 
eligibility standard as published in the ANPR may be too nebulous, the 
Council felt strongly that adopting a rigid percentage test for 
domestic content in international exhibitions would prove to be too 
inflexible a tool to carry out the broad objectives of the statute.
    At the same time, the Federal Council recognized that the proposed 
amendment, as published in the ANPR, may not provide sufficient 
guidance regarding the eligibility for indemnification of international 
exhibitions that incorporate U.S. loans. Accordingly, the eligibility 
criterion for such exhibitions published in this notice has been 
revised to provide that the foreign loans must be an integral or 
essential component of the exhibition as a whole. Put another way, the 
foreign loans must be necessary to accomplish the educational, 
cultural, historical or scientific objectives of the exhibition. A 
number of examples are included to clarify the application of this 
standard by the Federal Council. These examples are included solely for 
the purpose of providing general guidance, and applicants seeking 
advice with respect to specific exhibitions are encouraged to consult 
directly with the Administrator of the Indemnities Program early in the 
planning process.

(6) United States Information Agency

    The United States Information Agency (``USIA'') commented that it 
had no objection in principle to extending indemnification to eligible 
items from the United States while on exhibition in this country in 
connection with foreign items if indemnifying such objects would not 
adversely effect the ability of the Federal Council to indemnify the 
foreign works. However, USIA questioned whether the Arts and Artifacts 
Indemnity Act permitted the Federal Council to enter into indemnity 
agreements for such exhibitions and the USIA to issue national interest 
certifications in connection with such exhibitions. After extensive 
discussions between the USIA and the Federal Council, USIA ultimately 
concluded that there was a reasonable basis for the Federal Council's 
position and that it 

[[Page 35165]]
would defer to the Federal Council's interpretation of the Act. USIA 
also stated that it would issue national interest certifications 
consistent with its statutory responsibilities and the amended 
Regulations.

III. Section-by-Section Analysis

Section 1160.1  Purpose and Scope

    The eligibility criteria, which currently appear in subparagraph 
(a) of Section 1160.1, have been moved to a new Section 1160.4. This 
change has been made because the Federal Council believed that the 
revised eligibility standards could be more accurately addressed and 
more easily located within a new, separate section rather than within 
the existing scope and purpose section.

Section 1160.4  Eligibility

    Subparagraphs (a) and (b) are identical to the paragraphs as they 
appeared in the prior Sec. 1160.1. Subparagraph (c), and the examples 
that follow, are new. As discussed more fully above, the proposed 
amendment would permit the indemnification of U.S. loans in connection 
with an international exhibition. The examples that follow are intended 
solely to provide general guidance to applicants regarding the scope of 
the proposed eligibility standard. However, the Federal Council will 
continue its practice of determining the eligibility for 
indemnification of specific exhibitions on the basis of a case-by-case 
review by an expert Indemnity Panel.
    In general, coverage is available primarily for the exhibition of 
items coming from outside the United States. Under the proposed 
amendment, some items from the United States in such exhibitions may 
also be eligible for indemnification. For exhibitions in which items 
from outside the United States appear to have been included merely to 
obtain insurance relief for an exhibition consisting predominantly of 
items from the United States, coverage will be denied. In all cases, 
the foreign loans must be an integral or essential component of the 
exhibition as a whole.

IV. Regulatory Analyses

    This rule is not a significant regulatory action for the purposes 
of Executive Order 12866 of September 20, 1993.
    As required by the Regulatory Flexibility Act, it is hereby 
certified that this rule will not have a significant impact on small 
business entities.
    The Catalogue of Federal Domestic Assistance number for the Arts 
and Artifacts Indemnity Program is 45-201.

List of Subjects in 45 CFR Part 1160

    Indemnity payments, National Foundation on Arts and Humanities.

    For the Federal Council on the Arts and the Humanities.
Michael S. Shapiro,
Counsel to the Federal Council on the Arts and the Humanities.

    For the reasons set forth in the preamble, 45 CFR Part 1160 is 
proposed to be amended as follows:

PART 1160--INDEMNITIES UNDER THE ARTS AND ARTIFACTS INDEMNITY ACT

    1. The authority citation for part 1160 continues to read as 
follows:

    Authority: 20 U.S.C. 971-977.

    2. Section 1160.1 is amended by revising paragraph (a) as follows:


Sec. 1160.1  Purpose and scope.

    (a) This part sets forth the exhibition indemnity procedures of the 
Federal Council on the Arts and Humanities under the Arts and Artifacts 
Indemnity Act (Pub. L. 94-158) as required by section 2(a)(2) of the 
Act.
* * * * *


Secs. 1160.4-1160.11  [Redesignated as Secs. 1160.5-1160.12]

    3. Sections 1160.4 through 1160.11 are redesignated as Secs. 1160.5 
through 1160.12 and a new Sec. 1160.4 is added to read as follows:


Sec. 1160.4  Eligibility.

    An indemnity agreement made under this part shall cover:
    (a) Eligible items from outside the United States while on 
exhibition in the United States;
    (b) Eligible items from the United States while on exhibition 
outside this country, preferably when they are part of an exchange of 
exhibitions; and
    (c) Eligible items from the United States while on exhibition in 
the United States, in connection with other eligible items from outside 
the United States which are integral to the exhibition as a whole.

    Example 1: Museum A, an American art museum, is organizing a 
retrospective exhibition which will include more than 150 works of 
art by the Impressionist painter Auguste Renoir. The exhibition will 
present the full range of Renoir's production for the first time 
ever in an American museum. Museums B and C, large national museums 
in Paris and London, have agreed to lend 125 major works of art 
illustrating every aspect of Renoir's career. Museum A is also 
planning to include related works from other American public and 
private collections which have not been seen together since the 
artist's death in 1919. Museums D and E, major each coast American 
art museums, have agreed to lend 25 masterworks by Renoir. The 
exhibition will open in Chicago and travel to San Francisco and 
Washington.
    Discussion: Example 1 is a straightforward application of the 
amended indemnity regulations. Under the old regulations, only the 
works of art from Museums B and C, the foreign museums, would have 
been eligible for indemnification. Under the proposed Regulations, 
the works of art from American museums and other public and private 
collections also would be eligible for indemnification. In 
determining whether to indemnify the entire exhibition, the Federal 
Council will evaluate the exhibition as a whole and whether the 
foreign loans are integral to the educational, cultural, historical 
or scientific significance of the exhibition. In this example, the 
Federal Council would likely approve indemnification of the entire 
exhibit.
    Example 2: Museum A in Massachusetts is organizing an exhibition 
celebrating 250 Years of Decorative Arts in America, to be held in 
conjunction with the state's celebration of the millennium. Included 
among the objects to be borrowed from museums and historical 
societies in the United States are furniture, textiles, metalwork, 
ceramics, glass and jewelry, illustrating the best examples of 
American design from colonial times to the present. The curator 
traveled abroad recently and saw an exhibition of American quilts 
which have been acquired by a British decorative arts museum. He 
intends to borrow several of the quilts for the exhibition.
    Discussion: Example 2 raises the question as to whether the 
American museum organizing the exhibition has included the British-
owned American quilts merely to obtain insurance relief. In 
determining whether to indemnify the entire exhibition, the Federal 
Council will evaluate the exhibition as a whole and whether the 
foreign loans are integral to achieving its educational, cultural 
and historical purposes. Here, it is likely that the Federal Council 
will conclude that the foreign works are not an essential component 
of the exhibition. The Federal Council also may seek additional 
information from the applicant to determine whether the objectives 
of the exhibition could have been accomplished as satisfactorily by 
borrowing American quilts from U.S. collections. On these facts, the 
Federal Council in all likelihood would deny indemnification for the 
entire exhibition.
    Example 3: Museum A, an American museum, is organizing an 
exhibition of the works of James Watkins, a nineteenth century 
American painter, focusing on his studies of human anatomy. Museum A 
has the foremost collection of preparatory drawings related to 
Watkins' major painting, ``The Surgeon and His Students.'' The 
painting is in the permanent collection of Museum B, located in the 
south of France, which has agreed to lend the painting for the 
exhibition. The exhibition will be shown at Museum B after the U.S. 
tour. American Universities, C and D, have also agreed to lend 
anatomical illustrations and drawings which show Watkins' 
development as a draughtsman. The exhibition and accompanying 
catalogue are 

[[Page 35166]]
expected to shed new light on Watkins contributions to art and 
scientific history.
    Discussion: Example 3 addresses the issue of whether the Federal 
Council will indemnify an exhibition even where the U.S. objects 
outnumber the foreign works. In determining whether to indemnify the 
entire exhibition, the Federal Council will evaluate the exhibition 
as a whole and the relationship of the foreign loans to the 
educational, cultural, historical and scientific significance of the 
exhibition. In this example, the exhibition promises to make import 
ant contributions not only to the history of art but also to the 
history of science. While there is only a single foreign work of 
art, it is clearly an essential component of the exhibition as a 
whole. The case for indemnification of the entire exhibition is 
further strengthened by the fact that a foreign masterpiece, which 
is closely related to the preparatory drawings and anatomical 
illustrations and drawings owned by American institutions, will be 
made available to the American public. Thus, the mere fact that the 
U.S. loans outnumber the foreign works will not in itself disqualify 
the entire exhibition for indemnification.

[FR Doc. 95-16548 Filed 7-5-95; 8:45 am]
BILLING CODE 7536-01-M