Cal. Code Regs. tit. 10 § 260.140.111.4

Current through Register 2024 Notice Reg. No. 25, June 21, 2024

Section 260.140.111.4 - Liability and Indemnification

(a) The program shall not provide for indemnification of the sponsor for any liability or loss suffered by the sponsor, nor shall it provide that the sponsor be held harmless for any loss or liability suffered by the program, unless all of the following conditions are met:

(1) the sponsor has determined, in good faith, that the course of conduct which caused the loss or liability was in the best interests of the program, and

(2) the sponsor was acting on behalf of or performing services for the program, and

(3) such liability or loss was not the result of gross negligence or gross misconduct by the sponsor, and

(4) such indemnification or agreement to hold harmless is recoverable only out of the assets of the program and not from the participants.

(b) Notwithstanding paragraph (a) of this Section, the sponsor shall not be indemnified for any losses, liabilities or expenses arising from or out of an alleged violation of federal or state securities laws unless either:

(1) there has been a successful adjudication on the merits of each count involving alleged securities law violations as to the particular indemnitee, or

(2) such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction as to the particular indemnitee, or

(3) a court of competent jurisdiction approves a settlement of the claims against a particular indemnitee and finds that indemnification of the settlement and related costs should be made; and prior to seeking such approval, the court has been apprised of the position of the Commissioner and the SEC with respect to indemnification for securities laws violations.

(c) The program may not incur the cost of that portion of liability insurance that insures the sponsor for any liability for which the sponsor is prohibited from being indemnified under this Section.

(d) Provision for advancement from program funds to the sponsor for legal expenses and other costs incurred as a result of any legal action is permissible if the following conditions are satisfied:

(1) the legal action relates to acts or omissions with respect to the performance of duties or services on behalf of the program; and

(2) the legal action is initiated by a third party who is not a participant, or the legal action is initiated by a participant and a court of competent jurisdiction specifically approves such advancement; and

(3) the sponsor undertakes to repay the advanced funds to the program in cases in which such person is not entitled to indemnification hereunder.

Cal. Code Regs. Tit. 10, § 260.140.111.4

1. Amendment filed 3-12-74; effective thirtieth day thereafter (Register 74, No. 11).
2. Amendment filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).
3. Amendment of subsection (a), repealer of subsection (b), and new subsections (b)-(d) filed 5-18-92; operative 6-17-92 (Register 92, No. 22).

Note: Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.