EXHIBIT 1.2
CORNERSTONE REALTY FUND, INC.
PARTICIPATING BROKER AGREEMENT
Up to 55,400,000 Shares of Common Stock
Dear Sirs:
Cornerstone Realty Company, Inc., a Maryland corporation (the "Company"),
is registering for public sale a maximum of 55,400,000 shares of its common
stock, $0.001 par value per share, (the "Shares"), to be issued and sold for an
aggregate maximum purchase price of $438,800,000 (44,400,000 Shares to be
offered to the public and 11,000,000 Shares to be offered pursuant to the
Company's dividend reinvestment plan ("DRP")). The Shares are to be sold to
selected persons or entities acceptable to the Company, upon the terms and
subject to the conditions set forth in the enclosed Prospectus.
Pacific Cornerstone Capital, Incorporated, a California corporation
("Dealer Manager"), has entered into a dealer manager agreement ("Dealer Manager
Agreement") with the Company pursuant to which it has agreed to act as dealer
manager in connection with the offer and sale of the Shares. Dealer Manager has
agreed to use commercially reasonable efforts to find purchasers of Shares both
directly and indirectly through a selling group consisting of participating
brokers ("Participating Brokers").
Dealer Manager hereby invites you to become a Participating Broker in
connection with the offer and sale of the Shares. By your acceptance hereof, you
agree to act in such capacity and to use your best efforts to find purchasers
for the Shares in accordance with the terms of the Prospectus and this
Agreement.
Accompanying this Agreement is a copy of the Prospectus. We may also
provide you with written, audio or audio-visual material, including an
investment ▇▇▇▇▇▇▇, ▇▇▇▇▇ tape, video tape and internet site ("Supplemental
Material") prepared by the Company for use in conjunction with the offer and
sale of the Shares. You are not authorized to use any solicitation material
other than the Prospectus and Supplemental Material referred to in this
paragraph, which material has been furnished by the Company.
Except as described in the Prospectus or in SECTION 3(d) hereof, the
Shares are to be sold for a per Share cash price as follows:
Distribution Channel Public Shares DRP Shares
-------------------- ------------- ----------
Participating Brokers $8.00 $7.60
Participating Brokers Deferring
Commission $7.52 $7.14
Fee for Service Investment Advisers $7.44 $7.07
1. Sale of the Shares.
A subscription agreement ("Subscription Agreement") must be
completed by each person desiring to purchase Shares, or, at your option, by you
on behalf of each such person, and returned by you together with any other
documents that may be required under state securities laws or by the Company, to
the Company at ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇,
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇. You shall ascertain that the Subscription Agreement
has been properly completed in full and signed by the prospective purchaser
prior to its return.
All subscription checks shall be made payable to the order of USB
ESCROW NO. ____________ FOR CORNERSTONE REALTY FUND, INC. until the Minimum
Subscription Date and thereafter all subscription checks shall be made payable
to CORNERSTONE REALTY FUND, INC. If you receive a check not conforming to the
foregoing instructions, you must return such check directly to the subscriber
not later than the end of the next
business day following its receipt. Checks conforming to the foregoing
instructions shall be transmitted by you for deposit directly to Dealer Manager
at ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ by the end
of the next business day following receipt by you. In the event your final
internal supervisory review is conducted at a different location, then checks
must be transmitted to your final review office by the end of the next business
day following receipt by you and your final review office must in turn, by the
end of the next business day following receipt by it, transmit the check for
deposit directly to the Dealer Manager.
Upon receipt of the Subscription Agreement, the Company, will
determine promptly (and in any event within ten (10) days after such receipt)
whether it wishes to accept the proposed purchaser as a member in the Company,
it being understood that the Company reserves the right to reject the tender of
any Subscription Agreement and to reject all tenders after the Termination Date,
in each case in its sole discretion. Should the Company determine to accept the
tender of the Subscription Agreement, the Company will promptly advise you of
such action. Should the Company determine to reject the tender, it will promptly
notify in writing the prospective purchaser and you of such determination and
will promptly return the tendered Subscription Agreement and instruct the Escrow
Agent to return the purchase price of the Shares directly to the prospective
purchaser if the determination is made on or before the Minimum Subscription
Date or the Company will return the purchase price of the Shares directly to the
prospective purchaser if the determination is made after the Minimum
Subscription Date.
All payments received prior to the Minimum Subscription Date, except
as hereinafter provided, from purchasers of Shares shall be transmitted directly
to the Escrow Agent and deposited in an escrow account (the "Escrow Account")
with Escrow Agent. Such funds may be temporarily invested in bank savings
accounts, bank or money market accounts, bank short-term certificates of deposit
of U.S. banks having a net worth of $100 million, or short-term U.S. government
issued or guaranteed obligations. Prior to the Minimum Subscription Closing
Date, the Company will have no right to obtain any funds from the Escrow Agent.
Funds for Shares purchased on or before the Minimum Subscription Date shall be
made available to the Company, or its order, by the Escrow Agent, on the Minimum
Subscription Closing Date.
You will offer Shares only to persons who meet the financial
qualifications set forth in the Prospectus or in any suitability letter or
memorandum sent to you by the Company and you will only make offers to persons
in the states in which it is advised in writing that the Shares are qualified
for sale or that such qualification is not required. In offering Shares, the you
will comply with the provisions of all applicable rules and regulations relating
to suitability of investors, including without limitation, the provisions of
Article III.C. of the Statement of Policy Regarding Real Estate Investment
Trusts of the North American Securities Administrators Association, Inc. (the
"NASAA Guidelines"). Nothing contained in this Section 1 shall be construed to
impose upon the Company the responsibility of assuring that prospective
purchasers meet the suitability standards contained in the Prospectus and the
Subscription Agreement or to relieve you of the responsibility of complying with
the Conduct Rules of the National Association of Securities Dealers, Inc.
("NASD").
2. Termination Date and Minimum Subscription Closing Date.
As used herein, the term "Termination Date" shall mean the earliest
to occur of (i) the date upon which subscriptions for the maximum number of
Shares offered have been accepted by the Company which date the Company shall
designate by notice to Dealer Manager in writing; or (ii) ______________, 2007.
The Company may terminate the offering of Shares at any time for any reason by
written notice to the Dealer Manager at least two (2) business days prior to the
date of termination.
As used herein, the term "Minimum Subscription Date" shall mean the
earlier of the date on which the Company shall mail or otherwise furnish to
Dealer Manager notification that subscriptions and payments for an aggregate of
at least 125,000 Shares have been received and accepted by the Company and
deposited with the Escrow Agent. In the event that subscriptions and payments
for an aggregate of at least 125,000 Shares shall not have been received and
accepted by the Company on or prior to ________________, 2006, subject to
Section 10, this Agreement will terminate and the Company shall not have any
further obligation or liability hereunder to you. In the event of such
termination, all purchase payments deposited with the Escrow Agent shall be
returned to the subscribers and no selling commissions (as described below) will
be payable.
2
3. Obligations and Compensation of Participating Broker.
(a) The Dealer Manager hereby appoints you as a distributor during
the Offering Period (as defined in Section 3(b)) for the purpose of finding, on
a best efforts basis, purchasers for the Shares for cash. You hereby accepts
such agency and distributorship and agrees to use its best efforts to find
purchasers for the Shares on said terms and conditions, commencing as soon as
practicable.
(b) The "Offering Period" shall mean that period during which Shares
may be offered for sale, commencing on the date the registration was filed with
the SEC, during which period offers and sales of the Shares shall occur
continuously unless and until the Offering is terminated as provided herein,
except that you shall suspend or terminate offering of the Shares upon request
of the Company or the Dealer Manager at any time and shall resume offering the
Shares upon subsequent request of the Company or the Dealer Manager. The
Offering Period shall in all events terminate upon the sale of all of the
Shares. Upon termination of the Offering Period, your agency and this Agreement
shall terminate without obligation on your part or the part of the Dealer
Manager or the Company except as set forth in this Agreement.
(d) Except as may be provided in the "Plan of Distribution" section
of the Prospectus, as compensation for the services rendered by you, the Dealer
Manager agrees that it will pay to you selling commissions plus a marketing
allowance as follows:
Selling Commissions
-------------------
Public Shares DRP Shares
------------- ----------
____% 5.0%
Marketing Allowance
-------------------
Public Shares DRP Shares
------------- ----------
____% 0.0%
The Dealer Manager will also reimburse you for its reimbursement of
your bona fide due diligence expenses in the amount of up to 0.5% of the gross
offering proceeds attributable to your sales of Shares to the public but not
sales of Shares pursuant to the dividend reinvestment plan.
If you and the investor agree, the selling commissions can be paid
on a deferred basis for Shares sold in the primary offering or pursuant to the
DRP. In these instances, the Company will sell the Shares at a reduced price as
set forth above and the Dealer Manager will pay you a correspondingly reduced
sales commission at the time of sale. The balance of the normal commission would
be paid by the Company to the Dealer Manager and by the Dealer Manager to you
over six years for Shares sold in the primary offering, or four years for Shares
sold in the DRP, out of the dividends or other distributions that are declared
and paid with respect to the reduced-priced shares sold through you. The amount
by which by the investor's dividends are reduced in these cases would be paid by
the Company as deferred commissions to the Dealer Manager and by the Dealer
Manager to you.
As an example, investors electing the deferred commission option for
Shares purchased in the primary offering will pay, on the date of purchase,
$7.52 per Share (which includes a commission of $0.08 per Share). For a period
of six years following the date of purchase, an additional $0.08 per Share will
be deducted annually from dividends or other cash distributions otherwise
payable to the investor and will be used to pay deferred commissions. The net
proceeds to the Company will not be affected by the election of the deferred
commission option. Under this arrangement, an investor electing the deferred
commission option will pay a 1% commission upon subscription, rather than a 7%
commission, and an amount equal to a 1% commission per year thereafter for the
next six years, or longer if required to satisfy outstanding deferred commission
obligations, will be deducted from dividends or other cash distributions
otherwise payable to such stockholder. The Company may also use other deferred
commission structures, but the Company will not pay total commissions in excess
of 7% of the offering price of the Shares.
If at any time prior to the satisfaction of the Company's remaining
deferred commission obligations, the Company decides to list its common stock
for trading on national securities exchange, the Nasdaq
3
National Market or other over-the-counter market, or the Company begins a
liquidation of its properties, the Company may accelerate the remaining
commissions due under the deferred commission option. To the extent that the
distributions prior to listing are insufficient to satisfy the remaining
commissions due, the obligations of the Company and the investor to pay any
further deferred commissions will terminate, and the Dealer Manager and you will
not be entitled to receive any further portion of their deferred commissions
following listing of the Company's common stock.
The 5.0% commission payable on shares sold under the Company's
Dividend Reinvestment Plan ("DRP") shall be payable until such time that the
Company ceases offering Shares under the DRP on such terms. At such time, the
commission payable on sales made under the DRP shall be that contemplated
pursuant to any new commission structure for the sale of shares under the DRP.
Stockholders purchasing through advisers affiliated with a dealer, through
advisers not affiliated with a dealer, or through banks acting as trustees or
fiduciaries are referred to in this agreement as "Adviser Affiliated
Stockholders").
(e) You will not represent or imply that U.S. Bank, N.A., as the
escrow agent identified in the Prospectus, has investigated the desirability or
advisability of investment in the Company or has approved, endorsed or passed
upon the merits of the Shares or the Company, nor will you use the name of said
escrow agent in any manner whatsoever in connection with the offer or sale of
the Shares other than by acknowledgment that it has agreed to serve as escrow
agent.
(f) Notwithstanding anything else herein to the contrary, you agrees
that it will not sell any Shares through the DRP to any Adviser Affiliated
Stockholder while such stockholder may still purchase Shares in the primary
offering for a price less than the price available under the DRP. After the
primary offering closes, or if at any time the shares offered under the DRP are
offered at a price per share less than that offered pursuant to this agreement
to Adviser Affiliated Stockholders, you may sell Shares through the DRP to an
Adviser Affiliated Shareholder at the then applicable DRP purchase price.
4. Representations, Warranties and Covenants of Participating Broker.
You represent and warrant to and covenant to the Dealer Manager and the Company
that:
(a) You are a member of the National Association of Securities
Dealers, Inc. (the "NASD") in good standing and a broker-dealer registered as
such under the Exchange Act and under the securities laws of the states in which
the Shares are to be offered and sold. You and your employees and
representatives have all required licenses and registrations to act under this
Agreement.
(b) You have full legal right, power and authority to enter into
this Agreement and to perform the transactions contemplated hereby, and you have
duly authorized, executed and delivered this Agreement.
(c) This Agreement is a valid, legal, and binding agreement of yours
enforceable in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency or similar laws affecting the rights of
creditors generally.
(d) The execution and delivery of this Agreement, the consummation
of the transactions herein contemplated and the compliance with the terms of
this Agreement by you will not conflict with or constitute a default or
violation under any charter, by-law, contract, indenture, mortgage, deed of
trust, lease, rule, regulation, writ, injunction or decree of any government,
governmental instrumentality or court, domestic or foreign, having jurisdiction
over you, except to the extent that the enforceability of the indemnity and
contribution provisions contained in SECTION 7 of this Agreement may be limited
under applicable securities laws.
(e) No consent, approval, authorization or other order of any
governmental authority is required in connection with the execution, delivery or
performance by you of this Agreement.
(f) You have not violated any of the "bad boy" disqualification
provisions contained in the securities or "blue sky" laws of any jurisdiction in
which the Shares may be offered.
(g) It will not make any written or oral statement with respect to
the Company or the offering of Shares that is materially inconsistent with the
statements in the Prospectus or Supplemental Material.
4
(h) You will periodically notify the Dealer Manager of the
jurisdictions in which the Shares are being, or will be, offered by it, and will
periodically notify the Dealer Manager of the status of the offering conducted
pursuant to this Agreement.
(i) You will cease making offers and soliciting subscriptions for
Shares if so requested by the Dealer Manager in order to comply with applicable
federal and state securities laws, and will forward to offerees for execution
and delivery such additional documents and instruments as the Dealer Manager may
reasonably require.
(j) You will: (i) maintain all representation letters,
questionnaires and other materials utilized by you to ascertain the satisfaction
of the above criteria by offerees and investors, for a period of at least six
years from the date of the offering is completed; and (ii) make such material
available to the Dealer Manager upon its request.
(k) Before, during or after the offering, except with the prior
written consent of the Dealer Manager and except for internal-use only purposes
or for the delivery to its advisors, it has not duplicated and will not
duplicate any of the Supplemental Material or other similar selling
documentation furnished to it by the Dealer Manager or the Company.
(l) It has not paid or awarded, and will not pay or award, directly
or indirectly, any commission or other compensation to any person engaged to
render investment advice to a potential subscriber as an inducement to advise
the purchase of the Shares, except as such commissions or other compensation may
be paid or awarded to it or reallowed by it in connection with the sale of the
Shares as described in the Prospectus.
5. Agreements of Participating Broker.
(a) You covenant and agree to comply with any applicable
requirements of the Act, and of the 1934 Act, and the published rules and
regulations thereunder, and the Conduct Rules of the NASD and, in particular,
the Conduct Rules which require you (i) to recommend the purchase of Shares only
when you have reasonable grounds to believe that the investment is suitable for
the investor, and that the investor is in a financial position to sustain the
risks inherent in the investment including loss of investment and lack of
liquidity, (ii) to maintain certain files concerning the basis for your
determination of the suitability of the investor, (iii) to determine the
adequacy and accuracy of the disclosure in the Prospectus, and (iv) to inform
the prospective investor of all pertinent facts relating to the liquidity and
marketability of the investment during the term of the investment. You also
agree not to deliver the Supplemental Material to any person unless the
Supplemental Material is accompanied or preceded by the Prospectus.
(b) You will not give any information or make any representation in
connection with the offering of the Shares other than those contained in the
Prospectus and Supplemental Material furnished by the Company. You agrees not to
publish, circulate or otherwise use any other advertisement or solicitation
material. You are not authorized to act as agent of the Company or the Dealer
Manager in any connection or transaction, and you agree not to act as such agent
and not to purport to do so without the prior written approval of the Company
and the Dealer Manager. You agree that if and when the Company or the Dealer
Manager supplies you with copies of any supplement to the Prospectus, you will
affix such copies of such supplement to copies of the Prospectus already in your
possession, and that thereafter you will only distribute Prospectuses containing
such supplement and that you will accept subscriptions only from investors who
have received a copy of the Prospectus containing such supplement. You further
agree to comply with all instructions from the Company or the Dealer Manager
concerning the destruction of out-dated Prospectuses and the use of supplemented
or amended Prospectuses.
(c) You agree to solicit purchases of Shares only in the States and
other jurisdictions in which the Company indicates that such solicitation can be
made and in which you have determined that such solicitation can be made by you
and in which you are is qualified to so act.
(d) You will not sell the Shares pursuant to this Agreement unless
the Prospectus is furnished to the purchaser at least five (5) business days
prior to the execution of the Subscription Agreement and Power of Attorney, or
is sent to such person under circumstances that it would be received by him five
(5) business days prior to his execution of the Subscription Agreement and Power
of Attorney.
5
(e) You will use reasonable efforts to select investors who you
reasonably believe meet the investor suitability requirements which are set
forth in the Prospectus and Subscription Agreement (Exhibit "A" to the
Prospectus) and such additional individual state requirements as are specified
in the Subscription Agreement and which are confirmed by the investors by
payment of the purchase price for the Shares including that each investor be of
legal age in the state of his or her residence. You will, for a period of six
years, maintain in your files a copy of the Subscription Agreement for each
investor for whom you acts as Participating Broker.
(f) To the extent that information is provided to you marked "For
Broker-Dealer Use Only," you covenant and agree not to provide such information
to prospective investors.
6. Indemnification.
(a) The Company will indemnify and hold harmless you and the other
Participating Brokers and (to the extent permitted by the Company's charter) the
Dealer Manager, their officers and directors and each person, if any, who
controls such Participating Broker or Dealer Manager within the meaning of
Section 15 of the Securities Act (the "Indemnified Persons") from and against
any losses, claims, damages or liabilities ("Losses"), joint or several, to
which such Indemnified Persons may become subject, under the Securities Act or
otherwise, insofar as such Losses (or actions in respect thereof) arise out of
or are based upon (i) any untrue statement or alleged untrue statement of a
material fact contained (x) in the Registration Statement or any post-effective
amendment thereto or in the Prospectus or (y) in any blue sky application or
other document executed by the Company or on its behalf specifically for the
purpose of qualifying any or all of the Shares for sale under the securities
laws of any jurisdiction or based upon written information furnished by the
Company under the securities laws thereof (any such application, document or
information being hereinafter called a "Blue Sky Application"), or (ii) the
omission or alleged omission to state in the Registration Statement (including
the Prospectus as a part thereof) or any post-effective amendment thereto or in
any Blue Sky Application a material fact required to be stated therein or
necessary to make the statements therein not misleading, or (iii) any untrue
statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, if used prior to the effective date of the Registration
Statement, or in the Prospectus or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The Company will reimburse each Indemnified Person for any
legal or other expenses reasonably incurred by such Indemnified Person, in
connection with investigating or defending such Loss. Notwithstanding the
foregoing provisions of this Section 6(a), the Company will not be liable in any
such case to the extent that any such Loss or expense arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with written information
furnished (i) to the Company by the Dealer Manager or (ii) to the Company or the
Dealer Manager by or on behalf of any Participating Broker specifically for use
in the preparation of the Registration Statement or any such post-effective
amendment thereto, any such Blue Sky Application or any such Preliminary
Prospectus or the Prospectus, and, further, the Company will not be liable in
any such case if it is determined that such Participating Broker or the Dealer
Manager was at fault in connection with the Loss, expense or action.
Notwithstanding foregoing, the Company shall not indemnify or hold harmless an
Indemnified Person for any Losses or expenses arising from or out of an alleged
violation of federal or state securities laws by such party unless one or more
of the following conditions are met: (i) there has been a successful
adjudication on the merits of each count involving alleged securities law
violations as to the particular Indemnified Person, (ii) such claims have been
dismissed with prejudice on the merits by a court of competent jurisdiction as
to the particular Indemnified Person and (iii) a court of competent jurisdiction
approves a settlement of the claims against a particular Indemnified Person and
finds that indemnification of the settlement and the related costs should be
made, and the court considering the request for indemnification has been advised
of the position of the Securities and Exchange Commission and of the published
position of any state securities regulatory authority in which securities of the
Company were offered or sold as to indemnification for violations of securities
laws.
(b) The Dealer Manager has agreed to indemnify and hold harmless the
Company, each director of the Company (including any person named in the
Registration Statement, with his consent, as about to become a director), each
other person who has signed the Registration Statement and each person, if any,
who controls the Company within the meaning of Section 15 of the Securities Act
(each a "Company Indemnitee"), from and against any Losses to which any of the
Company Indemnitees may become subject, under the Securities Act or otherwise,
insofar as such Losses (or actions in respect thereof) arise out of or are based
upon (i) any untrue statement of a material fact contained (x) in the
Registration Statement (including the Prospectus as a part thereof) or any
post-effective amendment thereto or (y) any Blue Sky Application, or (ii) the
omission to state in the
6
Registration Statement (including the Prospectus as a part thereof) or any
post-effective amendment thereto or in any Blue Sky Application a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or (iii) any untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, if used prior to the
effective date of the Registration Statement, or in the Prospectus or the
omission to state therein a material fact required to be stated therein or
necessary in order to make the statements therein in the light of the
circumstances under which they were made not misleading, in the case of each of
clauses (i)-(iii) to the extent, but only to the extent, that such untrue
statement or omission was made in reliance upon and in conformity with written
information furnished to the Company by or on behalf of the Dealer Manager
specifically for use with reference to the Dealer Manager in the preparation of
the Registration Statement or any such post-effective amendments thereto or any
such Blue Sky Application or any such Preliminary Prospectus or the Prospectus,
or (iv) any unauthorized use of sales materials or use of unauthorized verbal
representations concerning the Shares by the Dealer Manager. The Dealer Manager
has agreed to reimburse the aforesaid parties for any legal or other expenses
reasonably incurred by them in connection with investigating or defending such
Loss, expense or action. This indemnity agreement of the Dealer Manager is in
addition to any liability that the Dealer Manager may otherwise have.
(c) You and each other Participating Broker severally will indemnify
and hold harmless the Company, the Dealer Manager, each of their directors
(including any person named in the Registration Statement, with his consent, as
about to become a director), each other person who has signed the Registration
Statement and each person, if any, who controls the Company and the Dealer
Manager within the meaning of Section 15 of the Securities Act (each, a
"Participating Broker Indemnified Person") from and against any Losses to which
a Participating Broker Indemnified Person may become subject, under the
Securities Act or otherwise, insofar as such Losses (or actions in respect
thereof) arise out of or are based upon (i) any untrue statement or alleged
untrue statement of a material fact contained (x) in the Registration Statement
(including the Prospectus as a part thereof) or any post-effective amendment
thereto or (y) in any Blue Sky Application, or (ii) the omission or alleged
omission to state in the Registration Statement (including the Prospectus as a
part thereof) or any post-effective amendment thereto or in any Blue Sky
Application a material fact required to be stated therein or necessary to make
the statements therein not misleading, or (iii) any untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Prospectus, if
used prior to the effective date of the Registration Statement, or in the
Prospectus or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, in the case of each of clauses (i)-(iii) to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in reliance upon and in conformity with written
information furnished to the Company or the Dealer Manager by or on behalf of
such Participating Broker specifically for use with reference to such
Participating Broker in the preparation of the Registration Statement or any
such post-effective amendments thereto or any such Blue Sky Application or any
such Preliminary Prospectus, or (iv) any unauthorized use of sales materials or
use of unauthorized verbal representations concerning the Shares by such
Participating Broker or Participating Broker's representatives or agents in
violation of Section 5(b) of this Agreement or otherwise. Each such
Participating Broker will reimburse each Participating Broker Indemnified Person
for any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such Loss, expense or action. This indemnity
agreement will be in addition to any liability that such Participating Broker
may otherwise have.
(d) Promptly after receipt by an indemnified party under this
Section 6 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying party
under this Section 6, notify in writing the indemnifying party of the
commencement thereof. The failure of an indemnified party so to notify the
indemnifying party will relieve the indemnifying party from any liability under
this Section 6 as to the particular item for which indemnification is then being
sought, but not from any other liability that it may have to any indemnified
party. In case any such action is brought against any indemnified party, and it
notifies an indemnifying party of the commencement thereof, the indemnifying
party will be entitled, to the extent it may wish, jointly with any other
indemnifying party similarly notified, to participate in the defense thereof,
with separate counsel. Such participation shall not relieve such indemnifying
party of the obligation to reimburse the indemnified party for reasonable legal
and other expenses (subject to Section 6(e) incurred by such indemnified party
in defending itself, except for such expenses incurred after the indemnifying
party has deposited funds sufficient to effect the settlement, with prejudice,
of the claim in respect of which indemnity is sought. Any such indemnifying
party shall not be liable to any such indemnified party on account of any
settlement of any claim or action effected without the consent of such
indemnifying party. Any indemnified
7
party shall not be bound to perform or refrain from performing any act pursuant
to the terms of any settlement of any claim or action effected without the
consent of such indemnified party.
(e) The indemnifying party shall pay all legal fees and expenses of
the indemnified party in the defense of such claims or actions; provided,
however, that the indemnifying party shall not be obliged to pay legal expenses
and fees to more than one law firm in connection with the defense of similar
claims arising out of the same alleged acts or omissions giving rise to such
claims notwithstanding that such actions or claims are alleged or brought by one
or more parties against more than one indemnified party. If such claims or
actions are alleged or brought against more than one indemnified party, then the
indemnifying party shall only be obliged to reimburse the expenses and fees of
the one law firm that has been selected by a majority of the indemnified parties
against which such action is finally brought; and in the event a majority of
such indemnified parties is unable to agree on which law firm for which expenses
or fees will be reimbursable by the indemnifying party, then payment shall be
made to the first law firm of record representing an indemnified party against
the action or claim. Such law firm shall be paid only to the extent of services
performed by such law firm and no reimbursement shall be payable to such law
firm on account of legal services performed by another law firm.
(f) If the indemnity agreements contained in this Section 6
are for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any Losses or expenses referred to therein, then
each indemnifying party shall contribute to the aggregate amount of such Losses
and expenses incurred by such indemnified party, as incurred, (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Dealer Manager or Participating Broker on the
other hand from the offering of the Shares in question or (ii) if the allocation
provided by clause (i) is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in clause
(i) but also the relative fault of the Company on the one hand and of the Dealer
Manager or Participating Broker on the other hand in connection with the
statements or omissions which resulted in such Losses or expenses, as well as
any other relevant equitable considerations. The relative benefits received by
the Company on the one hand and the Dealer Manager or Participating Broker on
the other hand in connection with the Offering shall be deemed to be in the same
respective proportions as the total net proceeds from the Offering (before
deducting expenses) received by the Company and the total selling commission and
any dealer manager fee actually received by the Dealer Manager or Participating
Broker, in each case as set forth on the cover of the Prospectus, bear to the
aggregate public offering price of the Shares as set forth on such cover. The
relative fault of the Company on the one hand and the Dealer Manager or
Participating Broker on the other hand shall be determined by reference to,
among other things, whether any such untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by the Company or by the Dealer Manager or Participating
Broker and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. It is understood
that it would not be just and equitable if contribution pursuant to this Section
6(f) were determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to above in
this Section 6(f). The aggregate amount of Losses and expenses incurred by an
indemnified party and referred to above in this Section 6(f) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission. Notwithstanding the provisions of
this Section 6(f), the Dealer Manager or Participating Broker shall not be
required to contribute any amount in excess of the amount by which the total
price at which the Shares sold by it exceeds the amount of any damages that such
Dealer Manager or Participating Broker has otherwise been required to pay by
reason of any such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. For purposes
of this Section 6(f), each director of the Company, each other person who signed
the Registration Statement, and each person, if any, who controls the Company
within the meaning of Section 15 of the Securities Act shall have the same
rights to contribution as the Company, and each person, if any, who controls the
Dealer Manager or any Participating Broker within the meaning of Section 15 of
the Securities Act shall have the same rights to contribution as such Dealer
Manager or Participating Broker.
7. Effective Date and Termination.
This Agreement shall become effective upon its execution and
delivery by Dealer Manager, the Company and you.
8
Until the Minimum Subscription Closing Date, this Agreement may be
terminated by you or Dealer Manager at your or its option by giving written
notice to the other and the Company if: (a) the Company shall have become a
defendant in any litigation which, in Dealer Manager's or your opinion, may
reasonably be expected to result in a judgment having materially adverse
consequences for the Company or there shall have been, since the respective
dates as of which information is given in the Registration Statement or the
Prospectus, any material adverse change in the condition, financial or
otherwise, of the Company, which change in Dealer Manager's or your judgment
shall render it inadvisable to proceed with the delivery of the Shares, or (b)
there shall have been any important change in market levels, major catastrophe,
substantial change in national, international or world affairs, national
calamity, postal strike, act of God, or other event or occurrence which, in
Dealer Manager's or your judgment, will materially disrupt the financial markets
of the United States, or (c) trading in securities generally on the New York
Stock Exchange shall have been suspended or minimum prices shall have been
established on such Exchange by the Commission or by such Exchange, or (d) a
general banking moratorium shall have been declared by federal or state
authorities, or (e) the Company has terminated the offering of Shares as
provided in Section 2 hereof, or (f) the Company is in breach of this Agreement
or the Dealer Manager Agreement and has failed to cure such breach within 30
days notice from you or Dealer Manager to the Company of such breach.
Following the Minimum Subscription Closing Date, this Agreement may
be terminated by you or Dealer Manager at your or its option by giving written
notice to the other and the Company. In any case, this Agreement will terminate
at the close of business on the Termination Date; provided, however, that all
fees payable to you under the terms and conditions hereof shall be paid when due
although this Agreement shall have theretofore been terminated.
Except as otherwise provided in Section 8, any termination of this
Agreement pursuant to this Paragraph 7 shall be without liability of Dealer
Manager and the Company to you and without liability on your part to Dealer
Manager or the Company, except with respect to compensation earned for accepted
subscriptions.
8. Survival of Indemnities, Warranties and Representations.
Your indemnity agreements contained in Section 6 hereof shall remain
operative and in full force and effect, regardless of any termination or
cancellation of this Agreement or any investigation made by or on behalf of you,
Dealer Manager, the Company, or any controlling person thereof, and shall
survive the delivery of and payment for the Shares, and any successor of the
Company, the Dealer Manager or of any such controlling person or any legal
representative of any such controlling person, as the case may be, shall be
entitled to the benefit of your indemnity agreements.
9. Notices.
Except as otherwise provided in this Agreement, (a) whenever notice
is required by the provisions of this Agreement or otherwise to be given to the
Company, or the Managing Member, such notice shall be in writing addressed to
the Company or the Managing Member at ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, (b) whenever
notice is required by the provisions of this Agreement or otherwise to be given
to Dealer Manager, such notice shall be in writing addressed to Dealer Manager
at ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, and (c)
whenever notice is required by the provisions of this Agreement or otherwise to
be given to you, at the address set forth on the last page of this Agreement.
Any notice referred to herein may be given in writing or by facsimile or
telephone and if by telephone shall be immediately confirmed in writing. Notice
(unless actual) shall be effective upon mailing or facsimile transmission with
confirmation of receipt, as the case may be.
10. Persons Entitled To Benefit of Agreement.
Except as provided in the next sentence, this Agreement is made
solely for the benefit of you, the other Participating Brokers, Dealer Manager,
the Company or controlling persons thereof, and their respective successors and
assigns, and no other person shall acquire or have any right by virtue of this
Agreement, and the term "successors and assigns," as used in this Agreement,
shall not include any purchaser, as such purchaser, of any of the Shares. The
agreements of the Company specified in Section 6(a) are also made for the
benefit of the purchasers of the Shares and such purchasers and their successors
and assigns shall be entitled to the indemnification therein provided.
9
11. Not a Separate Entity.
Nothing contained herein shall constitute you, Dealer Manager or the
other Participating Brokers, or any of them, as an association, partnership,
unincorporated business or other separate entity.
Please confirm your agreement to become a Participating Broker under
the terms and conditions herein set forth by signing and returning the enclosed
duplicate copy of this Agreement at once to Dealer Manager at ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇., ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇.
Very truly yours,
PACIFIC CORNERSTONE CAPITAL,
INCORPORATED, a California corporation
By:
-----------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, President
AGREED AND ACCEPTED:
[NAME OF PARTICIPATING BROKER]
[ADDRESS OF PARTICIPATING BROKER]
By:
-------------------------------------------
Dated___________, 200__
CORNERSTONE REALTY FUND, INC.
a Maryland corporation
By:
-------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, President
10
