EXHIBIT 1.1
CORNERSTONE REALTY FUND, INC.
FORM OF DEALER MANAGER AGREEMENT
Up to 55,400,000 Shares of Common Stock
Pacific Cornerstone Capital, Incorporated
0000 XxxXxxxxx Xxxx.
Xxxxx 000
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000
Dear Sirs:
Cornerstone Realty Fund, 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.
The Company hereby invites you, Pacific Cornerstone Capital, Inc., a
California corporation (the "Dealer Manager"), to become the dealer manager in
connection with the offer and sale of the Shares. By your acceptance hereof, you
agree to act in such capacity and to use commercially reasonable efforts to find
purchasers for the Shares in accordance with the terms and conditions of the
Prospectus and this Agreement, but with no obligation or understanding, express
or implied, that you are making a commitment to purchase or sell the Shares. You
agree to use commercially reasonable efforts to find purchasers of Shares both
directly and indirectly through a selling group consisting of participating
brokers ("Participating Brokers") with whom you shall contract pursuant to a
Participating Broker Agreement substantially in the form attached as Attachment
1 hereto or such other form as may be requested by a Participating Broker
provided the consent of the Company is obtained for the use of such form.
Accompanying this Agreement is a copy of the Prospectus and the
Supplemental Material (as hereinafter defined) 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 that referred to in this section, 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. Representations and Warranties of the Company.
The Company represents and warrants to Dealer Manager and
Participating Brokers that:
(a) The Company has prepared and filed with the Securities and
Exchange Commission (the "SEC") a registration statement (Registration No.
333-_________) which has become effective for the registration of the Shares
under the Securities Act of 1933, as amended (the "Securities Act"), and the
applicable rules and regulations (the "Rules and Regulations") of the SEC
promulgated thereunder. Copies of such registration statement
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as initially filed and each amendment thereto have been or will be delivered to
the Dealer Manager. The registration statement and the prospectus contained
therein, as finally amended at the effective date of the registration statement
(the "Effective Date"), are respectively hereinafter referred to as the
"Registration Statement" and the "Prospectus," except that if the Company files
a prospectus or prospectus supplement pursuant to Rule 424(b) under the
Securities Act, or if the Company files a post-effective amendment to the
Registration Statement, the term "Prospectus" includes the prospectus filed
pursuant to Rule 424(b) or the prospectus included in such post-effective
amendment. The term "Preliminary Prospectus" as used herein shall mean a
preliminary prospectus related to the Shares as contemplated by Rule 430 or Rule
430A of the Rules and Regulations included at any time as part of the
Registration Statement.
(b) On the date that any Preliminary Prospectus was filed with the
SEC, on the Effective Date, on the date of the Prospectus, on the date the
Minimum Offering (as hereinafter defined) is obtained and when any
post-effective amendment to the Registration Statement becomes effective or any
amendment or supplement to the Prospectus is filed with the SEC, the
Registration Statement, each Preliminary Prospectus and the Prospectus, as
applicable, including the financial statements contained therein, complied or
will comply with the Securities Act and the Rules and Regulations. On the
Effective Date, the Registration Statement did not or will not contain any
untrue statement of a material fact or omit to state any 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. On the
date of the Prospectus, as amended or supplemented, as applicable, and on the
date the Minimum Offering is obtained, the Prospectus did not or will not
contain any untrue statement of a material fact or omit to state any 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; provided, however, that the foregoing provisions of this Section
1(b) will not extend to such statements contained in or omitted from the
Registration Statement or the Prospectus, as amended or supplemented, as are
primarily within the knowledge of the Dealer Manager or any of the Participating
Brokers and are based upon information furnished by the Dealer Manager in
writing to the Company specifically for inclusion therein.
(e) All additional written, audio or audio-visual material,
including an investment xxxxxxx, xxxxx tape, video tape and internet site
prepared by the Company for use in conjunction with the offer or sale of the
Shares ("Supplemental Material") will be distributed by the Company only in full
compliance with the requirements of the Act (including, without limitation, the
requirement that such Supplemental Material not be delivered to any prospective
purchaser unless accompanied or preceded by a Prospectus), and at the time the
Registration Statement is declared effective and at all times subsequent thereto
up to and including the Termination Date, such Supplemental Material has not
contained and will not contain any untrue statement of material fact or omit to
state 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.
(d) No order preventing or suspending the use of any Preliminary
Prospectus or the Prospectus has been issued and no proceedings for that purpose
are pending, threatened, or, to the knowledge of the Company, contemplated by
the SEC; and to the knowledge of the Company, no order suspending the offering
of the Shares in any jurisdiction has been issued and no proceedings for that
purpose have been instituted or threatened or are contemplated.
(e) The Company intends to use the funds received from the sale of
the Shares as set forth in the Prospectus.
(f) The Company will obtain an opinion of Xxxxxxx Xxxxx & Xxxxx LLP
confirming that based on the proposed method of operation of the Company, the
Company is in a position to qualify for taxation as a REIT for the taxable year
that will end December 31, 2005. The conditions on which the opinion will be
issued will be met at the time of such issuance and will continue to exist.
(g) The accounting firm which has certified or shall certify the
financial statements filed and to be filed with the SEC as part of the
Registration Statement and the Prospectus is a registered public accounting
firm, as required by the Act and the rules and regulations thereunder.
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(h) The Company is a corporation duly organized under the laws of
the State of Maryland, is validly existing as a corporation company under such
laws and has power and authority to conduct business as described in the
Prospectus under the laws of the State of Maryland and every other jurisdiction
in which it conducts business or owns or leases property.
(i) The Company has full legal right, power and authority to enter
into this Agreement and to perform the transactions contemplated hereby, and the
Company has duly authorized, executed and delivered this Agreement.
(j) This Agreement is a valid, legal, and binding agreement of the
Company enforceable in accordance with their respective terms, except as such
enforceability may be limited by bankruptcy, insolvency or similar laws
affecting the rights of creditors generally.
(k) The execution and delivery of this Agreement, the consummation
of the transactions herein contemplated and the compliance with the terms of
this Agreement by the Company 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 the Company, 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.
(l) No consent, approval, authorization or other order of any
governmental authority is required in connection with the execution or delivery
by the Company of this Agreement or the issuance and sale by the Company of the
Shares, except such as may be required under the securities laws of certain
states, if any, which we have identified to you.
(m) The Shares have been duly authorized and, upon payment therefor
as provided in this Agreement, will be validly issued, fully paid and
nonassessable and will conform to the description thereof contained in the
Prospectus.
(n) No closing will take place unless and until funds in respect of
subscriptions for an aggregate of at least 125,000 Shares sold in the primary
offering, acceptable to the Company, have been received by the Company and
payment for such Shares has been deposited in the Escrow Account and classified
as "cleared funds" by the Escrow Agent.
(o) Prior to accepting any subscription for Shares, the Company will
review the file memoranda or other records maintained by Dealer Manager
substantiating the suitability of the subscribers to purchase Shares, and will
have reasonable grounds to believe and will in fact believe that the subscribers
meet the suitability standards as set forth in the Prospectus or as required by
law and will reject the subscriptions of any subscribers whom the Company does
not have reasonable grounds to believe or does not in fact believe meet said
suitability standards.
(p) At all times subsequent to the date of this Agreement and up to
and including the Termination Date, the representations and warranties made in
this Section l will be true and correct with the same effect as if they had been
made on and as of such time, except as may subsequently be disclosed in writing
to the Dealer Manager.
2. Representations and Warranties of the Dealer Manager.
As an inducement to the Company to enter into this Agreement, the
Dealer Manager represents and warrants to the Company that:
(a) The Dealer Manager is 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. The Dealer Manager and
its employees and representatives have all required licenses and registrations
to act under this Agreement.
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(b) The Dealer Manager has full legal right, power and authority to
enter into this Agreement and to perform the transactions contemplated hereby,
and the Dealer Manager has duly authorized, executed and delivered this
Agreement.
(c) This Agreement is a valid, legal, and binding agreement of the
Dealer Manager 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 the Dealer Manager 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 the Dealer Manager, except to the extent that the
enforceability of the indemnity and contribution provisions contained in Section
8 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 the Dealer Manager of this Agreement.
(e) The Dealer Manager represents and warrants to the Company and
each person that signs the Registration Statement that the information under the
caption "Plan of Distribution" in the Prospectus and all other information
furnished to the Company by the Dealer Manager in writing expressly for use in
the Registration Statement, any Preliminary Prospectus, or the Prospectus, does
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading.
3. Obligations and Compensation of Dealer Manager.
(a) The Company hereby appoints the Dealer Manager as its agent and
principal distributor during the Offering Period (as defined in Section 3(c))
for the purpose of finding, on a best efforts basis, purchasers for the Shares
for cash through the Participating Brokers, all of whom shall be members of the
NASD. The Dealer Manager may also arrange for the sale of Shares for cash
directly to its own clients and customers at the public offering price and
subject to the terms and conditions stated in the Prospectus. The Dealer Manager
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 Dealer Manager agrees to be bound by the terms of the Escrow
Agreement dated _____________, 2004 among U.S. Bank, N.A. as escrow agent, the
Dealer Manager and the Company.
(c) 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 the Dealer Manager and the Participating Brokers shall suspend or
terminate offering of the Shares upon request of the Company at any time and
shall resume offering the Shares upon subsequent request of the Company. The
Offering Period shall in all events terminate upon the sale of all of the
Shares. Upon termination of the Offering Period, the Dealer Manager's agency and
this Agreement shall terminate without obligation on 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 the Dealer
Manager, the Company agrees that it will pay to the Dealer Manager selling
commissions plus a dealer manager fee as follows:
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Selling Commissions
-----------------------------
Distribution Channel Public Shares DRP Shares
-------------------- ------------- ----------
Participating Brokers 7.0% 5.0%
Fee for Service Investment Advisers 0.0% 0.0%
Dealer Manager Fee
Distribution Channel Public Shares DRP Shares
-------------------- ------------- ----------
Participating Brokers 3.0% 0.0%
Fee for Service Investment Advisers 3.0% 0.0%
If the Dealer Manager, the Participating Broker 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 pay the Dealer
Manager a correspondingly reduced sales commission at the time of sale. The
balance of the normal commission would be paid to the Dealer Manager 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 the Dealer Manager or
Participating Broker. 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 the Participating Brokers for
Shares sold by the Participating Brokers).
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 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 the Participating Brokers 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 by the Dealer Manager or
the Participating Brokers 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").
The Company will also pay the Dealer Manager for non-accountable due
diligence expenses of the Dealer Manager and the Participating Brokers in the
amount of 0.5% of the gross offering proceeds from the sale of the 44,400,000
shares offered to the public .
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(e) The Dealer Manager 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 the
Dealer Manager 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, Dealer
Manager 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, the Dealer Manager may sell Shares
through the DRP to an Adviser Affiliated Stockholder at the then applicable DRP
purchase price.
4. Sale of the Shares.
A subscription agreement ("Subscription Agreement") must be
completed by each person desiring to purchase Shares, or, at Dealer Manager's or
Participating Broker's option, by Dealer Manager or Participating Broker on
behalf of each such person, and returned by Dealer Manager or Participating
Broker together with any other documents that may be required under state
securities laws or by the Company, to the Company at 0000 XxxXxxxxx Xxxx., Xxxxx
000, Xxxxxxx Xxxxx, Xxxxxxxxxx 00000, Attention: Xxxxx X. Xxxxxxx. The Dealer
Manager or Participating Broker 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 (as hereinafter defined) and thereafter all subscription
checks shall be made payable to CORNERSTONE REALTY FUND, INC. If Dealer Manager
or Participating Broker receives a check not conforming to the foregoing
instructions, Dealer Manager and/or Participating Broker must return such check
directly to the subscriber not later than the end of the next business day
following its receipt. On or before the Minimum Subscription Date, checks
conforming to the foregoing instructions shall be transmitted by Dealer Manager
for deposit directly to U.S. Bank Trust National Association ("Escrow Agent"),
at 000 X. Xxxx Xxxxxx, Xxxxx 000, Xxx Xxxxxxx, Xxxxxxxxxx 00000 as soon as
practicable, but in any event by the end of the second business day following
receipt by Dealer Manager. On or before the Minimum Subscription Date, checks
conforming to the foregoing instructions shall be transmitted by Participating
Broker to Dealer Manager at 0000 XxxXxxxxx Xxxx., Xxxxx 000, Xxxxxxx Xxxxx,
Xxxxxxxxxx 00000 as soon as practicable, but in any event by the end of the next
business day following receipt by Participating Broker. Following the Minimum
Subscription Date, checks conforming to the foregoing instructions shall be
transmitted by Dealer Manager for deposit directly to the Company, at 0000
XxxXxxxxx Xxxx., Xxxxx 000, Xxxxxxx Xxxxx, XX 00000 as soon as practicable but
in any event by the end of the second business day following receipt by Dealer
Manager. Following the Minimum Subscription Date, checks conforming to the
foregoing instructions shall be transmitted by Participating Broker for deposit
directly to the Company, at 0000 XxxXxxxxx Xxxx., Xxxxx 000, Xxxxxxx Xxxxx, XX
00000 as soon as practicable but in any event by the end of the next business
day following receipt by Participating Broker. In the event Participating
Broker's final internal supervisory review is conducted at a different location,
then checks must be transmitted to Participating Broker's final review office by
the end of the next business day following receipt by Participating Broker and
Participating Broker's 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 Escrow Agent on or before the Minimum Subscription Date or to the Company
after the Minimum Subscription Date.
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 stockholder of 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. Should the Company determine to accept the tender of the
Subscription Agreement, the Company will promptly advise Dealer Manager or
Participating Broker of such action. Should the Company determine to reject the
tender it will promptly notify in writing the prospective purchaser, Dealer
Manager and Participating Broker, if any, 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
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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 on or 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
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 Date.
The Dealer Manager will offer Shares, and in its agreements with
Participating Brokers will require that the Participating Brokers offer Shares,
only to persons who meet the financial qualifications set forth in the
Prospectus or in any suitability letter or memorandum sent to it by the Company
and 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 Dealer Manager will, and in its agreements
with Participating Brokers, the Dealer Manager will, require that the
Participating Brokers 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"). In making the determinations as to
suitability required by the NASAA Guidelines, the Dealer Manager may rely on
representations from (i) investment advisers who are not affiliated with a
Participating Broker or (ii) banks acting as trustees or fiduciaries. With
respect to the maintenance of records required by the NASAA Guidelines, the
Company agrees that the Dealer Manager can satisfy its obligations by
contractually requiring such information to be maintained by the investment
advisers or banks discussed in the preceding sentence. Except as set forth in
Section 1(o), nothing contained in this Section 4 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 Dealer Manager and Participating Brokers of the
responsibility of complying with the Conduct Rules of the National Association
of Securities Dealers, Inc. ("NASD").
5. 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 Dealer Manager or Participating
Brokers. 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.
6. Further Agreements of the Company.
(a) The Company covenants and agrees that it will pay or cause to be
paid (i) all expenses and fees in connection with the preparation, printing,
filing, delivery and shipping of the Registration Statement (including this
Agreement and all other exhibits to the Registration Statement), the Prospectus
and any amendments or supplements thereto and the Supplemental Material, (ii)
filing fees, Company counsel's fees and expenses paid and incurred in connection
with the registration and qualification of the Shares for offer and sale by
Dealer Manager and Participating Brokers under the Act and the securities or
Blue Sky laws of the states in which offers are to be
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made, and (iii) filing fees, Company counsel's fees and expenses paid and
incurred in connection with the review by the NASD of the terms of the offering
of the Shares.
(b) The Company will advise Dealer Manager and Participating Brokers
promptly of the issuance of any stop order withdrawing the qualification for the
offer and sale of the Shares or of the institution of any proceedings for that
purpose, and will use its best efforts to prevent the issuance of any such stop
order and to obtain as soon as possible the lifting thereof, if issued.
(c) If at any time when a Prospectus relating to the Shares is
required to be delivered under the Act any event shall have occurred as a result
of which, in the opinion of counsel for the Company, the Prospectus as amended
or supplemented includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to amend the Prospectus
to comply with the Act, the Company promptly will prepare and file with the SEC
an appropriate amendment or supplement.
(d) The Company will deliver to Dealer Manager and Participating
Brokers from time to time without charge as many copies of the Prospectus (and,
in the event of an amendment or supplement to the Prospectus pursuant to the
provisions of this Agreement, of such amended or supplemented Prospectus) and
the Supplemental Material as Dealer Manager or Participating Brokers may
reasonably request, which Prospectus(s), as from time to time amended or
supplemented, and Supplemental Material the Company authorizes Dealer Manager
and Participating Brokers to use in connection with the sale of the Shares.
(e) The Company will use its best efforts to register and qualify
the Shares for sale under the laws of those states and other jurisdictions where
it is intended that offers and sales will be made and will comply to the best of
its ability with the laws of those states so as to permit the continuance of
sales of the Shares thereunder. The Company covenants and agrees that neither
the Company, nor any officer, manager or employee of either of them will make
any offer or sale of the Shares unless such offer or sale is made in compliance
with the Act and the rules and regulations thereunder.
(f) The Company agrees to do or cause to be done all such filing,
recording, publishing and other acts as may be appropriate to comply with the
requirements of law for the operation of a foreign corporation in all
jurisdictions, other than Maryland, where the Company shall desire to conduct
business or own properties as the case may be.
7. Agreements of Dealer Manager.
(a) Dealer Manager covenants and agrees to comply, and to use
commercially reasonable efforts to cause the Participating Brokers 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 Dealer Manager (i) to
recommend the purchase of Shares only when Dealer Manager has 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 Dealer Manager's 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. Dealer Manager also agrees not to deliver the
Supplemental Material to any person unless the Supplemental Material is
accompanied or preceded by the Prospectus. Dealer Manager agrees that Dealer
Manager will reallow commissions only to other broker-dealers who are members of
the NASD or not subject to registration pursuant to the Securities Exchange Act
of 1934.
(b) Dealer Manager 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.
Dealer Manager agrees not to publish, circulate or otherwise use any other
advertisement or solicitation material. Dealer Manager is not authorized to act
as agent of the Company in any connection or transaction, and Dealer Manager
agrees not to act as such agent and not to purport to do so without the prior
written approval of the Company. Dealer Manager agrees that if and when the
Company supplies Dealer Manager with copies of any
8
supplement to the Prospectus, Dealer Manager will affix such copies of such
supplement to copies of the Prospectus already in Dealer Manager's possession,
and that thereafter Dealer Manager will only distribute Prospectuses containing
such supplement and that Dealer Manager will accept subscriptions only from
investors who have received a copy of the Prospectus containing such supplement.
Dealer Manager further agrees to comply with all instructions from the Company
concerning the destruction of out-dated Prospectuses and the use of supplemented
or amended Prospectuses.
(c) Dealer Manager agrees 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 Dealer Manager has determined that such
solicitation can be made by Dealer Manager and in which Dealer Manager is
qualified to so act.
(d) Dealer Manager 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.
(e) Dealer Manager will use reasonable efforts to select investors
who Dealer Manager reasonably believes 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. Dealer Manager will maintain, for a period of six years, in Dealer
Manager's files a copy of the Subscription Agreement for each investor for whom
Dealer Manager acts as Dealer Manager.
(f) To the extent that information is provided to Dealer
Manager marked "For Broker-Dealer Use Only," Dealer Manager covenants and agrees
not to provide such information to prospective investors.
8. Indemnification.
(a) The Company will indemnify and hold harmless the 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 (a)
any untrue statement or alleged untrue statement of a material fact contained
(i) in the Registration Statement or any post-effective amendment thereto or in
the Prospectus or (ii) 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 (b) 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 (c) 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
8(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 (x) to the Company by the
Dealer Manager or (y) 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
9
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 will 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 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
will 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 will be in addition to any liability
that the Dealer Manager may otherwise have.
(c) Each 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 ___ of the
10
Participating Broker 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 8 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 8, 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 8 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 8(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 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 8 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
8(f) were determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations
11
referred to above in this Section 8(f). The aggregate amount of Losses and
expenses incurred by an indemnified party and referred to above in this Section
8(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 8(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 8(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.
9. Effective Date and Termination.
Provided that at least one counterpart of this Agreement shall then
have been executed and delivered, this Agreement shall become effective at 12:00
noon, California time, of the first full business day following the effective
date of the Registration Statement or at such later time after the Registration
Statement becomes effective as the Company shall first release the Shares for
sale to the public. For the purpose of this section the Shares shall be deemed
to have been released for sale to the public upon release by the Company of
correspondence or other notification to Dealer Manager indicating the
effectiveness of the Registration Statement, whichever shall first occur.
Until the Minimum Subscription Closing Date, this Agreement may be
terminated by Dealer Manager at Dealer Manager's option by giving written notice
to the Company if: (a) the Company shall have become a defendant in any
litigation which, in Dealer Manager's 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 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 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 Dealer
Manager Agreement and has failed to cure such breach within 30 days notice from
Dealer Manager to the Company of such breach.
Following the Minimum Subscription Date, this Agreement may be
terminated by Dealer Manager at Dealer Manager's option by giving notice to the
Company. In any case, his Agreement will terminate at the close of business on
the Termination Date; provided, however, that all fees payable to Dealer Manager
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 Section 9 shall be without liability of the Company
to Dealer Manager and without liability on Dealer Manager's part to the Company.
10. Survival of Indemnities, Warranties and Representations.
The indemnity agreements contained in Section 8 hereof, and the
representations and warranties of the Company set forth in Sections l and 6(f)
hereof, shall remain operative and in full force and effect, regardless of
12
any termination or cancellation of this Agreement or any investigation made by
or on behalf of the Company, the Dealer Manager or any controlling person
referred to in Section 8, and shall survive the delivery of and payment for the
Shares, and any successor of Dealer Manager or the Company 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 the respective indemnity
agreements and representations and warranties.
11. Notices.
Except as in this Agreement otherwise provided, (a) whenever notice
is required by the provisions of this Agreement or otherwise to be given to the
Company, such notice shall be in writing addressed to the Company at 0000
XxxXxxxxx Xxxx., Xxxxx 000, Xxxxxxx Xxxxx, Xxxxxxxxxx 00000, Attention: Xxxxx X.
Xxxxxxx, and (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 0000 XxxXxxxxx Xxxx., Xxxxx 000, Xxxxxxx Xxxxx,
Xxxxxxxxxx 00000. Any notice referred to herein may be given in writing or by
facsimile or telephone and if by facsimile or 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.
12. Persons Entitled To Benefit of Agreement.
Except as provided in the next sentence, this Agreement is made
solely for the benefit of Dealer Manager, Participating Brokers, 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 8(a) are made also 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.
13. Not a Separate Entity.
Nothing contained herein shall constitute the Dealer Manager and
Participating Brokers, or any of them, as an association, partnership,
unincorporated business or other separate entity.
Please confirm your agreement to become Dealer Manager under the
terms and conditions herein set forth by signing and returning the enclosed
duplicate copy of this Agreement at once to the Company at the address specified
in Section 11 above.
Very truly yours,
CORNERSTONE REALTY FUND, INC.,
a Maryland corporation
By:
-----------------------------------
Xxxxx X. Xxxxxxx, President
AGREED AND ACCEPTED:
PACIFIC CORNERSTONE CAPITAL, INC.,
a California corporation
By
-----------------------------------------------
Xxxxx X. Xxxxxxx, President
Dated: __________, 2005
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