Exhibit 1.1
DEALER MANAGER AGREEMENT
THIS AGREEMENT, dated as of ___________, 2004, is made by and between
COMMONWEALTH INCOME & GROWTH FUND, INC., a Pennsylvania corporation (the
"Company"); and COMMONWEALTH CAPITAL SECURITIES CORP., a Pennsylvania
corporation (the "Dealer Manager").
WHEREAS, the company proposes to offer and sell up to an aggregate of
1,250,000 units (the "Units") in COMMONWEALTH INCOME & GROWTH FUND V, a
Pennsylvania limited partnership ("the Limited Partnership") to the public
pursuant to a public offering;
WHEREAS, the Dealer Manager is registered with the National Association of
Securities Dealers, Inc. as a broker dealer, and is presently or, prior to any
offers or sales of Units, will be licensed in all fifty states of the United
States, the District of Columbia, and the Commonwealth of Puerto Rico as a
broker dealer qualified to offer and sell to the public securities of the type
represented by the Units; and
WHEREAS, the Company desires to retain the Dealer Manager to use its best
efforts to sell the Units and to manage the sale by others of the Units, and the
Dealer Manager is willing and desires to serve as the Dealer Manager for the
Company for the sale of the Units upon the terms and conditions set forth in
this Agreement.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements hereinafter set forth, the Company and the Dealer
Manager agree as follows:
SECTION 1
DEFINITIONS
Whenever used in this agreement, the following terms shall have the
following specified meanings.
1.1 "NASD" means the National Association of Securities Dealers, Inc.
1.2 "Offering" means the offering of up to 1,000,000 Units of the Limited
Partnership to the public pursuant to the terms and conditions of the
Registration Statement.
1.3 "Offering Period" means the period commencing on the effective date of
the Registration Statement and ending on the earliest of the following: (i) the
later of one year after the initial date of the Prospectus or, at the Company's
election, two years after the initial date of the Prospectus; or (ii) one year
after the initial date of the Prospectus, if subscriptions for fewer than 57,500
Units are received and accepted within such one year period.
1.4 "Participating Brokers" means those broker-dealers engaged by the Dealer
Manager to participate in the Offering pursuant to Paragraph 3.2
1.5 "Prospectus" means the final prospectus included in the Registration
Statement, pursuant to which the Company will offer Units to the public, as the
same may be amended or supplemented from time to time after the effective date
of the Registration Statement.
1.6 "Registration Statement" means the registration statement pursuant to
which the Company has registered the Units with the SEC as provided in the
Securities Act of 1933, as amended, as such registration statement may be
amended or supplemented from time to time.
1.7 "SEC" means the Securities and Exchange Commission.
1.8 "Units" means the Units of the Limited Partnership, par value $20.00 per
unit, with a purchase price of $20.00 per unit. An aggregate of up to 1,000,000
Units will be offered pursuant to the Registration Statement.
1.9 "State Regulatory Authorities" means the commissions, departments,
agencies or other authorities in the fifty states of the United States, the
District of Columbia, and the Commonwealth of Puerto Rico which regulate the
offer and sale of securities.
1.10 "Company" means Commonwealth Income & Growth Fund, Inc., a
Pennsylvania corporation.
1.11 "Dealer Manager" means Commonwealth Capital Securities Corp., a
Pennsylvania corporation.
SECTION 2
APPOINTMENT
Subject to the terms and conditions set forth in this agreement, the Company
hereby appoints the Dealer Manager as the dealer manager of the Offering to use
its best efforts to sell up to 1,000,000 Units of the Limited Partnership and to
manage the sale by others of such Units for the Company's account. The Dealer
Manager hereby accepts such appointment.
SECTION 3
SALE OF UNITS
3.1 Best Efforts. The Dealer Manager shall use its best efforts during the
Offering period to sell or cause to be sold the Units in such quantities and to
such persons and in accordance with such terms as are set forth in this
Agreement, the Prospectus and the Registration Statement. Notwithstanding
anything herein to the contrary, the Dealer Manager shall have no obligation
under this Agreement to purchase any of the Units for its own account.
3.2 Association of Other Broker-Dealers. The Company hereby acknowledges and
agrees that the Dealer Manager may engage Participating Brokers to participate
in the Offering, provided that (i) all Participating Brokers are registered with
the NASD and are duly licensed by the State Regulatory Authorities in the
jurisdictions in which they will offer and sell Units or exempt from
broker-dealer registration with the NASD and the State Regulatory Authorities,
and (ii) all such engagements are evidenced by written agreements, the terms and
conditions of which substantially conform to the form of Participating Broker
Agreement approved by the Company and attached hereto as Exhibit A (the
"Participating Broker Agreement"). The Dealer Manager is authorized to reallow
so much of the commissions which it receives under Paragraph 4.1 to
Participating Brokers as it sees fit.
3.3 Suitability and Minimum Purchase Requirements.
(a) The Dealer Manager will use every reasonable effort, to the extent it
sells Units to investors, to assure that any such Units are sold only to
investors who:
(i) meet the investor suitability standards, including the minimum
income and net worth standard established by the Company, and minimum purchase
requirements set forth in the Registration Statement;
(ii) can reasonably benefit from the Company based on each prospective
investor's overall investment objectives and portfolio structure; and
(iii) are able to bear the economic risk of the investment based on each
prospective investor's overall financial situation.
(b) The Dealer Manager will make the determinations required to be made by
it pursuant to Paragraph 3.3 (a) above based on the information it has obtained
from a prospective investor, including, at a minimum, but not limited to, the
prospective investor's age, investment objectives, investment experience,
income, net worth, financial situation, other investments of the prospective
investor, as well as any other pertinent factors deemed by the Dealer Manager to
be relevant.
(c) The Dealer Manager shall maintain such records evidencing compliance
with the determination of the investor suitability standards and minimum
purchase requirements set forth in the Registration Statement, as required by
Paragraphs 3.3(a) and 3.3(b) above for a period of not less than six years, or
for such greater time period as shall comply with all federal, state and other
regulatory requirements.
(d) In addition to the foregoing, the Dealer Manager shall comply fully with
all the applicable provisions of the NASD Conduct Rules and the following
provisions:
(i) the Dealer Manager shall have reasonable grounds to believe, based
upon information provided by the investor concerning his investment objectives,
other investments, financial situation and needs, and upon any other information
known by the Dealer Manager, that (A) each investor to whom the Dealer Manager
sells Units is or will be in a financial position appropriate to enable him to
realize to a significant extent the benefits (including tax benefits) of an
investment in the Units, (B) each investor to whom the Dealer Manager sells
Units has a fair market net worth sufficient to sustain the risks inherent in an
investment in the Units (including potential loss and lack of liquidity), and
(C) the Units otherwise are or will be a suitable investment for each investor
to whom the Dealer Manager sells Units, and the Dealer Manager shall maintain
files disclosing the basis upon which the determination of suitability was made;
(ii) the Dealer Manager shall not execute any transaction involving the
purchase of Units in a discretionary account without prior written approval of
the transaction by the investor;
(iii) the Dealer Manager shall have reasonable grounds to believe, based
upon the information made available to it, that all material facts are adequate
and accurately disclosed in the Registration Statement and provide a basis for
evaluating the shares;
(iv) in making the determination set forth in item (iii) above, the
Dealer Manager shall evaluate items of compensation, properties, tax aspects,
financial stability and experience of the sponsor, conflicts of interest and
risk factors, and any other information deemed pertinent by it; and
(v) prior to executing a purchase transaction in the Units, the Dealer
Manager shall have informed the prospective investor of all pertinent facts
relating to the liquidity and marketability of the Units.
(e) The Dealer Manager shall comply with the requirements for determining
the suitability of investors who elect to participate in the Dividend
Reinvestment Plan (the "Reinvestment Plan") in accordance with the procedure set
forth in Paragraph 6 of such Reinvestment Plan in the form of Exhibit A to the
Prospectus.
3.4 Sales Literature. The Dealer Manager shall use and distribute in
conjunction with the offer and sale of any Units only the Prospectus and such
sales literature and advertising as shall have been previously approved in
writing by the Company.
3.5 Jurisdictions. The Dealer Manager shall cause Units to be offered and
sold only in those jurisdictions specified in writing by the Company for whose
account Units are then offered for sale, and such list of jurisdictions shall be
updated by the Company as additional states are added. The Company shall specify
only such jurisdictions in which the Offering and sale of its Units has been
authorized by the appropriate State Regulatory Authorities. No Units shall be
offered or sold for the account of the Company in any other states.
3.6 Escrow. All funds received by the Dealer Manager for the sale of Units
shall be deposited in an escrow account established by the Company at X.X.Xxxxxx
Trust Company (the Escrow Agent), by the close of the first business day
following receipt of such funds by the Dealer Manager. Such escrow account shall
be denominated "ESCROW ACCOUNT FOR THE BENEFIT OF SUBSCRIBERS FOR UNITS OF
COMMONWEALTH INCOME & GROWTH FUND V" Until such time (if any) as the funds held
in escrow are deliverable to the Company pursuant to the Escrow Agreement
between the Company and the Escrow Agent, the Dealer Manager shall, and shall
cause Participating Brokers to, instruct subscribers to make checks for
subscriptions payable to the order of "X.X.XXXXXX TRUST COMPANY, ESCROW AGENT,"
and shall return checks made payable to another party to the Participating
Broker or subscriber who submitted the check. Thereafter, checks may be made
payable to either the Escrow Agent or the Company. The Dealer Manager may
authorize certain Participating Brokers which are "$25,000 broker-dealers" to
instruct their customers to make their checks for Units subscribed for payable
directly to the Participating Broker. In such case, the Participating Broker
will collect the proceeds of the subscribers' checks and issue a check made
payable to the order of the Escrow Agent for the aggregate amount of the
subscription proceeds.
SECTION 4
COMPENSATION
4.1 Commissions. The Company shall pay to the Dealer Manager, as
compensation for all services to be rendered by the Dealer Manager pursuant to
this Agreement, a commission equal to eight percent (8%) of the selling price of
each Unit for which a sale is completed, regardless of whether such Unit is sold
by the Dealer Manager or a Participating Broker: provided, however that the
Company will pay reduced commissions or may eliminate commissions on certain
sales of Units, including the reduction or elimination of commissions in
accordance with, and on the terms set forth in, the Prospectus and the
paragraphs following this Paragraph 4.1, which reduction or elimination of
commissions will not change the net proceeds to the Company. Unitholders who
elect to participate in the Reinvestment Plan will be charged commissions on
Units purchased for their accounts on the same basis as investors who otherwise
purchase Units in the Offering.
4.2 Marketing Support and Due Diligence. The Company shall pay to the Dealer
Manager a nonaccountable fee for expenses incurred in selling and marketing the
Units and for bona fide expenses incurred in connection with due diligence
expense reimbursements, which fee shall be equal to two percent (2.0%) of the
selling price of each Unit for which a sale is completed, regardless of whether
such Unit is sold by the Dealer Manager or a Participating Broker. All due
diligence expense reimbursements shall be paid by the Dealer Manager from this
fee.
4.3 Completed Sale.
(a) A sale of a Unit shall be deemed to be completed under Paragraph 4.1 if
and only if (i) the Company has received a properly completed and executed
subscription agreement, together with payment of the full purchase price of each
purchased Unit, from or, in accordance with Paragraph 3.3(a), on behalf of an
investor who satisfies the applicable suitability standards and minimum purchase
requirements set forth in the Registration Statement as determined by the Dealer
Manager in accordance with the provisions of this Agreement, (ii) the Company
has accepted such subscription, and (iii) such investor has been admitted as a
Unitholder of the Company.
(b) The Dealer Manager hereby acknowledges and agrees that:
(i) the Company, in it's sole and absolute discretion, may accept or
reject any subscription, in whole or in part, for any reason whatsoever, and no
commission will be paid to the Dealer Manager with the respect to that portion
of any subscription, which is rejected;
(ii) no commission will be paid to the Dealer Manager unless, within one
year after the initial date of the Prospectus, subscriptions for an aggregate of
at least 57,500 Units have been received and accepted; and
(iii) no commission will be paid to the Dealer Manager prior to
acceptance by the Company of subscriptions for the minimum number of Units
specified in subparagraph (ii) above.
4.4 Payment. The commissions specified in Paragraph 4.1 for the sale of any
Unit shall be payable in cash by the Company, as specified in Paragraph 4.1 no
later than the end of the calendar month in which the investor subscribing for
the Unit is admitted as a Unitholder of the partnership. Investors shall first
be admitted as unitholders of the Partnership within 30 days after acceptance by
the Company of subscriptions for at least 50 Units. The Company will accept or
reject all subscriptions within 30 days after receipt, notwithstanding anything
to the contrary contained herein, in the event that the Company pays any
commission to the Dealer Manager for sale by a Participating Broker of one or
more Units and the subscription is rescinded as to one or more of the Units
covered by such subscription, the Company shall decrease the next payment of
commissions or other compensation otherwise payable to the Dealer Manager by the
Company under this Agreement by an equal amount to the commission rate
established in Paragraph 4.1 of this Agreement, multiplied by the number of
Units as to which the subscription is rescinded. In the event that no payment of
commissions or other compensation is due to the Dealer Manager after such
withdrawal occurs, the Dealer Manager shall pay the amount specified in the
preceding sentence to the Company within ten (10) days following receipt of
notice by the Dealer Manager from the Company stating the amount owed as a
result of rescinded subscriptions.
4.5 Sales Incentives. The Company or its Affiliates also may provide
incentive items for registered representatives of the Dealer Manager and the
Participating Brokers, which in no event shall exceed an aggregate of $100.00
per annum per participating sales person. In the event other incentives are
provided to registered representatives of the Dealer Manager or the
Participating Brokers, they will only be paid in cash and such payments will
only be made to the Dealer Manager or the Participating Brokers rather than
their registered representatives. Before any such sales incentive program is
offered, the Company agrees to obtain prior approval of the terms of such
program from the NASD.
4.6 Wholesaling Compensation. The Company hereby acknowledges that the
Dealer Manager may pay each of its wholesalers 1% of the gross sales price
(computed at $20.00 per Unit) of all Units sold in such Wholesaler's geographic
territory (as the same may be established from time to time by agreement between
the Dealer Manager and one or more of its wholesalers) but not in excess, in the
aggregate, of 1% of the gross sales price (computed at $20.00 per Unit) of all
Units sold, or a maximum of 1,000,000 Units. The Company hereby agrees to
reimburse reasonable out-of-pocket expenses that such wholesalers incur in
connection with the distribution of its Units, provided, however, that in no
event will the Dealer Manager or the Company pay any amounts to any person if
(i) such amounts constitute "underwriting compensation," and (ii) payment of
such amounts could cause total underwriting compensation paid to underwriters,
broker-dealers, or affiliates thereof from any source, and deemed to be in
connection with or related to the distribution of the Offering, to exceed then
applicable NASD compensation guidelines.
SECTION 5
TERM OF AGREEMENT
5.1 Commencement and Expiration. This Agreement shall commence as of the
date first above written and, unless sooner terminated pursuant to Paragraph 5.2
or by operation of law or otherwise, shall expire at the end of the Offering
period.
5.2 Termination. Any party may terminate this agreement at any time and for
any reason by giving 30 days' prior written notice of intention to terminate to
each other party hereto.
5.3 Obligations Surviving Expiration or termination.
(a) In addition to any other obligations of the Dealer Manager that
survive the expiration or termination of this Agreement, the Dealer Manager,
upon the expiration or termination of this Agreement, shall (i) promptly deposit
any and all funds in its possession which were received from investors for the
sale of Units into the appropriate escrow account specified in Paragraph 3.7 or,
if the
minimum number of Units have been sold and accepted by the Company, into such
other accounts as the Company may designate, and (ii) promptly deliver to the
Company all records and documents in its possession which relate to the Offering
and are not designated as dealer copies. The Dealer Manager, at its sole
expense, may make and retain copies of all such records and documents, but shall
keep all such information confidential. The Dealer Manager shall use its best
efforts to cooperate with the Company to accomplish an orderly transfer of
management of the Offering to a party designated by the Company.
(b) In addition to any other obligations of the Company that survive the
expiration or termination of this Agreement, the Company, upon expiration or
termination of this Agreement, shall pay to the Dealer Manager all commissions
to which the Dealer Manager is or becomes entitled under Section 4 at such time
or times as such commissions become payable pursuant to paragraph 4.3.
SECTION 6
COVENANTS OF THE DEALER MANAGER
The Company covenants, warrants and represents, during the full term of this
Agreement, that:
(a) it will use its best efforts to maintain the effectiveness of the
Registration Statement, and will file, or cause to be filed, such amendments to
the Registration Statement as may be reasonably necessary for that purpose;
(b) It will use its best efforts to (i) prevent the issuance of any order by
the SEC, any State Regulatory Authorities or any other regulatory authority
which suspends the effectiveness of the Registration Statement, prevents the use
of the Prospectus, or otherwise prevents or suspends the Offering, and (ii)
obtain the lifting of any such order if issued;
(c) It will give the Dealer Manager written notice when the Registration
Statement becomes effective and shall deliver to the Dealer Manager a signed
copy of the Registration Statement, including its exhibits, and such number of
copies of the Registration Statement, without exhibits, and the Prospectus, and
any supplements and amendments thereto which are finally approved by the SEC, as
the Dealer Manager may reasonably request for sale of the Units, which
Prospectus shall not contain any untrue statement of a material fact required to
be stated therein or omit any material statement necessary to make the
statements therein, in light of the circumstances under which they are made, not
misleading;
(d) If at any time any event occurs and becomes known to the Company prior
to the end of the Offering Period, as a result of which the Registration
Statement or Prospectus would include an untrue statement of a material fact, in
view of the circumstances under which they were made, omit to state any material
fact necessary to make the statements therein not misleading, the Company will
effect the preparation of an amended or supplemented Registration Statement or
Prospectus which will correct such statement or omission;
(e) It will promptly notify the Dealer Manager of any post-effective
amendments or supplements to the Registration Statement or Prospectus;
(f) It will, during the full term of this Agreement abide by all applicable
provisions to its governing instruments, as the same may be amended; and
(g) It will use its best efforts to cause, at or prior to the time the
Registration Statement becomes effective, the qualification or registration of
the Units for offering and sale under the securities laws of such jurisdictions
as shall be determined by the Company.
SECTION 7
PAYMENT OF COSTS AND EXPENSES
7.1 Dealer Manager. The Dealer Manager shall pay all costs and expenses
incident to the performance of its obligations under this Agreement which are
not expressly assumed by the Company under Paragraph 8.2 below.
7.2 Company. The Company shall pay all costs and expenses related to:
(a) the registration of the Offer and sale of the Units with the SEC,
including the cost of preparation, printing, filing and delivery of the
Registration Statement and all copies of the Prospectus used in the Offering,
and amendments or supplements to such documents;
(b) the preparation and printing of the form of subscription agreement to
be used in the sale of the Units;
(c) the qualification or registration of the Units under state securities
or "blue sky" laws of states where the Units are to be offered or sold;
(d) the filing of the Registration Statement and any related documents,
including any amendments or supplements to such documents, with the NASD;
(e) any filing fees, and fees and disbursements to counsel, accountants
and escrow agents which are in any way related to any of the above items; and
(f) the preparation, printing and filing of all advertising originated by
it relating to the sale of Units.
SECTION 8
INDEMNIFICATION
The Dealer Manager agrees to indemnify, defend and hold harmless the Company
from all losses, claims, demands, liabilities and expenses, including reasonable
legal and other expenses incurred in defending such claims or liabilities,
whether or not resulting in any liability to the Company, which the Company may
incur in connection with the offer or sale of any Units, either by the Dealer
Manager pursuant to this Agreement or any Participating Broker acting on the
Dealer Manager's behalf pursuant to the Participating Broker Agreement which
arise out of or are based upon (i) an untrue statement or alleged untrue
statement of a material fact, or any omission or alleged omission of a material
fact, other than a statement or omission contained in the Prospectus, the
Registration Statement, or any state securities filing which was not based on
information supplied to the Company by the Dealer Manager or a Participating
Broker, or (ii) the breach by the Dealer Manager or any Participating Broker
acting on its behalf of any of the terms and conditions of this Agreement or any
Participating Broker Agreement, including but not limited to, alleged violations
of the Securities Act of 1933, as amended.
SECTION 9
MISCELLANEOUS
9.1 Notices. Any notice, approval, request, authorization, direction or
other communication under this Agreement shall be given in writing and shall be
deemed to be delivered when delivered in person or deposited in the United
States mail, properly addressed and stamped with the required postage,
registered or certified mail, return receipt requested, to the intended
recipient as set forth below.
If to the Company: Commonwealth Income & Growth Fund, Inc.
000 Xxxx Xxxxx Xxx, Xxxxx 000
Xxxxx, XX 00000
Attention: Xxxxxx Xxxxxxxxxxx,
Chairman of the Board
If to the Dealer Manager: Commonwealth Capital Securities Corp.
000 Xxxx Xxxxx Xxx, Xxxxx 000
Xxxxx, XX 00000
Attention: Xxxxxxxx Xxxxxxxxxxx,
President
Any party may change its address specified above by giving each other party
notice of such change in accordance with this Paragraph 9.1
9.2 Invalid provision. The invalidity or unenforceability of any provision
of this agreement shall not affect the other provisions hereof, and this
Agreement shall be construed in all respects as if such invalid or unenforceable
provision were omitted.
9.3 No Partnership. Nothing in this Agreement shall be construed or
interpreted to constitute the Dealer Manager as in association with or in
partnership with the Company, and instead, this Agreement only shall constitute
the Dealer Manager as a dealer authorized by the Company to sell and to manage
the sale by others of the Units according to the terms set forth in the
Registration Statement, the Prospectus or this Agreement.
9.4 No Third Party Beneficiaries. No provision of this Agreement is intended
to be for the benefit of any person or entity not a party to this Agreement, and
no third party shall be deemed to be a beneficiary of any provision of this
Agreement. Further, no third party shall by virtue of any provision of this
Agreement have a right of action or an enforceable remedy against either party
to this Agreement.
9.5 Survival. Paragraph 5.3 and Section 8 and all Provisions of this
Agreement which may reasonably be interpreted or construed as surviving the
expiration or termination of this Agreement shall survive the Expiration or
termination of this Agreement.
9.6 Entire Agreement. This Agreement constitutes the complete understanding
among the parties hereto, and no variation, modification or amendment to this
Agreement shall be deemed valid or effective unless and until it is signed by
all parties hereto.
9.7 Successors and Assigns. No party shall assign (voluntarily, by operation
of law or otherwise) this Agreement or any right, interest or benefit under this
Agreement without the prior written consent of each other party. Subject to the
foregoing, this Agreement shall be fully binding upon, inure to the benefit of,
and be enforceable by, the parties hereto and their respective successors and
assigns.
9.8 Nonwaiver. The failure of any party to insist upon or enforce strict
performance by any other party of any provision of this Agreement or to exercise
any right under this Agreement shall not be construed as a waiver or
relinquishment to any extent of such party's right to assert or rely upon any
such provision or right in that or any other instance; rather such provision or
right shall be and remain in full force and effect.
9.9 Applicable Law. This Agreement shall be interpreted, construed and
enforced in all respects in accordance with the laws of the Commonwealth of
Pennsylvania.
IN WITNESS WHEREOF, the parties have executed this Dealer Manager Agreement
as of the date first above written.
Company: Commonwealth Income & Growth Fund,
Inc.
By:
Xxxxxx X. Xxxxxxxxxxx, Chairman
of the Board
Dealer Manager: Commonwealth Capital Securities
Corp.
By:
Xxxxxxxx X. Xxxxxxxxxxx,
President
