<PAGE>
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
4590 MacArthur Blvd.
Suite 610
Newport Beach, California 92660
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:
<TABLE>
<CAPTION>
Distribution Channel
Public Shares
DRP Shares
--------------------
-------------
----------
<S>
<C>
<C>
Participating Brokers
$8.00
$7.60
Participating Brokers Deferring
Commission
$7.52
$7.14
Fee for Service Investment Advisers
$7.44
$7.07
</TABLE>
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 summary, audio
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 Preston Gates & Ellis
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.
2
<PAGE>
(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.
3
<PAGE>
(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:
4
<PAGE>
<TABLE>
<CAPTION>
Selling Commissions
-----------------------------
Distribution Channel
Public Shares DRP Shares
--------------------
------------- ----------
<S>
<C>
<C>
Participating Brokers
7.0%
5.0%
Fee for Service Investment Advisers
0.0%
0.0%
</TABLE>
<TABLE>
<CAPTION>
Dealer Manager Fee
Distribution Channel
Public Shares DRP Shares
--------------------
------------- ----------
<S>
<C>
<C>
Participating Brokers
3.0%
0.0%
Fee for Service Investment Advisers
3.0%
0.0%
</TABLE>
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 .
5
<PAGE>
(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 4590 MacArthur Blvd., Suite
610, Newport Beach, California 92660,
Attention: Terry G. Roussel. 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 550 S. Hope Street, Suite 500, Los
Angeles, California 90071 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 4590 MacArthur
Blvd., Suite 610, Newport Beach,
California 92660 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 4590
MacArthur Blvd., Suite 610, Newport Beach,
CA 92660 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 4590 MacArthur
Blvd., Suite 610, Newport Beach, CA
92660 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 dif
