Exhibit 10.3
CAREY FINANCIAL, LLC
DEALER MANAGER AGREEMENT
September 15, 2010
Carey Financial, LLC
50 Rockefeller Plaza
New York, New York 10020
RE:   CAREY WATERMARK INVESTORS INCORPORATED
Ladies and Gentlemen:
Carey Watermark Investors Incorporated (the “Company”) is a Maryland corporation
that intends to qualify to be taxed as a real estate investment trust (a “REIT”)
for federal income tax purposes beginning with the taxable year ending
December 31, 2010, or the first year during which the Company begins material
operations. The Company proposes to offer (a) up to 100,000,000 shares of common
stock, $.001 par value per share (the “Shares”), for a purchase price of $10.00
per Share (subject in certain circumstances to discounts based upon the volume
of shares purchased and for certain categories of purchasers), in the primary
offering (the “Primary Offering”), and (b) up to 25,000,000 Shares for a
purchase price of $9.50 per Share for issuance through the Company’s
distribution reinvestment program (the “DRIP” and together with the Primary
Offering, the “Offering”), all upon the other terms and subject to the
conditions set forth in the Prospectus (as defined in Section 1(a)). The Company
has reserved the right to reallocate the Shares offered in the Offering between
the DRIP and the Primary Offering.
Upon the terms and subject to the conditions contained in this Dealer Manager
Agreement (this “Agreement”), the Company hereby appoints Carey Financial, LLC,
a Delaware limited liability company (the “Dealer Manager”), to act as the
exclusive dealer manager for the Offering, and the Dealer Manager desires to
accept such engagement.

1.   Representations And Warranties Of The Company. The Company hereby
represents, warrants and agrees during the term of this Agreement as follows:

  (a)   Registration Statement and Prospectus. In connection with the Offering,
the Company has prepared and filed with the Securities and Exchange Commission
(the “Commission”) a registration statement (File No. 333-149899) on Form S-11
for the registration of the Shares under the Securities Act of 1933, as amended
(the “Securities Act”), and the rules and regulations of the Commission
promulgated thereunder (the “Securities Act Rules and Regulations”); one or more
amendments to such registration statement have been or may be so prepared and
filed. The registration statement on Form S-11 and the prospectus contained
therein, as finally amended at the date the registration statement is declared
effective by the Commission (the “Effective Date”) are respectively hereinafter
referred to as the “Registration Statement” and the “Prospectus”, except that:

  (i)   if the Company files a post-effective amendment to such registration
statement, then the term “Registration Statement” shall, from and after the
declaration of the effectiveness of such post-effective amendment by the
Commission, refer to such registration statement as amended by such
post-effective amendment, and the term “Prospectus” shall refer to the amended
prospectus then on file with the Commission; and

 

 

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  (ii)   if the prospectus filed by the Company pursuant to either Rule 424(b)
or 424(c) of the Securities Act Rules and Regulations shall differ from the
prospectus on file at the time the Registration Statement or the most recent
post-effective amendment thereto, if any, shall have become effective, then the
term “Prospectus” shall refer to such prospectus filed pursuant to either Rule
424(b) or 424(c), as the case may be, from and after the date on which it shall
have been filed. As used herein, the terms “Registration Statement”,
“preliminary Prospectus” and “Prospectus” shall include the documents, if any,
incorporated by reference therein.

As used herein, the term “Effective Date” also shall refer to the effective date
of each post-effective amendment to the Registration Statement, unless the
context otherwise requires.
Further, if a separate prospectus is filed and becomes effective with respect
solely to the DRIP (a “DRIP Prospectus”), the term “Prospectus” shall refer to
such DRIP Prospectus from and after the declaration of effectiveness of such
DRIP Prospectus.

  (b)   Compliance With the Securities Act. During the term of this Agreement:

  (i)   the Registration Statement, the Prospectus and any amendments or
supplements thereto have complied, and will comply, in all material respects
with the Securities Act, the Securities Act Rules and Regulations, the
requirements of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”) and the rules and regulations promulgated thereunder (the “Exchange Act
Rules and Regulations”); and

  (ii)   the Registration Statement does not, and any amendment thereto will
not, in each case as of the applicable Effective Date, include any untrue
statement of material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading and the Prospectus does
not, and any amendment or supplement thereto will not, as of the applicable
filing date, include 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, in light of the circumstances under which they are made, not
misleading; provided, however, that the foregoing provisions of this Section
1(b) will not extend to any statements contained in or omitted from the
Registration Statement or the Prospectus that are based upon written information
furnished to the Company by the Dealer Manager expressly for use in the
Registration Statement or Prospectus.

  (c)   Securities Matters. There has not been:

  (i)   any request by the Commission for any further amendment to the
Registration Statement or the Prospectus or for any additional information;

  (ii)   any issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the institution or, to the
Company’s knowledge, threat of any proceeding for that purpose; or

 

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  (iii)   any notification with respect to the suspension of the qualification
of the Shares for sale in any jurisdiction or any initiation or, to the
Company’s knowledge, threat of any proceeding for such purpose.

The Company is in compliance in all material respects with all federal and state
securities laws, rules and regulations applicable to it and its activities,
including, without limitation, with respect to the Offering and the sale of the
Shares.

  (d)   Corporate Status and Good Standing. The Company is a corporation duly
organized and validly existing under the laws of the State of Maryland and is in
good standing with the State Department of Assessments and Taxation of Maryland,
with all requisite power and authority to enter into this Agreement and to carry
out its obligations hereunder.

  (e)   Authorization of Agreement. This Agreement is duly and validly
authorized, executed and delivered by or on behalf of the Company and
constitutes a valid and binding agreement of the Company enforceable in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws of the
United States, any state or any political subdivision thereof which affect
creditors’ rights generally or by equitable principles relating to the
availability of remedies or except to the extent that the enforceability of the
indemnity and contribution provisions contained in this Agreement may be limited
under applicable securities laws.

The execution and delivery of this Agreement and the performance of this
Agreement, the consummation of the transactions contemplated herein and the
fulfillment of the terms hereof, do not and will not conflict with, or result in
a breach of any of the terms and provisions of, or constitute a default under:

  (i)   the Company’s or any of its subsidiaries’ charter, bylaws, or other
organizational documents, as the case may be;

  (ii)   any indenture, mortgage, deed of trust, voting trust agreement, note,
lease or other agreement or instrument to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries or
any of their properties is bound except, for purposes of this clause (ii) only,
for such conflicts, breaches or defaults that do not result in and could not
reasonably be expected to result in, individually or in the aggregate, a Company
MAE (as defined below in this Section 1(e)); or

  (iii)   any statute, rule or regulation or order of any court or other
governmental agency or body having jurisdiction over the Company, any of its
subsidiaries or any of their properties.

No consent, approval, authorization or order of any court or other governmental
agency or body has been or is required for the performance of this Agreement or
for the consummation by the Company of any of the transactions contemplated
hereby (except as have been obtained under the Securities Act, the Exchange Act,
from the Financial Industry Regulatory Authority (“FINRA”) or as may be required
under state securities or applicable blue sky laws in connection with the offer
and sale of the Shares or under the laws of states in which the Company may own
real properties in connection with its qualification to transact business in
such states or as may be required by subsequent events which may occur). Neither
the Company nor any of its subsidiaries is in violation of its charter, bylaws
or other organizational documents, as the case may be.

 

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As used in this Agreement, “Company MAE” means any event, circumstance,
occurrence, fact, condition, change or effect, individually or in the aggregate,
that is, or could reasonably be expected to be, materially adverse to (A) the
condition, financial or otherwise, earnings, business affairs or business
prospects of the Company and its subsidiaries considered as one enterprise, or
(B) the ability of the Company to perform its obligations under this Agreement
or the validity or enforceability of this Agreement or the Shares.

  (f)   Actions or Proceedings. As of the initial Effective Date, there are no
actions, suits or proceedings against, or investigations of, the Company or its
subsidiaries pending or, to the knowledge of the Company, threatened, before any
court, arbitrator, administrative agency or other tribunal:

  (i)   asserting the invalidity of this Agreement;

  (ii)   seeking to prevent the issuance of the Shares or the consummation of
any of the transactions contemplated by this Agreement;

  (iii)   that might materially and adversely affect the performance by the
Company of its obligations under or the validity or enforceability of, this
Agreement or the Shares;     (iv)   that might result in a Company MAE, or

  (v)   seeking to affect adversely the federal income tax attributes of the
Shares except as described in the Prospectus.

The Company promptly will give notice to the Dealer Manager of the occurrence of
any action, suit, proceeding or investigation of the type referred to above
arising or occurring on or after the initial Effective Date.

  (g)   Escrow Agreement. The Company will enter into an escrow agreement (the
“Escrow Agreement”) with the Dealer Manager and UMB Bank, N.A. (the “Escrow
Agent”), substantially in the form included as an exhibit to the Registration
Statement.

  (h)   Sales Literature. Any supplemental sales literature or advertisement
(including, without limitation any “broker-dealer use only” material),
regardless of how labeled or described, used in addition to the Prospectus in
connection with the Offering which previously has been, or hereafter is,
furnished or approved by the Company (collectively, “Approved Sales
Literature”), shall, to the extent required, be filed with and approved by the
appropriate securities agencies and bodies, provided that the Dealer Manager
will make all FINRA filings, to the extent required. Any and all Approved Sales
Literature did not or will not at the time provided for use include any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.

  (i)   Authorization of Shares. The Shares have been duly authorized and, upon
payment therefor as provided in this Agreement and the Prospectus, will be
validly issued, fully paid and nonassessable and will conform to the description
thereof contained in the Prospectus.

 

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  (j)   Taxes. Any taxes, fees and other governmental charges in connection with
the execution and delivery of this Agreement or the execution, delivery and sale
of the Shares have been or will be paid when due.

  (k)   Investment Company. The Company is not, and neither the offer or sale of
the Shares nor any of the activities of the Company will cause the Company to
be, an “investment company” or under the control of an “investment company” as
such terms are defined in the Investment Company Act of 1940, as amended.

  (l)   Tax Returns. The Company has filed or will file all material federal,
state and foreign income tax returns required to be filed by or on behalf of the
Company on or before the due dates therefor (taking into account all extensions
of time to file) and has paid or provided for the payment of all such material
taxes indicated by such tax returns and all assessments received by the Company
to the extent that such taxes or assessments have become due.

  (m)   REIT Qualifications. The Company will make a timely election to be
subject to tax as a REIT pursuant to Sections 856 through 860 of the Internal
Revenue Code of 1986, as amended (the “Code”) for its taxable year ended
December 31, 2010, or the first year during which the Company begins material
operations. The Company has been organized and operated in conformity with the
requirements for qualification and taxation as a REIT. The Company’s current and
proposed method of operation as described in the Registration Statement and the
Prospectus will enable it to continue to meet the requirements for qualification
and taxation as a REIT under the Code.

  (n)   Independent Registered Public Accounting Firm. The accountants who have
certified certain financial statements appearing in the Prospectus are an
independent registered public accounting firm within the meaning of the
Securities Act and the Securities Act Rules and Regulations. Such accountants
have not been engaged by the Company to perform any “prohibited activities” (as
defined in Section 10A of the Exchange Act).

  (o)   Preparation of the Financial Statements. The financial statements filed
with the Commission as a part of the Registration Statement and included in the
Prospectus present fairly the consolidated financial position of the Company and
its subsidiaries as of and at the dates indicated and the results of their
operations and cash flows for the periods specified. Such financial statements
have been prepared in conformity with generally accepted accounting principles
as applied in the United States applied on a consistent basis throughout the
periods involved, except as may be expressly stated in the related notes
thereto. No other financial statements or supporting schedules are required to
be included in the Registration Statement or any applicable Prospectus.

  (p)   Material Adverse Change. Since the respective dates as of which
information is given in the Registration Statement and the Prospectus, except as
may otherwise be stated therein or contemplated thereby, there has not occurred
a Company MAE, whether or not arising in the ordinary course of business.

  (q)   Government Permits. The Company and its subsidiaries possess such
certificates, authorities or permits issued by the appropriate state, federal or
foreign regulatory agencies or bodies necessary to conduct the business now
operated by them, other than those the failure to possess or own would not have,
individually or in the aggregate, a Company MAE. Neither the Company nor any of
its subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such certificate, authority or permit which,
individually or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would result in a Company MAE.

 

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  (r)   Properties. Except as otherwise disclosed in the Prospectus and except
as would not result in, individually or in the aggregate, a Company MAE:

  (i)   all properties and assets described in the Prospectus are owned with
good and marketable title by the Company and its subsidiaries; and

  (ii)   all liens, charges, encumbrances, claims or restrictions on or
affecting any of the properties and assets of any of the Company or its
subsidiaries which are required to be disclosed in the Prospectus are disclosed
therein.

  (s)   Hazardous Materials. The Company does not have any knowledge of:

  (i)   the unlawful presence of any hazardous substances, hazardous materials,
toxic substances or waste materials (collectively, “Hazardous Materials”) on any
of the properties owned by it or its subsidiaries or subject to mortgage loans
owned by the Company or any of its subsidiaries; or

  (ii)   any unlawful spills, releases, discharges or disposal of Hazardous
Materials that have occurred or are presently occurring off such properties as a
result of any construction on or operation and use of such properties, which
presence or occurrence in the case of clauses (i) and (ii) would result in,
individually or in the aggregate, a Company MAE.

In connection with the properties owned by the Company and its subsidiaries or
subject to mortgage loans owned by the Company or any of its subsidiaries, the
Company has no knowledge of any material failure to comply with all applicable
local, state and federal environmental laws, regulations, ordinances and
administrative and judicial orders relating to the generation, recycling, reuse,
sale, storage, handling, transport and disposal of any Hazardous Materials.

2.   Representations and Warranties of the Dealer Manager. The Dealer Manager
represents and warrants to the Company during the term of this Agreement that:

  (a)   Organization Status. The Dealer Manager is a limited liability company
duly organized, validly existing and in good standing under the laws of the
State of Delaware, with all requisite power and authority to enter into this
Agreement and to carry out its obligations hereunder.

  (b)   Authorization of Agreement. This Agreement has been duly authorized,
executed and delivered by the Dealer Manager, and assuming due authorization,
execution and delivery of this Agreement by the Company, will constitute a valid
and legally binding agreement of the Dealer Manager enforceable against the
Dealer Manager in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency or similar laws affecting the
enforcement of creditors’ rights generally or by equitable principles relating
to enforceability and except that rights to indemnity and contribution hereunder
may be limited by applicable law and public policy.

  (c)   Absence of Conflict or Default. The execution and delivery of this
Agreement, the consummation of the transactions herein contemplated and
compliance with the terms of this Agreement by the Dealer Manager will not
conflict with or constitute a default under:

  (i)   its organizational documents;

 

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  (ii)   any indenture, mortgage, deed of trust or lease to which the Dealer
Manager is a party or by which it may be bound, or to which any of the property
or assets of the Dealer Manager is subject; or

  (iii)   any rule, regulation, writ, injunction or decree of any government,
governmental instrumentality or court, domestic or foreign, having jurisdiction
over the Dealer Manager or its assets, properties or operations, except in the
case of clause (ii) or (iii) for such conflicts or defaults that would not
individually or in the aggregate have a material adverse effect on the condition
(financial or otherwise), business, properties or results of operations of the
Dealer Manager.

  (d)   Broker-Dealer Registration; FINRA Membership. The Dealer Manager is, and
during the term of this Agreement will be, duly registered as a broker-dealer
pursuant to the provisions of the Exchange Act, a member in good standing of
FINRA, and a broker or dealer duly registered as such in those states where the
Dealer Manager is required to be registered in order to carry out the Offering
as contemplated by this Agreement. Moreover, the Dealer Manager’s employees and
representatives have all required licenses and registrations to act under this
Agreement. There is no provision in the Dealer Manager’s FINRA membership
agreement that would restrict the ability of the Dealer Manager to carry out the
Offering as contemplated by this Agreement.

3.   Offering and Sale of the Shares. Upon the terms and subject to the
conditions set forth in this Agreement, the Company hereby appoints the Dealer
Manager as its agent and distributor to solicit and to retain the Selected
Dealers (as defined in Section 3(a)) to solicit subscriptions for the Shares at
the subscription price to be paid in cash. The Dealer Manager hereby accepts
such agency and exclusive distributorship and agrees to use its reasonable best
efforts to sell or cause to be sold the Shares in such quantities and to such
persons in accordance with such terms as are set forth in this Agreement, the
Prospectus and the Registration Statement.

The Dealer Manager shall do so during the period commencing on the initial
Effective Date and ending on the earliest to occur of the following: (1) the
later of (x) two years after the initial Effective Date of the Registration
Statement and (y) at the Company’s election, the date on which the Company is
permitted to extend the Offering in accordance with the rules of the Commission;
(2) the acceptance by the Company of subscriptions for 125,000,000 Shares;
(3) the termination of the Offering by the Company, which the Company shall have
the right to terminate in its sole and absolute discretion at any time; (4) the
termination of the effectiveness of the Registration Statement; and (5) the
liquidation or dissolution of the Company (such period being the “Offering
Period”).
The number of Shares, if any, to be reserved for sale by each Selected Dealer
may be determined by mutual agreement, from time to time, by the Dealer Manager
and the Company. In the absence of such determination, the Company shall,
subject to the provisions of Section 3(b), accept Subscription Agreements based
upon a first-come, first accepted reservation or other similar method. Under no
circumstances will the Dealer Manager be obligated to underwrite or purchase any
Shares for its own account and, in soliciting purchases of Shares, the Dealer
Manager shall act solely as the Company’s agent and not as an underwriter or
principal.

 

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  (a)   Selected Dealers. The Shares offered and sold through the Dealer Manager
under this Agreement shall be offered and sold only by the Dealer Manager and
other securities dealers the Dealer Manager may retain (collectively the
“Selected Dealers”); provided, however, that:

  (i)   the Dealer Manager reasonably believes that all Selected Dealers are
registered with the Commission, members of FINRA and are duly licensed or
registered by the regulatory authorities in the jurisdictions in which they will
offer and sell Shares; and

  (ii)   all such engagements are evidenced by written agreements, the terms and
conditions of which substantially conform to the form of Selected Dealers
Agreement substantially in the form of Exhibit A hereto (the “Selected Dealers
Agreement”).

  (b)   Subscription Documents. Each person desiring to purchase Shares through
the Dealer Manager, or any other Selected Dealer, will be required to complete
and execute the subscription documents described in the Prospectus.

Until the minimum offering of $10,000,000 in Shares has been sold, payments for
Shares shall be made by checks payable to “UMB Bank, N.A., as Escrow Agent for
Carey Watermark Investors, Inc.” During such time, a Selected Dealer shall
forward original checks together with an original Subscription Agreement,
executed and initialed by the subscriber as provided for in the Subscription
Agreement, to UMB Bank, N.A. (the “Escrow Agent”) at the address provided in the
Subscription Agreement.
When a Selected Dealer’s internal supervisory procedures are conducted at the
site at which the Subscription Agreement and check were initially received by
the Selected Dealer from the subscriber, the Selected Dealer shall transmit the
Subscription Agreement and check to the Escrow Agent by the end of the next
business day following receipt of the check and Subscription Agreement. When,
pursuant to the Selected Dealer’s internal supervisory procedures, the Selected
Dealer’s final internal supervisory procedures are conducted at a different
location (the “Final Review Office”), the Selected Dealer shall transmit the
check and Subscription Agreement to the Final Review Office by the end of the
next business day following the Selected Dealer’s receipt of the Subscription
Agreement and check. The Final Review Office will, by the end of the next
business day following its receipt of the Subscription Agreement and check,
forward both the Subscription Agreement and check to the Escrow Agent. If any
Subscription Agreement solicited by the Selected Dealer is rejected by the
Dealer Manager or the Company, then the Subscription Agreement and check will be
returned to the rejected subscriber within 10 business days from the date of
rejection.
Once the minimum offering of $10,000,000 in Shares has been sold, subject to any
continuing escrow obligations imposed by certain states as described in the
Prospectus, payments for Shares shall be made payable to “Carey Watermark
Investors Incorporated.” At such time, the Selected Dealer shall forward
original checks together with an original Subscription Agreement, executed and
initialed by the subscriber as provided for in the Subscription Agreement, to
Carey Watermark Investors Incorporated, c/o Phoenix American Financial Services
Inc., at the address provided in the Subscription Agreement.

  (c)   Completed Sale. A sale of a Share shall be deemed by the Company to be
completed for purposes of Section 3(d) if and only if:

  (i)   the Company or an agent of the Company has received a properly completed
and executed subscription agreement, together with payment of the full purchase
price of each purchased Share, from an investor who satisfies the applicable
suitability standards and minimum purchase requirements set forth in the
Registration Statement as determined by the Selected Dealer or the Dealer
Manager, as applicable, in accordance with the provisions of this Agreement;

 

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  (ii)   the Company has accepted such subscription; and     (iii)   such
investor has been admitted as a shareholder of the Company.

In addition, no sale of Shares shall be completed until at least five
(5) business days after the date on which the subscriber receives a copy of the
Prospectus. The Dealer Manager hereby acknowledges and agrees that the Company,
in its sole and absolute discretion, may accept or reject any subscription, in
whole or in part, for any reason whatsoever or no reason, and no commission or
dealer manager fee will be paid to the Dealer Manager with respect to that
portion of any subscription which is rejected.

  (d)   Dealer-Manager Compensation.

  (i)   Subject to the volume discounts and other special circumstances
described in or otherwise provided in the “Plan of Distribution” section of the
Prospectus or this Section 3(d), the Company agrees to pay the Dealer Manager
selling commissions in the amount of seven percent (7.0%) of the selling price
of each Share for which a sale is completed from the Shares offered in the
Primary Offering. The Company will not pay selling commissions for sales of
Shares pursuant to the DRIP, and the Company will pay reduced selling
commissions or may eliminate commissions on certain sales of Shares, including
the reduction or elimination of selling commissions in accordance with, and on
the terms set forth in, the Prospectus. The Dealer Manager will reallow all the
selling commissions, subject to federal and state securities laws, to the
Selected Dealer who sold the Shares, as described more fully in the Selected
Dealers Agreement.

  (ii)   Subject to the special circumstances described in or otherwise provided
in the “Plan of Distribution” section of the Prospectus or this Section 3(d), as
compensation for acting as the dealer manager, the Company will pay the Dealer
Manager, a dealer manager fee in the amount of three percent (3.0%) of the
selling price of each Share for which a sale is completed from the Shares
offered in the Primary Offering (the “Dealer Manager Fee”). No Dealer Manager
Fee will be paid in connection with Shares sold pursuant to the DRIP.

The Dealer Manager may retain or re-allow all or a portion of the Dealer Manager
Fee, subject to federal and state securities laws, to the Selected Dealer who
sold the Shares, as described more fully in the Selected Dealers Agreement.

  (iii)   All sales commissions and Dealer Manager fees payable to the Dealer
Manager will be paid at least within ten (10) business days after the investor
subscribing for the Share is admitted as a shareholder of the Company, in an
amount equal to the sales commissions payable with respect to such Shares. The
Dealer Manager acknowledges that no commissions, payments or amount will be paid
to the Dealer Manager unless and until the gross proceeds of the Shares sold are
disbursed to the Company in accordance with the terms of the Escrow Agreement.

  (iv)   In no event shall the total aggregate underwriting compensation payable
to the Dealer Manager and any Selected Dealers participating in the Offering,
including, but not limited to, selling commissions and the Dealer Manager Fee
exceed ten percent (10.0%) of gross offering proceeds from the Primary Offering
in the aggregate.

 

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  (v)   Notwithstanding anything to the contrary contained herein, if the
Company pays any selling commission to the Dealer Manager for sale by a Selected
Dealer of one or more Shares and the subscription is rescinded as to one or more
of the Shares covered by such subscription, then the Company shall decrease the
next payment of selling commissions or other compensation otherwise payable to
the Dealer Manager by the Company under this Agreement by an amount equal to the
commission rate established in this Section 3(d), multiplied by the number of
Shares as to which the subscription is rescinded. If no payment of selling
commissions or other compensation is due to the Dealer Manager after such
withdrawal occurs, then the Dealer Manager shall pay the amount specified in the
preceding sentence to the Company within a reasonable period of time not to
exceed thirty (30) days following receipt of notice by the Dealer Manager from
the Company stating the amount owed as a result of rescinded subscriptions.

  (e)   Reasonable Bona Fide Due Diligence Expenses. In addition to any payments
to the Dealer Manager pursuant to Section 3(d), the Company shall reimburse the
Dealer Manager or any Selected Dealer for reasonable bona fide due diligence
expenses incurred by the Dealer Manager or any Selected Dealer to the extent
permitted pursuant to the rules and regulations of FINRA, provided, however,
that no due diligence expenses shall be reimbursed by the Company pursuant to
this Section 3(e) which would cause the aggregate of all of the Company’s
expenses described in Section 3(f) and compensation paid to the Dealer Manager
and any Selected Dealer pursuant to Section 3(d) to exceed 15% of the gross
proceeds from the sale of the Primary Shares. Also, the Company shall only
reimburse the Dealer Manager or any Selected Dealer for such approved bona fide
due diligence expenses to the extent such expenses have actually been incurred
and are supported by detailed and itemized invoice(s) provided to the Company.

  (f)   Company Expenses. Subject to the limitations described above, the
Company agrees to pay all costs and expenses incident to the Offering, whether
or not the transactions contemplated hereunder are consummated or this Agreement
is terminated, including expenses, fees and taxes in connection with:

  (i)   the registration fee, the preparation and filing of the Registration
Statement (including without limitation financial statements, exhibits,
schedules and consents), the Prospectus, and any amendments or supplements
thereto, and the printing and furnishing of copies of each thereof to the Dealer
Manager and to Selected Dealers (including costs of mailing and shipment);

  (ii)   the preparation, issuance and delivery of certificates, if any, for the
Shares, including any stock or other transfer taxes or duties payable upon the
sale of the Shares;

  (iii)   all fees and expenses of the Company’s legal counsel, independent
public or certified public accountants and other advisors;

  (iv)   the qualification of the Shares for offering and sale under state laws
in the states that the Company shall designate as appropriate and the
determination of their eligibility for sale under state law as aforesaid and the
printing and furnishing of copies of blue sky surveys;

 

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  (v)   the filing fees in connection with filing for review by FINRA of all
necessary documents and information relating to the Offering and the Shares;

  (vi)   the fees and expenses of any transfer agent or registrar for the
Offered Shares and miscellaneous expenses referred to in the Registration
Statement;

  (vii)   all costs and expenses incident to the travel and accommodation of the
personnel of Carey Lodging Advisors, LLC, advisor to the Company (the
“Advisor”), and the personnel of any sub-advisor designated by the Advisor and
acting on behalf of the Company, in making road show presentations and
presentations to Selected Dealers and other broker-dealers and financial
advisors with respect to the offering of the Shares; and     (viii)   the
performance of the Company’s other obligations hereunder.

Notwithstanding the foregoing, the Company shall not directly pay, or reimburse
the Advisor for, the costs and expenses described in this Section 3(f) if the
payment or reimbursement of such expenses would cause the aggregate of the
Company’s “organization and offering expenses” as defined by FINRA Rule 2310
(including the Company expenses paid or reimbursed pursuant to this
Section 3(f), all items of underwriting compensation including Dealer Manager
expenses described in Section 3(d) and due diligence expenses described in
Section 3(e)) to exceed 15.0% of the gross proceeds from the sale of the Primary
Shares.

4.   Conditions to the Dealer Manager’s Obligations. The Dealer Manager’s
obligations hereunder shall be subject to the following terms and conditions:

  (a)   The representations and warranties on the part of the Company contained
in this Agreement hereof shall be true and correct in all material respects and
the Company shall have complied with its covenants, agreements and obligations
contained in this Agreement in all material respects;

  (b)   The Registration Statement shall have become effective and no stop order
suspending the effectiveness of the Registration Statement shall have been
issued by the Commission and, to the best knowledge of the Company, no
proceedings for that purpose shall have been instituted, threatened or
contemplated by the Commission; and any request by the Commission for additional
information (to be included in the Registration Statement or Prospectus or
otherwise) shall have been complied with to the reasonable satisfaction of the
Dealer Manager.

5.   Covenants of the Company. The Company covenants and agrees with the Dealer
Manager as follows:

  (a)   Registration Statement. The Company will use its best efforts to cause
the Registration Statement and any subsequent amendments thereto to become
effective as promptly as possible and will furnish a copy of any proposed
amendment or supplement of the Registration Statement or the Prospectus to the
Dealer Manager.

  (b)   Commission Orders. If the Commission shall issue any stop order or any
other order preventing or suspending the use of the Prospectus, or shall
institute any proceedings for that purpose, then the Company will promptly
notify the Dealer Manager and use its best efforts to prevent the issuance of
any such order and, if any such order is issued, to use its best efforts to
obtain the removal thereof as promptly as possible.

 

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  (c)   Blue Sky Qualifications. The Company will use its best efforts to
qualify the Shares for offering and sale under the securities or blue sky laws
of such jurisdictions as the Dealer Manager and the Company shall mutually agree
upon and to make such applications, file such documents and furnish such
information as may be reasonably required for that purpose. The Company will, at
the Dealer Manager’s request, furnish the Dealer Manager with a copy of such
papers filed by the Company in connection with any such qualification. The
Company will promptly advise the Dealer Manager of the issuance by such
securities administrators of any stop order preventing or suspending the use of
the Prospectus or of the institution of any proceedings for that purpose, and
will use its best efforts to prevent the issuance of any such order and if any
such order is issued, to use its best efforts to obtain the removal thereof as
promptly as possible. The Company will furnish the Dealer Manager with a Blue
Sky Survey dated as of the initial Effective Date, which will be supplemented to
reflect changes or additions to the information disclosed in such survey.

  (d)   Amendments and Supplements. If, at any time when a Prospectus relating
to the Shares is required to be delivered under the Securities Act, any event
shall have occurred to the knowledge of the Company, or the Company receives
notice from the Dealer Manager that it believes such an event has occurred, as a
result of which the Prospectus or any Approved Sales Literature as then amended
or supplemented would include any untrue statement of a material fact, or omit
to state a material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, or if it is
necessary at any time to amend the Registration Statement or supplement the
Prospectus relating to the Shares to comply with the Securities Act, then the
Company will promptly notify the Dealer Manager thereof (unless the information
shall have been received from the Dealer Manager) and will prepare and file with
the Commission an amendment or supplement which will correct such statement or
effect such compliance to the extent required, and shall make available to the
Dealer Manager thereof sufficient copies for its own use and/or distribution to
the Selected Dealers.

  (e)   Requests from Commission. The Company will promptly advise the Dealer
Manager of any request made by the Commission or a state securities
administrator for amending the Registration Statement, supplementing the
Prospectus or for additional information.

  (f)   Copies of Registration Statement. The Company will furnish the Dealer
Manager with one signed copy of the Registration Statement, including its
exhibits, and such additional copies of the Registration Statement, without
exhibits, and the Prospectus and all amendments and supplements thereto, which
are finally approved by the Commission, as the Dealer Manager may reasonably
request for sale of the Shares.

  (g)   Qualification to Transact Business. The Company will take all steps
necessary to ensure that at all times the Company will validly exist as a
Maryland corporation and will be qualified to do business in all jurisdictions
in which the conduct of its business requires such qualification and where such
qualification is required under local law.

  (h)   Authority to Perform Agreements. The Company undertakes to obtain all
consents, approvals, authorizations or orders of any court or governmental
agency or body which are required for the Company’s performance of this
Agreement and under the Bylaws and the Articles of Amendment and Restatement in
the form included as exhibits to the Registration Statement for the consummation
of the transactions contemplated hereby and thereby, respectively, or the
conducting by the Company of the business described in the Prospectus.

 

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  (i)   Sales Literature. The Company will furnish to the Dealer Manager as
promptly as shall be practicable upon request any Approved Sales Literature
(provided that the use of said material has been first approved for use to the
extent required by all appropriate regulatory agencies). Any supplemental sales
literature or advertisement, regardless of how labeled or described, used in
addition to the Prospectus in connection with the Offering which is furnished or
approved by the Company (including, without limitation, Approved Sales
Literature) shall, to the extent required, be filed with and, to the extent
required, approved by the appropriate securities agencies and bodies, provided
that the Dealer Manager will make all FINRA filings, to the extent required.

  (j)   Use of Proceeds. The Company will apply the proceeds from the sale of
the Shares as set forth in the Prospectus.

  (k)   Customer Information. The Dealer Manager and the Company shall, when
applicable:

  (i)   abide by and comply with (A) the privacy standards and requirements of
the Gramm-Leach-Bliley Act of 1999 (the “GLB Act”) and applicable regulations
promulgated thereunder, (B) the privacy standards and requirements of any other
applicable federal or state law, including but not limited to, the Fair Credit
Reporting Act (“FCRA”), and (C) its own internal privacy policies and
procedures, each as may be amended from time to time;

  (ii)   refrain from the use or disclosure of nonpublic personal information
(as defined under the GLB Act) of all customers who have opted out of such
disclosures except as necessary to service the customers or as otherwise
necessary or required by applicable law;

  (iii)   except as expressly permitted under the FCRA, the Dealer Manager and
the Company shall not disclose any information that would be considered a
“consumer report” under the FCRA; and

  (iv)   determine which customers have opted out of the disclosure of nonpublic
personal information by periodically reviewing and, if necessary, retrieving an
aggregated list of such customers from the Selected Dealers (the “List”) to
identify customers that have exercised their opt-out rights. If either party
uses or discloses nonpublic personal information of any customer for purposes
other than servicing the customer, or as otherwise required by applicable law,
that party will consult the List to determine whether the affected customer has
exercised his or her opt-out rights. Each party understands that it is
prohibited from using or disclosing any nonpublic personal information of any
customer that is identified on the List as having opted out of such disclosures.

  (l)   Dealer Manager’s Review of Proposed Amendments and Supplements. Prior to
amending or supplementing the Registration Statement, any preliminary prospectus
or the Prospectus (including any amendment or supplement through incorporation
of any report filed under the Exchange Act), the Company shall furnish to the
Dealer Manager for review, a reasonable amount of time prior to the proposed
time of filing or use thereof, a copy of each such proposed amendment or
supplement, and the Company shall not file or use any such proposed amendment or
supplement without the Dealer Manager’s consent, which consent shall not be
unreasonably withheld or delayed.

 

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6.   Covenants of the Dealer Manager. The Dealer Manager covenants and agrees
with the Company as follows:

  (a)   Compliance With Laws. With respect to the Dealer Manager’s participation
and the participation by each Selected Dealer in the offer and sale of the
Shares (including, without limitation, any resales and transfers of Shares), the
Dealer Manager agrees, and each Selected Dealer in its Selected Dealer Agreement
will agree, to comply in all material respects with all applicable requirements
of the Securities Act, the Securities Act Rules and Regulations, the Exchange
Act, the Exchange Act Rules and Regulations and all other federal regulations
applicable to the Offering, the sale of Shares and with all applicable state
securities or blue sky laws, and the Rules of FINRA applicable to the Offering,
from time to time in effect, specifically including, but not in any way limited
to, NASD Conduct Rules 2340, 2420, 2730, 2740, 2750 and FINRA Rule 2310 therein.
The Dealer Manager will not offer the Shares for sale in any jurisdiction unless
and until it has been advised that the Shares are either registered in
accordance with, or exempt from, the securities and other laws applicable
thereto.

In addition, the Dealer Manager shall, in accordance with applicable law or as
prescribed by any state securities administrator, provide, or require in the
Selected Dealer Agreement that the Selected Dealer shall provide, to any
prospective investor copies of any prescribed document which is part of the
Registration Statement and any supplements thereto during the course of the
Offering and prior to the sale. The Company may provide the Dealer Manager with
certain Approved Sales Literature to be used by the Dealer Manager and the
Selected Dealers in connection with the solicitation of purchasers of the
Shares. The Dealer Manager agrees not to deliver the Approved Sales Literature
to any person prior to the initial Effective Date. If the Dealer Manager elects
to use such Approved Sales Literature after the initial Effective Date, then the
Dealer Manager agrees that such material shall not be used by it in connection
with the solicitation of purchasers of the Shares and that it will direct
Selected Dealers not to make such use unless accompanied or preceded by the
Prospectus, as then currently in effect, and as it may be amended or
supplemented in the future.
The Dealer Manager agrees that it will not use any Approved Sales Literature
other than those provided to the Dealer Manager by the Company for use in the
Offering. The use of any other sales material is expressly prohibited.

  (b)   No Additional Information. In offering the Shares for sale, the Dealer
Manager shall not, and each Selected Dealer shall agree not to, give or provide
any information or make any representation other than those contained in the
Prospectus or the Approved Sales Literature.

  (c)   Sales of Shares. The Dealer Manager shall, and each Selected Dealer
shall agree to, solicit purchases of the Shares only in the jurisdictions in
which the Dealer Manager and such Selected Dealer are legally qualified to so
act and in which the Dealer Manager and each Selected Dealer have been advised
by the Company or counsel to the Company that such solicitations can be made.

  (d)   Subscription Agreement. The Dealer Manager will comply in all material
respects with the subscription procedures and “Plan of Distribution” set forth
in the Prospectus. Subscriptions will be submitted by the Dealer Manager and
each Selected Dealer to the Company only on the form which is included as
Exhibit C to the Prospectus. The Dealer Manager understands and acknowledges,
and each Selected Dealer shall acknowledge, that the Subscription Agreement must
be executed and initialed by the subscriber as provided for by the Subscription
Agreement.

 

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  (e)   Suitability. The Dealer Manager will offer Shares, and in its agreement
with each Selected Dealer will require that the Selected Dealer offer Shares,
only to persons that it has reasonable grounds to believe 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 by the Company that the Shares are
qualified for sale or that such qualification is not required. In offering
Shares, the Dealer Manager will comply, and in its agreements with the Selected
Dealers, the Dealer Manager will require that the Selected Dealers comply, with
the provisions of all applicable rules and regulations relating to suitability
of investors, including without limitation the FINRA Rules and the provisions of
Article III.C. of the Statement of Policy Regarding Real Estate Investment
Trusts of the North American Securities Administrators Association, Inc., as
revised and amended on May 7, 2007 and as may be further revised and amended
(the “NASAA Guidelines”).

The Dealer Manager agrees that in recommending the purchase of the Shares in the
Primary Offering to an investor, the Dealer Manager and each person associated
with the Dealer Manager that make such recommendation shall have, and each
Selected Dealer in its Selected Dealer Agreement shall agree with respect to
investors to which it makes a recommendation shall agree that it shall have,
reasonable grounds to believe, on the basis of information obtained from the
investor concerning the investor’s investment objectives, other investments,
financial situation and needs, and any other information known by the Dealer
Manager, the person associated with the Dealer Manager or the Selected Dealer
that:

  (i)   the investor is or will be in a financial position appropriate to enable
the investor to realize to a significant extent the benefits described in the
Prospectus, including the tax benefits where they are a significant aspect of
the Company;

  (ii)   the investor has a fair market net worth sufficient to sustain the
risks inherent in the program, including loss of investment and lack of
liquidity; and

  (iii)   an investment in the Shares offered in the Primary Offering is
otherwise suitable for the investor.

The Dealer Manager agrees as to investors to whom it makes a recommendation with
respect to the purchase of the Shares in the Primary Offering (and each Selected
Dealer in its Selected Dealer Agreement shall agree, with respect to Investors
to whom it makes such recommendations) to maintain in the files of the Dealer
Manager (or the Selected Dealer, as applicable) documents disclosing the basis
upon which the determination of suitability was reached as to each investor.
In making the determinations as to financial qualifications and as to
suitability required by the NASAA Guidelines, the Dealer Manager and Selected
Dealers may rely on (A) representations from investment advisers who are not
affiliated with a Selected Dealer, banks acting as trustees or fiduciaries, and
(B) information it has obtained from a prospective investor, including such
information as the investment objectives, other investments, financial situation
and needs of the person or any other information known by the Dealer Manager (or
Selected Dealer, as applicable), after due inquiry. Notwithstanding the
foregoing, the Dealer Manager shall not, and each Selected Dealer shall agree
not to, execute any transaction in the Company in a discretionary account
without prior written approval of the transaction by the customer.

  (f)   Selected Dealer Agreements. All engagements of the Selected Dealers will
be evidenced by a Selected Dealer Agreement.

 

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  (g)   Electronic Delivery. If it intends to use electronic delivery to
distribute the Prospectus to any person, that it will comply with all applicable
requirements of the Commission, the Blue Sky laws and/or FINRA and any other
laws or regulations related to the electronic delivery of documents.

  (h)   AML Compliance. The Dealer Manager represents to the Company that it has
established and implemented an anti-money laundering compliance program (“AML
Program”) in accordance with Section 352 of the USA PATRIOT Act of 2001 (the
“PATRIOT Act”) and FINRA Rule 3310, that complies with applicable anti-money
laundering laws and regulations, including, but not limited to, the customer
identification program requirements of Section 326 of the PATRIOT Act, and the
suspicious activity reporting requirements of Section 356 of the PATRIOT Act,
and the laws, regulations and Executive Orders administered by the Office of
Foreign Assets Control (“OFAC”) of the U.S. Department of Treasury
(collectively, “AML/OFAC Laws”). The Dealer Manager hereby covenants to remain
in compliance with the AML/OFAC Laws and shall, upon request by the Company,
provide a certification to the Company that, as of the date of such
certification, its AML Program is compliant with the AML/OFAC Laws.

  (i)   Customer Information. The Dealer Manager will use its best efforts to
provide the Company with any and all subscriber information that the Company
requests in order for the Company to satisfy its obligations under the AML/OFAC
Laws and comply with the requirements under Section 5(k) above.

  (j)   Recordkeeping. The Dealer Manager will comply, and will require each
Selected Dealer to comply, with the record keeping requirements of the Exchange
Act, including, but not limited to, Rules 17a-3 and 17a-4 promulgated under the
Exchange Act, and shall maintain, for at least six years or for a period of time
not less than that required in order to comply with all applicable federal,
state and other regulatory requirements, whichever is later, such records with
respect to each investor who purchases Primary Shares, information used to
determine that the investor meets the suitability standards imposed on the offer
and sale of the Primary Shares, the amount of Primary Shares sold, and a
representation of the investor that the investor is investing for the investor’s
own account or, in lieu of such representation, information indicating that the
investor for whose account the investment was made met the suitability
standards.

  (k)   Suspension or Termination of Offering. The Dealer Manager agrees, and
will require that each of the Selected Dealers agree, to suspend or terminate
the offering and sale of the Primary Shares upon request of the Company at any
time and to resume the offering and sale of the Primary Shares upon subsequent
request of the Company.

7.   Indemnification.

  (a)   Indemnified Parties Defined. For the purposes of this Agreement, an
“Indemnified Party” shall mean a person or entity entitled to indemnification
under Section 7, as well as such person’s or entity’s officers, directors,
employees, members, partners, affiliates, agents and representatives, and each
person, if any, who controls such person or entity within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act.

 

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  (b)   Indemnification of the Dealer Manager and Selected Dealers. The Company
will indemnify, defend and hold harmless the Dealer Manager and the Selected
Dealers, and their respective Indemnified Parties, from and against any losses,
claims, expenses (including reasonable legal and other expenses incurred in
investigating and defending such claims or liabilities), damages or liabilities,
joint or several, to which any such Selected Dealers or the Dealer Manager, or
their respective Indemnified Parties, may become subject under the Securities
Act, the Exchange Act or otherwise, insofar as such losses, claims, expenses,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon:

  (i)   in whole or in part, any material inaccuracy in a representation or
warranty contained herein by the Company, any material breach of a covenant
contained herein by the Company, or any material failure by the Company to
perform its obligations hereunder or to comply with state or federal securities
laws applicable to the Offering;

  (ii)   any untrue statement or alleged untrue statement of a material fact
contained (A) in any Registration Statement or any post-effective amendment
thereto or in the Prospectus or any amendment or supplement to the Prospectus,
(B) in any Approved Sales Literature or (C) 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 Offered 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

  (iii)   the omission or alleged omission to state a material fact required to
be stated in the Registration Statement or any post-effective amendment thereof
to make the statements therein not misleading or the omission or alleged
omission to state a material fact required to be stated in the Prospectus or any
amendment or supplement to the prospectus to make the statements therein, in
light of the circumstances under which they were made, not misleading.

The Company will reimburse each Selected Dealer or the Dealer Manager, and their
respective Indemnified Parties, for any reasonable legal or other expenses
incurred by such Selected Dealer or the Dealer Manager, and their respective
Indemnified Parties, in connection with investigating or defending such loss,
claim, expense, damage, liability or action; provided, however, that the Company
will not be liable in any such case to the extent that any such loss, claim,
expense, damage or liability 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 to the Company by the
Dealer Manager expressly for use in the Registration Statement or any
post-effective amendment thereof or the Prospectus or any such amendment thereof
or supplement thereto. This indemnity agreement will be in addition to any
liability which the Company may otherwise have.
Notwithstanding the foregoing, as required by Section II.G. of the NASAA REIT
Guidelines, the indemnification and agreement to hold harmless provided in this
Section 8(b) is further limited to the extent that no such indemnification by
the Company of a Selected Dealer or the Dealer Manager, or their respective
Indemnified Parties, shall be permitted under this Agreement for, or arising out
of, an alleged violation of federal or state securities laws, unless one or more
of the following conditions are met: (a) there has been a successful
adjudication on the merits of each count involving alleged securities law
violations as to the particular Indemnified Party; (b) such claims have been
dismissed with prejudice on the merits by a court of competent jurisdiction as
to the particular Indemnified Party; or (c) a court of competent jurisdiction
approves a settlement of the claims against the particular Indemnified Party 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 Commission and of the published position of any state
securities regulatory authority in which the securities were offered or sold as
to indemnification for violations of securities laws.

 

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  (c)   Dealer Manager Indemnification of the Company. The Dealer Manager will
indemnify, defend and hold harmless the Company and each of its Indemnified
Parties and each person who has signed the Registration Statement, from and
against any losses, claims, expenses (including the reasonable legal and other
expenses incurred in investigating and defending any such claims or
liabilities), damages or liabilities to which any of the aforesaid parties may
become subject under the Securities Act, the Exchange Act or otherwise, insofar
as such losses, claims, expenses, damages (or actions in respect thereof) arise
out of or are based upon:

  (i)   in whole or in part, any material inaccuracy in a representation or
warranty contained herein by the Dealer Manager or any material breach of a
covenant contained herein by the Dealer Manager;

  (ii)   any untrue statement or any alleged untrue statement of a material fact
contained (A) in any Registration Statement or any post-effective amendment
thereto or in the Prospectus or any amendment or supplement to the Prospectus,
(B) in any Approved Sales Literature, or (C) any Blue Sky Application; or

  (iii)   the omission or alleged omission to state a material fact required to
be stated in the Registration Statement or any post-effective amendment thereof
to make the statements therein not misleading, or the omission or alleged
omission to state a material fact required to be stated in the Prospectus or any
amendment or supplement to the Prospectus to make the statements therein, in
light of the circumstances under which they were made, not misleading; provided,
however, that in each case described in clauses (ii) and (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 the Dealer Manager expressly for use in the Registration Statement or
any such post-effective amendments thereof or the Prospectus or any such
amendment thereof or supplement thereto;

  (iv)   any use of sales literature, including “broker-dealer use only”
materials, by the Dealer Manager that is not Approved Sales Literature; or

  (v)   any untrue statement made by the Dealer Manager or omission by the
Dealer Manager to state a fact necessary in order to make the statements made,
in light of the circumstances under which they were made, not misleading in
connection with the Offering, in each case, other than statements or omissions
made in conformity with the Registration Statement, the Prospectus, any Approved
Sales Literature or any other materials or information furnished by or on behalf
on the Company.

The Dealer Manager will reimburse the aforesaid parties for any reasonable legal
or other expenses incurred in connection with investigation or defense of such
loss, claim, expense, damage, liability or action. This indemnity agreement will
be in addition to any liability which the Dealer Manager may otherwise have.

 

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  (d)   Selected Dealer Indemnification of the Company. By virtue of entering
into the Selected Dealer Agreement, each Selected Dealer severally will agree to
indemnify, defend and hold harmless the Company, the Dealer Manager, each of
their respective Indemnified Parties, and each person who signs the Registration
Statement, from and against any losses, claims, expenses, damages or liabilities
to which the Company, the Dealer Manager, or any of their respective Indemnified
Parties, or any person who signed the Registration Statement, may become
subject, under the Securities Act or otherwise, as more fully described in the
Selected Dealer Agreement.

  (e)   Action Against Parties; Notification. Promptly after receipt by any
Indemnified Party under this Section 7 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 7, promptly notify the
indemnifying party of the commencement thereof; provided, however, that the
failure to give such notice shall not relieve the indemnifying party of its
obligations hereunder except to the extent it shall have been actually
prejudiced by such failure. 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
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, and unconditional release of all liabilities
from, 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, such consent not to be unreasonably withheld or delayed.

  (f)   Reimbursement of Fees and Expenses. An indemnifying party under
Section 7 of this Agreement shall be obligated to reimburse an Indemnified Party
for reasonable legal and other expenses as follows:

  (i)   In the case of the Company indemnifying the Dealer Manager, the
advancement of funds to the Dealer Manager for legal expenses and other costs
incurred as a result of any legal action for which indemnification is being
sought shall be permissible (in accordance with Section II.G. of the NASAA REIT
Guidelines) only if all of the following conditions are satisfied: (A) the legal
action relates to acts or omissions with respect to the performance of duties or
services on behalf of the Company; (B) the legal action is initiated by a third
party who is not a shareholder of the Company or the legal action is initiated
by a shareholder of the Company acting in his or her capacity as such and a
court of competent jurisdiction specifically approves such advancement; and
(C) the Dealer Manager undertakes to repay the advanced funds to the Company,
together with the applicable legal rate of interest thereon, in cases in which
the Dealer Manager is found not to be entitled to indemnification.

  (ii)   In any case of indemnification other than that described in
Section 7(f)(i) above, the indemnifying party shall pay all legal fees and
expenses reasonably incurred by the Indemnified Party in the defense of such
claims or actions; provided, however, that the indemnifying party shall not be
obligated 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 (in addition to local
counsel) that has been participating by a majority of the indemnified parties
against which such action is finally brought; and if 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.

 

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8.   Contribution.

  (a)   If Indemnification is Unavailable. If the indemnification provided for
in Section 7 is for any reason unavailable to or insufficient to hold harmless
an Indemnified Party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages 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, the Dealer Manager and the Selected Dealer,
respectively, from the proceeds received in Primary Offering pursuant to this
Agreement and the relevant Selected Dealer Agreement; 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) above but also the relative fault of the
Company, the Dealer Manager and the Selected Dealer, respectively, in connection
with the statements or omissions which resulted in such losses, liabilities,
claims, damages or expenses, as well as any other relevant equitable
considerations.

  (b)   Relative Benefits. The relative benefits received by the Company, the
Dealer Manager and the Selected Dealer, respectively, in connection with the
proceeds received in the Primary Offering pursuant to this Agreement and the
relevant Selected Dealer Agreement shall be deemed to be in the same respective
proportion as the total net proceeds from the Primary Offering pursuant to this
Agreement and the relevant Selected Dealer Agreement (before deducting
expenses), received by the Company, and the total selling commissions and dealer
manager fees received by the Dealer Manager and the Selected Dealer,
respectively, in each case as set forth on the cover of the Prospectus bear to
the aggregate offering price of the Shares sold in the Primary Offering as set
forth on such cover.

  (c)   Relative Fault. The relative fault of the Company, the Dealer Manager
and the Selected Dealer, respectively, 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 related
to information supplied by the Company, by the Dealer Manager or by the Selected
Dealer, respectively, and the parties’ relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.

 

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  (d)   Pro Rata is Unreasonable. The Company, the Dealer Manager and the
Selected Dealer (by virtue of entering into the Selected Dealer Agreement) agree
that it would not be just and equitable if contribution pursuant to this
Section 8 were determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable contributions referred
to above in this Section 8. The aggregate amount of losses, liabilities, claims,
damages and expenses incurred by an Indemnified Party and referred to above in
this Section 8 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 statement or omission or alleged omission.

  (e)   Limits. Notwithstanding the provisions of this Section 8, the Dealer
Manager and the Selected Dealer shall not be required to contribute any amount
by which the total price at which the Shares sold in the Primary Offering to the
public by them exceeds the amount of any damages which the Dealer Manager and
the Selected Dealer have otherwise been required to pay by reason of any untrue
or alleged untrue statement or omission or alleged omission.

  (f)   Fraudulent Misrepresentation. No party guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any party who was not guilty of such
fraudulent misrepresentation.

  (g)   Benefits of Contribution. For the purposes of this Section 8, the Dealer
Manager’s officers, directors, employees, members, partners, agents and
representatives, and each person, if any, who controls the Dealer Manager within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act shall have the same rights to contribution of the Dealer Manager, and each
officers, directors, employees, members, partners, agents and representatives of
the Company, each officer of the Company who signed the Registration Statement
and each person, if any, who controls the Company, within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act shall have
the same rights to contribution of the Company. The Selected Dealers’ respective
obligations to contribute pursuant to this Section 8 are several in proportion
to the number of Shares sold by each Selected Dealer in the Primary Offering and
not joint.

9.   Termination of this Agreement.

  (a)   Term; Expiration. This Agreement shall become effective on the initial
Effective Date and the obligations of the parties hereunder shall not commence
until the initial Effective Date. This Agreement may be terminated by either
party upon 60 calendar days’ written notice to the other party. This Agreement
shall automatically expire on the termination date of the Offering as described
in the Prospectus.

  (b)   Delivery of Records Upon Expiration or Early Termination. Upon the
expiration or early termination of this Agreement for any reason, the Dealer
Manager shall:

  (i)   promptly forward any and all funds, if any, in its possession which were
received from investors for the sale of Shares into the Escrow Account for the
deposit of investor funds;

  (ii)   to the extent not previously provided to the Company a list of all
investors who have subscribed for or purchased shares and all broker-dealers
with whom the Dealer Manager has entered into a Selected Dealer Agreement;

  (iii)   notify Selected Dealers of such termination; and

  (iv)   promptly deliver to the Company copies of any sales literature designed
for use specifically for the Offering that it is then in the process of
preparing. Upon expiration or earlier termination of this Agreement, the Company
shall pay to the Dealer Manager all compensation to which the Dealer Manager is
or becomes entitled under Section 3(d) at such time as such compensation becomes
payable.

 

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10.   Miscellaneous

  (a)   Survival. The following provisions of the Agreement shall survive the
expiration or earlier termination of this Agreement: Section 3(d)
(Dealer-Manager Compensation); Section 5(l) (Dealer-Manager’s Review of Proposed
Amendments and Supplements); Section 6(i) (AML Compliance); Section 7
(Indemnification); Section 8 (Contribution); Section 9 (Termination of This
Agreement) and this Section 10 (Miscellaneous). Notwithstanding anything else
that may be to the contrary herein, the expiration or earlier termination of
this Agreement shall not relieve a party for liability for any breach occurring
prior to such expiration or earlier termination. In no event shall the Dealer
Manager be entitled to payment of any compensation in connection with the
Offering that is not completed according to this Agreement; provided, however,
that the reimbursement of out-of-pocket accountable expenses actually incurred
by the Dealer Manager or person associated with the Dealer Manager shall not be
presumed to be unfair or unreasonable and shall be payable under normal
circumstances.

  (b)   Notices. All notices or other communications required or permitted
hereunder, except as herein otherwise specifically provided, shall be in writing
and shall be deemed given or delivered: (i) when delivered personally or by
commercial messenger; (ii) one business day following deposit with a recognized
overnight courier service, provided such deposit occurs prior to the deadline
imposed by such service for overnight delivery; (iii) when transmitted, if sent
by facsimile copy, provided confirmation of receipt is received by sender and
such notice is sent by an additional method provided hereunder; in each case
above provided such communication is addressed to the intended recipient thereof
as set forth below:

If to the Company:
Carey Watermark Investors Incorporated
50 Rockefeller Plaza
New York, New York 10020
Facsimile No.: (_____) _____-_____
Attention: Mr. Michael G. Medzigian
with a copy to:
Clifford Chance US LLP
31 West 52nd Street
New York, New York 10019
Facsimile No.: (_____) _____-_____
Attention: Kathleen L. Werner, Esq.
If to the Dealer Manager:
Carey Financial, LLC
50 Rockefeller Plaza
New York, New York 10020
Facsimile No.: (_____) _____-_____
Attention: Mr. Richard J. Paley

 

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with a copy to:
Kunzman & Bollinger, Inc.
5100 N. Brookline Avenue, Suite 600
Oklahoma City, Oklahoma 73112
Facsimile No: (405) 942-3501
Attention: Wallace W. Kunzman, Jr.
Any party may change its address specified above by giving each party notice of
such change in accordance with this Section 10(b).

  (c)   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.

  (d)   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.

  (e)   Applicable Law. This Agreement and any disputes relative to the
interpretation or enforcement hereto shall be governed by and construed under
the internal laws, as opposed to the conflicts of laws provisions, of the State
of New York.

  (f)   Waiver. EACH OF THE PARTIES HERETO WAIVES ALL RIGHT TO TRIAL BY JURY IN
ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT
OR OTHERWISE) RELATED TO OR ARISING OUT OF THIS AGREEMENT. The parties hereto
each hereby irrevocably submits to the exclusive jurisdiction of the courts of
the State of New York and the Federal courts of the United States of America
located in the Borough of Manhattan, New York City, in respect of the
interpretation and enforcement of the terms of this Agreement, and in respect of
the transactions contemplated hereby, and each hereby waives, and agrees not to
assert, as a defense in any action, suit or proceeding for the interpretation or
enforcement hereof, that it is not subject thereto or that such action, suit or
proceeding may not be brought or is not maintainable in said courts or that the
venue thereof may not be appropriate or that this Agreement may not be enforced
in or by such courts, and the parties hereto each hereby irrevocably agrees that
all claims with respect to such action or proceeding shall be heard and
determined in such a New York State or Federal court.

  (g)   Attorneys’ Fees. If a dispute arises concerning the performance, meaning
or interpretation of any provision of this Agreement or any document executed in
connection with this Agreement, then the prevailing party in such dispute shall
be awarded any and all costs and expenses incurred by the prevailing party in
enforcing, defending or establishing its rights hereunder or thereunder,
including, without limitation, court costs and attorneys and expert witness
fees. In addition to the foregoing award of costs and fees, the prevailing also
shall be entitled to recover its attorneys’ fees incurred in any post-judgment
proceedings to collect or enforce any judgment.

 

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  (h)   No Partnership. Nothing in this Agreement shall be construed or
interpreted to constitute the Dealer Manager or the Selected Dealer as being in
association with or in partnership with the Company or one another, and instead,
this Agreement only shall constitute the Selected Dealer as a broker authorized
by the Company to sell and to manage the sale by others of the Shares according
to the terms set forth in the Registration Statement, the Prospectus or this
Agreement. Nothing herein contained shall render the Dealer Manager or the
Company liable for the obligations of any of the Selected Dealers or one
another.

  (i)   Third Party Beneficiaries. Except for the persons and entities referred
to in Section 7 (Indemnification) and Section 8 (Contribution), there shall be
no third party beneficiaries of this Agreement, and 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. Except for the persons and entities referred to in
Section 7 and Section 8, no third party shall by virtue of any provision of this
Agreement have a right of action or an enforceable remedy against any party to
this Agreement. Each of the persons and entities referred to in Section 7 and
Section 8 shall be a third party beneficiary of this Agreement.

  (j)   Entire Agreement. This Agreement contains the entire agreement and
understanding among the parties hereto with respect to the subject matter
hereof, and supersedes all prior and contemporaneous agreements, understandings,
inducements and conditions, express or implied, oral or written, of any nature
whatsoever with respect to the subject matter hereof. The express terms hereof
control and supersede any course of performance and/or usage of the trade
inconsistent with any of the terms hereof. This Agreement may not be modified or
amended other than by an agreement in writing.

  (k)   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.

  (l)   Access to Information. The Company may authorize the Company’s transfer
agent to provide information to the Dealer Manager and each Selected Dealer
regarding recordholder information about the clients of such Selected Dealer who
have invested with the Company on an on-going basis for so long as such Selected
Dealer has a relationship with such clients. The Dealer Manager shall require in
the Selected Dealer Agreement that Selected Dealers not disclose any password
for a restricted website or portion of website provided to such Selected Dealer
in connection with the Offering and not disclose to any person, other than an
officer, director, employee or agent of such Selected Dealers, any material
downloaded from such a restricted website or portion of a restricted website.

  (m)   Counterparts. This Agreement may be executed (including by facsimile
transmission) with counterpart signature pages or in counterpart copies, each of
which shall be deemed an original but all of which together shall constitute one
and the same instrument comprising this Agreement.

 

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  (n)   Absence of Fiduciary Relationships. The parties acknowledge and agree
that:

  (i)   the Dealer Manager’s responsibility to the Company is solely contractual
in nature; and

  (ii)   the Dealer Manager does not owe the Company, any of its affiliates or
any other person or entity any fiduciary (or other similar) duty as a result of
this Agreement or any of the transactions contemplated hereby.

If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return it to us, whereupon this instrument will become a binding
agreement between you and the Company in accordance with its terms.
[Signatures on following page]

 

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IN WITNESS WHEREOF, the parties hereto have each duly executed this Dealer
Manager Agreement as of the day and year set forth above.

            THE COMPANY:

CAREY WATERMARK INVESTORS INCORPORATED
      By:   /s/ Thomas E. Zacharias         Name:   Thomas E. Zacharias       
Title:   Chief Operating Officer   

Accepted as of the date first above written:

            THE DEALER MANAGER:

CAREY FINANCIAL, LLC
      By:   /s/ Mark Goldberg         Name:   Mark Goldberg        Title:  
President   

[Signature Page to Dealer Manager Agreement]

 

 

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EXHIBIT A
FORM OF SELECTED DEALER AGREEMENT