Document:

Exhibit 10.3

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

 

 

 

	 	(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;

 

10

 

	 	(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.

 

11

 

	 	(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.

 

12

 

	 	(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.

 

13

 

	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.

 

14

 

	 	(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.

 

15

 

	 	(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.

 

16

 

	 	(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.

 

17

 

	 	(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.

 

18

 

	 	(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.

 

19

 

	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.

 

20

 

	 	(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.

 

21

 

	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

 

22

 

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.

 

23

 

	 	(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.

 

24

 

	 	(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]

 

25

 

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]

 

 

 

EXHIBIT A

FORM OF SELECTED DEALER AGREEMENTExhibit 10.4

Exhibit 10.4

FORM OF ESCROW AGREEMENT 

THIS ESCROW AGREEMENT (this “Agreement”) made and entered into as of this 15th day of
September, 2010 by and among Carey Financial, LLC, a Delaware limited liability company (the
“Dealer Manager”), Carey Watermark Investors Incorporated, a Maryland corporation (the
“Company”), and UMB Bank, N.A., as escrow agent, a national banking association organized
and existing under the laws of the United States of America (the “Escrow Agent”).

RECITALS

WHEREAS, the Company has filed with the Securities and Exchange Commission a registration
statement on Form S-11 (File No. 333-149899), containing a preliminary prospectus for the
registration of the Shares under the Securities Act of 1933, as amended (the “Securities
Act”), and the regulations thereunder (the “Regulations”). The registration statement
and any amendments thereto, and any registration statement related thereto filed under Rule 462(b)
of the Securities Act are herein called the “Registration Statement.” Any prospectus
relating to such Registration Statement and any amendments thereto are herein called the
“Prospectus.”

WHEREAS, the Company proposes to offer and sell, on a best efforts basis through the Dealer
Manager and a group of selected dealers (each a “Selected Dealer”, collectively the
“Selected Dealers”) and directly to a group of selected investment advisors (each a
“Selected Investment Advisor”, collectively the “Select Investment Advisors”) up to
100,000,000 shares of its shares of common stock (the “Shares”), on a best-efforts basis
(the “Offering”) to investors pursuant to the Company’s Prospectus.

WHEREAS, the Company has agreed that the subscription price paid by subscribers for shares
will be refunded to such subscribers if at least $10,000,000 Shares of gross offering proceeds (the
“Minimum Offering”) has not been raised within six months from the date the Registration
Statement becomes effective with the Securities and Exchange Commission, or if the Company elects
to extend the date to a period no longer than one year (the “Closing Date”).

WHEREAS, the Dealer Manager and the Company, in compliance with the terms of the proposed
offering described in the Registration Statement and Rule 15c2-4 under the Securities and Exchange
Act of 1934, as amended (the “Exchange Act”), desire to establish an escrow account (the
“Escrow Account”), as further described herein in which funds received from subscribers
will, except as otherwise specified herein, be deposited into an interest-bearing account entitled
“Carey Watermark Investors Incorporated Subscription Account” and the Company desires that UMB
Bank, N.A. act as escrow agent to the Escrow Account and Escrow Agent is willing to act in such
capacity.

WHEREAS, deposits received from residents of the State of Pennsylvania (the “Pennsylvania
Subscribers”) will remain in the Escrow Account until the conditions of Sections 3 and 4
hereof, respectively, have been met.

WHEREAS, in order to subscribe for Shares during the Escrow Period (as defined below), a
subscriber must deliver an executed order form along with the full amount of its subscription: (i) by check made payable to the order of UMB Bank, N.A., as Escrow Agent for
Carey Watermark Investors Incorporated, in U.S. dollars or (ii) by wire transfer of immediately
available funds or Automated ClearingHouse (ACH) in U.S. dollars, made payable as provided in
Exhibit B.

 

 

 

AGREEMENT

NOW, THEREFORE, in consideration of the premises and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged by the parties, the parties covenant
and agree as follows:

1. Establishment of Escrow Account; Escrow Period. On or prior to the commencement of the
offering of Shares pursuant to the Prospectus, the Company shall establish the Escrow Account with
the Escrow Agent, which shall be entitled “UMB Bank, N.A., as Escrow Agent for Carey Watermark
Investors Incorporated”. This Agreement shall be effective on the date on which the Registration
Statement becomes effective. Except as otherwise set forth herein for the Pennsylvania
Subscribers, the escrow period shall commence upon the effectiveness of this Agreement and shall
continue until the earlier of (i) the date upon which the Escrow Agent receives confirmation from
the Company and the Dealer Manager that the Company has raised the Minimum Offering, (ii) the
Closing Date, or (iii) the termination of the Offering by the Company prior to the receipt of the
Minimum Offering (the “Escrow Period”).

2. Operation of the Escrow.

(a) Deposits in the Escrow Account. During the Escrow Period, persons subscribing to
purchase Shares will be instructed by the Company, the Dealer Manager and the Selected Dealers
to make checks for subscriptions payable to the order of “UMB Bank, N.A., as Escrow Agent for
Carey Watermark Investors Incorporated.” When a Selected Dealer’s internal supervisory
procedures are conducted at the site at which the subscription agreement and check were
initially received by Selected Dealer from the subscriber, 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 Selected
Dealer’s internal supervisory procedures, 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. The Escrow Agent shall have no liability or responsibility regarding a
Selected Dealer’s internal supervisory procedures. Completed subscription agreements and
checks in payment for the purchase price shall be remitted to the P.O. Box designated for the
receipt of such agreements and funds, and wires or Automated ClearingHouse (ACH) payments
shall be transmitted directly to the Escrow Account. subscription agreements received by the
Escrow Agent shall be scanned and emailed by the Escrow Agent to Phoenix American Financial
Services, Inc. (the “Transfer Agent”) within 24 hours of receipt by the Escrow Agent.
The Escrow Agent shall also deliver the original subscription agreements to the

 

-2-

 

Transfer Agent. The Escrow Agent hereby agrees to maintain the funds contributed by the
Pennsylvania Subscribers in a manner in which they may be separately accounted for so that the
requirements of Section 3 of this Agreement can be met. Deposits shall be held in the Escrow
Account until such funds are disbursed in accordance with this Agreement. Prior to
disbursement of the funds deposited in the Escrow Account (the “Escrowed Funds”), such
funds shall not be subject to claims by creditors of the Company or any of its affiliates. If
any of the instruments of payment are returned to the Escrow Agent for nonpayment prior to
receipt of the Break Escrow Affidavit (as described below), the Escrow Agent shall promptly
notify the Company in writing via mail, email or facsimile of such nonpayment, and the Escrow
Agent is authorized to debit the Escrow Account in the amount of such returned payment and the
Escrow Agent shall delete the appropriate account from the records maintained by the Escrow
Agent. The Escrow Agent will maintain a written account of each sale, which account shall set
forth, among other things, the following information: (i) the subscriber’s name and address,
(ii) the subscriber’s social security number, (iii) the number of Shares purchased by such
subscriber, and (iv) the amount paid by such subscriber for such Shares. During the Escrow
Period neither the Company nor the Dealer Manager will be entitled to any principal funds
received into the Escrow Account.

(b) Distribution of the Funds in the Escrow Account to Subscribers other than the
Pennsylvania Subscribers. If at any time on or prior to the Closing Date, the Minimum
Offering has been raised, then upon the happening of such event, the funds in the Escrow
Account shall remain in the Escrow Account until the Escrow Agent receives written direction
provided by the Company and the Dealer Manager instructing the Escrow Agent to deliver such
funds as the Company shall direct (other than any funds received from Pennsylvania Subscribers
which cannot be released until the conditions of Section 3 hereof, respectively, has been
met) (“Initial Closing”). An affidavit or certification from an officer of the Company and an
officer of the Dealer Manager to the Escrow Agent stating that at least the Minimum Offering
has been timely raised, shall constitute sufficient evidence for the purpose of this Agreement
that such event has occurred (the “Break Escrow Affidavit”). The Affidavit shall
indicate (i) the date on which the Minimum Offering was raised and (ii) the actual total
number of Shares sold as of such date. Thereafter, the Escrow Agent shall release funds and
any interest or other income earned, based on the conditions of Section 4 hereof, thereon from
the Escrow Account as directed by the Company pursuant to written instruction that the Company
shall provide to the Escrow Agent from time to time. Accrued and unpaid interest on such
Escrowed Funds shall be paid pursuant to Section 4 below.

(c) If the Escrow Agent has not received a Break Escrow Affidavit on or prior to the Closing
Date, the Escrow Agent shall promptly return the funds in the Escrow Account, together with
any remaining interest thereon, to each respective subscriber, and the Escrow Agent shall
promptly create and dispatch checks and wires drawn on the Escrow Account to return the full
amount of the funds deposited in the Escrow Account, together with their pro-rata share of any
remaining interest thereon, to the respective subscribers, and the Escrow Agent shall notify
the Company and the Dealer Manager of its distribution of the funds. For the purposes of
this Agreement “remaining interest” shall mean any interest that remains in the Escrow Account
after deducting the full amount of the escrow fees and expenses which have been or are due
under this Agreement or have been paid hereunder. Any amounts previously paid hereunder will
be reimbursed by the Escrow Agent to such party after applying the interest to any escrow fees
and expenses that are or will be due under this Agreement as of the Closing Date. The subscription payments returned to each
subscriber shall be free and clear of any and all claims of the Company or any of its
creditors.

 

-3-

 

(d) After the Initial Closing, upon receipt by the Escrow Agent of instructions signed by the
Dealer Manager and the Company, the Escrow Agent shall release to the Company the Escrowed
Funds (other than any funds received from Pennsylvania Subscribers which cannot be released
until the conditions of Section 3 hereof, have been met) in accordance with such instructions.
The Company shall give the Escrow Agent one business day oral notification of the contents of
such instructions. Accrued and unpaid interest on such Escrowed Funds shall be paid pursuant
to Section 4 below.

3. Distribution of the Funds from Pennsylvania Subscribers.

(a) Notwithstanding anything to the contrary herein, disbursements of funds contributed
by Pennsylvania Subscribers may only be distributed in compliance with the provisions of this
Section 3. Irrespective of any disbursement of funds from the Escrow Account pursuant to
Section 2 hereof, the Escrow Agent will continue to place deposits from the Pennsylvania
Subscribers into the Escrow Account, until such time as the Company notifies the Escrow Agent
in writing that total subscriptions (including amounts previously disbursed as directed by the
Company and the amounts then held in the Escrow Account) equal or exceed $33,333,334,
whereupon the Escrow Agent shall disburse to the Company, at the Company’s request, any funds
from the Pennsylvania Subscribers received by the Escrow Agent for accepted subscriptions, but
not those funds of a subscriber whose subscription has been rejected or rescinded of which the
Escrow Agent has been notified by the Company, or otherwise in accordance with the Company’s
written request.

(b) If the Company has not received total subscriptions of at least $33,333,334 within
120 days of the date the Company first receives a subscription from a Pennsylvania Subscriber
(the “Initial Escrow Period”), the Company shall notify each Pennsylvania Subscriber of the
right of Pennsylvania Subscribers to have their investment returned to them. If, pursuant to
such notice, a Pennsylvania Subscriber requests the return of his or her subscription funds
within ten (10) days after receipt of the notification (the “Request Period”), the Escrow
Agent shall promptly refund, including the pro-rata share of any interest earned thereon,
directly to each Pennsylvania Subscriber the funds deposited in the Escrow Account on behalf
of the Pennsylvania Subscriber.

(c) The funds of Pennsylvania Subscribers who do not request the return of their funds
within the Request Period shall remain in the Escrow Account for successive 120-day
escrow periods (each a “Successive Escrow Period”), each commencing automatically upon
the termination of the prior Successive Escrow Period, and the Company and Escrow Agent
shall follow the notification and payment procedure set forth in Section 3(b) above with
respect to the Initial Escrow Period for each Successive Escrow Period, provided that any
refunds made to a Pennsylvania Subscriber after a Successive Escrow Period shall include
a pro-rata share of any interest earned thereon after the Initial Escrow Period, until
the occurrence of the earliest of (i) the termination of the Offering, (ii) the receipt
and acceptance by the Company of total subscriptions that equal or exceed $33,333,334 and
the disbursement of the Escrow Account on the terms specified in this Section 3, or (iii)
all funds held in the Escrow Account that were contributed by Pennsylvania Subscribers having been
returned to the Pennsylvania Subscribers in accordance with the provisions hereof.

 

-4-

 

If, upon termination of the Offering, the Company has not received and accepted total
subscriptions that equal or exceed $33,333,334, all funds in the Escrow Account that were
contributed by Pennsylvania Subscribers will be promptly returned in full to such Pennsylvania
Subscribers, together with their pro-rata share of any interest earned thereon pursuant to
instructions made by the Company, upon which the Escrow Agent may conclusively rely.

4. Distribution of Escrow Interest

As soon as practical but no more than 45 days after the release of the funds to the Company
pursuant to the conditions in Sections 2 and 3 hereof, the Escrow Agent shall calculate and
distribute to each susbscriber whose subscription funds were held in the Escrow Account for at
least 20 days its pro-rata share of interest based on the length of time its subscription funds
have been held in the Escrow Account. Escrow interest earned, but not payable to subscribers
pursuant to this Section 4, shall be paid to the Company, as instructed by the Company in
writing.

5. Funds in the Escrow Account. Upon receipt of funds from subscribers, the Escrow Agent
shall hold such funds in escrow pursuant to the terms of this Agreement. All funds in the Escrow
Account shall at all times be placed in “Short-term Investments” (as defined below) as directed by
the Company and the Escrow Agent agrees to reinvest all earnings and interest derived therefrom in
any of the Short-term Investments specified below.

“Short-term Investments” include short-term obligations of, or short-term obligations
guaranteed by, the United States government or bank money-market funds comprised of these
obligations or certificates of deposit of national or state banks that have deposits insured by the
Federal Deposit Insurance Corporation, including certificates of deposit of any bank acting as a
depository or custodian for any such funds, including, without limitation, such certificates or
instruments of the Escrow Agent, all of which instruments must be capable of being readily sold or
otherwise disposed of for cash on or before the earlier of (i) the date that the Minimum Amount is
achieved, or (ii) the Expiration Date, without any dissipation of the offering proceeds invested.

The following securities are not permissible investments:

(a) corporate equity or debt securities;

(b) repurchase agreements;

(c) bankers’ acceptances;

(d) commercial paper;

(e) municipal securities; and

(f) money market funds other than bank money market accounts.

 

-5-

 

The Escrow Agent shall be entitled to sell or redeem any such investment as necessary to make
any distributions required under this Agreement and shall not be liable or responsible for any loss
resulting from any such sale or redemption.

Income, if any, resulting from the investment of the funds in the Escrow Account shall be
distributed according to this Agreement.

The Escrow Agent shall provide to the Company monthly statements (or more frequently as
reasonably requested by the Company) on the account balance in the Escrow Account and the activity
in such accounts since the last report.

6. Tax Reporting. The Escrow Agent shall provide subscribers with applicable Form 1099 for
amounts paid pursuant to Section 4 above in a timely manner.

7. Duties of the Escrow Agent. The Escrow Agent shall have no duties or responsibilities
other than those expressly set forth in this Agreement, and no implied duties or obligations shall
be read into this Agreement against the Escrow Agent. The Escrow Agent is not a party to, or bound
by, any other agreement among the other parties hereto with respect to the subject matter hereof,
and the Escrow Agent’s duties shall be determined solely by reference to this Agreement. The Escrow
Agent shall have no duty to enforce any obligation of any person, other than as provided herein.
The Escrow Agent shall be under no liability to anyone by reason of any failure on the part of any
party hereto or any maker, endorser or other signatory of any document or any other person to
perform such person’s obligations under any such document.

8. Liability of the Escrow Agent; Indemnification. The Escrow Agent acts hereunder as a
depository only. The Escrow Agent is not responsible or liable in any manner for the sufficiency,
correctness, genuineness or validity of this Agreement or with respect to the form of execution of
the same. The Escrow Agent shall not be liable for any action taken or omitted by it, or any action
suffered by it to be taken or omitted, in good faith, and in the exercise of its own best judgment,
and may rely conclusively and shall be protected in acting upon any order, notice, demand,
certificate, opinion or advice of counsel (including counsel chosen by the Escrow Agent),
statement, instrument, report or other paper or document (not only as to its due execution and the
validity and effectiveness of its provisions, but also as to the truth and acceptability of any
information therein contained) which is believed by the Escrow Agent to be genuine and to be signed
or presented by the proper person(s). The Escrow Agent shall not be held liable for any error in
judgment made in good faith by an officer or employee of the Escrow Agent or the Company unless it
shall be proved that the Escrow Agent, as appropriate, was grossly negligent or reckless in
ascertaining the pertinent facts or acted intentionally in bad faith. The Escrow Agent shall not be
bound by any notice of demand, or any waiver, modification, termination or rescission of this
Agreement or any of the terms hereof, unless evidenced by a writing delivered to the Escrow Agent
signed by the proper party or parties and, if the duties or rights of the Escrow Agent are
affected, unless it shall give its prior written consent thereto.

The Escrow Agent may consult legal counsel and shall exercise reasonable care in the selection of
such counsel, in the event of any dispute or question as to the construction of any provisions
hereof or its duties hereunder, and it shall incur no liability and shall be fully protected in
acting in accordance with the reasonable opinion or instructions of such counsel.

 

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The Escrow Agent shall not be responsible, may conclusively rely upon and shall be protected,
indemnified and held harmless by the Company, for the sufficiency or accuracy of the form of, or the execution, validity, value or genuineness of any document or property received, held or
delivered by it hereunder, or of the signature or endorsement thereon, or for any description
therein; nor shall the Escrow Agent be responsible or liable in any respect on account of the
identity, authority or rights of the persons executing or delivering or purporting to execute or
deliver any document, property or this Agreement.

In the event that the Escrow Agent shall become involved in any arbitration or litigation relating
to the funds in the Escrow Account, the Escrow Agent is authorized to comply with any decision
reached through such arbitration or litigation.

The Company hereby agrees to indemnify the Escrow Agent for, and to hold it harmless against, any
loss, liability or expense incurred in connection herewith without gross negligence, recklessness
or willful misconduct on the part of the Escrow Agent, including without limitation legal or other
fees arising out of or in connection with its entering into this Agreement and carrying out its
duties hereunder, including without limitation the costs and expenses of defending itself against
any claim of liability in the premises or any action for interpleader. The Escrow Agent will not be
under any obligation to institute or defend any action, suit, or legal proceeding in connection
herewith, unless first indemnified and held harmless to its satisfaction in accordance with the
foregoing, except that the Escrow Agent shall not be indemnified against any loss, liability or
expense arising out of its own gross negligence, recklessness or willful misconduct. Such indemnity
shall survive the termination or discharge of this Agreement or resignation of the Escrow Agent.

9. The Escrow Agent’s Fee. Escrow Agent shall be entitled to fees and expenses for its
regular services as Escrow Agent as set forth in Exhibit A. Additionally, Escrow Agent is
entitled to reasonable fees for extraordinary services and reimbursement of any reasonable out of
pocket and extraordinary costs and expenses related to its obligations as Escrow Agent under this
Agreement, including, but not limited to, reasonable attorneys’ fees. All of the Escrow Agent’s
compensation, costs and expenses shall be paid by the Company.

10. Security Interests. No party to this Agreement shall grant a security interest in any
monies or other property deposited with the Escrow Agent under this Agreement, or otherwise create
a lien, encumbrance or other claim against such monies or borrow against the same.

11. Dispute. In the event of any disagreement between the undersigned or the person or
persons named in the instructions contained in this Agreement, or any other person, resulting in
adverse claims and demands being made in connection with or for any papers, money or property
involved herein, or affected hereby, the Escrow Agent shall be entitled to refuse to comply with
any demand or claim, as long as such disagreement shall continue, and in so refusing to make any
delivery or other disposition of any money, papers or property involved or affected hereby, the
Escrow Agent shall not be or become liable to the undersigned or to any person named in such
instructions for its refusal to comply with such conflicting or adverse demands, and the Escrow
Agent shall be entitled to refuse and refrain to act until: (a) The rights of the adverse claimants
shall have been fully and finally adjudicated in a Court assuming and having jurisdiction of the
parties and money, papers and property involved herein or affected hereby, or (b) All differences
shall have been adjusted by agreement and the Escrow Agent shall have been notified thereof in
writing, signed by all the interested parties.

 

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12. Resignation of Escrow Agent. Escrow Agent may resign or be removed, at any time, for
any reason, by written notice of its resignation or removal to the proper parties at their
respective addresses as set forth herein, at least 60 days before the date specified for such resignation or
removal to take effect; upon the effective date of such resignation or removal:

(a) All cash and other payments and all other property then held by the Escrow Agent
hereunder shall be delivered by it to such successor escrow agent as may be designated in
writing by the Company, whereupon the Escrow Agent’s obligations hereunder shall cease and
terminate;

(b) If no such successor escrow agent has been designated by such date, all obligations
of the Escrow Agent hereunder shall, nevertheless, cease and terminate, and the Escrow Agent’s
sole responsibility thereafter shall be to keep all property then held by it and to deliver
the same to a person designated in writing by the Company or in accordance with the directions
of a final order or judgment of a court of competent jurisdiction; or

(c) Further, if no such successor escrow agent has been designated by such date, the
Escrow Agent may petition any court of competent jurisdiction for the appointment of a
successor agent; further the Escrow Agent may pay to such court-appointed successor agent all
monies and property deposited with Escrow Agent under this Agreement.

13. Notices. All notices, demands and requests required or permitted to be given under the
provisions hereof must be in writing and shall be deemed to have been sufficiently given, upon
receipt, if (i) personally delivered, (ii) sent by telecopy and confirmed by phone or (iii) mailed
by registered or certified mail, with return receipt requested, or by overnight courier with
signature required, delivered to the addresses set forth below, or to such other address as a party
shall have designated by notice in writing to the other parties in the manner provided by this
paragraph:

	 	 	 
	(1) If to Company:

	 	Carey Watermark Investments Incorporated
	 

	 	50 Rockefeller Plaza
	 

	 	New York, New York 10020
	 
	 	 
	(2) If to the Escrow Agent:

	 	UMB Bank, N.A.
	 

	 	1010 Grand Blvd., 4th Floor
	 

	 	Mail Stop: 1020409
	 

	 	Kansas City, Missouri 64106
	 

	 	Attention: Lara Stevens,
	 

	 	Corporate Trust
	 

	 	Telephone: (816) 860-3017
	 

	 	Facsimile: (816) 860-3029
	 
	 	 
	(3) If to Dealer Manager:

	 	Carey Financial, LLC
	 

	 	50 Rockefeller Plaza
	 

	 	New York, New York 10020

13. Governing Law. This Agreement shall be construed and enforced in accordance with the
laws of the State of New York without regard to the principles of conflicts of law.

 

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14. Binding Effect; Benefit. This Agreement shall be binding upon and inure to the benefit
of the permitted successors and assigns of the parties hereto.

15. Modification. This Agreement may be amended, modified or terminated at any time by a
writing executed by the Dealer Manager, the Company and the Escrow Agent.

16. Assignability. This Agreement shall not be assigned by the Escrow Agent without the
Company’s prior written consent.

17. Counterparts. This Agreement may be executed in one or more counterparts, each of which
will be deemed an original, but all of which together will constitute one and the same instrument.
Copies, telecopies, facsimiles, electronic files and other reproductions of original executed
documents shall be deemed to be authentic and valid counterparts of such original documents for all
purposes, including the filing of any claim, action or suit in the appropriate court of law.

18. Headings. The section headings contained in this Agreement are inserted for convenience
only, and shall not affect in any way, the meaning or interpretation of this Agreement.

19. Severability. This Agreement constitutes the entire agreement among the parties and
supersedes all prior and contemporaneous agreements and undertakings of the parties in connection
herewith. No failure or delay of the Escrow Agent in exercising any right, power or remedy may be,
or may be deemed to be, a waiver thereof; nor may any single or partial exercise of any right,
power or remedy preclude any other or further exercise of any right, power or remedy. In the event
that any one or more of the provisions contained in this Agreement, shall, for any reason, be held
to be invalid, illegal or unenforceable in any respect, then to the maximum extent permitted by
law, such invalidity, illegality or unenforceability shall not affect any other provision of this
Agreement.

20. Earnings Allocation; Tax Matters; Patriot Act Compliance; OFAC Search Duties. The
Company or its agent shall be responsible for all tax reporting under this Agreement. The Company
shall provide to Escrow Agent upon the execution of this Agreement any documentation requested and
any information reasonably requested by the Escrow Agent to comply with the USA Patriot Act of
2001, as amended from time to time.

21. Miscellaneous. This Agreement shall not be construed against the party preparing it,
and shall be construed without regard to the identity of the person who drafted it or the party who
caused it to be drafted and shall be construed as if all parties had jointly prepared this
Agreement and it shall be deemed their joint work product, and each and every provision of this
Agreement shall be construed as though all of the parties hereto participated equally in the
drafting hereof; and any uncertainty or ambiguity shall not be interpreted against any one party.
As a result of the foregoing, any rule of construction that a document is to be construed against
the drafting party shall not be applicable.

22. Termination of the Escrow Agreement. This Agreement, except for Sections 8 and 11
hereof, which shall continue in effect, shall terminate upon written notice from the Company to the
Escrow Agent. Unless otherwise provided, final termination of this Agreement shall occur on the
date that all funds held in the Escrow Account are distributed either (a) to the Company or to
subscribers and the Company has informed the Escrow Agent in writing to close the Escrow Account or
(b) to a successor escrow agent upon written instructions from the Company.

 

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23. Relationship of Parties. The Escrow Agent is not affiliated with either the Dealer
Manager or the Company and this Agreement does not create any partnership or joint venture among
them.

IN WITNESS WHEREOF, the undersigned have caused this Agreement to be executed by their duly
authorized representatives as of the date first written hereinabove:

	 	 	 	 	 
	 	 	DEALER MANAGER:
	 
	 	 	 	 
	 	 	CAREY FINANCIAL, LLC
	 
	 	 	 	 
	 
	 	 	 	 
	 

	 	By:	 	/s/ Mark Goldberg
	 

	 	 	 	 
	 

	 	Name:	 	 Mark Goldberg
	 

	 	Title: 	 	President
	 
	 	 	 	 
	 	 	COMPANY:
	 
	 	 	 	 
	 	 	CAREY WATERMARK INVESTORS INCORPORATED
	 
	 	 	 	 
	 
	 	 	 	 
	 

	 	By:	 	/s/ Susan C. Hyde
	 

	 	 	 	 
	 

	 	Name:	 	 Susan C. Hyde
	 

	 	Title: 	 	Managing Director
	 
	 	 	 	 
	 	 	ESCROW AGENT:
	 
	 	 	 	 
	 	 	UMB BANK, N.A.
	 
	 	 	 	 
	 
	 	 	 	 
	 

	 	By: 	 	/s/ Lara L. Stevens
	 

	 	 	 	 
	 

	 	Name: 	 	Lara Stevens
	 

	 	Title:	 	Vice President

 

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EXHIBIT A

ESCROW FEES AND EXPENSES

	 	 	 	 	 
	One Time Fee
	 	 	 	 
	Review escrow agreement, establish account and
maintain account
	 	$	6,000	 
	 
	 	 	 	 
	Monthly Fee
	 	 	 	 
	To be charged each month if Escrow Account
remains open after the one-year anniversary date
of the Escrow Agreement
	 	$	250.00	 

Fees specified are for the regular, routine services contemplated by the Escrow Agreement, and any
additional or extraordinary services, including, but not limited to disbursements involving a
dispute or arbitration, or administration while a dispute, controversy or adverse claim is in
existence, will be charged based upon time required at the then standard hourly rate. In addition
to the specified fees, all expenses related to the administration of the Escrow Agreement (other
than normal overhead expenses of the regular staff) such as, but not limited to, legal fees and
accounting fees, etc., will be reimbursable. One time fees will be payable at the initiation of the
escrow and monthly fees will be payable in advance thereafter. Other fees and expenses will be
billed as incurred.

 

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EXHIBIT B

Payment Instructions

 

-12-

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