Exhibit 10.2A

EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT (the “Agreement”) is dated as of the 31st day of
December, 2012, by and between MHI Hospitality Corporation, a Maryland
corporation (the “Company” or “Employer”), and Anthony E. Domalski (the
“Executive”).

RECITALS:

WHEREAS, the Company is in the business of owning and developing hotels (the
“Company’s Business”); and

WHEREAS, the Company has employed the Executive for a period of approximately
eight (8) years, where during such time Executive has served in the capacity of
the Company’s Chief Accounting Officer; and

WHEREAS, each of the Company and Executive agree that Executive will be promoted
to the position of the Company’s Chief Financial Officer, pursuant to the terms
of this Agreement; and

WHEREAS, Employer and Executive desire to enter into this Agreement as of the
date hereof on the terms and conditions set forth herein.

NOW, THEREFORE, on the basis of the foregoing premises and in consideration of
the mutual covenants and agreements contained herein, the parties hereto agree
as follows:

Section 1. Employment. The Company hereby agrees to employ the Executive and the
Executive hereby accepts such employment with the Company on the terms and
subject to the conditions hereinafter set forth. Subject to the terms and
conditions contained herein, from the date of this Agreement (the “Commencement
Date”) through the Transition Date, as hereinafter defined, the Executive shall
continue to serve as Chief Accounting Officer of the Company and shall have such
duties as are typically performed by a chief accounting officer of a corporation
of similar size and type as the Company. The Executive shall render his services
at the direction of, and shall report jointly to, the Chief Executive Officer
and President/Chief Operating Officer of the Company.

Commencing January 1, 2013 (the “Transition Date”) and through the conclusion of
the Employment Term, as hereinafter defined, the Company hereby agrees to employ
the Executive as its Chief Financial Officer and the Executive hereby accepts
such employment with the Company on the terms and subject to the conditions
hereinafter set forth. As Chief Financial Officer of the Company, the Executive
shall have such duties as are typically performed by a chief financial officer
of a corporation of similar size and type as the Company. While serving as Chief
Financial Officer of the Company, Executive shall render his services at the
direction of, and shall report jointly to, the Chief Executive Officer and
President/Chief Operating Officer of the Company.

In either capacity, the Executive agrees to use his best efforts to promote and
further the business, reputation and good name of the Company. No later than
August 2013, the Executive’s primary place of employment shall be in the
Williamsburg, Virginia area, or such other location as determined by the
Company’s Board of Directors. Prior thereto, the Executive’s primary place of
business will be in Rockville, Maryland.

Section 2. Commencement Date; Term. Employment of Executive shall continue on
the terms herein from and after the Commencement Date, through the Transition
Date, and shall continue until December 31, 2017, unless terminated prior to
such date pursuant to Section 6 hereof. Following December 31, 2017, the
employment of the Executive shall be extended for an additional year, on each

 

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anniversary of the Commencement Date, unless either party gives 180 days prior
written notice that the term will not be extended (the “Employment Term”). The
Employment Term shall terminate upon any termination of the Executive’s
employment pursuant to Section 6 hereof.

Section 3. Compensation and Benefits. During the Employment Term, the Executive
shall be entitled to the following compensation and benefits:

(a) Salary. As compensation for the performance of the Executive’s services
hereunder, the Company shall pay to the Executive a targeted annual salary (for
each individual calendar year during the Employment Term, the “Salary”), which
Salary shall be pro-rated for any partial year worked, per the below:

 

Calendar Year

   Target
Annual
Salary  

2012

   $ 175,000      

 

 

 

2013

   $ 208,000      

 

 

 

2014

   $ 229,000      

 

 

 

2015

   $ 236,000      

 

 

 

2016

   $ 245,000      

 

 

 

2017

   $ 255,000      

 

 

 

The Nominating, Corporate Governance and Compensation Committee of the Company’s
Board of Directors (the “Committee”) shall review Executive’s Salary annually in
conjunction with its regular review of employee salaries and may modify
Executive’s Salary as in effect from time to time as the Committee shall deem
appropriate, it being understood and agreed that it is the intent of the parties
that the Executive receive the target Salary per the above, subject to the
continued satisfactory performance of Executive. The Salary shall be payable in
arrears in approximately equal bi-weekly installments (except that the first and
last such bi-weekly installments may be prorated if necessary) on the Company’s
regularly scheduled payroll dates, minus such deductions as may be required by
law or reasonably requested by the Executive.

(b) Annual Performance Bonus. The Executive shall be eligible to receive, in
respect of each calendar year during the Employment Term, an annual cash
performance bonus (the “Annual Performance Bonus”) in an amount between fifteen
percent (15%) and twenty percent (20%) of Salary for that calendar year, based
upon (other than as noted below) the attainment of quantitative performance
goals set forth in a performance plan established by the Committee by January 31
of each year (the “Performance Plan”), in keeping with prevailing economic
conditions and as paid to other Company senior management. The Annual
Performance Bonus shall be paid to the Executive within thirty (30) days
following the receipt of the audited results of the Company for the calendar
year, but in no event later than sixty (60) days after the close of the calendar
year. If necessary, the Annual Performance Bonus shall be granted under a
performance based plan that meets the requirements under Section 162(m) of the
Internal Revenue Code (the “Code”). Below is the Executive’s target Annual
Performance Bonus for each individual calendar year during the Employment Term:

 

Calendar Year

   Target
Annual
Performance
Bonus  

2012

   $ 29,000      

 

 

 

2013

   $ 40,000      

 

 

 

2014

   $ 45,000      

 

 

 

2015

   $ 47,000      

 

 

 

2016

   $ 49,000      

 

 

 

2017

   $ 51,000      

 

 

 

 

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(c) Stock Options. The Company may grant to Executive stock options, performance
shares, performance units, deferred shares or restricted stock from time to time
under the terms of a separate agreement, and consistent with the terms of any
stock incentive plan which may be established and adopted by the Company. On the
Transition Date, Executive shall be granted a “Restricted Stock Grant” of 30,000
shares of common stock in the Company. The Restricted Stock Grant shall vest in
equal amounts of 6,000 shares of Company common stock over a five-year period on
December 31 of certain years during the Employment Term, commencing December 31,
2013 and ending December 31, 2017. The shares of common stock in the Restricted
Stock Grant shall be divisible pro-rata by any forward or reverse splits of the
Company’s common stock and shall be subject to such additional terms as may be
provided in a Restricted Stock Grant agreement.

(d) Benefits. In addition to the Salary and the Annual Performance Bonus, the
Executive shall be eligible to participate in the Company’s health, insurance,
retirement and other benefit plans and programs. The Executive shall also be
entitled to four (4) weeks of paid vacation for each calendar year during the
Employment Term. Additionally, Executive will be entitled to two (2) weeks paid
time for illness and personal leave, and all Company holidays. The Executive
shall be entitled to all other benefits as are generally allowed to other senior
executives of the Company, in accordance with the Company’s policies in effect
from time to time. The Executive shall be reimbursed, in an amount not to exceed
$15,000 of actual expenditures, for transition expenses relating to his
relocation from Rockville, Maryland to Williamsburg, Virginia. In addition, the
Company shall provide Executive a housing stipend of $2,500 per month commencing
the first full month in which Executive relocates to Williamsburg, Virginia (the
“Housing Stipend Commencement Date”) and continuing until the earlier to occur
of the following: (i) Executive’s sale of his current, primary residence in
Maryland or (ii) twenty-four (24) months after the Housing Stipend Commencement
Date.

(e) Directors and Officers Liability Insurance. The Company will, at its
expense, provide the Executive with Directors and Officers Liability Insurance,
subject to the provisions governing such insurance and on such terms as the
Board of Directors may from time to time decide. The Company will indemnify
Executive and hold Executive harmless, to the maximum extent permitted by
applicable law, against all costs, charges and expenses incurred or sustained by
him in connection with any action, suit or proceeding to which he may be made a
party by reason of his being an officer, director or employee of the Company or
of any subsidiary or affiliate of the Company at any time.

(f) Insurance and Other Related Benefits. Company shall pay for one hundred
percent (100%) of all health insurance premiums under a policy covering
Executive and his eligible immediate family. During the Employment Term, the
Company shall maintain on the life of Executive, provided he is insurable at
standard rates, a term life insurance policy in the amount of One Million
Dollars ($1,000,000.00). Executive shall have the right to designate the
beneficiary or beneficiaries of such policy. In the event that Executive is not
insurable during the term of this Agreement due to illness, accident, injury or
other similar event, the Company shall maintain the term life insurance policy
in the amount of One Million Dollars ($1,000,000.00), but Executive agrees to
pay the difference between the normal standard rate premium for an equivalent
insurable person and the non-standard rate which is quoted given the
circumstances surrounding Executive’s reduced insurability. During the
Employment Term, the Company shall also maintain for the benefit of the
Executive disability insurance such that Executive will be entitled to receive
monthly payments not less than the monthly payments made pursuant to
Section 3(a) hereof at the time of any event causing his complete or partial
disability. In addition to the foregoing, Executive will be entitled to other
executive benefits on the same basis as the Company provides to its other
executives and customary fringe benefits and privileges that the Company makes
generally available to executives.

(g) Other Benefits. Executive is entitled to visit the hotels in the Company’s
portfolio and utilize same for leisure or business at no cost to Executive.

 

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(h) Retirement. To the extent a retirement or profit sharing plan is established
and adopted by the Company, Executive shall be entitled to participate in said
plan pursuant to applicable law.

(i) No Other Compensation. Except as otherwise expressly provided herein, or in
any other written document executed by the Company and the Executive, no other
compensation or other consideration shall become due or payable to the Executive
on account of services rendered hereunder.

(j) Taxation and Withholding. The compensation and benefits provided for in this
Section 3 (as well as the termination payments provided for in Section 6(g))
shall be reported as income to Executive and subjected to tax withholding as
required under applicable Federal, state and local laws.

(k) Reimbursements. Payment or reimbursement of expenses incurred by the
Executive pursuant to the provisions of this Section 3, other than
reimbursements that would otherwise be exempt from income or the application of
Section 409A of the Code, shall be made promptly and in no event later than
December 31 of the year following the year in which such expenses were incurred,
and the amount of such expenses eligible for payment or reimbursement, or
in-kind benefits provided, in any year shall not affect the amount of such
expenses eligible for payment or reimbursement, or in-kind benefits to be
provided, in any other year, except for any limit on the amount of expenses that
may be reimbursed under an arrangement described in Section 105(b) of the Code.
Additionally, any right to expense reimbursement or in-kind benefits shall not
be subject to liquidation or exchange for another benefit.

Section 4. Exclusivity. During the Employment Term, the Executive shall devote
his full time to the business of the Company, shall faithfully serve the Company
and shall in all respects conform to and comply with the lawful and reasonable
directions and instructions given to him by the Company’s Chief Executive
Officer, its President/Chief Operating Officer and its Board of Directors. The
Executive shall use reasonable efforts to promote and serve the interests of the
Company and shall not engage in any other business activity, whether or not such
activity shall be engaged in for pecuniary profit, except that the Executive may
participate in the activities of professional trade organizations and engage in
personal investing activities, provided that such activities do not interfere in
any material respect with the services to be provided by the Executive hereunder
and are not in companies that compete with the Company.

Section 5. Reimbursement for Expenses. In addition to, but without duplication
of, the expenses described in Section 3 hereof, the Executive is authorized to
incur reasonable expenses in the discharge of the services to be performed
hereunder, including, without limitation, expenses for travel, entertainment,
maintaining professional licenses and certifications, trade association fees,
attendance at association meetings and conferences, lodging and similar items in
accordance with the Company’s expense reimbursement policy, as the same may be
modified by the Company from time to time. The Company shall reimburse the
Executive for all such proper expenses upon presentation by the Executive of
itemized accounts of such expenditures in accordance with the financial policy
of the Company, as in effect from time to time.

Section 6. Termination and Default.

(a) Death. The Executive’s employment shall automatically terminate upon his
death, and upon such event the Executive’s estate shall be entitled to receive
only the Accrued Compensation, as hereinafter defined, pursuant to
Section 6(g)(ii) hereof and no other severance compensation.

(b) Disability. If the Executive is unable to perform the duties required under
this Agreement because of illness, incapacity or physical or mental disability,
the Employment Term shall continue and the Company shall pay all compensation
required to be paid to the Executive hereunder,

 

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unless the Executive is unable to perform the duties required under this
Agreement for an aggregate of 120 days (whether or not consecutive) during any
12-month period during the term of this Agreement (a “Disability”), in which
event the Executive’s employment shall terminate and Executive shall be entitled
to receive only the Accrued Compensation pursuant to Section 6(g)(ii) hereof and
no other severance compensation.

(c) Cause. The Company may terminate the Executive’s employment at any time,
with Cause. For purposes of this Agreement, “Cause” shall mean the occurrence of
any of the following: (i) the Executive’s failure (except where due to a
disability contemplated by subsection (b) hereof), neglect or refusal to perform
the duties required under this Agreement, (ii) any breach of this Agreement by
the Executive (or any grossly negligent, willful or intentional act of the
Executive) that injures the reputation or business of the Company or its
affiliates in any material respect; (iii) material breach by the Executive of
his obligations under this Agreement; (iv) Executive’s gross negligence in the
performance or intentional, material nonperformance of any of Executive’s
material duties and responsibilities hereunder; (v) Executive’s dishonesty,
fraud or misconduct with respect to the business or affairs of the Company;
(vi) the Executive’s indictment of, conviction of or pleading of no contest to a
felony or any misdemeanor involving fraud; (vii) the commission by the Executive
of an act of fraud or embezzlement or any other act involving the
misappropriation of funds or assets; or (viii) chronic alcohol abuse or illegal
drug use by Executive. Any act, or failure to act, based upon authority given
pursuant to a resolution duly adopted by the Board of Directors or based upon
the advice of counsel for the Company shall be conclusively presumed to be done,
or omitted to be done, by Executive in good faith and in the best interests of
the Company. Cause shall not exist pursuant to clause (i), (ii), (iii) or
(iv) of this Section 6(c) unless the Executive has failed to correct the
activity alleged to constitute Cause within ten (10) days following written
notice from the Company of such activity, which notice shall specifically set
forth the nature of such activity and the corrective action reasonably sought by
the Company. Notwithstanding the foregoing, the termination of the Executive’s
employment for Cause shall be pursuant to the action of the Board of Directors,
taken in conformity with the Bylaws of the Company. In the event of Executive’s
termination for Cause as set forth above, Executive shall not be entitled to any
severance compensation.

(d) Without Cause. The Company may terminate the Executive’s employment during
the Employment Term without Cause at any time by giving written notice to the
Executive. A termination of the Executive’s employment without Cause shall mean
a termination initiated by the Company for any reason other than (i) Cause or
(ii) on account of death or Disability. A termination without Cause shall be
effective immediately upon notice given by the Company to the Executive, or such
later date as may be mutually agreed between the Executive and the Company. Upon
a termination of employment without Cause, Executive shall be entitled to the
compensation payments provided in Section 6(g)(i) hereof.

(e) Resignation/Termination for Good Reason. The Executive shall have the right
to terminate his employment for Good Reason. For purposes of this Agreement,
“Good Reason” shall mean the occurrence of any of the following: (i) the failure
by the Company to pay to the Executive compensation and benefits, or expense
reimbursement in accordance with Sections 3 and 5 herein; (ii) a material
diminution in the Executive’s responsibilities or authority, or diminution of
the Executive’s title; (iii) if the location of the Company’s principal place of
business is moved to another location more than sixty (60) miles away from
Williamsburg, Virginia; (iv) any material breach of this Agreement by the
Company; (v) the failure of Mr. Andrew M. Sims, the Company’s Chief Executive
Officer, to be nominated to the Board of Directors or his removal by the Board
of Directors as a result of shareholder vote; or (vi) following a Change in
Control, as hereinafter defined, of Employer followed by a termination of
Executive’s employment within (12) months of such Change in Control; provided
that the Executive must provide written notice of termination of employment for
Good Reason within thirty (30) days following the Executive’s knowledge of an
event constituting Good Reason or such event shall not constitute Good Reason
hereunder. Good Reason shall not exist upon a termination of employment
described in Section 6(b), (c) or (d) herein. Upon termination pursuant to this
Section 6(e), Executive shall be entitled to the compensation payments provided
in Section 6(g)(i) hereof.

 

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Notwithstanding the foregoing, Good Reason shall not be deemed to exist unless
the Company fails to cure the event giving rise to Good Reason within thirty
(30) days after receipt of written notice thereof given by the Executive. For
purposes of this Agreement, “Change in Control” shall mean the following events
or circumstances that occur after the Commencement Date:

(A) The ownership or acquisition (whether by a merger contemplated by
Section 6(e)(B) below, or otherwise) by any Person (other than a Qualified
Affiliate (each as hereinafter defined)), in a single transaction or a series of
related or unrelated transactions, of Beneficial Ownership of more than fifty
percent (50.0%) of (i) the Company’s outstanding common stock (the “Common
Stock”) or (ii) the combined voting power of the Company’s outstanding
securities entitled to vote generally in the election of directors (the
“Outstanding Voting Securities”);

(B) The merger or consolidation of the Company with or into any other Person
other than a Qualified Affiliate, if, immediately following the effectiveness of
such merger or consolidation, Persons who did not Beneficially Own Outstanding
Voting Securities immediately before the effectiveness of such merger or
consolidation directly or indirectly Beneficially Own more than fifty percent
(50.0%) of the outstanding shares of voting stock of the surviving entity of
such merger or consolidation (including for such purpose in both the numerator
and denominator, shares of voting stock issuable upon the exercise of then
outstanding rights (including then exercisable conversion rights), options or
warrants) (“Resulting Voting Securities”), provided that, for purposes of this
Section 6(e)(B), if a Person who Beneficially Owned Outstanding Voting
Securities immediately before the merger or consolidation Beneficially Owns a
greater number of the Resulting Voting Securities immediately after the merger
or consolidation than the number the Person received solely as a result of the
merger or consolidation, that greater number will be treated as held by a Person
who did not Beneficially Own Outstanding Voting Securities before the merger or
consolidation, and provided further that such merger or consolidation would also
constitute a Change in Control if it would satisfy the foregoing test if rights,
options and warrants were not included in the calculation;

(C) Any one or a series of related sales or conveyances to any Person or Persons
(including a liquidation) other than any one or more Qualified Affiliates of all
or substantially all of the assets of the Company;

(D) Incumbent Directors cease to be two-thirds ( 2/3) of the members of the
Board of Directors, where an “Incumbent Director” is (i) an individual who is a
member of the Board of Directors on the Commencement Date or (ii) any new
director whose appointment by the Board of Directors or whose nomination for
election by the stockholders was approved by at least two-thirds ( 2/3) of the
persons who were already Incumbent Directors at the time of such appointment,
election or approval, other than any individual who assumes office initially as
a result of an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the Board of
Directors or as a result of an agreement to avoid or settle such a contest or
solicitation; or

(E) The occurrence immediately before the completion of a tender offer for the
Company’s securities representing more than fifty percent (50.0%) of the
Outstanding Voting Securities, other than a tender offer by a Qualified
Affiliate.

(F) For purposes of this Agreement, the following definitions shall apply:

(a) “Beneficial Ownership,” “Beneficially Owned” and “Beneficially Owns” shall
have the meanings provided in Exchange Act Rule 13d-3;

 

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(b) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended;

(c) “Person” shall mean any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Exchange Act), including any natural person,
corporation, trust, association, partnership, joint venture, limited liability
company, legal entity of any kind, government, or political subdivision, agency
or instrumentality of a government, as well as two or more Persons acting as a
partnership, limited partnership, syndicate or other group for the purpose of
acquiring, holding or disposing of the Company’s securities; and

(d) “Qualified Affiliate” shall mean (i) any directly or indirectly wholly owned
subsidiary of the Company; (ii) any employee benefit plan (or related trust)
sponsored or maintained by the Company or by any entity controlled by the
Company; or (iii) any Person consisting or controlled in whole or in part of or
by the Executive or one or more individuals who are then the Company’s Chief
Executive Officer or any other named executive officer (as defined in Item 402
of Regulation S-K under the Securities Act of 1933) of the Company as indicated
in its most recent securities filing made before the date of the transaction.

(f) Payment in Lieu. The Company may, in its sole discretion, at any time after
notice of termination without Good Reason has been given to the Company by the
Executive, terminate this Agreement, provided that, in addition to any amount
payable to the Executive under Section 6(g) herein, the Company shall pay to the
Executive (without duplication) his then current Salary and continue benefits
provided pursuant to Section 3(d) herein, for the duration of the unexpired
notice period.

(g) Termination Payments.

(i) Termination Without Cause or By Executive for Good Reason. In the event that
during the Employment Term the Executive’s employment is terminated by the
Company without Cause or the Executive terminates his employment for Good
Reason, the Company shall pay to the Executive the sum of the following amounts:

(A) All amounts fully earned pursuant to the terms of this Agreement but unpaid
hereunder through the date of termination, if any, in respect of Salary, any
accrued but not yet paid Annual Performance Bonus owed for the year prior to
Executive’s termination, vesting of any previously issued stock options or
restricted stock, payment of life, health and disability insurance coverage for
a period of five (5) years following termination, and unreimbursed expenses;
provided, however, that the Company’s obligation to pay life, health and/or
disability insurance shall terminate prior to such fifth year anniversary if
Executive accepts other employment that would reasonably be expected to provide
such insurance;

(B) A severance payment equal to three (3) times the Executive’s combined Salary
and actual bonus compensation for the preceding fiscal year will be paid within
five (5) days of the Executive’s last day of employment; and

(C) Anything in this Agreement to the contrary notwithstanding, in the event it
shall be determined that (i) any payment, award, benefit or distribution (or any
acceleration of payment, award, benefit or distribution) by the Company (or any
of its affiliates) to or for the benefit of the Executive (whether pursuant to
the terms of this Agreement or otherwise) (the “Payments”) would be subject to
the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), and

 

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(ii) the reduction of the amounts payable to the Executive under this Agreement
to the maximum amount that could be paid to the Executive without giving rise to
the Excise Tax (the “Safe Harbor Cap”) would provide the Executive with a
greater after-tax amount than if such amounts were not reduced, then the amounts
payable to the Executive under this Agreement shall be reduced (but not below
zero) to the Safe Harbor Cap. The reduction of the amounts payable hereunder, if
applicable, shall be made to the extent necessary in the following order: the
acceleration of vesting of stock options or restricted stock with an exercise
price that exceeds the then fair market value of the stock subject to the award,
the payments under Section 6(g)(i)(B) and all other payments under this
Section 6(g)(i). For purposes of reducing the Payments to the Safe Harbor Cap,
only amounts payable under this Agreement (and no other Payments) shall be
reduced. If the reduction of the amounts payable hereunder would not result in a
greater after-tax result to the Executive, no amounts payable under this
Agreement shall be reduced pursuant to this provision.

All determinations required to be made under this Section 6(g)(i)(C) shall be
made by the public accounting firm that is retained by the Company as of the
date immediately prior to the Change in Control (the “Accounting Firm”) which
shall provide detailed supporting calculations both to the Company and the
Executive within fifteen (15) business days of the receipt of notice from the
Company or the Executive that there has been a Payment, or such earlier time as
is requested by the Company. Notwithstanding the foregoing, in the event (i) the
Board of Directors of the Company shall determine prior to the Change in Control
that the Accounting Firm is precluded from performing such services under
applicable auditor independence rules; (ii) the Audit Committee of the Board of
Directors of the Company determines that it does not want the Accounting Firm to
perform such services because of auditor independence concerns; or (iii) the
Accounting firm is serving as accountant or auditor for the person(s) effecting
the Change in Control, the Board of Directors of the Company shall appoint
another nationally recognized public accounting firm to make the determinations
required hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees, costs and expenses (including, but not
limited to, the costs of retaining experts) of the Accounting Firm shall be
borne by the Company. If payments are reduced to the Safe Harbor Cap or the
Accounting Firm determines that no Excise Tax is payable by the Executive
without a reduction in payments, the Accounting Firm shall provide a written
opinion to the Executive to such effect that the Executive is not required to
report any Excise Tax on the Executive’s federal income tax return and that the
failure to report the Excise Tax, if any, on the Executive’s applicable federal
income tax return will not result in the imposition of a negligence or similar
penalty. The determination by the Accounting Firm shall be binding upon the
Company and the Executive (except as provided below).

If it is established pursuant to a final determination of a court or an Internal
Revenue Service (the “IRS”) proceeding which has been finally and conclusively
resolved that Payments have been made to, or provided for the benefit of, the
Executive by the Company, which are in excess of the limitations provided in
this Section (referred to hereinafter as an “Excess Payment”), the Executive
shall repay the Excess Payment to the Company on demand, together with interest
on the Excess Payment at the applicable federal rate (as defined in
Section 1274(d) of the Code) from the date of the Executive’s receipt of such
Excess Payment

 

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until the date of such repayment. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the determination, it is
possible that Payments which will not have been made by the Company should have
been made (an “Underpayment”) consistent with the calculations required to be
made under this Section. In the event that it is determined (i) by the
Accounting Firm, the Company (which shall include the position taken by the
Company, or together with its consolidated group, on its federal income tax
return) or the IRS or (ii) pursuant to a determination by a court that an
Underpayment has occurred, the Company shall pay an amount equal to such
Underpayment to the Executive within ten (10) days of such determination
together with interest on such amount at the applicable federal rate (as defined
in Section 1274(d) of the Code) from the date such amount would have been paid
to the Executive until the date of payment. The Executive shall cooperate, to
the extent the Executive’s expenses are reimbursed by the Company, with any
reasonable requests by the Company in connection with any contests or disputes
with the IRS in connection with the Excise Tax or the determination of the
Excess Payment.

Notwithstanding anything to the contrary in the foregoing provisions of this
Section 6(g)(i)(C): (i) payment of the portion of any Underpayment that is taxes
shall not be made later than December 31 of the year next following the year in
which the Excise Tax is remitted to the taxing authority; (ii) payment of the
portion of any Underpayment that is interest or penalties incurred by the
Executive with respect to such taxes shall not be made later than December 31 of
the year next following the year in which the Executive incurs such interest or
penalties, as applicable; and (iii) reimbursement of expenses incurred due to a
tax audit or litigation addressing the existence or amount of a tax liability,
whether federal, state, local or foreign, shall not be made later than the end
of the year following the year in which the taxes that are the subject of the
audit or litigation are remitted to the taxing authority, or where as a result
of such audit or litigation no taxes are remitted, the end of the year following
the year in which the audit is completed or there is a final nonapplicable
settlement or other resolution of the litigation. If the Underpayment is a
deferral of compensation, the amount of interest and penalties eligible for
payment or reimbursement in any year shall not affect the amount of such
interest and penalties eligible for payment or reimbursement in any other year,
nor shall such right to payment or reimbursement be subject to liquidation or
exchange for another benefit.

(ii) Limitations. Executive agrees that he shall not be entitled to any
pro-rated payment of the Annual Performance Bonus for the year of Executive’s
termination. Notwithstanding any other provision in this Agreement or the terms
of any severance plan or policy maintained by the Company or its affiliates to
the contrary, if the Executive is entitled to the severance benefit provided in
Section 6(g)(i), the Executive shall not be entitled to receive any other
payments or benefits under any other severance or similar plan maintained by the
Company or its affiliates.

(iii) Termination Due to Death or Disability. In the event that during the
Employment Term the Executive’s employment is terminated by the Company due to
the Executive’s death or Disability, the Company shall pay to the Executive, or
the Executive’s estate, all amounts fully earned pursuant to the terms of this
Agreement, but unpaid hereunder through the date of termination, if any, in
respect of Salary, and accrued but not yet paid Annual Performance Bonus owed
from the year prior to Executive’s termination (the “Accrued Compensation”).

 

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(iv) Termination for Cause or By Executive Without Good Reason. In the event
that during the Employment Term the Executive’s employment is terminated by the
Company for Cause or by the Executive by resignation without Good Reason, the
Company shall pay to the Executive only the Accrued Compensation.

(v) Expiration of Agreement. If either the Company or the Executive elects not
to renew this Agreement and it expires, the Executive shall not receive any
termination payments other than any amounts fully earned pursuant to the terms
of this Agreement, but unpaid hereunder through the date of expiration of this
Agreement, if any, in respect of Salary, and any accrued but not yet paid Annual
Performance Bonus owed with respect to the year of such expiration and any prior
year.

(h) No Mitigation or Offset. In the event of any termination of Executive’s
employment hereunder, Executive shall be under no obligation to seek other
employment or otherwise mitigate the obligations of the Company under this
Agreement, and there shall be no offset against amounts due Executive under this
Agreement on account of amounts purportedly owing by Executive to the Company or
amounts earned by Executive from any source. Any amounts due to Executive under
this Agreement upon termination of employment are considered to be reasonable by
the Company and are not in the nature of a penalty.

(i) Survival of Operative Sections. Upon any termination of the Executive’s
employment, the provisions of Sections 6(g) and Sections 7 through 21 of this
Agreement shall survive to the extent necessary to give effect to the provisions
thereof.

(j) Specified Employee Delay. The time and form of payment of any amount or
benefits upon the Executive’s termination of employment described in the
preceding provisions of this Section 6 (including expense reimbursements) shall
be made in accordance with such Section 6, provided that if the Executive is a
“specified employee” under Section 409A of the Code, payment shall be delayed
until the earlier to occur of (i) the Executive’s death or (ii) the date that is
six (6) months and one (1) day following the Executive’s termination of
employment (the “Delay Period”), unless the payment at such time can be
characterized as a “short-term deferral” for purposes of Section 409A of the
Code or as otherwise exempt from the provisions of Section 409A of the Code.
Upon the expiration of the Delay Period, if any, all payments and benefits
delayed pursuant to this Section 6(j) shall be paid or reimbursed to Executive
in a lump sum, and any remaining payments due under the preceding provisions of
this Section 6, whichever is applicable, shall be payable at the same time and
in the same form as such amounts and benefits would have been paid in accordance
with their original payment schedule under this Section 6. For purposes of
applying the provisions of Section 409A of the Code, each separately identified
amount to which the Executive is entitled shall be treated as a separate
payment. For purposes of this Section 6, no termination of employment shall be
treated as having occurred unless such termination qualifies as a “separation
from service” under Section 409A of the Code.

(k) Reimbursements. Payment or reimbursement of expenses incurred by the
Executive pursuant to the provisions of this Section 6, other than
reimbursements that would otherwise be exempt from income or the application of
Section 409A of the Code, shall be made promptly and in no event later than
December 31 of the year following the year in which such expenses were incurred,
and the amount of such expenses eligible for payment or reimbursement, or
in-kind benefits provided, in any year shall not affect the amount of such
expenses eligible for payment or reimbursement, or in-kind benefits to be
provided, in any other year, except for any limit on the amount of expenses that
may be reimbursed under an arrangement described in Section 105(b) of the Code.
Additionally, any right to expense reimbursement or in-kind benefits shall not
be subject to liquidation or exchange for another benefit. If the Executive is a
“specified employee” under Section 409A of the Code, the full cost of the
continuation or provision of life, health and disability insurance coverage
under any provision of this Section 6 (other than any cost of any coverage that
is exempt from Section 409A of the Code) shall be

 

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paid by the Executive until the end of the Delay Period, and such cost shall be
reimbursed by the Company to, or on behalf of, the Executive in a lump sum cash
payment on the day following the Delay Period.

(l) No Acceleration. Notwithstanding anything in this Agreement to the contrary,
the time or schedule of any payment or amount scheduled to be paid pursuant to
the terms of this Agreement, including but not limited to any stock options,
restricted stock or other equity-based award, payment or amount that provides
for the “deferral of compensation” under Section 409A of the Code, shall not be
accelerated except as otherwise permitted under Section 409A of the Code and the
guidance and U.S. Department of the Treasury regulations issued thereunder.

Section 7. Confidentiality and Non-Disclosure Covenants.

(a) Confidential Information. The Company considers one of its most valuable
assets to be its confidential and trade secret information, including, but not
limited to, potential real estate acquisition targets and client lists of the
respective hotel properties (hereinafter collectively referred to as
“Confidential Information”). Confidential Information shall not include
information which: (i) has previously been disclosed by the Company in published
papers; (ii) becomes part of the public domain, by publication or otherwise; and
(iii) is not due to the direct or indirect acts or omissions of Executive. The
parties to this Agreement recognize that the Company has invested and will
continue to invest considerable amounts of time and resources in attaining and
developing the Company’s Confidential Information, and any unauthorized
disclosure or release of such Confidential Information in any form would harm
the Company.

(b) Non-Disclosure of Confidential Information. Executive shall refrain from
directly or indirectly disclosing to any third party, for any purpose other than
for the direct benefit of the Company, any of the Company’s Confidential
Information during his employ and thereafter, whatever the reason for his
leaving the Company’s employment.

(c) Confidentiality of the Company’s Property. Executive recognizes that all of
the documents and other tangible items which contain any of the Company’s
Confidential Information are the Company’s property exclusively, including those
documents and items which Executive may have developed or contributed to
developing while employed by the Company, whether or not developed during
regular working hours or on the Company’s premises.

(d) Executive recognizes that all materials, identification information, keys,
computer software and hardware, computer programming libraries, manuals,
databases, disks, tapes, patent applications, technical notes and equipment the
Company provides for Executive are also the property of the Company exclusively.
All items described in this and the preceding paragraph are hereinafter
collectively referred to as the “Company’s Property”.

(e) Should Executive’s employment be terminated for any reason, Executive shall:

(i) Refrain from taking any of the Company’s Property or allowing any of the
Company’s Property to be taken from the Company’s premises;

(ii) Refrain from reproducing in any manner or allowing to be reproduced any of
the Company’s Property;

(iii) Refrain from removing any such reproduction from the Company’s premises;
and

(iv) Immediately return to the Company any original or reproduction of the
Company’s Property in his custody, control or possession.

 

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Section 8. Non-Competition and Non-Solicitation Covenants. During his employment
with the Company and for a period of one (1) year thereafter (the “Restricted
Period”), whatever the reason for Executive’s termination of employment, unless
Executive receives the Company’s advance written waiver, Executive shall not,
either directly or indirectly, either on his own behalf or on behalf of another
business, engage in or assist others in the following activities:

(a) Soliciting, hiring, recruiting or attempting to recruit, for any business
which competes with the Company’s Business, any person employed by or contracted
with the Company or employed by or contracted with the Company during the twelve
(12) months immediately preceding Executive’s termination of employment with the
Company;

(b) Soliciting for any business which competes with the Company’s Business any
competitive business from any of the Company’s customers during the twelve
(12) months immediately preceding Executive’s termination of employment, or
specific prospective customers solicited by the Company during the six
(6) months immediately preceding Executive’s termination of employment; and

(c) In the Market Area (as hereinafter defined), entering into, engaging in,
being employed by, being connected to, consulting or rendering services for any
business which competes with, or is similar to, the Company’s Business or
business known to Executive to be conducted by the Company or planned to be
conducted by the Company at the time of Executive’s separation from employment
with the Company, in a capacity performing management functions similar to those
performed or managed by Executive while employed by the Company. This provision
shall not restrict Executive from owning a passive investment interest of the
outstanding equity ownership or share in an organization represented by
securities publicly traded on a recognized national securities exchange. For
purposes of this provision, “Market Area” shall be defined as Savannah, Georgia;
Raleigh, North Carolina; Jacksonville, Florida; Tampa, Florida; Hollywood,
Florida; Jeffersonville, Indiana; Philadelphia, Pennsylvania; Wilmington, North
Carolina; Hampton, Virginia and Laurel, Maryland and any other city or
metropolitan area within the United States in which a hotel owned by the Company
or with respect to which the Company or an affiliate has an ownership interest
is located as of the last day of Executive’s Employment Term.

Section 9. Injunctive Relief. Without intending to limit the remedies available
to the Company, the Executive acknowledges that a breach of any of the covenants
contained in Sections 7 and 8 hereof may result in material irreparable injury
to the Company or its subsidiaries or affiliates for which there is no adequate
remedy at law, that it will not be possible to measure damages for such injuries
precisely and that, in the event of such a breach or threat thereof, the Company
shall be entitled to obtain a temporary restraining order and/or a preliminary
or permanent injunction, without the necessity of proving irreparable harm or
injury as a result of such breach or threatened breach of Sections 7 and 8
hereof, restraining the Executive from engaging in activities prohibited by
Sections 7 and 8 hereof or such other relief as may be required specifically to
enforce any of the covenants in Sections 7 and 8 hereof.

Section 10. Extension of Restricted Period. In addition to the remedies the
Company may seek and obtain pursuant to Section 9 of this Agreement, the
Restricted Period shall be extended by any and all periods during which the
Executive shall be found by a court to have been in violation of the covenants
contained in Sections 7 and 8 hereof.

 

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Section 11. Representations and Warranties. The Executive and the Company
represent and warrant to the other as follows:

(a) This Agreement, upon execution and delivery by the Executive and the
Company, will be the valid and binding obligation of the Executive and the
Company, respectively, enforceable against the Executive and the Company in
accordance with its terms.

(b) As to the Executive only, neither the execution and delivery of this
Agreement nor the performance of this Agreement in accordance with its terms and
conditions by the Executive (i) requires the approval or consent of any
governmental body or of any other person or (ii) conflicts with or results in
any breach or violation of, or constitutes (or with notice or lapse of time or
both would constitute) a default under, any agreement, instrument, judgment,
decree, order, statute, rule, permit or governmental regulation applicable to
the Executive.

(c) The representations and warranties of the Executive and the Company
contained in this Section 11 shall survive the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby.

Section 12. Assignment; No Third-Party Beneficiaries. This Agreement shall inure
to the benefit of, and be binding on, the successors and assigns of each of the
parties, including, but not limited to, the Executive’s heirs, the Executive’s
guardian in the event of the Executive’s disability, the personal
representatives of the Executive’s estate and any successor to all or
substantially all of the business and/or assets of the Company. This Agreement,
and the Executive’s rights and obligations hereunder, may not be assigned by the
Executive; any purported assignment by the Executive in violation hereof shall
be null and void. The Company may assign this Agreement and its rights
hereunder, but in the event of assignment, the assignee shall expressly assume
all obligations of the Company hereunder and the Company shall remain fully
liable for the performance of all of such obligations in the manner prescribed
in this Agreement. Except as otherwise provided herein, nothing in this
Agreement shall confer upon any person or entity not a party to this Agreement,
or the legal representatives of such person or entity, any rights or remedies of
any nature or kind whatsoever under or by reason of this Agreement.

Section 13. Waiver and Amendments. Any waiver, alteration, amendment or
modification of any of the terms of this Agreement shall be valid only if made
in writing and signed by the parties hereto. No waiver by either of the parties
hereto of their rights hereunder shall be deemed to constitute a waiver with
respect to any subsequent occurrences or transactions hereunder unless such
waiver specifically states that it is to be construed as a continuing waiver.

Section 14. Ethical Conduct. Executive shall conduct business in an ethical
manner by:

(a) Avoiding conflicts of interest;

(b) Complying with the Company’s Code of Business Conduct;

(c) Refusing to accept, and reporting to the Company the offering of, anything
of material value, including a gift, loan on preferential terms, reward, promise
of future employment, favor or service which would influence a reasonably
prudent person in the discharge of his duties for the Company or which is based
on any understanding that his action would be influenced; and

(d) Abiding by the Company’s policies and guidelines in place from time to time
or which the Company may issue as it deems appropriate.

Section 15. Indemnification. The Executive and the Company shall enter into an
indemnification agreement providing for the indemnification of Executive to the
fullest extent permitted by the laws of the Commonwealth of Virginia.

 

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Section 16. Severability, Governing Law. The Executive acknowledges and agrees
that the covenants set forth in Sections 7 and 8 hereof are reasonable and valid
in geographical and temporal scope and in all other respects. If any of such
covenants or such other provisions of this Agreement are found to be invalid or
unenforceable by a final determination of a court or arbitration panel of
competent jurisdiction (a) the remaining terms and provisions hereof shall be
unimpaired and (b) the invalid or unenforceable term or provision shall be
deemed replaced by a term or provision that is valid and enforceable and that
comes closest to expressing the intention of the invalid or unenforceable term
or provision. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE COMMONWEALTH OF VIRGINIA APPLICABLE TO CONTRACTS MADE AND
TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO ITS CONFLICT OF
LAWS RULES.

Section 17. Notices.

(a) All communications under this Agreement shall be in writing and shall be
delivered by hand or mailed by overnight courier or by registered or certified
mail, postage prepaid

 

If to the Company:    MHI Hospitality Corporation    410 West Francis Street   
Williamsburg, Virginia 23185 If to the Executive:    Anthony E. Domalski (until
August 2013)    11200 Rockville Pike, Suite 130    Rockville, Maryland 20852 If
to the Executive:    Anthony E. Domalski (after August 2013)    410 West Francis
Street    Williamsburg, Virginia 23185

(b) Any notice so addressed shall be deemed to be given: if delivered by hand,
on the date of such delivery; if mailed by overnight courier, on the first
business day following the date of such mailing; and if mailed by registered or
certified mail, on the third business day after the day of such mailing.

Section 18. Section Headings. The headings of the sections and subsections of
this Agreement are inserted for convenience only and shall not be deemed to
constitute a part thereof, affect the meaning or interpretation of this
Agreement or of any term or provision hereof.

Section 19. Entire Agreement. This Agreement constitutes the entire
understanding and agreement of the parties hereto regarding the employment of
the Executive. This Agreement supersedes all prior negotiations, discussions,
correspondence, communications, understandings and agreements between the
parties relating to the subject matter of this Agreement.

Section 20. Severability. In the event that any part or parts of this Agreement
shall be held illegal or unenforceable by any court or administrative body of
competent jurisdiction, such determination shall not effect the remaining
provisions of this Agreement which shall remain in full force and effect.

Section 21. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall be considered one and the same agreement.

 

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Section 22. Arbitration, Service, Venue, Jury Trial. Any unresolved dispute or
controversy arising or in connection with this Agreement shall be settled
exclusively by arbitration, conducted before a single arbitrator in
Williamsburg, Virginia in accordance with the rules of the American Arbitration
Association then in effect. The arbitrator shall not have the authority to add
to, detract from or modify any provision hereof nor to award punitive damages to
any injured party. The arbitrator shall have the authority to order back-pay,
severance compensation, vesting of options (or cash compensation in lieu of
vesting of options), reimbursement of costs, including those incurred to enforce
this Agreement and interest thereon in the event the arbitrators determine that
employee was terminated without Disability or Cause, each as defined herein, or
that the Company has otherwise materially breached this Agreement. A decision by
the arbitrator shall be final and binding. Judgment may be entered on the
arbitrator’s award in any court having jurisdiction. Nothing in this section
shall affect or limit the Company’s right to obtain any type of relief available
to it in a court of law as a result of the Executive’s breach of Sections 7 and
8. In the event either party seeks such relief, the parties hereby (i) submit to
the exclusive jurisdiction of the circuit courts and the U.S. federal courts in
the Commonwealth of Virginia, (ii) consent that any such action or proceeding
may be brought in any such venue, (iii) waive any objection that any such action
or proceeding, if brought in any such venue, was brought in any inconvenient
forum and agree not to claim the same, (iv) agree that any judgment in any such
action or proceeding may be enforced in other jurisdictions, (v) consent to
service of process at the address set forth in Section 17 herein and (vi) to the
extent applicable, waive their respective rights to a jury trial of any claim or
cause of action based on or arising out of this Agreement or any dealings
between them relating to the subject matter of this Agreement.

Section 23. Section 409A. The parties intend that this Agreement and the
benefits provided hereunder be interpreted and construed to comply with
Section 409A of the Code to the extent applicable thereto. Notwithstanding any
provision of the Agreement to the contrary, the Agreement shall be interpreted
and construed consistent with this intent, provided that the Company shall not
be required to assume any increased economic burden in connection therewith.
Although the Company intends to administer the Agreement so that it will comply
with the requirements of Section 409A of the Code, the Company does not
represent or warrant that the Agreement will comply with Section 409A of the
Code or any other provision of federal, state, local or non-United States law.
Except as otherwise provided in Section 6(g)(i)(C) with respect to any excise
tax imposed under Section 4999 of the Code, neither the Company, nor its
affiliates, nor their respective directors, officers, employees or advisers,
shall be liable to the Executive (or any other individual claiming a benefit
through the Executive) for any tax, interest or penalties the Executive may owe
as a result of compensation paid under the Agreement, and the Company and its
affiliates shall have no obligation to indemnify or otherwise protect the
Executive from the obligation to pay any taxes pursuant to Section 409A of the
Code.

 

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.

 

MHI HOSPITALITY CORPORATION By:  

/s/ David R. Folsom

  Name:   David R. Folsom   Title:   President and Chief Operating Officer
EXECUTIVE By:  

/s/ Anthony E. Domalski

  Name:   Anthony E. Domalski   Title:   Chief Accounting Officer

 

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