Exhibit 10.3A

EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT (the “Agreement”), is dated as of the 1st day of
January 2010, between MHI Hospitality Corporation, a Maryland corporation (the
“Company” or “Employer”), and William J. Zaiser (the “Executive”).

RECITALS:

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

WHEREAS, Employer and Executive entered into an employment agreement, dated
December 21, 2004, to engage Executive to serve as Executive Vice President and
Chief Financial Officer of the Company (the “Prior Employment Agreement”); and

WHEREAS, the Prior Employment Agreement expired on December 31, 2009; and

WHEREAS, the Employer and Executive desire to enter into this new 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, the Executive shall serve as Executive Vice
President and Chief Financial Officer of the Company and shall have such duties
as are typically performed by a chief financial 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 solely to, the Board of Directors of the
Company. The Executive agrees to use best efforts to promote and further the
business, reputation and good name of the Company. The Executive’s primary place
of employment shall be in the Rockville, Maryland area, or such other location
as determined by the Board of Directors of the Company.

Section 2. Commencement Date; Term. Employment of the Executive shall continue
on the terms herein from and after the date first written above (“Commencement
Date”), and shall continue during the period ending on December 31, 2012, unless
terminated prior to such date pursuant to Section 6. Following December 31,
2012, the term of the Agreement shall be extended for an additional year, on
each 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.

 

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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 for the 12-month period ending December 31, 2010, the Company shall
pay to the Executive a salary (the “Salary”) of Two Hundred Ten Thousand Nine
Hundred Fifty Dollars $210,950. The Executive’s Salary shall be increased in
2011 by 5%, plus a cost of living adjustment, as determined by the Nominating,
Corporate Governance and Compensation Committee of the Company’s Board of
Directors (the “Committee”), which in no event will be less than a percentage
equal to the annual inflation rate for the prior full calendar year as measured
by the Consumer Price Index for All Urban Consumers published by the U.S.
Department of Labor, Bureau of Labor Statistics (the “CPI Adjustment”). For
2012, the Committee shall review Executive’s Salary in conjunction with its
regular review of employee salaries and may increase his Salary as in effect as
the Committee shall deem appropriate; provided, however, that the Executive’s
Salary shall be increased annually to account for the CPI Adjustment. The Salary
shall be payable in arrears in approximately equal semi-monthly installments
(except that the first and last such semi-monthly 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 twenty
percent (20%) and thirty percent (30%) 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”). 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”).

(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.

(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 six (6) weeks of paid vacation for each calendar year during the
Employment Term. Additionally, Executive will be entitled to three (3) 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.

(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 may from time to time

 

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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 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 at
standard rates during the term of this Agreement, but Executive is able to
procure rated coverage, Executive shall have the right to procure coverage for a
lower amount of insurance, the cost of which is equivalent to the standard term
rate cost of $1,000,000.00 of coverage or such lesser amount designated by
Executive. 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.

(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 the 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.

 

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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 Board. 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. Notwithstanding the
foregoing, Employer acknowledges and agrees that the Executive will be permitted
to serve as a director of MHI Hotels Services LLC, MHI Hotels LLC and/or MHI
Hotels Two, Inc. during the Employment Term and to receive compensation
comparable to that paid to other members of such boards in connection with such
service, except to the extent that receipt of such compensation would adversely
affect the Company’s qualification as a real estate investment trust for federal
income tax purposes.

Section 5. Reimbursement for Expenses. In addition to, but without duplication
of, the expenses described in Section 3(d), 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 of him
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, unless the
Executive is unable to perform the duties required of him 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.

 

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(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
his duties hereunder, (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 (continuing for ten (10) days after receipt of written notice of
need to cure) 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 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 twenty
(20) 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, taken in conformity with the By-laws 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).

(e) Resignation/Termination for Good Reason. The Executive shall have the right
to terminate his employment for Good Reason under any of the following
circumstances: (i) the failure by the Company to pay to the Executive the
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 Executive’s
primary place of employment is moved to another location more than sixty
(60) miles away from Rockville, Maryland; (iv) any material breach of this
Agreement by the Company or (v) following a Change in Control (as defined below)
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).

 

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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(d)(vii)(B) below, or otherwise) by any Person (other than a Qualified
Affiliate (as defined below)), in a single transaction or a series of related or
unrelated transactions, of Beneficial Ownership of more than fifty percent
(50%) of (1) the Company’s outstanding common stock (the “Common Stock”) or
(2) 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%) 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(d)(vii)(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 (1) an individual who is a member
of the Board of Directors on the Commencement Date or (2) 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) A Change in Control shall also be deemed to have occurred immediately before
the completion of a tender offer for the Company’s securities representing more
than fifty percent (50%) of the Outstanding Voting Securities, other than a
tender offer by a Qualified Affiliate.

 

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(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;

(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 Employee 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 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;

 

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(B) a severance payment equal to two (2) 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
(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, or (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

 

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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 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 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

 

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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”).

(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 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

 

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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 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, 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 months and one 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
paragraph 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 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 Treasury regulations issued thereunder.

 

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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. 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
invest considerable amounts of time and money in attaining and developing all of
the information described above (hereinafter collectively referred to as
“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 (“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 or contracted
with by the Company or employed or contracted with by the Company during the
twelve (12) months immediately prior to Employee’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 prior to Executive’s termination of employment, or
specific prospective customers solicited by the Company during the six
(6) months immediately prior to Executive’s termination of employment.

(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
exchange including but not limited to MHI Hotel Services, LLC and its
affiliates. For purposes of this provision, “Market Area” shall be defined as
Savannah, Georgia; Raleigh, North Carolina; Williamsburg, Virginia;
Philadelphia, Pennsylvania; Wilmington, North Carolina 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 interests is located as of the last day of the 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.

 

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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.

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
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;

 

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(b) Complying with the Company’s Code of Conduct and Corporate Governance
Principles;

(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 policies and guidelines relating to ethical conduct 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 Maryland law.

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 STATE OF MARYLAND 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 W. Francis Street

                                         Williamsburg, Virginia 23185

If to Executive:               William J. Zaiser

                                         11200 Rockville Pike

                                         Rockville, Maryland 20895

(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.

 

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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. The Prior Employment
Agreement is hereby terminated and is of no further force or effect.

Section 20. 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.

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 Rockville,
Maryland in accordance with the rules of the American Arbitration Association
then in effect. The arbitrators 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 arbitrators 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 good cause, as defined in
Section 6, or that the company has otherwise materially breached this agreement.
A decision by a majority of the arbitration panel shall be final and binding.
Judgment may be entered on the arbitrators’ award in any court having
jurisdiction. Nothing in this section shall effect 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 Employee’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
courts of the State of Maryland and the U.S. federal courts in the State of
Maryland, (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

 

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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, either 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:   Chief Operating Officer   Executive   /s/ William J. Zaiser   William
J. Zaiser

 

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