Exhibit 10.25

EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT (the “Agreement”), is dated as of the 1st day of
January 2020, between Sotherly Hotels Inc., a Maryland corporation (the
“Company” or “Employer”), and David R. Folsom (the “Executive”).

RECITALS:

WHEREAS, the Company is in the business of owning and developing hotels; and

WHEREAS, Employer and Executive entered into an employment agreement, dated
January 1, 2016, to engage Executive to serve as President and Chief Operating
Officer of the Company (the “Prior Employment Agreement”); and

WHEREAS, the Executive will assume the role of President and Chief Executive
Officer as of December 31, 2019; and

WHEREAS, in connection with Executive’s new position, 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 President and Chief
Executive Officer of the Company and shall have such duties as are typically
performed by a president and chief operating 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 to, the Board of Directors of the Company and its
Chairman. 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 Williamsburg, Virginia area, or such other
location as determined by the Company’s Board of Directors.

Section 2. Commencement Date; Term. Employment of Executive shall continue on
the terms herein from and after the date set forth above (the “Commencement
Date”) and shall continue during the period ending on December 31, 2024, unless
terminated prior to such date pursuant to Section 6 hereof. Following December
31, 2024, 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 hereof. For the avoidance of doubt, prior to
the Commencement Date the Prior Employment Agreement shall remain in full force
and effect and continue to govern the rights and obligations of the Executive
and the Company.

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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, the Company shall pay to the Executive an annualized salary (the
“Salary”) of Five Hundred Fifty Thousand Dollars ($550,000.00). During the term
of this Agreement, the Nominating, Corporate Governance and Compensation
Committee of the Company’s Board of Directors (“Committee”) shall review
Executive’s Salary annually in conjunction with its regular review of employee
salaries and may increase his Salary as in effect from time to time as the
Committee shall deem appropriate, it being understood and agreed that the intent
of the parties that Executive’s salary increases are subject to the satisfactory
performance of Executive; 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”) with a target between
twenty-five percent (25%) and thirty-five percent (35%) 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 Ownership / Stock Options.

(i) The Company shall provide Executive a one-time grant of thirty thousand
(30,000) shares of common stock of the Company, subject to the following terms
and conditions.

(ii) No shares of stock shall vest until the earliest of any of the following
occurrences: (1) Executive’s death, (2) Executive’s Disability (as defined in
Section 6(b)), (3) Executive’s termination without Cause (as defined in Section
6(c) and 6(d)), (4) Executive’s resignation for Good Reason (as defined in
Section 6(e)), (5) the expiration of this Agreement as a result of the Company’s
election not to renew the Agreement (as described in Section 2), (6) the
extension of this Agreement for a one-year renewal term by virtue of neither
party providing notice not to extend, pursuant to Section 2 (which extension
shall be deemed to occur on January 1, 2025), or (7) the execution of a new or
successor employment agreement between the parties at any time on or before
December 31, 2024 (which execution shall be deemed to occur on the date it has
been signed by both parties).

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(iii) If vesting occurs as a result of any of the events described in (1)
through (6) in paragraph (ii) above, the full amount of shares shall immediately
vest and be delivered to Executive as of the date of the occurrence of such
event. If vesting occurs as a result of the event described in (7) above, the
shares shall vest and be delivered in five equal installments of six thousand
(6,000) shares each year for five (5) years, with the first installment vesting
on the date of execution of the new or successor agreement, and subsequent
installments vesting on each anniversary of such execution.

(iv) In the event that Executive’s employment is terminated by the Company for
Cause, by the Executive without Good Reason, or by virtue of the expiration of
this Agreement as a result of the Executive’s election not to renew the
Agreement, the full amount of the shares shall be forfeited.

(v) In the event that the shares vest in accordance with (7) in paragraph (ii)
above, the new or successor employment agreement between the parties shall
provide for accelerated vesting of any undelivered and/or unvested amount of
shares in the event that Executive’s employment is terminated, prior to the
expiration of the five-year vesting period, by the Company without cause, as a
result of Executive’s death or disability, or by the Executive for good reason,
in each case as may be defined in such new or successor agreement.

(vi) In addition to the shares described above in this Section 3(c), 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 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.

(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.

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(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
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.

(g) Other Benefits. Executive is entitled to visit the hotels in the Company’s
portfolio and utilize same for leisure (on a space available basis) 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
substantially all of his business time to the business of the Company, shall
faithfully serve the Company, shall in all respects conform to and comply with
the lawful and reasonable directions and instructions given to him by the Board
of Directors and/or the Chairman. The Executive shall use reasonable efforts to
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: (i) 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; (ii) the Executive may serve in local or state political office, or
on any community or residential boards or associations, so long as any such role
is of a part-time nature and the performance of Executive’s duties in such
role(s) does not interfere in any material respect with the services to be
provided by him hereunder; and (iii) the Executive may engage in reasonable and
ordinary levels of activity with any charitable, eleemosynary, civic, and/or
religious organizations.

Section 5. Reimbursement for Expenses. In addition to, but without duplication
of, the expenses described in Section 3(k), 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)(iii) 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 and until
the Executive begins to receive disability benefits for permanent and total
disability under any long-term disability income policy held by or on behalf of
the Executive (hereinafter referred to as “Disability”). This Section 6(b) shall
be interpreted and applied so as to comply with the provisions of the Americans
with Disabilities Act (to the extent that it is applicable) and any applicable
state or local laws. The Executive’s employment shall terminate in the event of
his Disability, and Executive shall be entitled to receive only the Accrued
Compensation pursuant to Section 6(g)(ii) hereof and no other severance
compensation. The Executive shall receive those benefits pursuant to Section
3(f) as well.

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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 material duties hereunder; (ii) any breach of this Agreement by the
Executive (or any grossly negligent, willful or intentional act of the
Executive); (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
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
of the Company; or (viii) Executive’s violation of the Company’s then existing
drug and alcohol policy, but only after Executive has been provided the
opportunity to obtain treatment and rehabilitation for any substance abuse
problem that led to such violation and Executive has refused to obtain such
treatment, failed to complete it, or engaged in a second violation after
treatment and rehabilitation. 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. Notwithstanding the foregoing, Cause shall not exist
pursuant to clauses (i), (ii), (iii), (iv), (v), or (vii) of this Section 6(c)
unless the Executive’s acts or omissions have injured the reputation or business
of the Company or its affiliates in any material respect. In addition, Cause
shall not exist pursuant to clauses (i), (ii), (iii), (iv), (v), or (vii) 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 receive the Accrued
Compensation, but 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 60 days’ 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

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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 to act as Chairman of the Board of Directors of
the Company; or (vi) for any reason within twelve (12) months following a Change
in Control (as defined below) of Employer; provided that in each case, 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. Upon termination pursuant to this Section 6(e), Executive shall be
entitled to the compensation payments provided in Section 6(g)(i).

Notwithstanding the foregoing, in the case of resignation by Executive pursuant
to clause (i), (ii), (iii), or (iv) above, 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 (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(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;

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(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 (⅔) 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;

(E) the complete liquidation or dissolution of the Company; or

(F) 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.

(G) 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.

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(f) Resignation without Good Reason. The Executive may resign his employment
without Good Reason at any time by providing 30 days’ written notice to the
Company. In the event of a resignation without Good Reason, the Company shall
provide Executive the Accrued Compensation, but he shall not be entitled to
severance. 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 this paragraph and 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 (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: (i)
the acceleration of vesting of stock options with an exercise price that exceeds
the then fair market value of the stock subject to the award; (ii) the payments
under Section 6(g)(i)(B); (iii) all other payments under this Section 6(g)(i);
and then (iv) the acceleration of vesting of restricted stock and stock options
with an exercise price that does not

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exceed the then fair market value of the stock subject to the award. 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 selected by the Executive within ten
(10) business days following notice of termination (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 or the Executive. Notwithstanding the foregoing, in
the event (i) the Board of Directors of the Company shall determine that the
Accounting Firm is precluded from performing such services under applicable
auditor independence rules; or (ii) the Accounting Firm is serving as accountant
or auditor for the person(s) effecting the Change in Control (where applicable),
the Board of Directors of the Company and the Executive shall mutually 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 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

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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) Expiration of Agreement. If the Company elects not to renew this Agreement
and it expires, the Company shall pay to the Executive: (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, and accrued but not yet paid
Annual Performance Bonus owed from the final year of Executive’s employment; (B)
a severance payment equal to one (1) time the Executive’s combined Salary and
actual bonus compensation for the preceding fiscal year, which shall be paid
within five (5) days of the Executive’s last day of employment; and (C) payment
of the full premium (including administrative fee) for continuing health
insurance coverage under COBRA or any similar state law for a period of two (2)
years following the expiration of the Agreement. The provisions of Section
6(g)(i)(C) shall apply to all payments made under this Section 6(g)(ii) to the
extent relevant in accordance with applicable law. If the Executive elects not
to renew this Agreement and it expires, the Company shall pay to the Executive
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 final year of
Executive’s employment.

(iii) 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) or (6(g)(ii), 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.

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(iv) 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”).

(v) 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.

(vi) 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.

(h) 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.

(i) 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 (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 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.

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(j) 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.

(k) 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.

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.

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(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.

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”), except in the case of termination without Cause or resignation for
Good Reason, 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) Hiring for any business which competes with the Company’s Business (as
defined below) any person (i) who was employed by the Company at any time during
Executive’s employment, and (ii) who is employed by the Company at the time of,
or was so employed during the twelve (12) months immediately prior to, the
Executive’s hiring of such person;

(b) Soliciting for any business which competes with the Company’s Business, any
competitive business from any person or entity that was a Company customer
during the twelve (12) months immediately prior to Executive’s termination of
employment, or from specific prospective customers solicited by the Company
during the six (6) months immediately prior to Executive’s termination of
employment, in each case where such customer or prospective customer was known
to the Executive;

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(c) Entering into, engaging in, being employed by, consulting, or rendering
services for, any business which competes with 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 each case in the capacity of Chief Executive Officer or
other title performing functions substantially similar to those performed by
Executive as Chief Executive Officer of 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. For purposes
of this Agreement, “Company’s Business” shall mean the operation of a
publicly-owned real estate investment trust (REIT) in the hotel industry where
the majority of the hotels owned by the REIT are located in the Market Area and
are of the same general type as the majority of the hotels owned by the Company
at the time of Executive’s separation from employment. “Market Area” shall be
defined as Savannah, Georgia; Atlanta, Georgia; Raleigh, North Carolina;
Wilmington, North Carolina; Jacksonville, Florida; Tampa, Florida; Hollywood,
Florida; Louisville, Kentucky; Philadelphia, Pennsylvania; Laurel, Maryland;
Arlington, Virginia; Houston, Texas; 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 date of Executive’s separation from employment with the Company.

For the avoidance of doubt, the restrictions set forth in Section 8 of this
Agreement shall not apply in the event that the Company terminates Executive’s
employment without Cause, or Executive resigns his employment for Good Reason,
both as defined herein.

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 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 Conduct and Corporate Governance
Principles;

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(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 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. To the
extent applicable, the parties 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 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: Sotherly Hotels Inc.

306 South Henry St., Suite 100

Williamsburg, Virginia 23185

If to Executive: David R. Folsom

306 South Henry St., Suite 100

Williamsburg, Virginia 23185

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

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.

Section 22. Section 409A. The parties intend that this Agreement and the
benefits provided hereunder be interpreted and construed to be exempt from or
compliant 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.

 

SOTHERLY HOTELS INC.

 

 

 

 

By:

/s/ Andrew M. Sims

Name:

Andrew M. Sims

Title:

Chairman of the Board of Directors

 

 

 

 

EXECUTIVE

 

 

 

 

By:

/s/ David R. Folsom

Name:

David. R. Folsom

Title:

President and Chief Executive Officer