**Exhibit 10.20**

**EMPLOYMENT AGREEMENT**

This EMPLOYMENT AGREEMENT (the “Agreement”), is dated as ofthe 9th day of January 2006, between MHI Hospitality Corporation, a Maryland corporation (the “Company” or “Employer”), and David R. Folsom (the “Executive”). 

**RECITALS:**

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

WHEREAS, the Company seeks to enter into an agreement with Executive to engage himto serve as Executive Vice President and Chief Operating Officer of the Company on the terms and conditions stated herein; and 

WHEREAS,Executive seeks to enter into an agreement to take on such responsibilities under the terms and conditions stated herein; and 

WHEREAS, theCompany desires to employ the Executive on the terms and conditions set forth herein. 

NOW, THEREFORE, on the basis of the foregoingpremises 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 containedherein, the Executive shall serve as Executive Vice President and Chief Operating Officer of the Company and shall have such duties as are typically performed by a chief operating officer of a corporation of similar size and type as the Company. TheExecutive shall render his services at the direction of and shall report solely to, the Chief Executive Officer 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 Williamsburg, Virginia area, or such other location as determined by the Board of Directors of the Company. 

Section 2. Commencement Date; Term. Unless terminated pursuant to Section 6 hereof the Executive’s employment hereunder shallcommence on the date first written above (“Commencement Date”), and shall continue during the period ending on December 31, 2010. Thereafter, the term of the Agreement shall be extended for an additional year, on each anniversary ofthe 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 pursuantto Section 6. 

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

(a) Salary. As compensation for the performance of the Executive’s services hereunder, theCompany shall pay to the Executive a salary (the “Salary”) of One Hundred Fifty Thousand Dollars ($150,000) per annum. The Salary shall be payable in arrears in approximately equal 

 

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semi monthly installments (except that the first and last such semi monthly installments may he prorated if necessary) onthe Company’s regularly scheduled payroll dates, minus such deductions as may be required by law or reasonably requested by the Executive. The Nominating, Corporate Governance and Compensation Committee of the Company’s board of directors(the “Committee”) shall review Executive’s Salary annually beginning with the 2007 fiscal year in conjunction with its regular review of employee salaries and may increase his Salary as in effect from time to time as the Committeeshall deem appropriate it being understood and agreed that the intent of the parties is, subject to the satisfactory performance of Executive, to increase the Executive’s Salary over the first three years of the Employment Term to a levelcommensurate with salaries of executives with comparable duties for comparable entities in the Company’s industry as such entities and comparable salaries may be determined in the sole discretion of the Committee. 

(b) Annual Performance Bonus. The Executive shall be eligible to receive, in respect of each calendar year during the Employment Term beginningwith 2006, an annual cash performance bonus (the “Annual Performance Bonus”) in an amount consistent with the bonus program in place to compensate other members of the senior management team for that calendar year, based upon (other thanas 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 he paid to theExecutive within thirty (30) days following the receipt of the audited results of the Company for the plan year, but in no event later than sixty (60) days after the close of the plan year. If necessary, the Annual Performance Bonus shallbe 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, andconsistent with the terms of any stock incentive plan which may be created by the Company. 

(d) Deferred Stock Grant. Conditionedupon and in consideration of Executive’s employment through the dates set forth immediately below, and subject to the provisions regarding termination payments in Section 6(g), the following shares of fully vested and transferable stockwill be issued to Executive pursuant to the Company’s 2004 Long-Term Incentive under the following schedule: 

 
 a.0 shares issued in 2006 & 2007; 
 
 b.10,000 shares issued and vested on January 1, 2008; 
 
 c.10,000 shares issued and vested on January 1, 2009; 
 
 d.10,000 shares issued and vested on January 1, 2010; 
 
 e.30,000 shares issued and vested on January 1, 2011. 
Subject to section 6, provided Executive is employed by Company on December 31, 2010, the final grant of 30,000 shares of stock set forth in 3(d)(e) will be granted regardless of whether this Agreement is renewed. Stock, once granted,will accrue and pay dividends. 

(e) Benefits. In addition to the Salary and the Annual Performance Bonus, the Executive shall beeligible to participate in the Company’s health, insurance, retirement, and other benefit plans and programs. The Executive shall also be entitled to three (3) weeks of paid vacation for the first three (3) years of the Employmentterm and four (4) weeks beginning the fourth year and every year thereafter of the Employment Term. Additionally, the Executive will 

 

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be entitled to two (2) weeks paid time for illness and personal leave, and all Company holidays. The Executive shallbe 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. 

(f) Directors and Officers Liability Insurance. The Company will, at its expense, provide the Executive with Directors and OfficersLiability’ Insurance, subject to the provisions governing such insurance and on such terms as the Board may from time to time decide. The Company will indemnify Executive and hold Executive harmless, to the maximum extent permitted byapplicable 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 anysubsidiary or affiliate of the Company at any time. 

(g) Insurance and Other Related Benefits. Company shall pay for one hundredpercent (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 lifeinsurance 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 Agreementdue 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 ratepremium 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 theExecutive 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. Inaddition 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 toexecutives. 

(h) Other Benefits. Executive is entitled to visit the hotels in the Company’s portfolio and utilize same forExecutive’s conduct of Company business or for leisure on a space available basis at no cost to Executive. The Company agrees to pay for relocation expenses, grossed up for the appropriate State and Federal Tax liability. Relocation expenseswill include moving of household goods by recognized reputable carrier from Richmond, Virginia, to Williamsburg, Virginia, and reasonable per diem costs (lodging, meals, misc. out-of-pocket expenses). 

(i) Retirement. To the extent a retirement or profit sharing plan is created, Executive shall be entitled to participate in said plan pursuant toapplicable law. 

(j) No Other Compensation. Except as otherwise expressly provided herein, or in any other written document executedby 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. 

(k) 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 andsubjected to tax withholding as required under applicable Federal, state, and local laws. 

 

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Section 4. Exclusivity. During the Employment Term, the Executive shall devote his full timeto 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. The Executive shall use reasonable efforts topromote 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 professionaltrade 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 theCompany. 

Section 5. Reimbursement for Expenses. In addition to, but without duplication of the expenses described inSection 3(f), 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 andcertifications, 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 toSection 6(g)(ii) hereof and no other severance compensation. 

(b) Disability. If the Executive is unable to perform the dutiesrequired 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 Executiveis 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 theExecutive’s employment shall terminate and Executive shall be entitled to receive only the Accrued Compensation pursuant to Section 6(g)(ii) hereof and no other severance compensation. 

(c) Cause. The Company may terminate the Executive’s employment at any time, with or without 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) materialbreach 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 tocure) 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 ofconviction 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 

 

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based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, byExecutive 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 Bylaws of the Company. In the event of Executive’s termination for Cause asset forth above, Executive shall not be entitled to any severance compensation. 

(d) Without Cause. The Company may terminate theExecutive’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 anyreason other than Cause or 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 theCompany. Upon a termination of employment without cause, Executive shall be entitled to the compensation payments provided in Section 6(g). 

(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 thecompensation 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) anymaterial breach of this Agreement by the Company; (iv) the failure of Mr. Andrew M. Sims, Chief Executive Officer, to be nominated to the Board of Directors or his removal by the Board of Directors as a result of shareholder vote; or(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, however, that Good Reason shall not exist upon a terminationof employment described in Section 6(b), (c) or (d) herein; provided, further, that the Executive must provide written notice of termination of employment for Good Reason within thirty (30) days following the Executive’sknowledge 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).

Notwithstanding the foregoing, Good Reason shall not be deemed to exist unless the Company fails to cure the event giving rise to Good Reason withinthirty (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 Effective Date: 

(A) The ownership or acquisition (whether by a merger contemplated by Section 6(e)(v)(B) below, or otherwise) by any Person (other than a QualifiedAffiliate (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 “CommonStock”) 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 theeffectiveness 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

 

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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 VotingSecurities”), provided that, for purposes of this Section 6(e)(v)(B), if a Person who Beneficially Owned Outstanding Voting Securities immediately before the merger or consolidation Beneficially Owns a greater number of the ResultingVoting 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 OutstandingVoting 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 thecalculation; 

(C) Any one or a series of related sales or conveyances to any Person or Persons (including a liquidation) other than any oneor 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 effective date of this Agreement or is otherwise named in the Company’sregistration statement on Form S-11 as consenting to serve on the Board of Directors upon the closing of the initial public offering of the Company’s common stock or (2) any new director whose appointment by the Board of Directors or whosenomination 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 officeinitially 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 oras 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 haveoccurred 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. 

(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 l3d-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 l3(d)(3) or 14(d)(2) of the Exchange Act), includingany 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 Personsacting as a partnership, limited partnership, syndicate or other group for the purpose of acquiring, holding or disposing of the Company’s securities; amid 

(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 

 

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maintained by the Company or by any entity controlled by the Company; or (iii) any Person consisting or controlledin 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 theCompany as indicated in its most recent securities filing made before the date of the transaction. 

(f) Payment in Lieu. The Companymay, 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 underSection 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. To the extent thatany payment under this section 6(f) is deferred compensation subject to section 409A of the Internal Revenue Code, no payment will be made to Executive before the date that is six months after Executive’s separation from service. The firstpayment made will include all payments that otherwise would have been made during the six- month period after separation. 

(g)Termination Payments. 

(i) Termination without Cause or By Executive for Good Reason. In the event that during the EmploymentTerm 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 earnedpursuant 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 from the year prior to Executive’s termination, granting andvesting of any previously issued stock options or restricted stock (including those ungranted shares in Section 3(d)), payment of life, health and disability insurance coverage for a period of three years following termination, and unreimbursedexpenses (the “Accrued Obligations”); and (B), a severance payment equal to three (**3**) times of 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) the Executive will be eligible to receive payments to compensate the Executive for the additional taxes, if any, imposed on the Executive under Section 4999 of theInternal Revenue Code by reason of receipt of excess parachute payments described above. 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 Company pays the Executive the severance benefit as provided in thisSection 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. To the extent that any payment under this Section 6(g)(i)is deferred compensation subject to section 409A of the Internal Revenue Code, no such payment will be made to Executive before the date that is six months after Executive’s separation from service. The first payment made will include allpayments that otherwise would have been made during the six- month period after separation. To the extent any payment under this Section 6(g)(i) is otherwise required to be modified to comply with section 409A of the Internal Revenue Code,Executive agrees to so modify the terms of this Section 6(g)(i) in the same manner as the Agreements of the Company’s other executives are modified. 

(ii) 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, theCompany 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 

 

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any, in respect of Salary, and accrued but not yet paid Annual Performance Bonus owed from the year prior toExecutive’s termination (the “Accrued Compensation”). Such payments shall be made no later than sixty (60) days after the close of the year in which earned. 

(iii) Termination for Cause or By Executive without Good Reason. In the event that during the Employment Term the Executive’s employment isterminated by the Company for Cause or by the Executive by resignation without Good Reason, the Company shall pay to the Executive the Accrued Compensation. Executive shall not be entitled to any ungranted shares in Section 3(d) ifExecutive’s employment is terminated by the Company for Cause, or by the Executive by resignation without Good Reason. Such payments shall be made no later than sixty (60) days after the close of the year in which earned. 

(iv) Expiration of Agreement. If either the Company or the Executive elects not to renew this Agreement and it expires, the Executive shall notreceive 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 paidAnnual Performance Bonus owed with respect to the year of such expiration and any prior year. Such payment shall be made no later than sixty (60) days after the close of the year in which earned. 

(h) No Mitigation or Offset. In the event of any termination of Executive’s employment hereunder, Executive shall be under no obligation toseek 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 oramounts 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 ofthis Agreement shall survive to the extent necessary to give effect to the provisions thereof. 

Section 7. Confidentiality andNon-Disclosure Covenants. 

(a) Confidential Information. The Company considers one of its most valuable assets to be itsconfidential 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 has:(i) previously been disclosed by the Company in published papers; (ii) becomes part of the public domain, by publication or otherwise; and (iii) not due to the direct or indirect acts or omissions of Executive. The parties to thisAgreement 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 “ConfidentialInformation”), 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 ConfidentialInformation 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 documentsand 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 employedby the Company, whether or not developed during regular working hours or on the Company’s premises. 

(d) Executive recognizes that allmaterials, 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 theproperty 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) yearthereafter, 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 anotherbusiness, engage in or assist others in the following activities: 

(a) Soliciting, hiring, recruiting, or attempting torecruit, 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’stermination of employment with the Company; 

(b) Soliciting for any business which competes with the Company’sBusiness, 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 hereinafterdefined), 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 theCompany 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 

 

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Executive while employed by the Company. This provision shall not restrict Executive from owning apassive 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 andits affiliates. For purposes of this provision, “Market Area” shall be defined as Savannah, Georgia; Raleigh, North Carolina; Williamsburg, Virginia; Philadelphia, Pennsylvania; Wilmington, North Carolina, Laurel, Maryland; andJacksonville, Florida 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 theEmployment Term. 

Section 9. Injunctive Relief. Without intending to limit the remedies available to the Company, the Executiveacknowledges 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 bepossible 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 thenecessity 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 mayberequired 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 violationof the covenants contained in Sections 7 and 8 hereof. 

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

(a) This Agreement, upon execution and delivery by the Executive and the Company,subject to approval by the Company’s Board of Directors, 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 termsamid 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 bothwould 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 transactionscontemplated hereby. 

Section 12. Assignment; No Third-Party Beneficiaries. This Agreement shall inure to the benefit of and bebinding 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 theExecutive’s estate and any successor to all or substantially all of the business and/or 

 

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assets of the Company. This Agreement, and the Executive’s rights and obligations hereunder, may not be assigned bythe 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 obligationsof 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 personor 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 validonly if made in writing and signed by the parties hereto. The parties agree to cooperate in good faith to timely amend this Agreement, as required by guidance issued under section 409A of the Internal Revenue Code, to conform with the requirementsof section 409A of the Internal Revenue Code. 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 waiverspecifically states that it is to be construed as a continuing waiver. 

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

(a) Avoiding conflicts of interest; 

(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 preferentialterms, 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 theindemnification of Executive to the fullest extent permitted by Maryland law. 

****Section 16. Severability, Governing Law.The Executive acknowledges and agrees that the covenant 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 Agreementare found to be invalid or unenforceable by a final determination of a court or arbitration panel of competent jurisdiction (a) the remaining terms amid provisions hereof shall be unimpaired and (b) the invalid or unenforceable term orprovision 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 INACCORDANCE 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.**

 

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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 orcertified mail, postage prepaid 

 

If to the Company:
    MHI Hospitality Corporation    814 Capitol Landing Road    Williamsburg, Virginia 23185
If to the Executive:
    David R. Folsom    814 Capitol Landing Road    Williamsburg, Virginia 23185
(b) Any notice so addressed shall be deemed to be given: if delivered by hand, on the date of suchdelivery; 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 notbe deemed to constitute a part thereof affect the meaning or interpretation of this Agreement or of any term or provision hereof. 

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

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

Section 21. Counterparts. This Agreementmay 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 asingle arbitrator in Greenbelt, 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 punitivedamages 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 enforcethis 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 decisionby 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 ofrelief 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 (1) submit to the exclusive jurisdiction of the courts of the State ofMaryland and the U.S. federal courts in 

 

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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 beenforced in other jurisdictions, (v) consent to service of process at the address set forth in Section 16 herein, and (vi) to the extent applicable, waive their respective rights to a jury trial of any claim or cause of action basedon or arising out of this agreement or any dealings between them relating to the subject matter of this agreement. 

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

 

MHI HOSPITALITY CORPORATION

By:
 
 
 Andrew M. Sims Chief Executive Officer
 

David R. Folsom

Executive Vice President and

Chief Operating Officer

 

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