-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EJ7iOzQI6GJ6UeKUm2EcEsso3dL1c7TcbXMTyjYBbnv6Qnds9cbqyoS3uwn8FD5Y DQtWENEHFVP+qypSLzcg1Q== 0000950137-04-008360.txt : 20041007 0000950137-04-008360.hdr.sgml : 20041007 20041007164655 ACCESSION NUMBER: 0000950137-04-008360 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20041004 ITEM INFORMATION: Entry into a Material Definitive Agreement ITEM INFORMATION: Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant ITEM INFORMATION: Other Events ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20041007 DATE AS OF CHANGE: 20041007 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARLINGTON HOSPITALITY INC CENTRAL INDEX KEY: 0000778423 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 363312434 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-15291 FILM NUMBER: 041070634 BUSINESS ADDRESS: STREET 1: 2355 SOUTH ARLINGTON HEIGHTS ROAD STREET 2: SUITE 400 CITY: ARLINGTON HEIGHTS STATE: IL ZIP: 60005 BUSINESS PHONE: 8472285400 MAIL ADDRESS: STREET 1: 2355 SOUTH ARLINGTON HEIGHTS ROAD STREET 2: SUITE 400 CITY: ARLINGTON HEIGHTS STATE: IL ZIP: 60005 FORMER COMPANY: FORMER CONFORMED NAME: AMERIHOST PROPERTIES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: AMERICA POP INC DATE OF NAME CHANGE: 19871111 8-K 1 c88612e8vk.txt CURRENT REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------- FORM 8-K --------- CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report: October 4, 2004 (Date of earliest event reported) --------- ARLINGTON HOSPITALITY, INC. (Exact name of registrant as specified in its charter) --------- Delaware 0-15291 36-3312434 (State or other jurisdiction of (Commission File No.) (IRS Employer Identification No.) incorporation)
2355 South Arlington Heights Road Suite 400 Arlington Heights, Illinois 60005 (Address of Principal Executive Offices) (847) 228-5400 (Registrant's telephone number, including area code) NOT APPLICABLE (Former name or former address, if changed since last report) --------- Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below): [ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) Item 1.01 Entry into a Material Definitive Agreement. On October 4, 2004, Arlington Hospitality, Inc., a Delaware corporation (the "Company" or "Arlington") entered into a Third Amendment to Amended and Restated Master Lease Agreement (the "Third Amendment") with PMC Commercial Trust ("PMC") (AMEX: PCC), the landlord of 20 AmeriHost Inn hotels operated by the Company. The Third Amendment is described in the press release attached hereto as Exhibit 99.1 which is hereby incorporated by reference pursuant to Instruction F to Form 8-K. The Third Amendment is also attached hereto as Exhibit 10.1. Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant. Concurrently with the execution of the Third Amendment, the Company executed a Proceeds Deficits Loan Agreement with PMC and a Deficit Note in favor of PMC each of which is described in the press release attached hereto as Exhibit 99.1 which is incorporated by reference pursuant to Instruction F to Form 8-K. The Proceeds Deficits Loan Agreement and the Deficit Note are also attached hereto as Exhibits 10.2 and 10.3, respectively. Item 8.01 Other Events. On October 7, 2004, the Company issued a press release announcing it entered into the Third Amendment with PMC. A copy of the Company's press release is attached to this current report on Form 8-K as Exhibit 99.1. Item 9.01 Financial Statements and Exhibits. 10.1 Third Amendment to Amended and Restated Master Lease Agreement, by and among PMC Commercial Trust and its subsidiaries, PMCT Sycamore, L.P., PMCT Macomb, L.P., PMCT Marysville, L.P. and PMCT Plainfield, L.P. Arlington Inns, Inc. (formerly Amerihost Inns, Inc.) and Arlington Hospitality, Inc. 10.2 Proceeds Deficits Loan Agreement, by and among PMC Commercial Trust and its subsidiaries, PMCT Sycamore, L.P., PMCT Macomb, L.P., PMCT Marysville, L.P. and PMCT Plainfield, L.P. and Arlington Hospitality, Inc. 10.3 Deficit Note made by Arlington Hospitality, Inc. in favor of PMC Commercial Trust and its subsidiaries, PMCT Sycamore, L.P., PMCT Macomb, L.P., PMCT Marysville, L.P. and PMCT Plainfield, L.P. 99.1 Press Release of Arlington Hospitality, Inc., dated October 7, 2004, Announcing Third Amendment to Master Lease Agreement. 2 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. DATE: October 7, 2004 Arlington Hospitality, Inc. (Registrant) By: /s/ Jerry H. Herman ----------------------------------- Jerry H. Herman Chief Executive Officer By: /s/ James B. Dale ----------------------------------- James B. Dale Senior Vice President and Chief Financial Officer 3 EX-10.1 2 c88612exv10w1.txt THIRD AMENDMENT TO AMENDED AND RESTATED MASTER LEASE AGREEMENT EXHIBIT 10.1 THIRD AMENDMENT TO AMENDED AND RESTATED MASTER AGREEMENT THIS THIRD AMENDMENT TO AMENDED AND RESTATED MASTER AGREEMENT (this "THIRD AMENDMENT") is made and entered this 4th day of October, 2004, to be effective as of October 1, 2004 (the "EFFECTIVE DATE"), by and among PMC COMMERCIAL TRUST and its subsidiaries, PMCT Sycamore, L.P., PMCT Macomb, L.P., PMCT Marysville, L.P. and PMCT Plainfield, L.P. (collectively, the "LESSOR"), ARLINGTON INNS, INC. (formerly Amerihost Inns, Inc.) (the "LESSEE") and ARLINGTON HOSPITALITY, INC. ("ARLINGTON"). RECITALS WHEREAS, the parties hereto entered into an Amended and Restated Master Agreement dated January 24, 2001 (the "ORIGINAL MASTER AGREEMENT"), to set forth their agreement to amend and restate provisions of the Master Agreements (as therein defined) and other matters set forth therein; and WHEREAS, the parties hereto have previously amended the Original Master Agreement by (a) that certain First Amendment to Amended and Restated Master Agreement dated as of May 25, 2001 and (b) that certain Second Amendment to Amended and Restated Master Agreement dated as of June 4, 2003 (the Original Master Agreement, as so amended, herein called the "MASTER AGREEMENT"); and WHEREAS, Arlington has guaranteed the obligations of Lessee under the Property Leases pursuant to that certain Guaranty Agreement dated June 30, 1998 (the "GUARANTY"); and WHEREAS, the parties wish to make further amendments to the Master Agreement as more fully set forth herein. AGREEMENT NOW, THEREFORE, in consideration of the foregoing premises, the covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. DEFINITIONS. Capitalized terms used but not defined herein shall have the meanings set forth in the Master Agreement. 2. BASE RENT. Anything in the Master Agreement or the Property Leases to the contrary notwithstanding, the parties agree as follows: (a) By letter agreements dated March 11, 2004, April 29, 2004, June 2, 2004, July 5, 2004, July 30, 2004 and September 1, 2004 (collectively, the "PRIOR AGREEMENTS"), Lessor agreed to accept the following reduced payments of Base Rent (each, a "REDUCED PAYMENT"), all of which have been paid by Lessee to Lessor: (i) March 1, 2004 Reduced Payment: $385,319.00 THIRD AMENDMENT TO AMENDED AND RESTATED MASTER AGREEMENT -- PAGE 1 (ii) April 1, 2004 Reduced Payment: $359,833.00 (iii) May 1, 2004 Reduced Payment: $359,833.00 (iv) June 1, 2004 Reduced Payment: $359,833.00 (v) July 1, 2004 Reduced Payment: $359,833.00 The Reduced Payment amount for March 1, 2004 included the late fee due on the March 1 Base Rent payment and past due Base Rent due to CPI increases as provided in the Property Leases. Lessee paid to Lessor the March 1, 2004 Reduced Payment, less the sum of $108,897.00 (which amount was funded by Lessor from the Escrow Funds held under the Master Agreement), for a net payment of $276,422.00. Lessee paid to Lessor the April 1, 2004 Reduced Payment, less the sum of $100,000 (which amount was funded by Lessor from the Escrow Funds held under the Master Agreement), for a net payment of $259,833.00. Pursuant to the Prior Agreements, Lessor applied $425,056.00 of the Escrow Funds held under the Master Agreement to pay the Accrued Base Rent (as defined in the Prior Agreements) outstanding as of September 1, 2004. Pursuant to the Prior Agreements, Lessee paid the Base Rent due on August 1, 2004 in the full amount required under the Leases, being the sum of $444,844.25 and the Base Rent due on September 1, 2004 in the full amount required under the Leases, being the sum of $422,952.30. (b) Provided no Contract Rate Event of Default or Default Rate Event of Default (as both terms are hereinafter defined) has occurred and is continuing, beginning on the Effective Date, the Base Rent payments required to be paid under the Property Leases shall be reduced to an amount equal to an annualized rate (the "PAY RATE") of eight and one-half percent (8 1/2%) of the Total Assigned Values of the Hotels then remaining subject to a Property Lease (the "REDUCED BASE RENT PAYMENT"). The following events shall each constitute a "CONTRACT RATE EVENT OF DEFAULT" hereunder: (i) the occurrence of the event described in Paragraph 4(f)(i) below or (ii) the occurrence of a non-monetary event of default by Lessee or Arlington under the Master Agreement, the Property Leases, and any other agreements between Lessee, Guarantor and Lessor, including, without limitation, performance of any non-monetary obligations under those certain notes and agreements listed on Schedule 1 attached hereto (the "RELATED OBLIGATIONS") and such event of default is not cured within any applicable grace or cure periods. The following events shall each constitute a "DEFAULT RATE EVENT OF DEFAULT" hereunder: (i) the occurrence of the event described in Paragraph 4(f)(ii) below, (ii) the failure of Lessee to pay the Arlington Fee Amount in accordance with the terms of Paragraph 4(b) below, or (iii) the occurrence of a monetary event of default by Lessee or Arlington under the Master Agreement, the Property Leases, and any other of the Related Obligations (including, without limitation, the failure to pay any principal, interest, real estate taxes or real estate tax escrow payments due and payable thereunder), and such event of default is not cured within any applicable grace or cure periods. (c) Upon the occurrence of a Contract Rate Event of Default and until such Contract Rate Event of Default has been cured, the Base Rent will be calculated at the THIRD AMENDMENT TO AMENDED AND RESTATED MASTER AGREEMENT -- PAGE 2 rate set forth for each Hotel in the Master Agreement and the separate Property Leases (herein the "CONTRACT RATE"). The increase to the Contract Rate will be effective (A) commencing on the first (1st) day of the month in which the Contract Rate Event of Default occurs and will remain effective until the first (1st) day of the first month following the month in which the Contract Rate Event of Default is cured, at which time the Pay Rate will be reinstated, or (B) as otherwise provided in Section 4(f)(i) below. (d) Upon the occurrence of a Default Rate Event of Default and until such Default Rate Event of Default has been cured, the Base Rent will be calculated at the rate of fifteen percent (15%) per annum (the "DEFAULT RATE"). The increase to the Default Rate will be effective (A) commencing on the first (1st) day of the month in which the Default Rate Event of Default occurs and will remain effective until the first (1st) day of the first month following the month in which the Default Rate Event of Default is cured, at which time the Pay Rate will be reinstated, or (B) as otherwise provided in Section 4(f)(ii) below. 3. FOURTH PURCHASE OPTION; PAYMENTS UPON SALE. Lessee and Lessor acknowledge that the Fourth Purchase Option has been satisfied through the Sale Closing of the AmeriHost Inn, Port Huron, Michigan (the "PORT HURON HOTEL"), which occurred on or about August 25, 2004. There will be no further purchase options under the Master Agreement. The provisions of Article 10.6 of the Master Agreement that provide for the payment to Lessor of $125,000.00 and $150,000.00 are hereby deleted in their entirety. 4. SALES OF THE HOTELS. (a) Lessee shall cause the Hotels to be sold under Approved Contracts in accordance with the following schedule (the "SALES SCHEDULE"): (i) a minimum of six (6) Hotels on or before October 1, 2005 (which includes the sale of the Port Huron Hotel); (ii) a minimum of eleven (11) Hotels (cumulative) on or before October 1 , 2006; (iii) a minimum of sixteen (16) Hotels (cumulative) on or before October 1, 2007; and (iv) a minimum of twenty-one Hotels (cumulative) on or before October 1, 2008. (b) Anything in Article 10.6 of the Master Agreement to the contrary notwithstanding, upon the closing of the sale of any of the Hotels (herein, a "SALE CLOSING"), Lessor shall be paid the following amounts, in the following manner: (a) concurrently with each Sale Closing, the sale proceeds, after payment of the Closing Costs (the "NET SALES PROCEEDS") and (b) an amount equal to twenty-five and three-tenths percent (25.3%) of the gross room revenues for such Hotel for the 12-month period prior ending on the last day of the month immediately preceding the month in which the Sale Closing occurs (the "ARLINGTON FEE AMOUNT"), payable as provided below. As used herein "CLOSING COSTS" shall mean fees, broker fees, commissions, title premiums, recording fees, THIRD AMENDMENT TO AMENDED AND RESTATED MASTER AGREEMENT -- PAGE 3 prepayment penalties on related debt of the Lessor, if any, assumption fees, or any transfer tax or taxes levied by any local or state taxing authority and shall not include real estate taxes and any other operating costs and expenses related to the Hotel that are prorated and payable by the "seller" at the Sale Closing. Lessee shall be responsible for the payment of all such prorated amounts and such amounts shall not be deducted from the sales proceeds to determine the Net Sales Proceeds. The following example will illustrate the calculation of the Net Sales Proceeds: The purchase price for the Hotel is $1,000,000 and at the closing date, Lessee has not yet paid real estate taxes and Lessee's prorated share of such real estate taxes is $80,000.00. In addition, Lessee's prorated share of amounts due under service contracts and for utilities is $10,000.00. Closing Costs are $15,000.00. The Net Sales Proceeds payable to Lessor by Lessee for the purpose of this Agreement would be $985,000.00, notwithstanding that the settlement statement would show a "net payment" to the Seller of $895,000.00. The applicable Arlington Fee Amount will be paid to Lessor within forty-five (45) days following each Sale Closing date and shall be accompanied by a certification by Lessee of the calculation of such amount, together with backup documentation. Upon receipt by Lessor, the Arlington Fee Amount will be applied by Lessor to reduce the principal balance of the Deficit Note (as defined in the Proceeds Deficits Loan Agreement (herein so called) between Arlington and Lessor dated of even date herewith. (c) If the amount of the Net Sales Proceeds for any Hotel exceeds the Assigned Value (herein so called) for such Hotel as reflected on Exhibit E attached to the Master Agreement ("PROCEEDS EXCESS"), the amount of any such Proceeds Excess shall be applied as follows: (a) if as of the Sale Closing of such Hotel, there exists a Proceeds Deficit (as hereinafter defined), the Proceeds Excess will be applied by Lessor (i) first, to reduce any existing Proceeds Deficit amount and (ii) second, reduce the Assigned Value of the remaining Hotels in such amounts as determined by Lessor in its discretion and (b) if as of the Sale Closing of such Hotel, no Proceeds Deficit exists, the Proceeds Excess will be (i) applied by Lessor to reduce the Assigned Value of the remaining Hotels, in such amounts as determined by Lessor in its reasonable discretion, taking into consideration, among other factors, the relative operating deficits of the Hotels that are scheduled for sale or (ii) if the Sale Closing is for the final Hotel or the Total Assigned Values are reduced to zero (0), released to Lessor. If at any time during the term of the Master Agreement, the Total Assigned Values of the Hotels that have not been sold is reduced to $1,500,000 or less and the Proceeds Deficit has been paid in full, Lessor may, at its option, terminate the Property Leases for such Hotels and Lessee and Arlington will have no further right or interests under the Property Leases or in the Hotels. As used herein, the term "PROCEEDS DEFICIT" with respect to any Hotel, shall mean an amount equal to the deficit between the amount of the Net Sales Proceeds for a Hotel and the Assigned Value for such Hotel and "PROCEEDS DEFICITS" shall mean the aggregate of such deficits for all Hotels. THIRD AMENDMENT TO AMENDED AND RESTATED MASTER AGREEMENT -- PAGE 4 (d) The payment of the Proceeds Deficits shall become the absolute and immediate obligation of Arlington pursuant to and subject to the terms of the Proceeds Deficits Loan Agreement. (e) Concurrently with the sale of the Port Huron Hotel, Arlington executed, as maker, a promissory note in favor of Lessor, as payee, in the original principal amount equal to the Proceeds Deficits occasioned by the sale of the Port Huron Hotel, a copy of which is attached hereto as Schedule 3 (the "PORT HURON DEFICIT NOTE"). Lessor and Lessee acknowledge and confirm that the current principal balance of the Port Huron Deficit Note is $509,830.33. Concurrently with the execution of this Third Amendment and the Proceeds Deficits Loan Agreement, Arlington shall execute, as maker, and deliver to Lessor a Deficit Note in the form contemplated under the Proceeds Deficits Loan Agreement in the original principal amount that is equal to the current outstanding principal balance of the Port Huron Deficit Note. Concurrently with Arlington's execution and delivery of the Deficit Note, Lessor shall return the original Port Huron Deficit Note to Arlington. Lessee further acknowledges and agrees that the Arlington Fee Amount payable in connection with the sale of the Port Huron Hotel in the amount of $164,889.60 remains outstanding and will be paid by Lessee to Lessor on or before October 11, 2004. Upon payment of such Arlington Fee Amount, Lessor will apply such payment to reduce the principal balance of the Deficit Note and will note such principal reduction to the Deficit Note in accordance with the provisions of the Proceeds Deficits Loan Agreement. (f) Anything herein, in the Master Agreement or the Property Leases to the contrary notwithstanding, if the number of Hotels required to be sold pursuant to the Sales Schedule exceeds the number of Hotels actually sold as the last day of a Sale Year (i) by five (5) or less Hotels, such event shall be deemed a Contract Rate Event of Default, and beginning on the first (1st) day of the first (1st) month in the next Sales Year, the Base Rent will become payable at the Contract Rate until the first (1st) day of the month following such time as the minimum number of Hotels have been sold for such prior Sales Year, at which time the Pay Rate will be reinstated and (ii) by more than five (5) Hotels, such event shall be deemed a Default Rate Event of Default, and beginning on the first (1st) day of the first (1st) month in the next Sales Year, Base Rent will accrue at the Default Rate until the first (1st) day of the month following such time as the minimum number of Hotels have been sold for such prior Sales Year, at which time the Contract Rate will be reinstated and the provisions of clause (i) of this subsection (f) will again be applicable. (g) As used herein the term "SALES YEAR" shall mean the period beginning on October 1 of one calendar year and ending on September 30 of the following year. 5. CAPITAL EXPENDITURE RESERVE. Anything in the second sentence of Section 10.8 to the contrary notwithstanding, upon any sale of a Hotel, 100% of the combined Capital Expenditure Reserve Account and the FF&E Reserve Account (collectively, the "RESERVES") for such Hotel shall be applied to such accounts for the remaining Hotels in such amounts as determined by Lessor in its reasonable discretion after taking into account the planned timing of remaining Hotel sales and the relative investment in each Hotel necessary to derive the greatest sales value; provided, however, that until the THIRD AMENDMENT TO AMENDED AND RESTATED MASTER AGREEMENT -- PAGE 5 breakfast rooms for the Rochelle Hotel, the Wooster North Hotel and the Grand Rapids North Hotel are completed, the Reserves (inclusive of the Port Huron Reserves) shall be applied to the costs of completing these breakfast rooms. Lessee will use its reasonable efforts to utilize the Reserves for the Hotels prior to the sale of the Hotels for the purposes set forth in the Property Leases and as necessary to maintain the Hotels as required under the Property Leases. Any Reserves remaining at the time the last Hotel is sold will be applied to reduce the Proceeds Deficit, and if no Proceeds Deficit exists, released to Arlington. 6. OPERATING STATUS REPORTS. Within thirty (30) days after the end of each calendar quarter, Lessee shall provide Lessor with a status report on each Hotel owned by Lessor at such time, which report shall include the following information: (a) market position information (per STAR or other similar reports), (b) information regarding any new competition of which Lessee is advised, and (c) information on any significant developments impacting the Hotel's business. Such reports shall be in addition to and not in substitution of the financial reports that Lessee is required to provide pursuant to the terms of the Property Leases and Master Agreement and Lessee shall continue to provide such financial reports as required under the terms of the Property Leases and Master Agreement. 7. SALES PROCESSES; APPROVALS. (a) Lessee shall submit offers it or Arlington receives on the Hotels to the Lessor on a timely basis, with Lessee's and Arlington's opinions as to whether such offer should be pursued. (b) Lessee and/or Arlington will provide a monthly written status report to Lessor describing (i) the status of any pending sales of the Hotels and (ii) indications of interest and offers made with respect to the potential sale of any of the Hotels. Along with such report, Lessee shall update the operations status report referred to in Paragraph 6 above for any offer being submitted by Lessee, but only to the extent it is aware of new material developments per the terms set forth in the last such operations status reports for the applicable Hotel. (c) Prior to the execution of any contract for the sale of a Hotel, Lessee shall submit the following to Lessor for Lessor's approval, not to be unreasonably withheld or delayed: (i) a summary of the economic terms of such proposed sale, (ii) the identity and financial information regarding the proposed purchaser, (iii) a copy of the proposed letter of intent and (iv) when available, the form of the final, execution draft of the proposed contract of sale. Within five (5) business days after actual receipt by Lessor of (A) the items listed in (i) through (iii) in the preceding sentence, Lessor shall indicate its approval or disapproval of the terms of the proposed sale and (B) the form of the final, execution draft of the proposed contract of sale, Lessor shall indicate its approval or disapproval of such form; provided that if Lessor fails to respond within said five (5) business day period, the terms of such sale and the form of the final, execution draft of contract of sale, respectively, shall be deemed approved and Lessee may proceed to the Sale Closing under the terms approved (or deemed approved) by Lessor. Any material deviation from such terms shall require the further approval of Lessor. Any contract of sale approved (or deemed approved) by Lessor under this Paragraph 7(c) is herein called an "APPROVED SALES CONTRACT". Lessee shall THIRD AMENDMENT TO AMENDED AND RESTATED MASTER AGREEMENT -- PAGE 6 submit the items described in subsections (i) and (ii) above by overnight courier and they shall be deemed received upon acknowledgment of receipt by Lessor. (d) Lessor and Lessee hereby agree and acknowledge that (i) Lessor has agreed to the sales of the Hotels listed on Schedule 2 at the prices listed on Schedule 2 and (ii) that Lessee need not seek further approvals for the sales of the Hotels listed on Schedule 2 at such prices provided that (A) such sales occur within six (6) months following the Effective Date, (B) Lessee submits to Lessor the proposed contract of sale for such Hotels prior to the execution thereof in accordance with subparagraph (c) above and (C) Lessee thereafter sells such Hotels pursuant to terms and conditions that are substantially similar to those set forth in the Approved Sales Contract and at prices substantially similar or greater than those set forth in Schedule 2. Lessor and Lessee may mutually agree at any time to substitute Hotels for those Hotels listed in Schedule 2. (e) Notwithstanding, to the extent a Hotel has not sold within six (6) months of the date the anticipated sale price and terms are approved by Lessor pursuant to the terms of this Paragraph 7, then Lessee shall either (i) request Lessor to agree to an extension of the closing date under the Approved Sales Contract or (ii) submit revised sales proposals pursuant to the provisions of subparagraph (c) above. (f) Lessee shall cause any brokers working directly with Lessee on the sale of Hotels to communicate with Lessor and Lessee concurrently at the request of the Lessor. (g) All the Hotels will be sold as "AmeriHost Inn" hotels, with the AmeriHost franchise agreement for such Hotel to continue after such sale, unless agreed to otherwise by Lessor and Lessee. 8. NEGATIVE COVENANTS OF LESSEE AND ARLINGTON. Lessee and Arlington hereby agree and covenant as follows: (a) No dividends shall be declared or distributed with respect to the common stock of Arlington until all amounts owing to Lessor under the Master Agreement, the Property Leases and the Deficit Agreement are paid in full. Notwithstanding the foregoing, provided no Default Rate Event of Default exists, dividends for preferred stock of Arlington may be declared and distributed. (b) There shall be permitted no stock buy-backs of Arlington stock, except (i) under executive employment contracts or employee bonus plans, provided that any buy-back under an executive employment contract may not exceed the exercised amount plus taxes thereon, or (ii) pursuant to stock repurchases in the open market with the amount of cash received through option purchases, provided in no event shall such net cash requirement be greater than $350,000, in the aggregate, during the term of the Master Agreement for the items described in (i), and (ii) above. 10. CONFIDENTIALITY AGREEMENT; PRESS RELEASES. The Confidentiality Agreement dated February 19, 2004 and executed by the parties hereto is hereby terminated and of no further force and effect. Lessee and Arlington agree, however, that any press release regarding the terms or the subject matter of this Third Amendment, the Master THIRD AMENDMENT TO AMENDED AND RESTATED MASTER AGREEMENT -- PAGE 7 Agreement, the Property Leases, the Deficit Agreement or in any way relating to the relationship between Lessee, Arlington and Lessor shall be subject to the prior approval of Lessor prior to its release. Notwithstanding the foregoing, either Lessor or Lessee may make any such disclosures and press releases as are necessary to comply with applicable federal or state laws, codes or regulations. 10. CONTINUED VALIDITY. Except as expressly provided in this Third Amendment, all terms, conditions, representations, warranties, and covenants contained in the Master Agreement and shall remain in full force and effect, and are hereby ratified, confirmed and acknowledged by Lessee and Arlington. All references herein or the Property Leases to the Master Agreement shall be deemed to reference the Master Agreement as amended by this Third Amendment, and any default of the terms of this Third Amendment shall be deemed an event of default under the Master Agreement and Property Leases. 11. CONSTRUCTION. This Third Amendment and the rights and obligations of the parties hereunder shall be construed and interpreted in accordance with and governed by, the laws of the State of Texas and applicable laws of the United States of America. 12. BINDING EFFECT. This Third Amendment shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors and assigns. 13. AGREEMENT OF ARLINGTON REGARDING GUARANTY. Arlington hereby confirms that (i) the execution and delivery of this Third Amendment will in no way reduce or impair Arlington's obligations under the Guaranty, which Guaranty remains in full force and effect and (ii) the obligations of Arlington under the Guaranty with respect to the performance of the Lessee under the Master Agreement, includes those obligations arising under the Master Agreement, as amended by this Third Amendment. 14. ATTORNEY FEES. Arlington and Lessee, on demand, shall pay Lessor for all costs and expenses, including without limitation attorneys' fees paid or incurred by Lessor in connection with the collection of any sum due hereunder, or in connection with enforcement of any of Lessor's rights or Arlington's and Lessee's obligations under this Third Amendment and the Master Agreement. 15. AMENDMENT FEE. In consideration of the execution of this Third Amendment, Arlington and Lessee have paid to Lessor as a non-refundable deposit in the amount of $50,000.00 (the "AMENDMENT FEE"). To the extent the actual attorney fees incurred by Lessor in connection with the negotiation and preparation of this Third Amendment exceed the Amendment Fee, Lessee and Arlington shall remit such excess to Lessor within ten (10) days following delivery to Lessee and Arlington of invoices detailing such fees. 16. JOINT AND SEVERAL LIABILITY. The obligations of Arlington and Lessee hereunder shall be joint and several. 17. COUNTERPARTS. This Third Amendment may be executed in several counterparts, each of which shall be fully effective as an original, and all of which together shall constitute one and the same instrument. [SIGNATURE PAGES FOLLOW] THIRD AMENDMENT TO AMENDED AND RESTATED MASTER AGREEMENT -- PAGE 8 LESSOR: PMC COMMERCIAL TRUST By: /s/ Lance B. Rosemore ------------------------------------ Name: Lance B. Rosemore Title: President PMCT SYCAMORE, L.P. By: PMCT AH-SYCAMORE, INC., Its general partner By: /s/ Lance B. Rosemore ----------------------------- Name: Lance B. Rosemore Title: President PMCT MACOMB, L.P. By: PMCT AH-MACOMB, INC., Its general partner By: /s/ Lance B. Rosemore ----------------------------- Name: Lance B. Rosemore Title: President PMCT PLAINFIELD, L.P. By: PMCT AH, INC, its general partner By: /s/ Lance B. Rosemore ----------------------------- Name: Lance B. Rosemore Title: President THIRD AMENDMENT TO AMENDED AND RESTATED MASTER AGREEMENT -- SCHEDULE 3 PMCT MARYSVILLE, L.P. By: PMCT AH, INC, its general partner By: /s/ Lance B. Rosemore ----------------------------- Name: Lance B. Rosemore Title: President [SIGNATURES CONTINUED ON NEXT PAGE] THIRD AMENDMENT TO AMENDED AND RESTATED MASTER AGREEMENT -- SCHEDULE 3 LESSEE: ARLINGTON INNS, INC., formerly AMERIHOST INNS, INC. By: /s/ Jerry H. Herman ------------------------------------ Name: Jerry H. Herman Title: President By: /s/ James B. Dale ------------------------------------ Name: James B. Dale Title: Secretary ARLINGTON: ARLINGTON HOSPITALITY, INC. By: /s/ Jerry H. Herman ------------------------------------ Name: Jerry H. Herman Title: President By: /s/ James B. Dale ------------------------------------ Name: James B. Dale Title: Secretary THIRD AMENDMENT TO AMENDED AND RESTATED MASTER AGREEMENT -- SCHEDULE 3 EX-10.2 3 c88612exv10w2.txt PROCEEDS DEFICITS LOAN AGREEMENT EXHIBIT 10.2 PROCEEDS DEFICITS LOAN AGREEMENT THIS PROCEEDS DEFICITS LOAN AGREEMENT (this "AGREEMENT") is made and entered this 4th day of October, 2004, to be effective as of October 1, 2004 (the "EFFECTIVE DATE"), by and among PMC COMMERCIAL TRUST and its subsidiaries, PMCT Sycamore, L.P., PMCT Macomb, L.P., PMCT Marysville, L.P. and PMCT Plainfield, L.P. (collectively, "PMC") and ARLINGTON HOSPITALITY, INC. ("ARLINGTON"). RECITALS WHEREAS, PMC, Arlington and Arlington Inns, Inc. (formerly Amerihost Inns, Inc.) (the "LESSEE") entered into an Amended and Restated Master Agreement dated January 24, 2001 (the "ORIGINAL MASTER AGREEMENT"), to set forth their agreement to amend and restate provisions of the Master Agreements (as therein defined) and other matters set forth therein; and WHEREAS, PMC, Arlington and Lessee have previously amended the Original Master Agreement by (a) that certain First Amendment to Amended and Restated Master Agreement dated as of May 25, 2001 and (b) that certain Second Amendment to Amended and Restated Master Agreement dated as of June 4, 2003; and WHEREAS, PMC, Arlington and Lessee are concurrently executing a Third Amendment to the Original Master Agreement (the "THIRD AMENDMENT") (the Original Master Agreement as amended by the amendments described in these recitals herein called the "MASTER AGREEMENT") pursuant to which, among other things, PMC has agreed to defer the payment of certain amounts otherwise payable to it in connection with the sales of the Hotels (as defined in the Master Agreement) and loan to Arlington the amounts so deferred, provided that Arlington agree to pay such amounts pursuant to the terms hereof. AGREEMENT NOW, THEREFORE, in consideration of the foregoing premises, the covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. DEFINITIONS. Capitalized terms used but not defined herein shall have the meanings set forth in the Master Agreement (inclusive of the Third Amendment). 2. PROCEEDS DEFICITS LOAN. PMC agrees to make a loan to Arlington in an amount equal to the aggregate amount of all Proceeds Deficits arising under the Master Agreement (the "PROCEEDS DEFICITS LOAN"). The Proceeds Deficits Loan will be evidenced by a promissory note in substantially the form of Exhibit "A-1" hereto (each such note and all extensions, renewals, and modifications thereof and all substitutions therefore herein called a "DEFICIT NOTE"). Prior to the Effective Date, a Sale Closing occurred with respect to Port Huron, Michigan Hotel. Notwithstanding the foregoing, the parties hereto acknowledge and confirm that (i) a Proceeds Deficit existed in connection with such sale and (ii) Arlington executed, as maker, a promissory note to PMC in an amount equal to such Proceeds Deficit (the "PORT HURON NOTE"). As contemplated in the Third Amendment, concurrently herewith Arlington shall execute, as Maker, a Deficit Note in the amount specified in the Third Amendment. This Deficit Note shall replace the Port Huron Note and upon PMC's receipt of the Deficit Note, PMC shall return the original Port Huron Note to Arlington. Hereinafter, upon each Sale Closing, PMC shall record on Schedule 1 to the Deficit Note, the then current amount of principal under the Proceeds Deficit Loan and shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of Arlington to PMC under this Agreement, including the amounts of principal and interest payable and paid to PMC from time to time hereunder (i.e., increases in the principal balance if additional Proceeds Deficits exist or reductions in the principal balance if a Proceeds Excess exists). The entries made by PMC pursuant to the preceding sentence shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of PMC to maintain such information or any error therein shall not in any manner affect the obligation of the Borrower to repay the Proceeds Deficits Loan in accordance with the terms of this Agreement. Notwithstanding the foregoing, at the request of PMC at any time during the term hereof, Arlington shall execute a new Deficit Note, which Deficit Note shall be in the amount of the then outstanding aggregate Proceeds Deficits as determined in accordance with the Master Agreement, which Deficit Note shall be issued in substitution and replacement of the existing Deficit Note. Upon the receipt by PMC of any such replacement Deficit Note, PMC will return the Deficit Note so replaced to Arlington. 3. PAYMENT OF THE PROCEEDS DEFICITS LOAN. Arlington hereby promises to pay to PMC the principal amount of the Proceeds Deficits Loan, together with interest thereon, in accordance with the following terms and conditions: (a) Applicable Rate. The principal amount of the Proceeds Deficits Loan outstanding from time to time will bear interest until paid in full at the following rates (the rate in effect from time to time herein called the "APPLICABLE RATE"): (i) from the date hereof until the Payment Commencement Date (as hereinafter defined), at the annual rate of eight and one-half percent (8.5%) and (ii) beginning on the Payment Commencement Date, at the annual rate equal to the greater of (A) the Treasury Rate plus four and one-half percent (4.5%) or (B) eight and one-half percent (8.5%), but in no event in excess of the maximum interest rate permitted by applicable law. As used herein, "TREASURY RATE" shall mean the asking yield (Ask Yld.) in effect as of the first (1st) day of the month prior to the Payment Commencement Date on U.S. Treasury Bonds maturing three (3) years following the end of such Payment Commencement Date, as reported in the issue of the Wall Street Journal published on the first (1st) day of the month prior to the Payment Commencement Date in the Govt Bonds & Notes portion of the Treasury Bonds, Notes & Bills Tables) (b) Payment of Interest. Arlington shall pay to PMC on the first day of each calendar month after the date hereof to and including the Maturity Date (hereinafter defined), interest on the Proceeds Deficits Loan from time to time outstanding, at the Applicable Rate, for the immediately preceding calendar month. Interest shall be calculated and applied on the basis of a 365-day year and the actual number of days elapsed in any month (or partial month) during which the Proceeds Deficits Loan is outstanding. (c) Payment of Principal. Commencing on the earlier of October 1, 2008 or the closing date of the sale of the final Hotel (the "PAYMENT COMMENCEMENT DATE"), Arlington shall pay to PMC during each Loan Year thereafter, principal payments in the aggregate amount equal to one-third (1/3) of the principal balance of the Proceeds Deficits Loan outstanding as of the Payment Commencement Date (the "MINIMUM ANNUAL PRINCIPAL REDUCTION"). Such payments may be made at such times during the applicable Loan Year as Arlington may elect, provided they total, in the aggregate, the 2 minimum Annual Principal Reduction for such Loan Year. The full amount of the Proceeds Deficits Loan and all accrued and unpaid interest thereon shall be fully due and payable on the date that is three (3) years following the Payment Commencement Date (the "MATURITY DATE"), unless accelerated pursuant to the terms hereof. As used herein, "LOAN YEAR" shall mean each consecutive 12-month period beginning on the Payment Commencement Date. (e) Special Mandatory Principal Prepayments. Anything herein to the contrary notwithstanding, Arlington shall be required to make the following payments of principal in addition to those described in subsection (c) above: (i) If at any time during the term of this Agreement, Arlington's net worth (as determined in accordance with generally accepted accounting principles applied to Arlington's annual, audited statements or quarterly financial statements issued in public filings of Arlington (the "GAAP NET WORTH")), exceeds $15,000,000, as adjusted and detailed herein (the "NET WORTH BASE"), Arlington will reduce (or pay off) to the extent of the funds available to do so the Proceeds Deficits Loan by an amount equal to the excess of the GAAP Net Worth as recorded on Arlington's financial statement over the Net Worth Base, provided, that if the funds are not available to pay such amount, the Proceeds Deficit Loan will thereafter bear interest at the greater of the Contract Rate or the Treasury Rate plus four and one-half percent (4.5%) per annum until such amount is paid. Such principal payment shall be made on or before the first (1st) day of the month following the month in which such calculation is made. Arlington's Net Worth Base shall be increased by (A) any sales of common or preferred stock of Arlington, (B) deferred gains included as liabilities on Arlington's financial statement dated as of March 31, 2004, which are recognized as income by Arlington after March 31, 2004 pertaining to the (x) original sales of the Hotels to PMC and (y) the total amount of all incremental fees from Cendant Corporation or its affiliates that are deferred as of such date and (C) the amount of payments made previously pursuant to this Section 3(d)(i). (ii) If at any time during the term of this Agreement, the balance of the Proceeds Deficits Loan exceeds Four Million and No/100 Dollars ($4,000,000.00), Arlington will immediately make a payment to PMC in an amount necessary to reduce the balance of the Proceeds Deficits Loan to $4,000,000.00 or less. 4. LOCATION AND MEDIUM OF PAYMENTS. The sums payable under this Agreement shall be paid to PMC by a federal wire transfer of immediately available funds, or if not available, to PMC in immediately available funds, at 17950 Preston Road, Dallas, Texas 75252 or at such other place as PMC may from time to time hereafter designate to Arlington in writing, in legal tender of the United States of America. 5. ACCELERATION; DEFAULT INTEREST. The occurrence of any one or more of the following events shall each be an "EVENT OF DEFAULT" hereunder: (i) the occurrence of a default in the payment of any amount due hereunder or (ii) the occurrence of Default Rate Event of Default. After an Event of Default shall have occurred and be continuing, (A) at the option of PMC, which may be exercised at any time, the whole of the Proceeds Deficits Loan then outstanding, together with all interest, and other charges due hereunder shall immediately become due and payable In full and (B) the amount of the Proceeds Deficits Loan outstanding will thereafter bear interest at the annual rate of fifteen percent (15%) (the "DEFAULT RATE") until all amounts due hereunder are paid in full. 3 6. ATTORNEY FEES. Arlington, upon demand, shall pay PMC for all costs and expenses, including without limitation attorneys' fees, paid or incurred by PMC in connection with the collection of any sum due hereunder, or in connection with enforcement of any of PMC's rights or Arlington's obligations under this Agreement, together with interest thereon at the Default Rate. 7. NO ORAL CHANGES; WAIVERS. This Agreement may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement of a change is sought. 8. BIND AND INURE. This Agreement shall bind and inure to the benefit of the parties hereto and their respective legal representatives, heirs, successors and assigns. 9. APPLICABLE LAW. The provisions of this Agreement shall be construed and enforceable in accordance with the laws of the State of Texas without giving effect to any principles of conflicts of laws. 10. NOTICE. Any notice, request, demand, statement or consent made hereunder shall be in writing signed by the party giving such notice, request, demand, statement or consent, and shall be deemed to have been properly given when either delivered personally, delivered to a reputable overnight delivery service providing a receipt or deposited in the United States Mail, postage prepaid and registered or certified return receipt requested, at the address set forth below, or at such other address within the continental United States of America as may have theretofore been designated in writing by such party in accordance with the terms of this Section 10. The effective date of any notice given as aforesaid shall be the date of personal service, one (1) business day after delivery to such overnight delivery service, or three (3) business days after being deposited in the United States mail, which ever is applicable. For purposes hereof, the addresses are as follows: If to PMC: PMC Commercial Trust 17950 Preston Road, Suite 600 Dallas, Texas 75252 Attn: Jan Salit with a copy to: Locke Liddell & Sapp LLP 220 Ross Avenue, Suite 2200 Dallas, Texas 75201 Attn: Kenneth Betts If to Arlington: Arlington Hospitality, Inc. 2355 South Arlington Heights Road Suite 400 Arlington Heights, Illinois 60005 Attention: Jerry H. Herman, President with a copy to: Squire, Sanders & Dempsey, LLP Two Renaissance Square, Suite 2700 40 North Central Avenue Phoenix, Arizona 85004 Attn: Richard E. Ross 4 IN WITNESS WHEREOF, Arlington and PMC have duly executed this Agreement as a sealed instrument as of the day and year first above written. ARLINGTON: ARLINGTON HOSPITALITY, INC. By: /s/ Jerry H. Herman -------------------------------- Name: Jerry H. Herman Title: President By: /s/ James B. Dale -------------------------------- Name: James B. Dale Title: Secretary [SIGNATURES CONTINUED ON NEXT PAGE] 5 PMC: PMC COMMERCIAL TRUST By: /s/ Lance B. Rosemore ---------------------------------- Name: Lance B. Rosemore Title: President PMCT SYCAMORE, L.P. By: PMCT AH-SYCAMORE, INC., Its general partner By: /s/ Lance B. Rosemore --------------------------- Name: Lance B. Rosemore Title: President PMCT MACOMB, L.P. By: PMCT AH-MACOMB, INC., Its general partner By: /s/ Lance B. Rosemore --------------------------- Name: Lance B. Rosemore Title: President PMCT PLAINFIELD, L.P. By: PMCT AH, INC, its general partner By: /s/ Lance B. Rosemore --------------------------- Name: Lance B. Rosemore Title: President PMCT MARYSVILLE, L.P. By: PMCT AH, INC, its general partner By: /s/ Lance B. Rosemore --------------------------- Name: Lance B. Rosemore Title: President 6 EX-10.3 4 c88612exv10w3.txt DEFICIT NOTE EXHIBIT 10.3 DEFICIT NOTE OCTOBER 1, 2004 DALLAS, TEXAS FOR VALUE RECEIVED, ARLINGTON HOSPITALITY, INC. ("ARLINGTON"), promises to pay to the order of among PMC COMMERCIAL TRUST and its subsidiaries, PMCT SYCAMORE, L.P., PMCT MACOMB, L.P., PMCT MARYSVILLE, L.P. AND PMCT PLAINFIELD, L.P. (collectively, "PMC"), in lawful money of the United States of America, in immediately available funds, the principal amount set forth from time to time on Schedule 1 attached hereto, together with interest on the unpaid principal balance of this Note from time to time outstanding until paid in full at the rates described herein, such payment to be on the terms and conditions hereinafter set forth. 1. DEFINITIONS. 1.1 DEFINED TERMS. This Deficit Note (this "NOTE") is executed and delivered pursuant to, is subject to, and governed by, the terms and provisions of that certain Proceeds Deficits Loan Agreement dated as of the date hereof between Arlington and PMC (the "DEFICIT LOAN AGREEMENT"), and is one of the "Deficit Notes" referred to therein. All words and phrases used in this Note with their initial letters capitalized shall have the meanings assigned to them in the Deficit Loan Agreement, unless such words and phrases are otherwise specifically defined herein. Reference is also made to the Deficit Loan Agreement for a statement of terms and provisions relevant to this Note but not contained herein, including, without limitation, (a) the interest rate applicable to the outstanding principal balance hereunder and (b) a statement of the rights and obligations of the parties thereto. 1.2 USE OF DEFINED TERMS. Any defined term used in the plural shall refer to all members of the relevant class, and any defined term used in the singular shall refer to any of the members of the relevant class. 2. ADVANCES; PAYMENTS. 2.1 ADVANCES. The principal amount payable under this Note shall be the sum of all advances made by PMC to or at the request of the undersigned, as provided in the Deficit Loan Agreement less principal payments actually received by PMC as set forth on Schedule 1 hereto. The books and records of PMC shall be the best evidence of the principal amount and the unpaid interest amount owing at any time under this Note and shall be conclusive absent manifest error. 2.2 PRINCIPAL AND INTEREST. 2.2.1 RATE OF INTEREST. Interest shall accrue on the unpaid principal balance of this Note from time to time outstanding from the date of disbursement until payment in full as at the Applicable Rate, but in no event in excess of the Maximum Rate. 2.2.2 MATURITY DATE/PAYMENT DATES. Principal and accrued interest shall be due and payable in accordance with the terms of the Deficit Loan Agreement, with the full amount of the principal being due and payable in full on the Maturity Date. 2.3 DEFAULT RATE. Should any installment of principal or interest or any fee or cost or other amount payable hereunder or under the Deficit Loan Agreement not be paid when due, it shall thereafter bear interest, both before and after judgment, at an annual rate equal to the Default Rate, to the extent permitted by applicable law. In addition, following an Event of Default, the outstanding principal balance of this Note shall bear interest at the Default Rate. The interest described in the preceding two sentences shall be due and payable upon demand. 2.4 APPLICATION OF PAYMENTS. All payments on this Note shall, at the option of PMC, be applied first to the payment of accrued but unpaid interest, and the remainder to installments of principal, in the inverse order of maturity. 2.5 PREPAYMENTS. This Note may, at any time and from time to time, be prepaid in whole or in part without premium or penalty. 3. MISCELLANEOUS PROVISIONS. 3.1 WAIVER. To the extent permitted by applicable law, Arlington, any endorsers hereof or any other party which is or may become liable for any of the indebtedness evidenced hereby, severally waive presentment, demand for payment, notice of intent to accelerate maturity, notice of acceleration of maturity, notice of nonpayment or dishonor, protest, notice of protest, demand, all other notices in connection with the delivery, acceptance, performance, default or enforcement of this Note, bringing of suit and diligence in taking any action to collect any sums owing hereunder or in enforcing any rights or privileges with regard hereto, or in proceeding against any of the properties and interests securing payment hereof. Such parties also agree that, from time to time and without notice to such parties, the time for any payments hereunder may be extended and PMC may consent to the acceptance of security for this Note without in any manner affecting their liability under or with respect to this Note. PMC shall not be deemed, by any act of omission or commission, to have waived any of its rights or remedies hereunder or under the Deficit Loan Agreement unless such waiver is in writing and signed by PMC and then only to the extent specifically set forth in writing. A waiver with reference to one event shall not be construed as continuing or as a bar to or waiver of any right or remedy as to a subsequent event. No delay or omission of PMC in exercising any right, whether before or after a default hereunder, shall impair any such right or shall be construed to be a waiver of any right or default, and the acceptance at any time by PMC of any past due amounts shall not be deemed to be a waiver of the right to require prompt payment when due of any other amounts then or thereafter becoming due and payable. 3.2 COSTS OF ENFORCEMENT. Arlington promises to pay all costs of collection, including, without limitation, all reasonable attorneys' fees, whether or not suit is filed or other legal action is instituted, incurred by PMC in enforcing the performance of Arlington's obligations under this Note or under the Deficit Loan Agreement. 3.3 EVENT OF DEFAULT. If Arlington shall fail to make any payment of principal or interest hereunder when due, or any other Event of Default shall occur, then PMC may, at its option, without further notice or demand, declare the unpaid principal balance and accrued interest on this Note at once due and payable and pursue any and all other rights, remedies and recourses it may have hereunder, under the Deficit Loan Agreement, or at law or equity. PMC's rights and remedies hereunder and under the Deficit Loan Agreement and at law or in equity, or any one or more of them, shall be cumulative and concurrent, and may be pursued singly, successively, or together at the sole discretion of PMC, and may be exercised as often as occasion therefor shall arise; and the failure to exercise any such right or remedy shall in no 2 event be construed as a waiver or release thereof or of any other right or remedy. Failure to exercise any of the foregoing options shall not constitute a waiver of the right to exercise the same or any other option at any subsequent time in respect to any other event. The acceptance by PMC of any payment hereunder that is less than payment in full of all amounts due and payable at the time of such payment shall not constitute a waiver of the right to exercise any of the foregoing options at that time or at any subsequent time or nullify any prior exercise of any such option without the express written consent of PMC. 3.4 APPLICABLE LAW. This Note shall be construed, governed by and enforced in accordance with the applicable laws of the State of Texas from time to time in effect without reference to conflicts of laws principles, except to the extent preempted by United States federal law. 3.5 MAXIMUM RATE. As used herein, the term "MAXIMUM RATE" shall mean and refer to the maximum rate of nonusurious interest, if any, that PMC may from time to time charge Arlington and in regard to which Arlington would be prevented successfully from raising the claim or defense of usury under applicable law as now, or to the extent permitted by law, as may hereafter be, in effect (said law permitting the highest rate being herein referred to as the "INTEREST LAW"). Unless changed in accordance with law, the applicable rate ceiling under Texas law shall be the "weekly ceiling", from time to time in effect as provided in Chapter 303 of the Texas Finance Code, as amended. It is the intention of Arlington and PMC to conform strictly to the Interest Law applicable to this loan transaction. Accordingly, it is agreed that notwithstanding any provision to the contrary in the Deficit Loan Agreement, this Note or in any of the documents securing payment of this Note or otherwise relating thereto, the aggregate of all interest and any other charges or consideration constituting interest under applicable Interest Law that is taken, reserved, contracted for, charged or received under the Deficit Loan Agreement, this Note or under any of the other aforesaid agreements or otherwise in connection with this loan transaction shall under no circumstances exceed the maximum amount of interest allowed by the Interest Law applicable to this loan transaction. If any excess of interest in such respect is provided for, or shall be adjudicated to be so provided for, in the Deficit Loan Agreement, in this Note or in any of the documents relating to this Note, then in such event (a) the provisions of this Section shall govern and control, (b) neither Arlington nor Arlington's heirs, legal representatives, successors or assigns or any other party liable for the payment of this Note shall be obligated to pay the amount of such interest to the extent that it is in excess of the maximum amount of interest allowed by the Interest Law applicable to this loan transaction, (c) any excess shall be deemed a mistake and canceled automatically and, if theretofore paid, shall be credited on this Note by PMC (or if this Note shall have been paid in full, refunded to Arlington) and (d) the effective rate of interest shall be automatically subject to reduction to the Maximum Rate allowed under such Interest Law as now or hereafter construed by courts of appropriate jurisdiction. All sums paid or agreed to be paid the PMC for the use, forbearance or detention of the indebtedness evidenced by this Note shall, to the extent permitted by the Interest Law applicable to this loan transaction, be amortized, prorated, allocated and spread throughout the full term of the Note. To the extent federal law permits PMC to contract for, charge or receive a greater amount of interest, PMC will rely on federal law instead of the Texas Finance Code for purposes of determining the Maximum Rate. 3.6 JOINT AND SEVERAL OBLIGATION. If this Note is executed by more than one party, each such party shall be jointly and severally liable for the obligations of Arlington under this Note. 3 3.7 DEFICIT LOAN AGREEMENT. This Note is issued pursuant to and in accordance with, the Deficit Loan Agreement, and is subject to the terms thereof. 3.8 RECORDS OF PAYMENT. The records of PMC shall be prima facie evidence of the amount owing on this Note. 3.9 NOTICES. Unless expressly provided otherwise herein, all notices, demands, approvals and other communications provided for herein shall be in writing and shall be delivered in accordance with the Deficit Loan Agreement. 3.10 GENERAL PROVISIONS. Time is of the essence with respect to every provision hereof. This Note shall inure to the benefit of PMC, its successors and assigns and shall be binding on Arlington, its successors and assigns. 3.11 JURY TRIAL; DAMAGES. Each of Arlington and PMC recognizes that in matters related to this Note and the loan evidenced hereby, it may be entitled to a trial in which matters of fact are determined by a jury (as opposed to a trial in which such matters are determined by a federal or state judge). Each of Arlington and PMC also recognizes that one of the remedies available to it in any trial may, under certain circumstances, be the right to receive damages in excess of those actually sustained by it in the past, in some instances, such damages have equaled or exceeded the amount of actual damages. 3.11.1 EACH OF ARLINGTON AND PMC HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS NOTE OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH INCLUDING THE DEFICIT LOAN AGREEMENT, OR (ii) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF ARLINGTON OR PMC WITH RESPECT TO THIS NOTE OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO INCLUDING THE DEFICIT LOAN AGREEMENT, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND ARLINGTON AND PMC HEREBY AGREE AND CONSENT THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT EITHER ARLINGTON OR PMC MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE ARLINGTON AND PMC TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. 3.11.2 TO THE MAXIMUM EXTENT NOW PERMITTED BY LAW, EACH OF ARLINGTON AND PMC KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES. 3.11.3 ARLINGTON HEREBY CERTIFIES THAT NEITHER ANY REPRESENTATIVE NOR AGENT OF PMC NOR THE PMC'S COUNSEL, HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT PMC WOULD 4 NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS. EACH OF ARLINGTON AND PMC ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS TRANSACTION BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED HEREIN. [SIGNATURE PAGE FOLLOWS] 5 IN WITNESS WHEREOF, the undersigned has executed this Note as of the day and year first above written. ARLINGTON: ARLINGTON HOSPITALITY, INC. By: /s/ Jerry H. Herman ------------------------------- Name: Jerry H. Herman Title: President By: /s/ James B. Dale ------------------------------- Name: James B. Dale Title: Secretary EX-99.1 5 c88612exv99w1.txt PRESS RELEASE EXHIBIT 99.1 [ARLINGTON HOSPITALITY INC LOGO] [ARLINGTON HOSPITALITY LETTERHEAD] For Immediate Release CONTACT: MEDIA CONTACT: James B. Dale, Chief Financial Officer Jerry Daly or Carol McCune 847-228-5401 x 361 703-435-6293 jimdale@arlingtonhospitality.com jerry@dalygray.com ARLINGTON HOSPITALITY, INC. ANNOUNCES LEASE MODIFICATION ON 20 AMERIHOST INN HOTELS ARLINGTON HEIGHTS, Ill., October 7, 2004--Arlington Hospitality, Inc. (Nasdaq/NM: HOST), a hotel development and management company, today announced the execution of a lease modification with PMC Commercial Trust ("PMC") (AMEX: PCC), the owner and landlord of 20 AmeriHost Inn hotels operated by Arlington. The lease modification provides for reduced lease payments and an accelerated exit strategy for these smaller hotels located in tertiary markets, consistent with the company's strategic business plan to divest many of its existing hotels and increase focus on developing larger hotels in secondary markets. The modification is effective as of October 1, 2004, and provides for: (i) an immediate 19 percent reduction, or approximately $1.0 million on an annual basis, in the lease payments for the 20 hotels, from a pay rate of 10.51 percent (escalating with inflation) of the original hotel assigned values to a fixed rate of 8.5 percent of the assigned values; and (ii) the early termination of the leases upon the anticipated sale of all 20 leased hotels as AmeriHost Inns to third parties over the next four years, compared to the original (including PMC's extension option) 2013 and 2014 lease termination dates. - more - Arlington Hospitality Page 2 These two modifications are anticipated to reduce the former aggregate lease payment obligation through 2014 of approximately $47.2 million to an estimated aggregate new obligation of $10.0 to $12.0 million, depending upon the timing of the hotel sales, plus a promissory note payable by Arlington Hospitality, Inc. to PMC (the "Proceeds Deficit Note"). The Proceeds Deficit Note will increase (or decrease), on a cumulative basis as the hotels are sold, for a shortfall (or excess) computed as the difference between a leased hotel's net sale price and its original assigned value. A portion of the Proceeds Deficit Note is to be repaid to PMC within 45 days of each hotel sale, based on the hotel's most recent annual revenues, with the remaining amount to be repaid to PMC over a term of up to seven years. Based on the company's current estimates of fair market value of the 20 leased hotels, Arlington estimates the aggregate net shortfall payable to PMC will be in the range of $8.0 to $9.5 million. As these hotels are sold to buyers who maintain their AmeriHost Inn franchise affiliation, as required under the modification, Arlington expects to receive the one-time development incentive fees from Cendant Corp. (NYSE: CD), pursuant to its 2000 agreement with Cendant. Total development incentive fees from the sale of the 20 leased hotels is estimated to be approximately $3.0 to $4.0 million. The company anticipates that these fees will be utilized to fund the required cash payment due PMC under the Proceeds Deficit Note within 45 days of the sale of the hotels. As a result, the Proceeds Deficit Note balance through the sale of all 20 leased hotels and the application of these payments, is anticipated to be approximately $4.0 to $6.5 million, subject to mandatory principal payments as discussed below. In addition to the - more - Arlington Hospitality Page 3 development incentive fees, the sale of these hotels would be expected to generate future annual royalty fee sharing payments to Arlington from Cendant. The Deficit Proceeds Note will bear interest at the rate of 8.5 percent per annum, payable on a monthly basis, with a maximum outstanding principal balance of $4.0 million. If at any time the principal balance exceeds $4.0 million, such excess is payable immediately to PMC. In addition, if Arlington's quarterly net worth exceeds a certain stipulated amount, as adjusted, Arlington may be obligated to make a principal payment on the Proceeds Deficit Note, or be subject to a greater interest rate on the outstanding principal balance. Otherwise, scheduled principal payments on the promissory note begin the earlier of the date the last hotel is sold or October 1, 2008, with the total principal balance outstanding at that time to be repaid ratably over the following three years. The lease modification amendment and terms of the Proceeds Deficit Note are exhibits attached to a Form 8-K filed with the Securities and Exchange Commission on October 7, 2004. Jerry H. Herman, President and CEO, commented, "We are extremely pleased to bring the PMC lease modification discussions to a positive conclusion. The amendment significantly reduces our total obligation under the leases, and will have an immediate, positive impact on our cash flow from operations. The advantages of the modification are an immediate lease rate reduction and the ability to exit the operations of these hotels and related lease obligation over the next four years. In addition, the sale of these hotels as AmeriHost Inns enables us to collect development incentive payments from Cendant that will assist in significantly reducing Arlington's anticipated Proceeds Deficit Note obligation." - more - Arlington Hospitality Page 4 LEASE RATE REDUCTION Prior to this modification, the annual rent payable to PMC for the 20 leased hotels was approximately $5.1 million, subject to annual CPI adjustments. As a result of this amendment, the annual rent payment was fixed at approximately $4.1 million for the 20 hotels, subject to the hotel sale provisions discussed below, or a reduction of approximately $1.0 million annually. James B. Dale, Chief Financial Officer commented, "Even with the reduced lease rate, it is important to note that the historical operational cash flow from many of the leased hotels is insufficient to cover their respective reduced lease payments. However, by terminating these leases early, through the sale of the hotels over the next four years, the company will be able to limit the anticipated net negative cash flow from these hotels." HOTEL SALE PROCESS Pursuant to terms of the modification agreement, Arlington must facilitate the sale of the hotels generally at a pace of five hotels per year measured on a cumulative basis, and at prices approved by PMC. If the sales schedule is not met, the lease rate will revert to the original lease contractual rate, or a higher lease default rate in certain circumstances, until the number of hotels sold becomes compliant with the sale schedule. As owner of the leased hotels, PMC will receive the net cash proceeds from the sale of each hotel. If the net cash proceeds from a hotel sale are less than its original assigned value, such shortfall will increase the aforementioned Proceeds Deficit Note. If the net cash proceeds from a hotel sale are greater than its original assigned value, such excess will be utilized to reduce any outstanding amounts on the Proceeds Deficit Note from previous hotel sales - more - Arlington Hospitality Page 5 shortfalls, if any. If there is no outstanding balance, any excess net sale proceeds, plus the amount payable to PMC within 45 days of the sale closing, will be utilized to reduce the original assigned values of the remaining leased hotels and thus reduce the basis for the monthly rent payments and the calculation of any future shortfall obligation. ACCOUNTING TREATMENT Due to the terms of the lease modification, 17 of the 20 leased hotels will be accounted for as capital leases in accordance with Financial Accounting Standards Board Statement Number 13, "Accounting for Leases," effective October 1, 2004. The remaining three hotels will continue to be accounted for as operating leases. Rather than the off-balance sheet reporting required by operating lease treatment, capital lease accounting requires that the company report on its balance sheet, the hotel assets and a capital lease obligation. The company expects to record approximately $31.0 to $34.0 million in capitalized lease assets, net of the existing unamortized deferred gain remaining from the original 1998 and 1999 sales of the hotels to PMC, and in a capital lease obligation of approximately $36.5 to $39.5 million. The capitalized hotel assets will be depreciated in accordance with the company's existing depreciation policy, with consideration for the new lease term. However, for those capitalized hotels which are actively marketed to be sold, and are expected to be sold within the next 12 months, depreciation will not be taken since they will be classified as "held for sale" in accordance with Statement of Financial Accounting Standard No. 144, "Accounting for Long Lived Assets." The capital lease obligation will be amortized, as the monthly lease payment is made, in order to produce a constant periodic rate of interest on the lease obligation. - more - Arlington Hospitality Page 6 As indicated above, the lease payment rate increases when the company is not in compliance with the required hotel sale schedule. Accordingly, while the company will pay at the lease rate of 8.5 percent of assigned values as long as the sales schedule is met and there are no other defaults, the company will continue to accrue on a monthly basis at the higher contractual lease rate, currently 10.51 percent. This accrued difference between the contractual rate and the 8.5 percent lease payment rate will be adjusted as the individual hotels are sold. There are certain other obligations and covenants of Arlington Hospitality pursuant to the lease amendment. Please see the Form 8-K filed with the SEC for further details. ABOUT ARLINGTON HOSPITALITY Arlington Hospitality, Inc. is a hotel development and management company that builds, operates and sells mid-market hotels. Arlington is the nation's largest owner and franchisee of AmeriHost Inn hotels, a 106-property, mid-market, limited-service hotel brand owned and presently franchised in 20 states and Canada by Cendant Corporation (NYSE: CD). Currently, Arlington Hospitality, Inc. owns or manages 53 properties in 15 states, including 49 AmeriHost Inn hotels, for a total of 3,836 rooms, with additional AmeriHost Inn & Suites hotels under development. This press release may contain forward-looking statements. Forward-looking statements are statements that are not historical, including statements regarding management's intentions, beliefs, expectations, representations, plans or predictions of the future, and are typically identified by words such as "believe," "expect," "anticipate," "intend," "estimate," "may," "will," "should," and "could." There are numerous risks and uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statements. For a discussion of these factors, see the Company's report on Form 10-K for the year ended December 31, 2003, report on Form 10-Q for the three months ended March 31, 2004, and report on Form 10-Q for the three and six months ended June 30, 2004 under the section headed "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Risk Factors" as they may be updated in the company's subsequent SEC filings. - 30 - -----END PRIVACY-ENHANCED MESSAGE-----