Document:

EXHIBIT 4.1

                       AMENDMENT NO. 3 TO RIGHTS AGREEMENT

     This  Amendment No. 3 (this  "Amendment"),  dated as of May 15, 2003, is by
and between Telaxis Communications Corporation, a Massachusetts corporation (the
"Company"), and Registrar and Transfer Company (the "Rights Agent").

     WHEREAS,  the  Company  and the  Rights  Agent are  parties  to the  Rights
Agreement,  dated as of May 18,  2001,  as  amended  by  Amendment  No. 1, dated
September 9, 2002,  and Amendment  No. 2, dated March 17, 2003 (as amended,  the
"Agreement");

     WHEREAS, capitalized terms used but not otherwise defined in this Amendment
shall have the meaning given them in the Agreement;

     WHEREAS,  the board of  directors  of the  Company  has  approved a certain
Agreement and Plan of Merger and Reincorporation (the "Merger Agreement") by and
between  the  Company  and YDI  Wireless,  Inc.,  a Delaware  corporation  ("YDI
Wireless"),  pursuant  to which the  Company  will be  merged  with and into YDI
Wireless  (the  "Merger")  and  the  stockholders  of the  Company  will  become
stockholders of YDI Wireless;

     WHEREAS,  the Company desires to terminate the Agreement in connection with
the Merger; and

     WHEREAS,  pursuant to Section 26 of the Agreement,  this Amendment is being
executed  by the Company  and the Rights  Agent for the purpose of amending  the
Agreement as set forth below.

     NOW  THEREFORE,  in  consideration  of the mutual  covenants and conditions
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. Sections 7(a) and 7(b) of the Agreement are hereby  deleted and replaced
in their entirety by the following:

          (a) Subject to Section  7(e) and except as otherwise  provided  herein
     (including  Section 11),  each Right shall  entitle the  registered  holder
     thereof,  upon  exercise  thereof as provided  herein,  to purchase for the
     Purchase Price, at any time after the Distribution  Date and at or prior to
     the  earliest of (i) the Close of Business on the 10th  anniversary  of the
     date of this Rights Agreement (the Close of Business on such date being the
     "Expiration Date"), (ii) the Redemption Date, and (iii) one minute prior to
     the  effectiveness  of the merger of the Company and YDI Wireless,  Inc., a
     Delaware corporation,  one one-thousandth  (1/1000th) of a Preferred Share,
     subject to adjustment from time to time as provided in Sections 11 and 12.

                                      -4-

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          (b) The registered  holder of any Right  Certificate  may exercise the
     Rights evidenced thereby (except as otherwise  provided herein) in whole or
     in part at any time after the  Distribution  Date,  upon  surrender  of the
     Right  Certificate,  with the form of  election  to purchase on the reverse
     side thereof duly executed, to the Rights Agent at the office of the Rights
     Agent in Cranford, New Jersey,  together with payment of the Purchase Price
     for each  one-thousandth  (1/1000th)  of a Preferred  Share as to which the
     Rights are  exercised,  at or prior to the  earliest of (i) the  Expiration
     Date,  (ii)  the  Redemption  Date,  and  (iii)  one  minute  prior  to the
     effectiveness  of the  merger of the  Company  and YDI  Wireless,  Inc.,  a
     Delaware corporation.

     2. Except as specifically  amended by this  Amendment,  the Agreement shall
remain in full force and effect.

                  [Remainder of Page Intentionally Left Blank]

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     IN WITNESS WHEREOF,  the parties hereto have caused this Amendment No. 3 to
be duly executed as of the date first above written.

                                        TELAXIS COMMUNICATIONS CORPORATION

                                        By:   /s/ David L. Renauld
                                              ----------------------------------
                                              Name: David L. Renauld
                                              Title:  Vice President

                                        REGISTRAR AND TRANSFER COMPANY

                                        By:   /s/ William P. Tatler
                                              ----------------------------------
                                               Name:  William P. Tatler
                                               Title:  Vice President

                [THIS AMENDMENT MAY BE EXECUTED IN COUNTERPARTS]AMENDED AND RESTATED
                           LOAN AND SECURITY AGREEMENT
                           ---------------------------

         This AMENDED AND RESTATED LOAN AND SECURITY  AGREEMENT  dated as of the
30th day of April, 2003 (the "Agreement"),  is executed by and between ARLINGTON
HOSPITALITY,  INC., a Delaware  corporation (the  "Borrower"),  whose address is
2355 S. Arlington Heights Road,  Arlington Heights,  Illinois 60005, and LASALLE
BANK NATIONAL  ASSOCIATION,  a national banking association (the "Bank"),  whose
address is 135 South La Salle Street, Chicago, Illinois 60603.

                                    RECITALS
                                    --------

         WHEREAS,  Bank  and  Borrower  are  parties  to that  certain  Loan and
Security  Agreement  dated as of  February 1, 2002 (the  "Original  Agreement"),
which Original Agreement was amended by that certain First Amendment to Loan and
Security  Agreement  dated as of August 9, 2002 (the "First  Amendment")  and by
that  certain  Second  Amendment  to Loan  and  Security  Agreement  dated as of
December 10, 2002 (the "Second Amendment") (the Original  Agreement,  as amended
by the First Amendment and the Second Amendment, referred to herein as the "Loan
Agreement");

         WHEREAS,  Borrower and Bank do desire to further  amend and restate the
Loan  Agreement for the purposes of extending the maturity of the Revolving Loan
and modifying certain other provisions of the Loan Agreement; and

         WHEREAS,   Borrower   has   requested   that  Bank   waive   Borrower's
non-compliance  with certain covenant  requirements more specifically  described
below; and

         WHEREAS,  Bank is agreeable to such waiver,  subject to adoption of the
amendments  to the Loan  Agreement  and  other  terms and  conditions  set forth
herein.

         NOW, THEREFORE, in consideration of the renewal by the Bank of the line
of credit and the mutual covenants and promises contained in this Agreement, and
for other good and valuable consideration,  the receipt and sufficiency of which
is hereby acknowledged, Borrower and Bank agree as follows:

1.       DEFINITIONS.
         ------------

         1.1 Defined Terms.  For the purposes of this  Agreement,  the following
capitalized words and phrases shall have the meanings set forth below.

                  "Bankruptcy  Code"  shall  mean the United  States  Bankruptcy
Code, as now existing or hereafter amended.

                  "Business  Day"  shall  mean any day  other  than a  Saturday,
Sunday or a legal holiday on which banks are authorized or required to be closed
for the conduct of commercial banking business in Chicago, Illinois.

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                  "Capital  Expenditures"  shall  mean  expenditures  (including
Capital  Lease  obligations  which  should be  capitalized  under  GAAP) for the
acquisition of fixed assets which are required to be capitalized under GAAP.

                  "Capital  Lease" shall mean, as to any Person,  a lease of any
interest in any kind of property or asset,  whether real,  personal or mixed, or
tangible  or  intangible,  by such  Person as lessee  that is, or should  be, in
accordance  with  Financial  Accounting  Standards  Board  Statement  No. 13, as
amended from time to time,  or, if such  Statement  is not then in effect,  such
statement  of GAAP as may be  applicable,  recorded as a "capital  lease" on the
balance sheet of the Borrower prepared in accordance with GAAP.

                  "Cendant" shall mean  Cendant Finance  Holding Corporation,  a
Delaware corporation.

                  "Cendant  Agreement"  shall mean that certain  Royalty Sharing
Agreement dated as of September 30, 2000 among  Borrower,  Cendant and AmeriHost
Franchise Systems, Inc. ("Franchisor").

                  "Closing  Date"  shall mean April 30,  2003 or such later date
which Borrower and the Bank shall agree.

                  "Collateral" shall have the meaning set forth in Section 6. 1.

                  "Contingent  Liability"  and  "Contingent  Liabilities"  shall
mean, respectively,  each obligation and liability of the Borrower or any of its
Subsidiaries  and all such obligations and liabilities of the Borrower or any of
its Subsidiaries incurred pursuant to any agreement,  undertaking or arrangement
by which the Borrower or any of its  Subsidiaries:  (a) guarantees,  endorses or
otherwise  becomes  or is  contingently  liable  upon  (by  direct  or  indirect
agreement,  contingent  or otherwise,  to provide  funds for payment,  to supply
funds to, or otherwise to invest in, a debtor, or otherwise to assure a creditor
against loss) the indebtedness,  dividend,  obligation or other liability of any
other Person in any manner  (other than by  endorsement  of  instruments  in the
course of collection), including without limitation, any indebtedness,  dividend
or other  obligation  which may be issued or incurred at some future  time;  (b)
guarantees  the payment of dividends or other  distributions  upon the shares or
ownership  interest  of any other  Person;  (c)  undertakes  or agrees  (whether
contingently or otherwise):  (i) to purchase,  repurchase,  or otherwise acquire
any  indebtedness,  obligation  or  liability  of any other Person or any or any
property or assets  constituting  security therefor,  (ii) to advance or provide
funds for the payment or discharge of any indebtedness,  obligation or liability
of any other Person (whether in the form of loans,  advances,  stock  purchases,
capital contributions or otherwise),  or to maintain solvency,  assets, level of
income,  working  capital or other financial  condition of any other Person,  or
(iii) to make  payment to any other Person  other than for value  received;  (d)
agrees to lease  property or to purchase  securities,  property or services from
such  other  Person  with the  purpose or intent of  assuring  the owner of such
indebtedness  or  obligation of the ability of such other Person to make payment
of the  indebtedness  or  obligation;  (e) to  induce  the  issuance  of,  or in
connection  with the  issuance  of, any letter of credit for the benefit of such
other Person; or (f) undertakes or agrees otherwise to assure a creditor against
loss.  The amount of any Contingent  Liability  shall (subject to any limitation
set forth herein) be deemed to be the outstanding  principal  amount (or maximum

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permitted principal amount, if larger) of the indebtedness,  obligation or other
liability guaranteed or supported thereby.

                  "Debt Service Charges" shall mean, for any period, the sum of:
(a) all  interest,  charges and related  expenses  payable  with respect to that
fiscal  period to a lender in  connection  with  borrowed  money or the deferred
purchase  price of assets that are treated as interest in accordance  with GAAP,
plus (b) the aggregate amount of principal  payable on Indebtedness with respect
to that fiscal period, plus (c) the portion of rent payable with respect to that
fiscal  period  under  Capital  Leases  that  should be treated as  interest  in
accordance with GAAP, plus (d) all charges paid or payable (without duplication)
during that period with respect to any Interest Rate Agreements.

                  "Default  Rate" shall mean a per annum rate of interest  equal
to the Prime Rate plus five percent (5%) per annum.

                  "Depreciation"   shall  mean  the  total   amounts   added  to
depreciation,  amortization,  obsolescence, valuation and other proper reserves,
as  reflected  on the  consolidated  financial  statement  of  Borrower  and its
Subsidiaries and determined in accordance with GAAP.

                  "EBITDA" shall mean, for any period, the sum of the following:
(a) Net Income  (excluding  extraordinary  and unusual  items and income or loss
attributable to equity in any affiliated corporation or Subsidiary but including
net deferred  incentive fees due from Cendant pursuant to the Cendant Agreement)
for such period,  plus (b) Interest  Charges,  plus (c) income taxes  payable or
accrued,  plus (d)  Depreciation  for such period,  plus (e) all other  non-cash
charges,  minus (f) that portion of net income arising out of the sale of assets
outside  of the  ordinary  course of  business  (to the  extent  not  previously
excluded  under  clause  (a) of this  definition),  in each  case to the  extent
included in determining Net Income for such period.

                  "Employee  Plan" includes any pension,  stock bonus,  employee
stock ownership plan, retirement,  disability,  medical,  dental or other health
plan,  life  insurance or other death benefit  plan,  profit  sharing,  deferred
compensation,  stock option,  bonus or other  incentive plan,  vacation  benefit
plan,  severance plan or other employee benefit plan or arrangement,  including,
without  limitation,  those pension,  profit-sharing and retirement plans of the
Borrower  and/or  any of its  Subsidiaries  described  from  time to time in the
financial statements of the Borrower and any pension plan, welfare plan, defined
benefit  pension  plans  (as  defined  in  ERISA)  or any  multi-employer  plan,
maintained or administered by the Borrower and/or any of its  Subsidiaries or to
which the Borrower is a party or may have any liability or by which the Borrower
and/or any of its Subsidiaries is bound.

                  "Environmental Laws" shall mean all federal,  state, district,
local and foreign laws,  rules,  regulations,  ordinances,  and consent  decrees
relating to health,  safety,  hazardous substances.  pollution and environmental
matters,  as now or at any time hereafter in effect,  applicable to the business
or  facilities  owned or  operated by the  Borrower or any of its  subsidiaries,
including  laws  relating  to  emissions,  discharges,  releases  or  threatened
releases  of  pollutants,  contamination,  chemicals,  or  hazardous,  toxic  or
dangerous substances, materials or wastes in the environment (including, without
limitation,  ambient air, surface water,  land surface or subsurface  strata) or

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<PAGE>

otherwise  relating to the generation,  manufacture,  processing,  distribution,
use, treatment. storage, disposal, transport or handling of Hazardous Materials.

                  "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time.

                  "Event of Default"  shall mean any of the events or conditions
set forth in Section 11 hereof.

                  "GAAP" shall mean generally  accepted  accounting  principles,
using the  accrual  basis of  accounting  and  consistently  applied  with prior
periods,  provided,  however,  that GAAP with  respect to any interim  financial
statements or reports shall be deemed subject to fiscal yearend  adjustments and
footnotes made in accordance with GAAP.

                  "Hazardous  Materials"  shall  mean  any  hazardous,  toxic or
dangerous  substance,  materials  and  wastes,  including,  without  limitation,
hydrocarbons   (including   naturally   occurring  or  man-made   petroleum  and
hydrocarbons),  flammable explosives,  asbestos,  urea formaldehyde  insulation,
radioactive  materials,   biological  substances,   polychlorinated   biphenyls,
pesticides,  herbicides  and  any  other  kind  and/or  type  of  pollutants  or
contaminants (including,  without limitation,  materials which include hazardous
constituents),  sewage,  sludge,  industrial  slag,  solvents  and/or  any other
similar  substances,  materials or wastes that are or become regulated under any
Environmental  Law  (including  without  limitation,  any  that  are  or  become
classified as hazardous or toxic under any Environmental Law).

                  "Indebtedness"  shall mean at any time (a) all  Liabilities of
the Borrower or any of its  Subsidiaries,  (b) all Capital Lease  obligations of
the  Borrower  or any of its  Subsidiaries,  (c)  all  other  debt,  secured  or
unsecured,  created,  issued,  incurred or assumed by the Borrower or any of its
Subsidiaries for money borrowed or for the deferred  purchase price of any fixed
or capital  asset,  (d)  indebtedness  secured by any Lien  existing on property
owned by the Borrower or any of its Subsidiaries whether or not the Indebtedness
secured  thereby has been assumed,  and (e) all  Contingent  Liabilities  of the
Borrower  or any of its  Subsidiaries  whether or not  reflected  on its balance
sheet.

                  "Indemnified  Party" and  "Indemnified  Parties"  shall  mean,
respectively,  each  of  the  Bank  and  any  parent  corporations,   affiliated
corporations or subsidiaries of the Bank, and each of their respective officers,
directors,  employees,  attorneys  and  agents,  and  all of  such  parties  and
entities.

                  "Letter  of  Credit"  and  "Letters  of  Credit"  shall  mean,
respectively,  a letter of credit and all such  letters of credit  issued by the
Bank,  in its sole  discretion,  upon the execution and delivery by the Borrower
and the  acceptance  by the Bank of a Master  Letter of Credit  Agreement and an
application for Letter of Credit, as set forth in SECTION 2.5 of this Agreement.

                  "Letter of Credit  Obligations"  shall mean,  at any time,  an
amount equal to the  aggregate  of the  original  face amounts of all Letters of
Credit minus the sum of (i) the amount of any  reductions  in the original  face
amount of any Letter of Credit which did not result from a draw thereunder, (ii)
the amount of any payments made by the Bank with respect to any draws made under
a Letter of Credit for which the Borrower  has  reimbursed  the Bank,  (iii) the

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<PAGE>

amount of any  payments  made by the Bank with respect to any draws made under a
Letter of Credit which have been  converted to a Revolving  Loan as set forth in
SECTION  2.5,  and (iv) the portion of any issued but  expired  Letter of Credit
which  has not  been  drawn  by the  beneficiary  thereunder.  For  purposes  of
determining the outstanding Letter of Credit Obligations at any time, the Bank's
acceptance  of a draft drawn on the Bank  pursuant  to a Letter of Credit  shall
constitute  a draw  on the  applicable  Letter  of  Credit  at the  time of such
acceptance.

                  "Liabilities"  shall mean at all times all  liabilities of the
Borrower  or  any  of  its  Subsidiaries  that  would  be  shown  as  such  on a
consolidated  balance  sheet of the  Borrower and its  Subsidiaries  prepared in
accordance with GAAP.

                  "Lien"  shall  mean  any  mortgage,   pledge,   hypothecation,
judgment lien or similar legal process.  title  retention lien, or other lien or
security interest, including, without limitation, the interest of a vendor under
any conditional  sale or other title  retention  agreement and the interest of a
lessor under a lease of any  interest in any kind of property or asset,  whether
real,  personal or mixed,  or tangible or  intangible,  by such Person as lessee
that is, or should be, a Capital Lease on the consolidated  balance sheet of the
Borrower and its Subsidiaries prepared in accordance with GAAP.

                  "Loans" shall mean, collectively,  all Revolving Loans made by
the Bank to the Borrower and all Letter of Credit Obligations under and pursuant
to this Agreement.

                  "Loan  Documents"  shall  mean the  agreements  and  documents
delivered to the Bank as set forth in Sections 3.1 and 3.2.

                  "Loan-to-Value  Ratio"  shall  mean  (i)  in  respect  of  any
individual Mortgaged Premises,  the ratio of (a) Indebtedness of the Borrower or
any Subsidiary  secured by Lien on such  Mortgaged  Premises to (b) the value of
the Mortgaged  Premises  disclosed by the appraisal of such  Mortgaged  Premises
most recently  accepted by the Bank, and (ii) in respect of all of the Mortgaged
Premises and Other Property of the Borrower and all  Wholly-Owned  Subsidiaries,
the ratio of (a) the aggregate consolidated Indebtedness of the Borrower and all
Wholly-Owned  Subsidiaries  secured by a Lien on any Mortgaged Premises or Other
Property to (b) the aggregate value of the Mortgaged Premises and Other Property
as determined by the Bank, in its sole discretion.

                  "Maturity  Date" shall be April 30, 2004,  unless  extended by
the Bank pursuant to any modification, extension or renewal note executed by the
Borrower  and  accepted  by the  Bank in its  sole and  absolute  discretion  in
substitution for the Substitute Revolving Note.

                  "Maximum Letter of Credit Obligation" shall mean the Revolving
Loan Commitment less the aggregate amount of all Revolving Loans  outstanding at
any time.

                  "Mortgage"  shall mean  those  second or junior  mortgages  or
deeds of trust made by Borrower or any of its Subsidiaries in favor of the Bank.

                  "Mortgaged   Premises"   shall   mean  the  real   estate  and
improvements  described in Exhibit B attached hereto and the leasehold interests
and improvements owned by the Ohio Partnership.

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<PAGE>

                  "Net  Income"  shall mean,  with  respect to any  period,  the
amount  shown  opposite  the caption  "Net  Income" or a similar  caption on the
consolidated financial statements of the Borrower, and its Subsidiaries prepared
in accordance with GAAP.

                  "Note"  shall mean the Amended  and  Restated  Revolving  Note
referred to in Section 4.1.

                  "Obligation"  shall mean the Loans,  as evidenced by the Note,
all interest  accrued  thereon,  any fees due the Bank  hereunder,  any expenses
incurred by the Bank hereunder and any and all other liabilities and obligations
of the  Borrower  (and of any  partnership  in which the Borrower is or may be a
partner) to the Bank,  howsoever  created,  arising or evidenced,  and howsoever
owned, held or acquired,  whether now or hereafter existing,  whether now due or
to become due, direct or indirect,  absolute or contingent, and whether several,
joint or joint and several,  including,  but not limited to, any  Interest  Rate
Agreements.

                  "Obligor" shall mean the Borrower,  any Subsidiary which makes
a Mortgage in favor of the Bank, any guarantor,  accommodation  endorser,  third
party pledgor, or any other party liable with respect to the Obligations.

                  "Ohio  Partnership" shall mean Athens Motel Associates Limited
Partnership II, an Ohio limited partnership.

                  "Other  Properties"  shall  mean  any  and all  real  property
heretofore  presently  or  hereafter,  owned  by  Borrower  or  any  Subsidiary,
excluding the Mortgaged  Premises,  and any interest of any kind in improvements
thereon.

                  "Person"  shall  mean  any  individual,  partnership,  limited
liability  company,  corporation,  trust,  joint  venture,  joint stock company,
association,  unincorporated  organization,  government  or agency or  political
subdivision thereof, or other entity.

                  "Prime  Rate"  shall  mean  the  floating  per  annum  rate of
interest  which at any  time,  and from  time to  time,  shall be most  recently
announced by the Bank as its Prime Rate,  which is not intended to be the Bank's
lowest or most favorable rate of interest at any one time. The effective date of
any  change in the Prime Rate  shall for  purposes  hereof be the date the Prime
Rate is changed by the Bank.  The Bank shall not be  obligated to give notice of
any change in the Prime Rate.

                  "Regulatory  Change"  shall mean the  introduction  of, or any
change in any applicable law,  treaty,  rule,  regulation or guideline or in the
interpretation  or administration  thereof by any governmental  authority or any
central bank or other fiscal,  monetary or other authority  having  jurisdiction
over the Bank or its lending office.

                  "Revolving  Interest  Rate" shall mean the Prime Rate plus two
and  50/100ths  percent 2.5% per annum;  provided,  however,  that the Revolving
Interest  Rate shall never be less than six and  75/100ths  percent  (6.75%) per
annum.

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<PAGE>

                  "Revolving   Loan"   and   "Revolving   Loans"   shall   mean,
respectively, each direct advance and the aggregate of all such direct advances,
from time to time made by the Bank to the  Borrower  under and  pursuant to this
Agreement, as set forth in SECTION 2.1 of this Agreement.

                  "Revolving  Loan  Availability"  shall  mean at any time,  the
Revolving Loan Commitment less the Letter of Credit Obligations.

                  "Revolving  Loan  Commitment"  shall mean (a) Six Million Five
Hundred  Thousand and 00/100 Dollars  ($6,500,000.00)  until September 29, 2003,
(b) Six Million and 00/100  Dollars  ($6,000.000.00)  from September 30, 2003 to
February 27, 2004 and (c) Five Million Five Hundred  Thousand and 00/100 Dollars
($5,500,000.00)  from and after  February  28,  2004;  in each  case,  as may be
further  reduced by (i) an amount  equal to the net  proceeds to Borrower or any
Subsidiary from the sale of any Mortgaged Premises,  after payment of the Senior
Mortgage  Indebtedness  thereon  and  costs of sale of such  Mortgaged  Premises
(except  to the  extent  the Bank,  in its sole  discretion,  agrees to accept a
Mortgage on a Substitute  Mortgaged  Premises in lieu of a further  reduction of
its commitment  hereunder) or (ii) such other reserves as the Bank determines in
its sole discretion.

                  "Revolving  Note" shall have the meanings set forth in Section
4.1 hereof.

                  "Senior Mortgage  Indebtedness" shall mean the Indebtedness of
Borrower or any Subsidiary existing on the date hereof which is disclosed on the
financial  statements  referred to in Section 7 and secured by one of the Senior
Mortgages.

                  "Senior   Mortgages"  shall  mean  those  (i)  first  priority
mortgages on the Mortgaged  Premises listed on Exhibit B attached hereto or (ii)
any other Indebtedness of Borrower or any Subsidiary existing on the date hereof
which is  disclosed  on the  financial  statements  referred to in Section 7 and
secured by a Lien on any Other Property.

                  "Subordinated Debt" shall mean that portion of the Liabilities
of the Borrower or any Subsidiary  which is subordinated to the Obligations in a
manner satisfactory to the Bank,  including,  but not limited to, right and time
of payment of principal and interest.

                  "Substitute  Mortgaged  Premises"  shall mean such real estate
and/or  improvements,  if any, and Mortgage in favor of the Bank thereon, as may
be accepted by the Bank, in its sole discretion,  in lieu of a further reduction
of the Revolving Loan Commitment.

                  "Subsidiary" and "Subsidiaries" shall mean, respectively, each
and all such corporations, partnerships, limited partnerships, limited liability
companies, limited liability partnerships or other entities of which or in which
the Borrower owns directly or indirectly  fifty percent  (50.00%) or more of (i)
the combined  voting power of all classes of stock having  general  voting power
under  ordinary  circumstances  to elect a majority of the board of directors of
such entity if a corporation, (ii) the management authority and capital interest
or profits  interest of such  entity,  if a  partnership,  limited  partnership,
limited  liability  company,  limited  liability  partnership,  joint venture or
similar  entity,  or (iii) the beneficial  interest of such entity,  if a trust,
association or other unincorporated organization.

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<PAGE>

                  "Tangible Assets" shall mean the total of all assets appearing
on a consolidated balance sheet of the Borrower and its Subsidiaries prepared in
accordance  with  GAAP  (with  Inventory  being  valued  at the lower of cost or
market),   after   deducting  all  proper  reserves   (including   reserves  for
Depreciation,  obsolescence  and  amortization)  less  the sum of (i)  goodwill,
patents,  trademarks,  prepaid  expenses,  deposits held as security deposits on
lease contracts,  franchise fees and other similar assets,  deferred charges and
other personal property which is classified as intangible property in accordance
with GAAP, and (ii) any amounts due from shareholders,  affiliates,  officers or
employees of the Borrower or any Subsidiary.

                  "Tangible  Net  Worth"  shall  mean at any time  the  total of
Tangible Assets less Liabilities plus Subordinated Debt.

                  "Total  Liabilities  to Worth Ratio" shall mean a ratio of (a)
consolidated  Liabilities minus deferred income to (b) consolidated Tangible Net
Worth  plus the sum of (i)  deferred  taxes,  (ii)  deferred  income,  including
deferred  loan  costs and  deferred  lease  costs,  and (iii)  deposits  held as
security  deposits on lease contracts,  franchise fees and other similar assets,
in each case of Borrower and its Subsidiaries.

                  "UCC"  shall  mean the  Uniform  Commercial  Code in effect in
Illinois from time to time.

                  "Wholly-Owned  Subsidiary"  shall mean any Subsidiary of which
or in which the Borrower owns  directly or  indirectly  100% of (i) the combined
voting power of all classes of stock having  general voting power under ordinary
circumstances  to elect a majority of the board of directors of such Person,  if
it is a  corporation,  (ii) the  capital  interest  or profits  interest of such
Persons,  if it is a partnership,  joint venture or similar entity, or (iii) the
beneficial  interest of such  Persons,  if it is a trust,  association  or other
unincorporated organization.

         1.2 Accounting Terms. Any accounting terms used in this Agreement which
are not specifically  defined herein shall have the meanings  customarily  given
them in accordance with GAAP.  Calculations and  determinations of financial and
accounting terms used and not otherwise  specifically  defined hereunder and the
preparation of financial  statements to be furnished to the Bank pursuant hereto
shall be made and prepared, both as to classification of items and as to amount,
in accordance with GAAP as used in the  preparation of the financial  statements
of the  Borrower on the date of this  Agreement.  If any  changes in  accounting
principles  or practices  from those used in the  preparation  of the  financial
statements are hereafter  occasioned by the promulgation of rules,  regulations,
pronouncements and opinions by or required by the Financial Accounting Standards
Board  or the  American  Institute  of  Certified  Public  Accountants  (or  any
successor  thereto or  agencies  with  similar  functions),  which  results in a
material change in the method of accounting in the financial statements required
to be  furnished  to the  Bank  hereunder  or in the  calculation  of  financial
covenants,  standards or terms contained in this  Agreement,  the parties hereto
agree to enter  into good faith  negotiations  to amend  such  provisions  so as
equitably to reflect  such  changes to the end that the criteria for  evaluating
the financial  condition and  performance of the Borrower will be the same after
such changes as they were before such changes;  and if the parties fail to agree
on the  amendment  of such  provisions,  the  Borrower  will  furnish  financial
statements in accordance  with such changes but shall provide  calculations  for
all financial  covenants,  perform all financial covenants and otherwise observe

                                       8
<PAGE>

all  financial  standards  and terms in accordance  with  applicable  accounting
principles  and  practices  in  effect   immediately   prior  to  such  changes.
Calculations  with  respect  to  financial  covenants  required  to be stated in
accordance  with  applicable  accounting  principles  and  practices  in  effect
immediately  prior  to such  changes  shall be  reviewed  and  certified  by the
Borrower's accountants.

         1.3 Other Terms Defined in UCC. All other capitalized words and phrases
used herein and not otherwise  specifically  defined  shall have the  respective
meanings assigned to such terms in the UCC, as amended from time to time, to the
extent the same are used or defined therein.

         1.4 Other Definitional Provisions;  Construction.  Whenever the context
so requires,  the neuter gender includes the masculine and feminine,  the single
number  includes  the  plural,  and  vice  versa,  and in  particular  the  word
"Borrower" shall be so construed.  The words "hereof',  "herein" and "hereunder"
and words of similar  import  when used in this  Agreement  shall  refer to this
Agreement as a whole and not to any particular provision of this Agreement,  and
references to Article, Section,  Subsection,  Annex, Schedule,  Exhibit and like
references are references to this Agreement unless otherwise specified. An Event
of Default shall  "continue" or be "continuing"  until such Event of Default has
been waived in accordance with SECTION 13.3 hereof. References in this Agreement
to any party shall  include  such  party's  successors  and  permitted  assigns.
References  to any  "Section"  shall  be a  reference  to such  Section  of this
Agreement  unless otherwise  stated.  To the extent any of the provisions of the
other Loan Documents are inconsistent with the terms of this Loan Agreement, the
provisions of this Loan Agreement shall govern.

2.       COMMITMENT OF THE BANK.
         ----------------------

         2.1 Revolving Loans.

               (a)  Revolving  Loan   Commitment.   Subject  to  the  terms  and
                    conditions of this  Agreement and the other Loan  Documents,
                    and in reliance upon the  representations  and warranties of
                    the  Borrower  set  forth  herein  and  in  the  other  Loan
                    Documents,  the Bank agrees to make such Revolving  Loans at
                    such  times as the  Borrower  may from time to time  request
                    until,  but not  including,  the Maturity  Date, and in such
                    amounts  as the  Borrower  may  from  time to time  request,
                    provided,  however,  that the aggregate principal balance of
                    all Revolving Loans outstanding at any time shall not exceed
                    the Revolving Loan Availability.  Borrower acknowledges that
                    the amount of the Revolving  Loan  Commitment was determined
                    by the Bank based on the Bank's analysis of the value of the
                    Collateral as of Closing, including the aggregate net equity
                    in  respect  of the  Mortgaged  Premises  which,  due to the
                    nature of such Collateral,  may be difficult to establish or
                    highly variable. Accordingly, notwithstanding any other term
                    or provision hereof to the contrary, Bank has the right from
                    time to time to  periodically  determine and redetermine the
                    value of the  Collateral,  to  establish  (based on  advance

                                       9
<PAGE>

                    percentages and eligibility criteria established by the Bank
                    and  communicated  to Borrower from time to time)  borrowing
                    base  formulas  in respect of  Accounts  and  Equipment  (as
                    defined in the UCC) and to  establish  reserves,  to require
                    borrowing  base  certificates  and  to  require  such  other
                    actions on the part of  Borrower  as Bank in its  discretion
                    may deem necessary or  appropriate.  Revolving Loans made by
                    the  Bank  may be  repaid  and,  subject  to the  terms  and
                    conditions  hereof,  borrowed again up to, but not including
                    the Maturity Date unless the  Revolving  Loans are otherwise
                    terminated  or extended as provided in this  Agreement.  The
                    Revolving  Loans  shall  be  used  by the  Borrower  for the
                    purpose of  supporting  the  working  capital  and letter of
                    credit needs of the Borrower.

               (b)  Revolving  Loan Interest and  Payments.  Except as otherwise
                    provided in this SECTION 2.1(B), the principal amount of the
                    Revolving  Loans  outstanding  from time to time  shall bear
                    interest at the Revolving  Interest Rate. Accrued and unpaid
                    interest on the unpaid  principal  balance of all  Revolving
                    Loans  outstanding  from  time  to  time,  shall  be due and
                    payable monthly,  in arrears,  commencing on May 1, 2003 and
                    continuing  on  the  first  day  of  each   calendar   month
                    thereafter,   and  on  the  Maturity  Date.  Any  amount  of
                    principal  or interest on the  Revolving  Loans which is not
                    paid when due, whether at stated  maturity,  by acceleration
                    or otherwise,  shall bear interest  payable on demand at the
                    Default Rate.

               (c)  Revolving Loan Principal Repayments.

               (i)  Mandatory   Principal   Prepayments.   All  Revolving  Loans
          hereunder shall be repaid by the Borrower on the Maturity Date, unless
          payable sooner  pursuant to the provisions of this  Agreement.  In the
          event the  aggregate  outstanding  principal  balance of all Revolving
          Loans and Letter of Credit Obligations  hereunder exceed the Revolving
          Loan Availability, the Borrower shall, without notice or demand of any
          kind,  immediately make such repayments of the Revolving Loans or take
          such other actions as shall be necessary to eliminate such excess.  In
          the event the  Borrower  or any  Wholly-Owned  Subsidiary  shall sell,
          transfer or otherwise  dispose of any of the Mortgaged  Premises,  the
          Bank  may,  in its  sole  discretion,  require  that  Borrower  make a
          mandatory  repayment of the Revolving  Loans in an amount equal to the
          proceeds of the sale of such Mortgaged Premises,  after payment of the
          Senior  Mortgage  Indebtedness  thereon  and  costs  of  sale  of  the
          Mortgaged Premises.

               (ii)  Optional  Prepayments.  The  Borrower may from time to time
          prepay  the  Revolving  Loans,  in  whole  or  in  part,  without  any
          prepayment penalty  whatsoever,  subject to the following  conditions:
          (i) each partial  prepayment shall be in an amount equal to $10,000.00
          or a higher  integral  multiple of $5,000;  and (ii) any prepayment of

                                       10
<PAGE>

          the  entire  principal  balance  of the Loans  shall  include  accrued
          interest on such Loans to the date of such  prepayment  and payment in
          full of all other Obligations  (including  payment in full of the fees
          described in Section 3.6 below) due and payable under this Agreement.

         2.2 [INTENTIONALLY OMITTED]

         2.3 [INTENTIONALLY OMITTED]

         2.4  Interest  and Fee  Computation;  Collection  of  Funds.  Except as
otherwise  set forth  herein,  all interest and fees shall be  calculated on the
basis of a year  consisting  of 360 days and shall be paid for the actual number
of days elapsed. Principal payments submitted in funds not immediately available
shall  continue to bear interest until  collected.  If any payment to be made by
the Borrower  hereunder or under the Note shall become due on a day other than a
Business Day, such payment shall be made on the next succeeding Business Day and
such extension of time shall be included in computing any interest in respect of
such payment.

         2.5  Letters of Credit.  Subject  to the terms and  conditions  of this
Agreement and the Master Letter of Credit Agreement dated as of February 1, 2002
between Bank and Borrower  ("the Master Letter of Credit  Agreement")  and, upon
the execution and delivery by the Borrower,  and the  acceptance by the Bank, in
its sole and absolute  discretion,  of an application for letter of credit,  the
Bank agrees to issue for the account of the Borrower out of the  Revolving  Loan
Availability,  such  Letters  of  Credit  in the  standard  form of the Bank and
otherwise  inform and substance  acceptable to the Bank from time to time during
the term of this Agreement,  provided that the Letter of Credit  Obligations may
not at any time exceed the Maximum  Letter of Credit  Obligation  and  provided,
further,  that no Letter of Credit  shall  have an  expiration  date  later than
twenty five (25) days prior to the  Maturity  Date.  The amount of any  payments
made by the Bank with respect to draws made by a  beneficiary  under a Letter of
Credit for which the Borrower has failed to reimburse  the Bank upon the earlier
of (i) the Bank's demand for  repayment,  or (ii) five (5) days from the date of
such  payment  to such  beneficiary  by the  Bank,  shall be deemed to have been
converted  to a Revolving  Loan as of the date such payment was made by the Bank
to such  beneficiary.  Upon the  occurrence  of an Event of a Default and at the
option of the Bank, all Letter of Credit Obligations shall be converted to Prime
Loans,  all without demand,  presentment,  protest or notice of any kind, all of
which are hereby waived by the Borrower.

3.       CONDITIONS OF BORROWING.
         -----------------------

         Notwithstanding  any other provision of this Agreement,  the Bank shall
not be  required  to  disburse or make all or any portion of the Loans if any of
the  following  conditions  shall have  occurred.

         3.1 Closing  Documents.  The Borrower  shall have failed to execute and
deliver  to the  Bank any of the  following  Loan  Documents  at or prior to the
Closing  Date,  all of which  must be  satisfactory  to the Bank and the  Bank's
counsel in form, substance and execution:

               (a)  Loan   Agreement.   This  Agreement  duly  executed  by  the
                    Borrower.

                                       11
<PAGE>

               (b)  Revolving Note. An Amended and Restated  Revolving Note duly
                    executed  by the  Borrower  in the form  attached  hereto as
                    Exhibit "A".

               (c)  Constitutive  Documents.  Certified copies of Borrower's and
                    each Obligor's  articles of incorporation and by-laws,  or a
                    certificate  of  Borrower's  and each  Obligor's  Secretary,
                    confirming that there have been no changes or describing any
                    changes  to the  articles  of  organization  and  by-laws of
                    Borrower or such Obligor since February 1, 2002;

               (d)  Resolutions. Certified resolutions of the board of directors
                    and/or   shareholders  of  the  Borrower  and  each  Obligor
                    authorizing the execution,  delivery and performance of this
                    Agreement  and/or  the Loan  Documents  to  which  each is a
                    party.

               (e)  Borrower's  Attorney's Opinion. An opinion of counsel to the
                    Borrower and each Obligor in form and  substance  acceptable
                    to the Bank.

               (f)  Amendments to Mortgages.  Amendments to the Mortgages to and
                    for  the  benefit  of the  Bank  on  each  of the  Mortgaged
                    Premises, executed by Borrower or the Subsidiary of Borrower
                    which is the record fee owner of such Mortgaged Premises, in
                    form and substance  acceptable to the Bank,  conforming each
                    such Mortgage to the terms of this Agreement.

               (g)  Appraisals.  If requested by Bank, updated appraisals on any
                    one  or  more  of  the  Mortgaged  Premises  prepared  by an
                    appraiser acceptable to Bank.

               (h)  Updates  to Title  Insurance  Commitments.  Updates to title
                    insurance commitments issued by First American Title Company
                    or  other  title  insurance   company   acceptable  to  Bank
                    (collectively,  the "Title Insurance  Company"),  indicating
                    that no judgments,  tax or other liens (other than the Liens
                    permitted  under Section 8.2 and Liens in favor of the Bank)
                    are of record or on file  encumbering  any  portion  of such
                    Mortgaged  Premises and that no foreclosure or other adverse
                    proceedings  have  been  commenced  in  respect  of any such
                    Mortgaged Premises.

               (i)  Consent. Consent satisfactory to the Bank from the mortgagee
                    having a Senior Mortgage on the Mortgaged  Premises  located
                    in Niles,  Illinois,  consenting  to the second  mortgage on
                    such  Mortgaged  Premises in favor of the Bank,  in form and
                    substance acceptable to the Bank.

               (j)  UCC Searches.  Uniform Commercial Code searches,  confirming
                    the  Bank's  first  priority   security   interests  in  the
                    Collateral  and indicating  that no judgments,  tax or other
                    liens (other than the Liens  permitted under Section 8.2 and
                    Liens  in  favor  of the  Bank)  are of  record  or on  file
                    encumbering any portion of the Collateral.

               (k)  Insurance.  Insurance policies (or binders acceptable to the
                    Bank) with premiums prepaid in companies, forms, amounts and
                    coverage  satisfactory to the Bank,  identifying the Bank as
                    lender's  loss  payee or  mortgagee's  loss  payee and as an
                    additional  insured and containing waiver of subrogation and
                    mortgage clauses in favor of the Bank.  Without limiting the
                    generality of the foregoing, such policies shall include all
                    insurance  required to be carried by the Borrower  under the
                    Mortgages. The Borrower will also provide casualty insurance
                    against  loss and  damage by all risks of  physical  loss or

                                       12
<PAGE>

                    damage,  including fire,  windstorm,  flood,  earthquake and
                    other  risks  covered  by the  so-called  extended  coverage
                    endorsement  in  amounts  not less  than the full  insurable
                    replacement   value  of  all   improvements,   fixtures  and
                    equipment  from  time to  time on the  land  and  bearing  a
                    replacement cost agreed amount endorsement.

               (l)  Additional  Documents.  Such other  certificates,  financial
                    statements,  schedules,  resolutions,  opinions  of counsel,
                    notes and other  documents  which are provided for hereunder
                    or which the Bank may  require,  including,  but not limited
                    to,  evidence  acceptable  to the  Bank  that  there  are no
                    defaults, or events which would be defaults upon the passage
                    of  time  or  the  giving  of  notice,   under  the  Cendant
                    Agreement.

         3.2 Event of Default.  Any Event of Default,  or any event which,  with
notice or lapse of time or both would constitute an Event of Default, shall have
occurred and be continuing.

         3.3  Adverse  Changes.  A  material  adverse  change  in the  financial
condition  or affairs of the  Borrower,  as  determined  in the Bank's  sole and
complete discretion, shall have occurred.

         3.4 Litigation.  Any litigation or governmental  proceeding  shall have
been  instituted  against the  Borrower or any of its  officers or  shareholders
which in the discretion of the Bank, reasonably exercised,  materially adversely
affects the financial condition or continued operation of the Borrower.

         3.5 Representations  and Warranties.  Any representation or warranty of
the
Borrower  contained  herein or in any Loan Document shall be untrue or incorrect
in any  material  way as of the date of any Loan as  though  made on such  date,
except to the extent such  representation  or warranty  expressly  relates to an
earlier date.

         3.6 Fees.  The Borrower  shall have failed to pay to the Bank a renewal
fee  in  the  amount  of  One  Hundred   Thirty   Thousand  and  00/100  Dollars
($130,000.00), payable as follows: (a) $30,000 upon execution of this Agreement,
(b)  $50,000  on August 1,  2003,  and (c)  $50,000 on  December  1, 2003.  Bank
acknowledges  receipt of a waiver fee in the amount of Twenty  Thousand  Dollars
($20,000) in respect of the waivers described in Section 13.19 below.

4.       NOTES EVIDENCING LOANS.
         ----------------------

         4.1  Revolving  Note.  The  Revolving  Loans  and the  Letter of Credit
Obligations  shall be evidenced by a single Amended and Restated  Revolving Note
(together with any and all renewal, extension, modification or replacement notes
executed by the  Borrower and  delivered  to the Bank and given in  substitution
therefor, the "Revolving Note") in the form of Exhibit "A" attached hereto, duly
executed by the  Borrower  and payable to the order of the Bank.  At the time of
the  initial  disbursement  of a Revolving  Loan and at each time an  additional
Revolving  Loan shall be requested  hereunder or a repayment made in whole or in
part thereon,  an  appropriate  notation  thereof shall be made on the books and
records of the Bank. All amounts recorded shall be, absent  demonstrable  error,
conclusive  and binding  evidence of (i) the  principal  amount of the Revolving
Loans  advanced  hereunder  and the amount of all Letter of Credit  Obligations,
(ii) any unpaid  interest  owing on the Revolving  Loans,  and (iii) all amounts
repaid on the Revolving Loans or the Letter of Credit  Obligations.  The failure
to record any such  amount or any error in  recording  such  amounts  shall not,

                                       13
<PAGE>

however,  limit or otherwise  affect the  obligations  of the Borrower under the
Revolving Note to repay the principal  amount of the Revolving  Loans,  together
with all interest accruing thereon.

5.       MANNER OF BORROWING.
         -------------------

         Each Loan shall be made  available  to the  Borrower  upon its request,
from any Person  whose  authority to so act has not been revoked by the Borrower
in  writing  previously  received  by the  Bank.  A  request  for a Loan must be
received by no later than 11:00 a.m. Chicago, Illinois time, on the day it is to
be funded.  The  proceeds of each Loan shall be made  available at the office of
the Bank by credit to the account of the Borrower or by other means requested by
the Borrower and acceptable to the Bank.

         Each  Letter of Credit  shall be  issued  by the Bank  pursuant  to the
Master  Letter  of Credit  Agreement,  and the  execution  and  delivery  by the
Borrower and the acceptance by the Bank, in its sole  discretion,  of the Bank's
standard application for Letter of Credit and the payment by the Borrower of the
Bank's fees charged in connection therewith. In addition to all other applicable
fees,  charges and/or  interest  payable by the Borrower  pursuant to the Master
Letter of Credit  Agreement or otherwise  payable in accordance  with the Bank's
standard  letter of credit fee  schedule,  all standby  Letters of Credit issued
under and pursuant to this  Agreement  shall bear an annual fee equal to one and
one-quarter percent (1.25%) of the face amount of such standby Letter of Credit,
payable by the  Borrower  on or before the  issuance of such Letter of Credit by
the Bank and  annually  thereafter  on the same date  unless  and until (i) such
Letter of Credit has expired or has been  returned to the Bank, or (ii) the Bank
has paid the  beneficiary  thereunder  the full face  amount  of such  Letter of
Credit.  All Letters of Credit other than  standby  Letters of Credit shall bear
such fees,  costs and  interest  as charged by the Bank and shall  contain  such
other terms as set forth in the Master Letter of Credit Agreement and the Bank's
standard letter of credit fee schedule.

         The Bank is  authorized  to rely on any  written,  verbal,  electronic,
telephonic or telecopy  loan requests  which the Bank believes in its good faith
judgment to emanate from a properly  authorized  representative of the Borrower,
whether or not that is in fact the case.  The Borrower  does hereby  irrevocably
confirm,  ratify  and  approve  all such  advances  by the Bank and does  hereby
indemnify  the  Bank  against  losses  and  expenses   (including  court  costs,
attorneys' and  paralegals'  fees) and shall hold the Bank harmless with respect
thereto.

6.       SECURITY FOR THE OBLIGATIONS.
         ----------------------------

         6.1  Security  for  Obligations.  As  security  for the  payment of the
Obligations,  the Borrower does hereby pledge,  assign,  transfer and deliver to
the Bank and does  hereby  grant  to the  Bank a  continuing  and  unconditional
security interest in and to any and all property of the Borrower, of any kind or
description,  tangible or intangible,  whether now existing or hereafter arising
or  acquired,  including,  but not  limited  to,  the  following  (all of  which
property,  along with the products and proceeds  therefrom,  and the  additional
collateral  referred to in Section 6.2 below,  are individually and collectively
referred to as the "Collateral"):

                                       14
<PAGE>

               (a)  all  property of, or for the account of, the Borrower now or
                    hereafter coming into the possession, control or custody of,
                    or in  transit  to,  the Bank or any agent or bailee for the
                    Bank or any parent,  affiliate or  subsidiary of the Bank or
                    any  participant  with the Bank in the  Loans  (whether  for
                    safekeeping,    deposit,   collection,    custody,   pledge,
                    transmission   or   otherwise),   including   all  earnings,
                    dividends, interest, or other rights in connection therewith
                    and the  products  and  proceeds  therefrom,  including  the
                    proceeds of insurance thereon; and

               (b)  the  additional  property  of  the  Borrower,   whether  now
                    existing or hereafter arising or acquired,  and wherever now
                    or  hereafter  located,  together  with  all  additions  and
                    accessions  thereto,  substitutions  for, and  replacements,
                    products and proceeds  therefrom,  and all of the Borrower's
                    books  and  records  and  recorded  data  relating   thereto
                    (regardless of the medium of recording or storage), together
                    with all of the Borrower's right,  title and interest in and
                    to  all  computer  software  required  to  utilize,  create,
                    maintain and process any such records or data on  electronic
                    media, identified and set forth as follows:

                    (i) All  Accounts  and all Goods whose sale,  lease or other
                    disposition  by the  Borrower has given rise to Accounts and
                    have been returned to, or  repossessed or stopped in transit
                    by,  the  Borrower,  or  rejected  or  refused by an Account
                    Debtor;

                    (ii)  All  Inventory,  including,  without  limitation,  raw
                    materials, work-in-process and finished goods;

                    (iii) All Goods (other than Inventory),  including,  without
                    limitation,    embedded   software,   Equipment,   vehicles,
                    furniture and Fixtures;

                    (iv) All Software and computer programs;

                    (v) All Securities,  Investment  Property,  Financial Assets
                    and Deposit Accounts;

                    (vi)  All   Chattel   Paper,   Electronic   Chattel   Paper,
                    Instruments,   Documents,   Letter  of  Credit  Rights,  all
                    proceeds  of  letters  of  credit,   Health  care  insurance
                    Receivables,  Supporting Obligations,  notes secured by real
                    estate,  Commercial  Tort  Claims and  General  Intangibles,
                    including Payment Intangibles; and

                    (vii) All  insurance  policies  and  proceeds  insuring  the
                    foregoing  property or any part thereof,  including unearned
                    premiums.

         6.2  Additional  Collateral.  In  addition,  the  Obligations  are also
secured by the Mortgages, a Collateral Assignment, Security Agreement and Pledge
Agreement made by Arlington Inns of Ohio, Inc. and  API/Athens,  OH , Inc. dated

                                       15
<PAGE>

as of  February  1, 2002  pledging  certain  partnership  interests  in the Ohio
Partnership  and a  Collateral  Assignment  and Security  Agreement  dated as of
February 1, 2002  collaterally  assigning  to Bank  Borrower's  rights under the
Cendant Agreement.

6.3      [INTENTIONALLY OMITTED]
         -----------------------

         6.4 Possession  and Transfer of  Collateral.  Until an Event of Default
has occurred  hereunder,  the Borrower shall be entitled to possession or use of
the  Collateral.  The  cancellation  or surrender of the  Revolving  Note,  upon
payment  or  otherwise,  shall not  affect  the right of the Bank to retain  the
Collateral for any other of the Obligations. The Borrower shall not sell, assign
(by operation of law or otherwise),  license,  lease or otherwise dispose of, or
grant any option  with  respect to any of the  Collateral,  except  that (a) the
Borrower may sell Inventory in the ordinary  course of business and (b) Borrower
or any Subsidiary may sell one or more hotel  properties in accordance  with the
provisions of Section 6.11 hereof.

         6.5 Financing Statements. The Borrower shall, at the Bank's request, at
any time and from time to time,  execute and deliver to the Bank such  financing
statements,  amendments  and other  documents and do such acts as the Bank deems
necessary in order to establish and maintain valid, attached and perfected first
security interests in the Collateral in favor of the Bank, free and clear of all
Liens and claims and rights of third  parties  whatsoever  (except as  otherwise
specifically  set forth in Section 8 hereof).  The Borrower  hereby  irrevocably
authorizes  the  Bank  at any  time,  and  from  time  to  time,  to file in any
jurisdiction any initial  financing  statements and amendments  thereto that (a)
indicate  the  Collateral  (i) as all assets of the Borrower or words of similar
effect,  regardless of whether any particular  asset comprised in the Collateral
falls  within  the scope of  Article  9 of the  Uniform  Commercial  Code of the
jurisdiction  wherein such financing statement or amendment is filed, or (ii) as
being of an equal or lesser scope or within greater detail,  and (b) contain any
other information  required by Section 5 of Article 9 of the Uniform  Commercial
Code of the jurisdiction  wherein such financing statement or amendment is filed
regarding the sufficiency or filing office acceptance of any financing statement
or amendment, including (i) whether the Borrower is an organization, the type of
organization and any organization  identification number issued to the Borrower,
and (ii) in the case of a  financing  statement  filed as a  fixture  filing  or
indicating  Collateral  as  as-extracted  collateral  or  timber  to be  cut,  a
sufficient  description  of real property to which the Collateral  relates.  The
Borrower  agrees to  furnish  any such  information  to the Bank  promptly  upon
request.  The Borrower  further ratifies and affirms its  authorization  for any
financing  statements and/or amendments thereto,  executed and filed by the Bank
in any jurisdiction prior to the date of this Agreement.

         6.6  Additional  Collateral.  The  Borrower  shall  deliver to the Bank
immediately  upon its demand,  following the  occurrence of an Event of Default,
such  other  collateral  as the Bank may from time to time  request,  should the
value of the Collateral,  in the Bank's sole and absolute  discretion,  decline,
deteriorate,  depreciate or become impaired, and does hereby grant to the Bank a
continuing  security  interest in such other  collateral,  which,  when pledged,
assigned and transferred to the Bank shall be and become part of the Collateral.
The Bank's  security  interests  in each of the  foregoing  Collateral  shall be
valid, complete and perfected whether or not covered by a specific assignment.

         6.7  Preservation of the Collateral.  The Bank may, but is not required
to, take such action from time to time as the Bank deems appropriate to maintain
or protect the Collateral.  The Bank shall have exercised reasonable care in the

                                       16
<PAGE>

custody  and  preservation  of the  Collateral  if it takes  such  action as the
Borrower  shall  reasonably  request in writing;  provided,  however,  that such
request shall not be inconsistent with the Bank's status as a secured party, and
the  failure of the Bank to comply with any such  request  shall not be deemed a
failure to exercise  reasonable  care.  In addition,  any failure of the Bank to
preserve or protect any rights with respect to the  Collateral  against prior or
third parties,  or to do any act with respect to preservation of the Collateral,
not so  requested  by the  Borrower,  shall not be deemed a failure to  exercise
reasonable care in the custody or  preservation of the Collateral.  The Borrower
shall have the sole  responsibility  for taking such action as may be necessary,
from time to time,  to preserve  all rights of the  Borrower and the Bank in the
Collateral  against prior or third parties.  Without  limiting the generality of
the foregoing,  where Collateral consists in whole or in part of securities, the
Borrower  represents to, and covenants with, the Bank that the Borrower has made
arrangements for keeping informed of changes or potential  changes affecting the
securities  (including,  but not  limited  to,  rights to convert or  subscribe,
payment of  dividends,  reorganization  or other  exchanges,  tender  offers and
voting   rights),   and  the  Borrower  agrees  that  the  Bank  shall  have  no
responsibility  or  liability  for  informing  the Borrower of any such or other
changes or  potential  changes or for taking any action or  omitting to take any
action with respect thereto.

         6.8 Other Actions as to any and all  Collateral.  The Borrower  further
agrees to take any other action  reasonably  requested by the Bank to insure the
attachment,  perfection  and first  priority  of, and the ability of the Bank to
enforce,  the  Bank's  security  interest  in any  and  all  of  the  Collateral
including, without limitation, (a) executing, delivering and, where appropriate,
filing  financing  statements and amendments  relating thereto under the Uniform
Commercial Code, to the extent, if any, that the Borrower's signature thereon is
required  therefor,  (b) causing the Bank's name to be noted as secured party on
any  certificate  of title for a titled good if such  notation is a condition to
attachment,  perfection  or priority of, or ability of the bank to enforce,  the
Bank's security interest in such Collateral, (c) complying with any provision of
any statute,  regulation or treaty of the United States as to any  Collateral if
compliance  with such  provision is a condition  to  attachment,  perfection  or
priority of, or ability of the Bank to enforce,  the Bank's security interest in
such Collateral,  (d) obtaining  governmental and other third party consents and
approvals,  including without limitation any consent of any licensor,  lessor or
other Person obligated on Collateral,  (e) obtaining waivers from mortgagees and
landlords in form and  substance  satisfactory  to the Bank,  and (f) taking all
actions  required  by the UCC in effect  from time to time or by other  law,  as
applicable  in any relevant UCC  jurisdiction,  or by other law as applicable in
any foreign jurisdiction.

         6.9 Collateral in the Possession of a Warehouseman or Bailee. If any of
the Collateral at any time is in the possession of a warehouseman or bailee, the
Borrower shall promptly  notify the Bank thereof,  and if requested by the Bank,
shall promptly obtain an  acknowledgement  from the  warehouseman or bailee,  in
form and substance  satisfactory  to the Bank,  that the  warehouseman or bailee
holds  such  Collateral  for the  benefit  of the  Bank and  shall  act upon the
instructions of the Bank, without the further consent of the Borrower.

         6.10 Partial Release of Mortgaged Premises. Upon the written request of
the Borrower at any time and from time to time,  Borrower or any  Subsidiary may
sell one or more  Mortgaged  Premises and the Bank shall  execute and deliver to
Borrower a release of the Mortgage on any of the  Mortgaged  Premises so long as
no Event of Default shall have occurred and be  continuing;  provided,  however,

                                       17
<PAGE>

that the Bank may, in its sole discretion, require that the proceeds of the sale
of such Mortgaged Premises,  after repayment of the Senior Mortgage Indebtedness
and costs of sale, be applied to repayment of the Revolving Loans.

         6.11 Sale of Hotel  Properties.  Without  limiting  the  provisions  of
Section 6.10 above,  and so long as no Event of Default  shall have occurred and
be continuing  or, after giving effect to the proposed sale,  would occur,  with
the giving of notice or lapse of time or both,  Borrower or any  Subsidiary  may
sell one or more hotel  properties in the ordinary course of business subject to
satisfaction of the following conditions:

               (a)  Borrower  shall give the Bank no less than thirty (30) days'
                    prior written notice of each such sale;

               (b)  Each  notice  of  proposed  sale of a hotel  property  shall
                    include (i) the location and a  description  of the property
                    being  sold,  (ii)  the  sales  price  for the  property  in
                    question, and (iii) the identity of the buyer; and

               (c)  Upon the written request of the Bank, Borrower shall provide
                    such  additional  information  concerning the transaction as
                    the Bank may thereafter request.

7.       REPRESENTATIONS AND WARRANTIES.
         ------------------------------

         To induce the Bank to make the Revolving  Loans, the Borrower makes the
following  representations  and  warranties to the Bank,  each of which shall be
true and correct as of the date of the execution and delivery of this Agreement,
and which shall survive the execution and delivery of this Agreement:

         7.1 Borrower Organization and Name. The Borrower and each Subsidiary is
a corporation  duly  organized,  existing and in good standing under the laws of
its state of incorporation,  with full and adequate  corporate power to carry on
and  conduct  its  business  as  presently  conducted.  The  Borrower  and  each
Subsidiary  is duly licensed or qualified in all foreign  jurisdictions  wherein
the nature of its activities require such qualification or licensing.  The exact
legal  name of the  Borrower  is as set  forth in the  first  paragraph  of this
Agreement,  and the Borrower  currently does not conduct,  nor has it during the
last five (5) years  conducted,  business  under any other  name or trade  name,
except for the names "AmeriHost  Properties,  Inc.," "AmeriHost Inn," "AmeriHost
Inn and Suites,"  "AmeriHost Hotel" and "AmeriHost Suites." The Borrower's state
issued organizational identification number is 204441.

         7.2 Authorization;  Validity. The Borrower and each Subsidiary which is
a party to any of the Loan  Documents  has full right,  power and  authority  to
enter into this Agreement  and/or each Loan Document to which it is a party,  to
make the  borrowings  and execute and  deliver  the Loan  Documents  as provided
herein and to perform all of its duties and obligations under this Agreement and
each Loan  Document to which it is a party.  The  execution and delivery of this
Agreement  and/or  the Loan  Documents  will  not,  nor will the  observance  or
performance  of any of the  matters  and  things  herein or  therein  set forth,
violate or contravene  any provision of law or of the articles of  incorporation
or  bylaws  of the  Borrower  or any  Subsidiary  which  is a party  to any Loan

                                       18
<PAGE>

Document.  All necessary and appropriate  corporate action has been taken on the
part of the Borrower and each  Subsidiary  which is a party to any Loan Document
to  authorize  the  execution  and  delivery of this  Agreement  and/or the Loan
Documents to which it is a party. This Agreement and the Loan Documents to which
it is a party are valid and binding agreements and contracts of the Borrower and
each  Subsidiary  which is a party to any Loan Document in accordance with their
respective terms.

         7.3 Compliance With Laws. To the best knowledge of Borrower, the nature
and  transaction of the business and operations of Borrower and each  Subsidiary
and the use of  their  respective  properties  and  assets,  including,  but not
limited to, the  Collateral or any real estate owned or occupied by any of them,
do not and during the term of the Loans shall not,  violate or conflict with any
applicable law,  statute,  ordinance,  rule,  regulation or order of any kind or
nature,  including,  without  limitation,  the  provisions  of  the  Fair  Labor
Standards Act or any zoning, land use, building,  noise abatement,  occupational
health and safety or other laws, any building  permit or any  condition,  grant,
easement, covenant, condition or restriction, whether recorded or not.

         7.4  Environmental   Laws  and  Hazardous   Substances.   The  Borrower
represents,  warrants and agrees with the Bank that (i) to the best knowledge of
Borrower,  neither the Borrower nor any Subsidiary has generated,  used, stored,
treated,  transported,  manufactured,  handled,  produced  or  disposed  of  any
Hazardous  Materials,  on or off any of the premises of the Borrower (whether or
not owned by it) or  Subsidiary  in any manner  which at any time  violates  any
Environmental  Law or any  license,  permit,  certificate,  approval  or similar
authorization thereunder, (ii) to the best knowledge of Borrower, the operations
of the Borrower and each  Subsidiary  comply in all material  respects  with all
Environmental Laws and all licenses, permits certificates, approvals and similar
authorizations  thereunder,  (iii) to the best knowledge of Borrowers, there has
been no investigation,  proceeding, complaint, order, directive, claim, citation
or notice by any governmental  authority or any other Person, nor is any pending
or, to the best of the Borrower's knowledge,  threatened, and the Borrower shall
immediately  notify  the Bank  upon  becoming  aware of any such  investigation,
proceeding,  complaint,  order, directive,  claim, citation or notice, and shall
take prompt and  appropriate  actions to respond  thereto,  with  respect to any
non-compliance  with, or violation of, the requirements of any Environmental Law
by the Borrower or any Subsidiary or the release, spill or discharge, threatened
or actual, of any Hazardous Material or the generation, use, storage, treatment,
transportation,  manufacture,  handling, production or disposal of any Hazardous
Material or any other environmental,  health or safety matter, which affects the
Borrower or its business,  operations  or assets or any  properties at which the
Borrower or any Subsidiary has transported,  stored or disposed of any Hazardous
Materials, (iv) to the best knowledge of Borrower,  neither the Borrower nor any
Subsidiary has any material  liability,  contingent or otherwise,  in connection
with a release,  spill or  discharge,  threatened  or actual,  of any  Hazardous
Materials  or  the  generation,   use,   storage,   treatment,   transportation,
manufacture, handling, production or disposal of any Hazardous Material; and (v)
without limiting the generality of the foregoing,  the Borrower shall, following
determination by the Bank that there is  non-compliance,  or any condition which
requires any action by or on behalf of the Borrower or any  Subsidiary  in order
to avoid any non-compliance,  with any Environmental Law, at the Borrower's sole
expense,  cause an independent  environmental engineer acceptable to the Bank to
conduct  such tests of the  relevant  site as are  appropriate,  and prepare and

                                       19
<PAGE>

deliver a report  setting  forth the result of such tests,  a proposed  plan for
remediation and an estimate of the costs thereof.

         7.5 Absence of Breach. The execution,  delivery and performance of this
Agreement,  the Loan  Documents  and any other  documents or  instruments  to be
executed and delivered by the Borrower or any Subsidiary in connection  with the
Loans shall not: (i) violate any provisions of law or any applicable regulation,
order,  writ,  injunction or decree of any court or governmental  authority,  or
(ii) conflict with, be inconsistent  with, or result in any breach or default of
any of  the  terms,  covenants,  conditions,  or  provisions  of any  indenture,
mortgage, deed of trust, instrument, document, agreement or contract of any kind
to which the Borrower or any  Subsidiary  is a party or by which the Borrower or
any Subsidiary or any of their respective property or assets may be bound.

         7.6  Collateral  Representations.  The  Borrower or, in the case of the
Mortgaged Premises, a Subsidiary, is the sole owner of the Collateral, free from
any Lien of any kind, other than the Lien of the Bank and the Liens permitted by
Section 8.2 of this Agreement.

         7.7 Financial  Statements.  All financial  statements  submitted to the
Bank have been prepared in accordance with GAAP on a basis,  except as otherwise
noted therein, consistent with the previous fiscal year and truly and accurately
reflect  the   consolidated   financial   condition  of  the  Borrower  and  its
Subsidiaries and the consolidated results of the operations for the Borrower and
its Subsidiaries as of such date and for the periods  indicated.  Since the date
of the most recent  financial  statement  submitted by the Borrower to the Bank,
there has been no material  adverse change in the financial  condition or in the
consolidated assets or liabilities of the Borrower and its Subsidiaries,  or any
changes except those occurring in the ordinary course of business.

         7.8  Litigation  and Taxes.  There is no  litigation,  demand,  charge,
claim,  petition or governmental  investigation or proceeding pending, or to the
best  knowledge of the  Borrower,  threatened,  against the Borrower  and/or any
Subsidiary, which, if adversely determined, would result in any material adverse
change in the financial  condition or properties,  business or operations of the
Borrower or  Subsidiary.  The Borrower and each  Subsidiary  have duly filed all
applicable  income or other tax returns and to the best  knowledge  of Borrower,
have  paid all  income  or other  taxes  when due.  There is no  controversy  or
objection  pending,  or to the best  knowledge of the  Borrower,  threatened  in
respect  of any tax  returns  of the  Borrower  or any  Subsidiary,  except  for
extensions of time and pending  audits being  conducted by certain state revenue
departments in the ordinary course of business,  none of which is (are) expected
to result in any material liability, either singly or in the aggregate.

         7.9  Event  of  Default.  No  Event  of  Default  has  occurred  and is
continuing, and no event has occurred and is continuing which, with the lapse of
time, the giving of notice,  or both,  would constitute such an Event of Default
under this  Agreement or any of the Loan  Documents and neither the Borrower nor
any Subsidiary is in default (without regard to grace or cure periods) under any
contract or agreement to which it is a party.

         7.10 ERISA  Obligations.  All  Employee  Plans of the  Borrower and its
Subsidiaries  meet the minimum  funding  standards of Section 302 of ERISA where
applicable  and each such Employee Plan that is intended to be qualified  within

                                       20
<PAGE>

the meaning of Section 401 of the Internal Revenue Code of 1986 is qualified. No
withdrawal  liability  has been incurred  under any such  Employee  Plans and no
"Reportable  Event" or  "Prohibited  Transaction"  (as such terms are defined in
ERISA), has occurred with respect to any such Employee Plans, unless approved by
the  appropriate  governmental  agencies.  The Borrower and each Subsidiary have
promptly paid and discharged all obligations  and liabilities  arising under the
Employee  Retirement  Income Security Act of 1974 ("ERISA") of a character which
if unpaid or unperformed might result in the imposition of a Lien against any of
its properties or assets.

         7.11 Adverse  Circumstances.  To the best  knowledge  of  Borrower,  no
condition,  circumstance,  event, agreement, document, instrument,  restriction,
litigation  or  proceeding  (or  threatened  litigation  or  proceeding or basis
therefor)  exists which (a) could  adversely  affect the validity or priority of
the Liens  granted to the Bank under the Loan  Documents,  (b) could  materially
adversely  affect the ability of the Borrower to perform its  obligations  under
the Loan  Documents,  (c)  would  constitute  a  default  under  any of the Loan
Documents,  or (d) would  constitute such a default with the giving of notice or
lapse of time or both.

         7.12 Lending  Relationship.  The Borrower  acknowledges and agrees that
the  relationship  hereby  created with the Bank is and has been conducted on an
open and arm's length basis in which no fiduciary  relationship  exists and that
the  Borrower  has  not  relied  and  is  not  relying  on  any  such  fiduciary
relationship in executing this Agreement and in consummating the Loans. The Bank
represents  that it will  receive the Note payable to its order as evidence of a
bank loan.

         7.13  Business  Loan.  The Loans,  including  interest  rate,  fees and
charges as contemplated hereby, (i) are business loans within the purview of 815
ILCS 205/4(l)(c), as amended from time to time, (ii) are an exempted transaction
under the Truth In Lending Act, 12 v.S.C.  1601 et seq., as amended from time to
time, and (iii) do not, and when disbursed shall not,  violate the provisions of
the Illinois usury laws, any consumer credit laws or the usury laws of any state
which may have jurisdiction over this transaction,  the Borrower or any property
securing the Loans.

         7.14  Compliance  with  Regulation U. No portion of the proceeds of the
Loans shall
be used by the Borrower,  or any affiliates of the Borrower,  either directly or
indirectly,  for the purpose of purchasing or carrying any margin stock,  within
the meaning of  Regulation U as adopted by the Board of Governors of the Federal
Reserve System.

         7.15  Governmental  Regulation.  The Borrower and its  Subsidiaries are
not, or after  giving  effect to any loan,  will not be,  subject to  regulation
under the Public Utility  Holding  Company Act of 1935, the Federal Power Act or
the  Investment  Company  Act of 1940 or to any  federal  or  state  statute  or
regulation limiting its ability to incur indebtedness for borrowed money.

         7.16 Bank Accounts. All Deposit accounts and other bank accounts of the
Borrower (but not the Subsidiaries) are maintained by Borrower at the Bank.

                                       21
<PAGE>

         7.17 Place of Business. The principal place of business of the Borrower
is 2355 S. Arlington  Heights Road,  Arlington  Heights,  Illinois 60005 and the
Borrower  shall  promptly  notify the Bank of any change in such  location.  The
Borrower  will not  remove or permit  the  Collateral  to be  removed  from such
location  without the prior  written  consent of the Bank,  except for Inventory
sold in the usual and ordinary course of the Borrower's business.

         7.18 Complete Information. This Agreement and all financial statements,
schedules,  certificates,   confirmations,   agreements,  contracts,  and  other
materials  submitted to the Bank in connection  with or in  furtherance  of this
Agreement  by or on behalf of the  Borrower  fully and fairly  state the matters
with which they purport to deal,  and neither  misstate  any material  fact nor,
separately or in the  aggregate,  fail to state any material  fact  necessary to
make the statements made not misleading.

8.       NEGATIVE COVENANTS.
         ------------------

         8.1  Indebtedness.  The Borrower shall not, and shall cause each of its
Subsidiaries  to not, either directly or indirectly,  create,  assume,  incur or
have outstanding any Indebtedness  (including purchase money  indebtedness),  or
become liable, whether as endorser, guarantor, surety or otherwise, for any debt
or obligation of any other Person, except:

               (a)  the Obligations;

               (b)  endorsement  for  collection  or deposit  of any  commercial
                    paper secured in the ordinary course of business;

               (c)  obligations of the Borrower or any of its  Subsidiaries  for
                    taxes, assessments, municipal or other governmental charges;

               (d)  obligations of the Borrower or any of its  Subsidiaries  for
                    accounts payable, other than for money borrowed, incurred in
                    the ordinary course of business; and

               (e)  obligations,  including  the Senior  Mortgage  Indebtedness,
                    existing  on the date  hereof  which  are  disclosed  on the
                    financial statements referred to in Section 7;

               (f)  obligations in respect of  Indebtedness  issued to refinance
                    the Senior Mortgage  Indebtedness  (the "Senior  Refinancing
                    Indebtedness"); provided, however, that the issuance of such
                    Senior Refinancing Indebtedness shall not cause or result in
                    a violation of any covenant set forth in Section 10;

               (g)  obligations in respect of Indebtedness  secured by a Lien on
                    any Other  Property  developed by Borrower or any Subsidiary
                    (i) after the sales by  Borrower  or its  Subsidiary  of the
                    Kenton,  Ohio and Fontana,  California  hotel properties (or
                    the sale of other hotel properties generating  substantially
                    equivalent net proceeds of sale,  after  repayment of Senior

                                       22
<PAGE>

                    Mortgage  Indebtedness  thereon  and  costs  of sale of such
                    properties)  or (ii)  in  connection  with a  joint  venture
                    project in which  Borrower  and/or any  Subsidiary  own less
                    than  fifty  percent  (50%)  of  the  equity  interests  and
                    Borrower  is  the  project  developer;   provided  that  the
                    issuance of such Indebtedness shall not cause or result in a
                    violation of any covenant set forth in Section 10;

               (h)  obligations   arising  under  Capital  Leases  for  property
                    acquired  (or deemed to be  acquired) by the Borrower or any
                    of its  Subsidiaries  or claims arising from the use or loss
                    of, or damage to, such property; and

               (i)  Indebtedness   for  Capital   Expenditures   (exclusive   of
                    Indebtedness  as  incurred  by a Lien on any Other  Property
                    permitted  under Section  8.1(g) above)  incurred  after the
                    date of this  Agreement not to exceed One Million and 00/100
                    Dollars ($1,000,000.00) in the aggregate in any one calendar
                    year.

         8.2  Encumbrances.  The Borrower shall not, and shall cause each of its
Subsidiaries  to not, either directly or indirectly,  create,  assume,  incur or
suffer or permit to exist any Lien or charge of any kind or  character  upon any
asset of the  Borrower or any  Subsidiary,  whether  owned at the date hereof or
hereafter acquired except:

                    (a)  Liens  for  taxes,  assessments  or other  governmental
                         charges  not yet due or which  are being  contested  in
                         good faith by appropriate  proceedings in such a manner
                         as not to make the property forfeitable;

                    (b)  Liens  or  charges  incidental  to the  conduct  of its
                         business or the  ownership  of its  property and assets
                         which  were  not  incurred  in   connection   with  the
                         borrowing  of money or the  obtaining  of an advance or
                         credit,  and which do not in the  aggregate  materially
                         detract  from the  value of its  property  or assets or
                         materially  impair the use thereof in the  operation of
                         its business;

                    (c)  Liens  arising out of judgments  or awards  against the
                         Borrower  with  respect to which it shall  concurrently
                         therewith be  prosecuting a timely appeal or proceeding
                         for  review  and with  respect  to which it shall  have
                         secured  a stay of  execution  pending  such  appeal or
                         proceedings for review;

                    (d)  pledges  or  deposits  to  secure   obligations   under
                         worker's compensation laws or similar legislation;

                    (e)  good  faith   deposits  in   connection   with  lending
                         contracts or leases to which the Borrower is a party;

                    (f)  deposits to secure public or statutory  obligations  of
                         the Borrower;

                                       23
<PAGE>

                    (g)  Liens, including the Senior Mortgages,  existing on the
                         date hereof and disclosed on the  financial  statements
                         referred to in Section 7;

                    (h)  Liens  securing  obligations  permitted  under  Section
                         8.1(f), Section 8.1(g) and/or Section 8.1(h); and

                    (i)  Liens granted to the Bank.

         Without  limiting the generality of the foregoing,  Borrower shall not,
and  shall  cause  each  Subsidiary  not  to,  mortgage  or  otherwise  encumber
Borrower's  or such  Subsidiary's  fee or  leasehold  interest in any  Mortgaged
Premises or Other Property, except as expressly permitted pursuant to (g) or (h)
above or as consented to by the Bank in writing.

         8.3  Investments.   The  Borrower  shall  not,  and  shall  cause  each
Subsidiary to not, either directly or indirectly,  make or have  outstanding any
new investments  (whether through purchase of stocks,  obligations or otherwise)
in, or loans or advances to, any other Person, or acquire all or any substantial
part of the assets, business, stock or other evidence of beneficial ownership of
any other Person except:

                    (a)  investments in direct obligations of the United States;

                    (b)  investments  in  certificates  of deposit issued by the
                         Bank or any bank with assets  greater  than One Hundred
                         Million Dollars ($100,000,000.00); or

                    (c)  investments  in Prime  Commercial  Paper (for  purposes
                         hereof,  Prime  Commercial  Paper shall mean short-term
                         unsecured  promissory notes sold by large  corporations
                         and rated A-I/P-1 by Standard & Poor's Ratings Group, a
                         division of McGraw Hill,  Inc., and Moody's  Investment
                         Service, Inc.); or

                    (d)  deposits  held by the Bank or by any  affiliate  of ABN
                         AMRO Incorporated.

         Without limiting the generality of the foregoing,  except in connection
with a joint venture  project in which Borrower  and/or any Subsidiary owns less
than fifty percent (50%) of the equity  interests and Borrower is the developer,
Borrower shall not, and shall cause each Subsidiary not to invest in or commence
development of any new hotel  property(ies)  until the sale by Borrower and/or a
Subsidiary of the Kenton, Ohio and Fontana,  California hotel properties (or the
sale of other hotel properties generating  substantially equivalent net proceeds
of sale,  after repayment of Senior Mortgage  Indebtedness  thereon and costs of
sale of such properties).

         8.4  Transfer;  Merger.  The  Borrower  shall not, and shall cause each
Subsidiary to not,  either  directly or indirectly,  merge,  consolidate,  sell,
transfer,  license,  lease,  encumber or otherwise dispose of all or any part of
its property or business or all or any substantial  part of its assets,  or sell
or discount  (with or without  recourse) any of its  Promissory  Notes,  Chattel
Paper,  Payment Intangibles or Accounts,  except that Borrower or any Subsidiary
may sell one or more hotel  properties  in  accordance  with the  provisions  of
Sections 6.10 and 6.11.

                                       24
<PAGE>

         8.5  Distributions.  Except for  purchases  of  Borrower's  stock in an
amount not to exceed One Million Dollars  ($1,000,000.00)  in any fiscal year of
Borrower, none of which,  individually or in the aggregate would cause or result
in the  occurrence  of an Event of  Default,  the  Borrower  shall  not,  either
directly or  indirectly,  purchase or redeem any shares of its stock or,  except
with the prior  written  consent  of the  Bank,  declare  or pay any  dividends,
whether  in cash or  otherwise,  or set aside any funds for any such  purpose or
make any distribution to its shareholders.

         8.6 Use of Proceeds.  Neither the Borrower nor any of its  Subsidiaries
or  affiliates  shall use any  portion  of the  proceeds  of the  Loans,  either
directly  or   indirectly,   for  the  purpose  of  purchasing   any  securities
underwritten by ABN AMRO Incorporated, an affiliate of the Bank.

         8.7 Bank  Accounts.  The  Borrower  shall  not,  and shall  cause  each
Subsidiary to not,  establish any new Deposit  accounts or other bank  accounts,
other than local bank accounts  maintained by the  Subsidiaries or bank accounts
established at or with the Bank without the prior written consent of the Bank.

         8.8 Change of Legal  Status.  Neither the Borrower  nor any  Subsidiary
which  is a party  to any of the Loan  Documents  shall  change  its  name,  its
organizational  identification  number, if it has one, its type of organization,
its  jurisdiction of  organization  or other legal  structure  without the prior
written consent of the Bank.

9.       AFFIRMATIVE COVENANTS.
         ---------------------

         9.1 Compliance  with Bank Regulatory  Requirements.  Upon demand by the
Bank,  the Borrower  shall  reimburse the Bank for the Bank's  additional  costs
and/or  reductions in the amount of principal or interest received or receivable
by the Bank if at any time after the date of this  Agreement any law,  treaty or
regulation or any change in any law, treaty or regulation or the  interpretation
thereof by any governmental authority charged with the administration thereof or
any  central  bank  or  other  fiscal,   monetary  or  other  authority   having
jurisdiction over the Bank or the Loans, whether or not having the force of law,
shall impose, modify or deem applicable any reserve (except reserve requirements
taken into account in  calculating  the Revolving  Interest Rate) and/or special
deposit  requirement  against or in respect of assets  held by or deposits in or
for the  account  of the  Loans by the  Bank or  impose  on the  Bank any  other
condition with respect to this Agreement or the Loans, the result of which is to
either  increase the cost to the Bank of making or  maintaining  the Loans or to
reduce the amount of principal or interest  received or  receivable  by the Bank
with respect to such Loans.  Said  additional  costs and/or  reductions  will be
those which directly result from the imposition of such requirement or condition
on the making or  maintaining  of such  Loans.  All Loans  shall be deemed to be
match  funded for the  purposes  of the  Bank's  determination  in the  previous
sentence.  Notwithstanding the foregoing,  the Borrower shall not be required to
pay any such  additional  costs  which  could be  avoided  by the Bank  with the
exercise of reasonable conduct and diligence.

         9.2  Corporate  Existence.  The  Borrower  shall,  and shall cause each
Subsidiary  to, at all times  preserve  and maintain  its  corporate  existence,
rights,  franchises and  privileges,  and shall at all times continue as a going
concern in the  business  which the  Borrower or such  Subsidiary  is  presently
conducting.  If the Borrower does not have a state issued  identification number

                                       25
<PAGE>

and later  obtains  one,  the Borrower  shall  promptly  notify the Bank of such
organizational identification number.

         9.3  Maintain  Property.  The  Borrower  shall,  and shall  cause  each
Subsidiary to, at all times  maintain,  preserve and keep its plant,  properties
and Equipment,  including,  but not limited to, any Collateral,  in good repair,
working  order and  condition,  and shall from time to time make all needful and
proper repairs,  renewals,  replacements,  and additions  thereto so that at all
times the  efficiency  thereof  shall be fully  preserved  and  maintained.  The
Borrower  shall,  and shall cause each Subsidiary to, permit the Bank to examine
and inspect such plant, properties and Equipment, including, but not limited to,
any Collateral, at all reasonable times.

         9.4  Maintain  Insurance.  The  Borrower  shall,  and shall  cause each
Subsidiary  to, at all times  insure  and keep  insured in  insurance  companies
acceptable  to the  Bank,  all  insurable  property  owned  by it  which is of a
character  usually  insured by companies  similarly  situated and operating like
properties,  against loss or damage from fire and such other hazards or risks as
are customarily  insured against by companies  similarly  situated and operating
like properties; and shall similarly insure employers',  public and professional
liability risks. Prior to the date of the funding of the Note the Borrower shall
deliver to the Bank a  certificate  setting forth in summary form the nature and
extent of the insurance maintained by the Borrower and its Subsidiaries pursuant
to this SECTION 9. All such policies of insurance  must be  satisfactory  to the
Bank in relation to the amount and term of the Obligations and type and value of
the  Collateral and assets of the Borrower and each  Subsidiary,  shall identify
the Bank as lender's loss payee or mortgagee and as an  additional  insured.  In
the event the  Borrower  either  fails to provide the Bank with  evidence of the
insurance  coverage required by this Section or at any time hereafter shall fail
to obtain or maintain any of the policies of insurance required above, or to pay
any premium in whole or in part relating thereto, then the Bank, without waiving
or releasing  any  obligation or default by the Borrower  hereunder,  may at any
time (but shall be under no  obligation  to so act),  obtain and  maintain  such
policies  of  insurance  and pay such  premium  and take any other  action  with
respect  thereto,  which the Bank deems advisable.  This insurance  coverage (i)
may, but need not, protect the Borrower's and each Subsidiary's  interest in the
such property,  including,  but not limited to the Collateral,  and (ii) may not
pay any claim made by, or against,  the Borrower or any Subsidiary in connection
with such property,  including, but not limited to the Collateral.  The Borrower
may later  cancel  any such  insurance  purchased  by the Bank,  but only  after
providing  the Bank with  evidence  that the Borrower has obtained the insurance
coverage required by this Section.  The costs of such insurance  obtained by the
Bank,  through and  including  the  effective  date such  insurance  coverage is
canceled  or  expires,  shall be payable on demand by the  Borrower to the Bank,
together  with interest at the Default Rate on such amounts until repaid and any
other  charges by the Bank in connection  with the placement of such  insurance.
The costs of such  insurance,  which may be greater  than the cost of  insurance
which the  Borrower  may be able to obtain on its own,  together  with  interest
thereon at the Default Rate and any other charges by the Bank in connection with
the placement of such  insurance may be added to the total  Obligations  due and
owing.

         9.5  Tax  Liabilities.   The  Borrower  shall,  and  shall  cause  each
Subsidiary  to, at all times pay and  discharge  all  property  and other taxes,
assessments and governmental  charges upon, and all claims (including claims for
labor,  materials and supplies)  against the Borrower and each Subsidiary or any
of its  properties,  Equipment  or  Inventory,  before  the  same  shall  become

                                       26
<PAGE>

delinquent and before  penalties  accrue thereon,  unless and to the extent that
the same are being  contested in good faith by appropriate  proceedings  and are
insured against or bonded over to the satisfaction of the Bank.

         9.6 ERISA  Liabilities;  Employee Plans.  The Borrower shall, and shall
cause each Subsidiary to, (i) keep in full force and effect any and all Employee
Plans which are  presently  in existence  or may,  from time to time,  come into
existence  under ERISA,  and not withdraw from any such Employee  Plans,  unless
such withdrawal can be effected or such Employee Plans can be terminated without
liability to the Borrower or any Subsidiary;  (ii) make  contributions to all of
such Employee Plans in a timely manner and in a sufficient amount to comply with
the standards of ERISA;  including the minimum funding standards of ERISA; (iii)
comply with all material  requirements  of ERISA which  relate to such  Employee
Plans;  (iv) notify the Bank  immediately  upon  receipt by the  Borrower or any
Subsidiary of any notice  concerning the imposition of any withdrawal  liability
or of the  institution of any proceeding or other action which may result in the
termination  of any such  Employee  Plans or the  appointment  of a  trustee  to
administer such Employee  Plans;  (v) promptly advise the Bank of the occurrence
of any "Reportable Event" or "Prohibited Transaction" (as such terms are defined
in ERISA),  with respect to any such Employee Plans; and (vi) amend any Employee
Plan that is intended to be  qualified  within the meaning of Section 401 of the
Internal  Revenue Code of 1986 to the extent necessary to keep the Employee Plan
qualified,  and to cause the Employee Plan to be administered  and operated in a
manner that does not cause the Employee Plan to lose its qualified status.

         9.7  Financial  Statements.  The Borrower  shall,  and shall cause each
Subsidiary to, at all times maintain a standard and modern system of accounting,
on the accrual basis of accounting and in all respects in accordance  with GAAP,
and shall furnish to the Bank or its authorized representatives such information
regarding  the  business  affairs,  operations  and  financial  condition of the
Borrower and its Subsidiaries, including, but not limited to:

                    (a)  as soon as available,  and in any event,  within ninety
                         (90) days after the close of each of its fiscal  years,
                         a copy of the  annual  audited  consolidated  financial
                         statements  of  the  Borrower  and  its   Subsidiaries,
                         including  balance  sheet,   statement  of  income  and
                         retained  earnings,  statement  of cash  flows  for the
                         fiscal  year  then  ended  and such  other  information
                         (including  nonfinancial  information)  as the Bank may
                         request,  in reasonable detail,  prepared and certified
                         by   an   independent   certified   public   accountant
                         acceptable  to  the  Bank,  containing  an  unqualified
                         opinion; and

                    (b)  as soon as  available,  and in any event,  within forty
                         five  (45)  days  following  the  end  of  each  fiscal
                         quarter,   a  copy   of  the   consolidated   financial
                         statements   of  the  Borrower  and  its   Subsidiaries
                         regarding such fiscal quarter, including balance sheet,
                         statement of income and retained earnings, statement of
                         cash flows for the fiscal  quarter  then ended and such
                         other information (including nonfinancial  information)

                                       27
<PAGE>

                         as the Bank may request, in reasonable detail, prepared
                         and certified as accurate by the Borrower.

         No change with respect to such accounting  principles  shall be made by
the  Borrower  without  giving  prior  notification  to the Bank.  The  Borrower
represents and warrants to the Bank that the financial  statements  delivered to
the Bank at or prior to the execution  and delivery of this  Agreement and to be
delivered at all times thereafter accurately reflect and will accurately reflect
the consolidated  financial condition of the Borrower and its Subsidiaries.  The
Bank  shall have the right at all times  during  business  hours to inspect  the
books and records of the  Borrower  and make  extracts  therefrom.  The Borrower
agrees to advise the Bank  immediately  of any adverse  change in the  financial
condition, the operations or any other status of the Borrower.

         9.8 Supplemental  Financial Statements.  The Borrower shall immediately
upon  receipt  thereof,  provide to the Bank copies of interim and  supplemental
reports  if  any,  submitted  to the  Borrower  by  independent  accountants  in
connection  with any interim audit or review of the books of the Borrower or any
Subsidiary.

         9.9 Covenant  Compliance Report. The Borrower shall, within thirty (30)
days after the end of each fiscal quarter, deliver to the Bank (a) a computation
in such detail as the Bank shall  specify,  showing  compliance  by the Borrower
with the covenants  set forth in SECTION 10, and (b) a certificate  that neither
the  Borrower  nor any  Subsidiary  is in  default  under  the  terms  of or has
otherwise  breached  the terms of any of the Senior  Mortgages  or received  any
notice(s) with respect to a default or breach of any of the  foregoing,  in each
case  certified as accurate by the  Borrower.  9.10 Field  Audits.  The Borrower
shall allow the Bank, at the Borrower's sole expense, to conduct an annual field
examination of the Accounts of the Borrower and its Subsidiaries, the results of
which  must  be  satisfactory  to the  Bank  in the  Bank's  sole  and  absolute
discretion.

         9.11 Other Reports.  The Borrower shall,  within such period of time as
the Bank may specify deliver to the Bank such other schedules and reports as the
Bank may require.

         9.12  Collateral  Records.  Borrower shall keep full and accurate books
and records  relating to the Collateral and shall mark such books and records to
indicate the Bank's Lien in the Collateral.

         9.13 Notice of  Proceedings.  The  Borrower  shall,  immediately  after
knowledge  thereof  shall  have  come to the  attention  of any  officer  of the
Borrower,  give written notice to the Bank of all threatened or pending actions,
suits, and proceedings before any court or governmental department,  commission,
board or other  administrative  agency  which may have a material  effect on the
business, property or operations of the Borrower or any Subsidiary.

         9.14 Notice of  Default.  The  Borrower  shall,  immediately  after the
commencement thereof, give notice to the Bank in writing of the occurrence of an
Event of Default or of any event  which,  with the lapse of time,  the giving of
notice or both, would constitute an Event of Default hereunder.

                                       28
<PAGE>

         9.15 Banking  Relationship.  The Borrower  covenants and agrees, at all
times during the term of this Agreement, to utilize the Bank as its primary bank
of account and  depository for all financial  services,  including all receipts,
disbursements,  cash  management  and  related  service,  of  Borrower  and  its
Subsidiaries.

10.      FINANCIAL COVENANTS.
         -------------------

         10.1 Tangible Net Worth. As of the end of each of its fiscal  quarters,
the Borrower and its Subsidiaries shall maintain consolidated Tangible Net Worth
in an amount not less than Nine Million Five Hundred Thousand and 00/100 Dollars
($9,500,000.00).

         10.2 Total  Liabilities  to Worth.  As of the end of each of its fiscal
quarters,  the Borrower and its Subsidiaries  shall maintain a Total Liabilities
to Worth Ratio of not greater than the following:

               Fiscal Quarter Ended             Total Liabilities to Worth
               --------------------             --------------------------

               March 31, 2003                            3.75 to 1.0

               June 30, 2003                             3.75 to 1.0

               September 30, 2003                        3.75 to 1.0

               December 31, 2003                         3.50 to 1.0

               March 31, 2004                            3.50 to 1.0

         10.3 Debt Service  Coverage  Ratio. As of the end of each of its fiscal
quarters,  the  Borrower  and its  Subsidiaries  shall  maintain  a ratio of (a)
consolidated  EBITDA to (b)  consolidated  Debt Service Charges of not less than
1.20 to 1.0,  measured on a trailing twelve (12) month basis for the twelve (12)
fiscal month period immediately preceding the end of such fiscal quarter.

         10.4  Aggregate  Loan-to-Value  Ratio.  The Bank may from  time to time
order reappraisals on any of the Mortgaged  Premises and/or appraisals,  in form
and  substance  acceptable  to  the  Bank,  on  any  one or  more  of the  Other
Properties.  At all times, the Borrower and its  Subsidiaries  shall maintain an
aggregate Loan-to-Value Ratio for the Mortgaged Properties, as determined by the
Bank, not exceeding sixty-five percent (65%).

         10.5 Aggregate Revenue Per Room. As of the end of each month, aggregate
gross room  receipts for all hotel  properties  owned solely by any Wholly Owned
Subsidiary  shall not have  declined as of two  consecutive  months' end by more
than five percent (5%) from the aggregate  gross room receipts  attributable  to
the same hotel rooms as of the end of the two (2) immediately  preceding  fiscal
months' end.

                                       29
<PAGE>

         10.6  Annual Net  Income.  Borrower's  Net  Income for the fiscal  year
ending  December 31, 2003 shall be no less than Two Hundred and 00/100  Thousand
Dollars ($200,000.00).

11.      EVENTS OF DEFAULT.
         -----------------

         The Borrower, without notice or demand of any kind, shall be in default
under this Agreement upon the occurrence of any of the following events (each an
"Event of Default").

         11.1 Nonpayment of Obligations. Any amount due and owing on the Note or
any of the Obligations, whether by its terms or as otherwise provided herein, is
not paid  within ten (10) days after  notice  from the Bank that such amount was
not paid when due.

         11.2 Misrepresentation.  Any oral or written warranty,  representation,
certificate  or statement  in this  Agreement,  the Loan  Documents or any other
agreement with the Bank shall be false when made or at any time.

         11.3  Nonperformance.   Any  failure  to  perform  or  default  in  the
performance of any covenant,  condition or agreement contained in this Agreement
and,  if  capable  of being  cured,  such  failure  to  perform  or  default  in
performance  continues  for a period of  thirty  (30)  days  after the  Borrower
receives  notice or  knowledge  from any  source of such  failure  to perform or
default in performance.

         11.4 Default under Loan Documents. A default by Borrower or any Obligor
under any of the other Loan  Documents,  which  continues  beyond any applicable
grace  or  cure  period,  all of  which  covenants,  conditions  and  agreements
contained  therein  are  hereby   incorporated  in  this  Agreement  by  express
reference,  shall be and constitute an Event of Default under this Agreement and
any other of the Obligations.

         11.5  Default  under  Other  Agreements.  Any default in the payment of
principal,  interest or any other sum for any other obligation beyond any period
of grace provided with respect  thereto or in the performance of any other term,
condition or covenant contained in any agreement (including,  but not limited to
any capital or operating  lease or any agreement in connection with the deferred
purchase  price of property)  under which any such  obligation  is created,  the
effect of which default is to cause or permit the holder of such  obligation (or
the other party to such other  agreement) to cause such obligation to become due
prior to its stated maturity or terminate such other agreement.

         11.6 Assignment for Creditors.  Any Obligor makes an assignment for the
benefit of  creditors,  fails to pay, or admits in writing its  inability to pay
its debts as they mature;  or if a trustee of any substantial part of the assets
of any  Obligor is applied  for or  appointed,  and in the case of such  trustee
being appointed in a proceeding  brought against such Obligor,  the Obligor,  by
any  action  or  failure  to act  indicates  its  approval  of,  consent  to, or
acquiescence in such appointment and such appointment is not vacated,  stayed on
appeal or otherwise  shall not have ceased to continue in effect  within  thirty
(30) days after the date of such appointment.

         11.7 Bankruptcy.  Any proceeding involving any Obligor, is commenced by
or against  such  Obligor  under any  bankruptcy,  reorganization,  arrangement,
insolvency,  readjustment of debt,  dissolution or liquidation law or statute of

                                       30
<PAGE>

the  federal  government  or any state  government,  and in the case of any such
proceeding  being  instituted  against such Obligor,  (i) such  Obligor,  by any
action or failure to act indicates its approval of,  consent to or  acquiescence
therein,  or (ii) an order  shall be  entered  approving  the  petition  in such
proceedings  and such order is not vacated,  stayed on appeal or otherwise shall
not have ceased to continue  in effect  within  thirty (30) days after the entry
thereof.

         11.8 Judgments.  The entry of any judgment,  decree, levy,  attachment,
garnishment  or other  process,  or the filing of any Lien  against  any Obligor
which is not fully  covered by  insurance,  and such  judgment or other  process
shall not have been, within thirty (30) days from the entry thereof,  (i) bonded
over to the  satisfaction  of the  Bank and  appealed,  (ii)  vacated,  or (iii)
discharged.

         11.9  Change in  Control.  Subject to Section  6.11  hereof,  any sale,
conveyance,  assignment  or  other  transfer,  directly  or  indirectly,  of any
ownership  interest  of the  Borrower  in any  Subsidiary  which owns any of the
Mortgaged Premises.

         11.10  Collateral  Impairment.  (a) The entry of any judgment,  decree,
levy,  attachment,  garnishment  or other  process,  or the  filing  of any Lien
against,  any of the  Collateral  or any  collateral  under a separate  security
agreement  securing any of the  Obligations  and such  judgment or other process
shall not have been, within thirty (30) days from the entry thereof,  (i) bonded
over to the  satisfaction  of the  Bank and  appealed,  (ii)  vacated,  or (iii)
discharged, or (b) the loss, theft,  destruction,  seizure or forfeiture, or the
occurrence of any deterioration or impairment of any of the Collateral or any of
the collateral under any security agreement securing any of the Obligations,  or
any decline or depreciation in the value or market price thereof (whether actual
or reasonably anticipated),  which causes the Collateral, in the sole opinion of
the  Bank  acting  in good  faith,  to  become  unsatisfactory  as to  value  or
character,  or which causes the Bank to  reasonably  believe that it is insecure
and that the  likelihood  for  repayment of the  Obligations  is or will soon be
impaired,  time  being  of the  essence,  which  loss,  deterioration,  decline,
depreciation, or other source of insecurity or impairment continues for a period
of thirty (30) days after the Borrower  receives  written  notice from the Bank.
The cause of such  deterioration,  impairment,  decline  or  depreciation  shall
include, but is not limited to, the failure by the Borrower to do any act deemed
necessary by the Bank to preserve and maintain the value and  collectability  of
the Collateral.

12.      REMEDIES.
         --------

         Upon the  occurrence  of an Event of  Default,  the Bank shall have all
rights,  powers and  remedies  set forth in the Loan  Documents,  in any written
agreement  or  instrument  (other  than this  Agreement  or the Loan  Documents)
relating to any of the  Obligations  or any security  therefor,  or as otherwise
provided at law or in equity.  Without limiting the generality of the foregoing,
the Bank may, at its option upon the occurrence of an Event of Default,  declare
its  commitments  to the Borrower to be  terminated  and all  Obligations  to be
immediately due and payable,  provided,  however, that upon the occurrence of an
Event of Default  under either  Section 11.6,  "Assignment  for  Creditors",  or
Section 11.7,  "Bankruptcy",  all  commitments of the Bank to the Borrower shall
immediately  terminate  and  all  Obligations  shall  be  automatically  due and
payable,  all without  demand,  notice or further action of any kind required on

                                       31
<PAGE>

the part of the  Bank.  The  Borrower  hereby  waives  any and all  presentment,
demand,  notice of  dishonor,  protest,  and all other  notices  and  demands in
connection with the  enforcement of Bank's rights under the Loan Documents,  and
hereby consents to, and waives notice of release, with or without consideration,
of any  Collateral,  notwithstanding  anything  contained  herein or in the Loan
Documents to the contrary. In addition to the foregoing:

         12.1  Possession  and  Assembly of  Collateral.  The Bank may,  without
notice,  demand or legal process of any kind,  take  possession of any or all of
the  Collateral  (in  addition  to  Collateral  of which  the Bank  already  has
possession),  wherever it may be found, and for that purpose may pursue the same
wherever  it may be found,  and may enter  into any of the  Borrower's  premises
where any of the  Collateral  may be or is supposed to be, and search for,  take
possession of, remove, keep and store any of the Collateral until the same shall
be sold or otherwise  disposed of and the Bank shall have the right to store the
same in any of the Borrower's  premises  without cost to the Bank. At the Bank's
request,  the  Borrower  will,  at the  Borrower's  sole  expense,  assemble the
Collateral  and  make  it  available  to the  Bank at a place  or  places  to be
designated  by the  Bank  which  is  reasonably  convenient  to the Bank and the
Borrower.

         12.2 Sale of Collateral. The Bank may sell any or all of the Collateral
at public or private sale,  upon such terms and  conditions as the Bank may deem
proper, and the Bank may purchase any or all of the Collateral at any such sale.
The Bank may  apply the net  proceeds,  after  deducting  all  costs,  expenses,
attorneys' and paralegals'  fees incurred or paid at any time in the collection,
protection and sale of the Collateral and the Obligations, to the payment of the
Note and/or any of the other Obligations, returning the excess proceeds, if any,
to the  Borrower.  The  Borrower  shall remain  liable for any amount  remaining
unpaid after such  application,  with  interest.  Any  notification  of intended
disposition  of the  Collateral  required  by law shall be  conclusively  deemed
reasonably  and  properly  given if given by the Bank at least five (5) calendar
days before the date of such disposition. The Borrower hereby confirms, approves
and ratifies all acts and deeds of the Bank relating to the foregoing,  and each
part thereof.

         12.3 Standards for Exercising  Remedies.  To the extent that applicable
law imposes duties on the Bank to exercise remedies in a commercially reasonable
manner,  the  Borrower  acknowledges  and  agrees  that  it is not  commercially
unreasonable  for the  Bank  (a) to fail to  incur  expenses  reasonably  deemed
significant by the Bank to prepare  Collateral  for  disposition or otherwise to
complete raw material or  work-in-process  into finished goods or other finished
products for disposition.  (b) to fail to obtain third party consents for access
to  Collateral to be disposed of, or to obtain or, if not required by other law,
to fail to obtain  governmental  or third party  consents for the  collection or
disposition  of  Collateral  to be  collected  or  disposed  of,  (c) to fail to
exercise  collection remedies against Account Debtors or other Persons obligated
on  Collateral  or to remove  liens or  encumbrances  on or any  adverse  claims
against Collateral,  (d) to exercise collection remedies against Account Debtors
and other  Persons  obligated  on  Collateral  directly  or  through  the use of
collection  agencies  and  other  collection   specialists,   (e)  to  advertise
dispositions of Collateral through publications or media of general circulation,
whether or not the Collateral is of a specialized  nature,  (f) to contact other
Persons, whether or not in the same business as the Borrower, for expressions of
interest in acquiring all or any portion of the  Collateral,  (g) to hire one or
more  professional  auctioneers  to assist  in the  disposition  of  Collateral,
whether or not the  collateral  is of a  specialized  nature,  (h) to dispose of
Collateral by utilizing Internet sites that provide for the auction of assets of
the types included in the  Collateral or that have the reasonable  capability of

                                       32
<PAGE>

doing so, or that match  buyers and sellers of assets,  (i) to dispose of assets
in wholesale rather than retail markets, (j) to disclaim disposition warranties,
including,  without  limitation,  any  warranties  of  title,  (k)  to  purchase
insurance  or credit  enhancements  to insure  the Bank  against  risks of loss,
collection or  disposition  of Collateral or to provide to the Bank a guaranteed
return from the collection or  disposition  of Collateral,  or (1) to the extent
deemed  appropriate  by the  Bank,  to obtain  the  services  of other  brokers,
investment  bankers,  consultants and other  professionals to assist the Bank in
the  collection  or  disposition  of  any  of  the   Collateral.   The  Borrower
acknowledges  that the  purpose of this  Section  is to  provide  non-exhaustive
indications  of what actions or omissions by the Bank would not be  commercially
unreasonable in the Bank's exercise of remedies  against the Collateral and that
other  actions  or  omissions  by the  Bank  shall  not be  deemed  commercially
unreasonable  solely on account of not being indicated in this Section.  Without
limitation  upon the  foregoing,  nothing  contained  in this  Section  shall be
construed  to grant any  rights to the  Borrower  or to impose any duties on the
Bank  that  would not have been  granted  or  imposed  by this  Agreement  or by
applicable law in the absence of this Section.

         12.4 UCC and Offset Rights.  The Bank may exercise,  from time to time,
any and all rights and remedies available to it under the UCC or under any other
applicable  law in  addition  to, and not in lieu of,  any  rights and  remedies
expressly  granted in this  Agreement  or in any other  agreements  between  any
Obligor and the Bank, and may, without demand or notice of any kind, appropriate
and apply  toward the  payment of such of the  Obligations,  whether  matured or
unmatured,  including costs of collection and attorneys' and  paralegals'  fees,
and in such order of application as the Bank may, from time to time,  elect, any
indebtedness of the Bank to any Obligor, however created or arising,  including,
but not  limited to,  balances,  credits,  deposits,  accounts or moneys of such
Obligor in the possession, control or custody of, or in transit to the Bank. The
Borrower, on behalf of itself and each Obligor, hereby waives the benefit of any
law that  would  otherwise  restrict  or limit the Bank in the  exercise  of its
right,  which is hereby  acknowledged,  to appropriate at any time hereafter any
such indebtedness owing from the Bank to any Obligor.

         12.5 Additional Remedies. The Bank shall have the right and power to:

                    (a)  instruct the  Borrower,  at its own expense,  to notify
                         any  parties   obligated  on  any  of  the  Collateral,
                         including,  but not limited to, any Account Debtors, to
                         make payment directly to the Bank of any amounts due or
                         to  become  due  thereunder,  or the Bank may  directly
                         notify such  obligors of the  security  interest of the
                         Bank,  and/or  of the  assignment  to the  Bank  of the
                         Collateral  and direct such obligors to make payment to
                         the  Bank of any  amounts  due or to  become  due  with
                         respect  thereto,  and  thereafter,  collect  any  such
                         amounts  due  on  the  Collateral  directly  from  such
                         Persons obligated thereon;

                    (b)  enforce collection of any of the Collateral, including,
                         but not limited to, any Accounts, by suit or otherwise,
                         or make any  compromise or  settlement  with respect to
                         any  of  the  Collateral,  or  surrender,   release  or
                         exchange all or any part thereof, or compromise, extend

                                       33
<PAGE>

                         or renew for any period (whether or not longer than the
                         original period) any indebtedness thereunder;

                    (c)  take possession or control of any proceeds and products
                         of any of the  Collateral,  including  the  proceeds of
                         insurance thereon;

                    (d)  extend,  renew  or  modify  for  one  or  more  periods
                         (whether  or not longer than the  original  period) the
                         Note, any other of the  Obligations,  any obligation of
                         any  nature of any other  obligor  with  respect to the
                         Note or any of the Obligations;

                    (e)  grant releases, compromises or indulgences with respect
                         to the Note, any of the  Obligations,  any extension or
                         renewal  of  any  of  the  Obligations,   any  security
                         therefor,  or to any other  obligor with respect to the
                         Note or any of the Obligations;

                    (f)  transfer the whole or any part of securities  which may
                         constitute  Collateral into the name of the Bank or the
                         Bank's  nominee  without  disclosing,  if the  Bank  so
                         desires,   that  such  securities  so  transferred  are
                         subject to the security  interest of the Bank,  and any
                         corporation,  association,  or any of the  managers  or
                         trustees of any trust  issuing any of said  securities,
                         or any transfer  agent,  shall not be bound to inquire,
                         in the event  that the Bank or said  nominee  makes any
                         further  transfer  of said  securities,  or any portion
                         thereof, as to whether the Bank or such nominee has the
                         right to make such further  transfer,  and shall not be
                         liable for transferring the same;

                    (g)  vote the Collateral;

                    (h)  make an election with respect to the  Collateral  under
                         Section  1111 of the  Bankruptcy  Code  or take  action
                         under   Section  364  or  any  other   section  of  the
                         Bankruptcy  Code;  provided,  however,  that  any  such
                         action of the Bank as set forth  herein  shall not,  in
                         any manner  whatsoever,  impair or affect the liability
                         of the Borrower hereunder, nor prejudice, waive, nor be
                         construed  to impair,  affect,  prejudice  or waive the
                         Bank's  rights  and  remedies  at law,  in equity or by
                         statute,  nor release,  discharge,  nor be construed to
                         release or discharge,  the  Borrower,  any guarantor or
                         other  Person  liable to the Bank for the  Obligations;
                         and

                    (i)  at any time,  and from time to time,  accept  additions
                         to, releases, reductions,  exchanges or substitution of
                         the Collateral, without in any way altering, impairing,
                         diminishing   or  affecting  the   provisions  of  this
                         Agreement,  the  Loan  Documents,  or any of the  other
                         Obligations,  or the Bank's rights hereunder, under the
                         Note or under any of the other Obligations.

                                       34
<PAGE>

         The Borrower hereby ratifies and confirms whatever the Bank may do with
respect to the  Collateral  and agrees that the Bank shall not be liable for any
error of judgment or  mistakes of fact or law with  respect to actions  taken in
connection with the Collateral.

         12.6   Attorney-in-Fact.   The  Borrower  hereby   irrevocably   makes,
constitutes  and  appoints  the Bank (and any  officer of the Bank or any Person
designated by the Bank for that purpose) as the Borrower's true and lawful proxy
and  attorney-in-fact  (and  agent-in-fact)  in the Borrower's  name,  place and
stead,  with  full  power of  substitution,  to (i)  take  such  actions  as are
permitted in this  Agreement,  (ii) execute such financing  statements and other
documents  and to do such  other acts as the Bank may  require  to  perfect  and
preserve the Bank's  security  interest in, and to enforce such interests in the
Collateral,  and (iii)  carry out any  remedy  provided  for in this  Agreement,
including, without limitation,  endorsing the Borrower's name to checks, drafts,
instruments  and  other  items  of  payment,  and  proceeds  of the  Collateral,
executing  change of address forms with the postmaster of the United States Post
Office serving the address of the Borrower, changing the address of the Borrower
to that of the  Bank,  opening  all  envelopes  addressed  to the  Borrower  and
applying any payments contained therein to the Obligations.  The Borrower hereby
acknowledges   that  the   constitution   and  appointment  of  such  proxy  and
attorney-in-fact are coupled with an interest and are irrevocable.  The Borrower
hereby ratifies and confirms all that said  attorney-in-fact  may do or cause to
be done by virtue of any provision of this Agreement.

         12.7 No  Marshaling.  The Bank shall not be  required  to  marshal  any
present  or  future  collateral  security  (including  but not  limited  to this
Agreement  and the  Collateral)  for,  or other  assurances  of payment  of, the
Obligations  or any of them or to resort to such  collateral  security  or other
assurances of payment in any  particular  order.  To the extent that it lawfully
may, the Borrower  hereby agrees that it will not invoke any law relating to the
marshaling of collateral which might cause delay in or impede the enforcement of
the Bank's rights under this Agreement or under any other instrument creating or
evidencing  any of the  Obligations  or under  which any of the  Obligations  is
outstanding or by which any of the  Obligations is secured or payment thereof is
otherwise assured,  and, to the extent that it lawfully may, the Borrower hereby
irrevocably waives the benefits of all such laws.

         12.8  Application of Proceeds.  The Bank will within three (3) business
days after  receipt  of cash or  solvent  credits  from  collection  of items of
payment, proceeds of Collateral or any other source, apply the whole or any part
thereof against the Obligations  secured hereby. The Bank shall further have the
exclusive right to determine how, when and what application of such payments and
such credits shall be made on the Obligations,  and such determination  shall be
conclusive upon the Borrower. Any proceeds of any disposition by the Bank of all
or any part of the Collateral may be first applied by the Bank to the payment of
expenses  incurred  by the Bank in  connection  with the  Collateral,  including
attorneys' fees and legal expenses as provided for in SECTION 13 hereof.

         12.9 No Waiver.  No Event of Default shall be waived by the Bank except
in writing. No failure or delay on the part of the Bank in exercising any right,
power or remedy  hereunder shall operate as a waiver of the exercise of the same
or any other right at any other time;  nor shall any single or partial  exercise
of any such  right,  power or  remedy  preclude  any other or  further  exercise
thereof or the exercise of any other  right,  power or remedy  hereunder.  There

                                       35
<PAGE>

shall be no obligation on the part of the Bank to exercise any remedy  available
to the Bank in any order.  The remedies  provided for herein are  cumulative and
not exclusive of any remedies provided at law or in equity.  The Borrower agrees
that in the event that the Borrower  fails to perform,  observe or discharge any
of its Obligations or liabilities  under this Agreement or any other  agreements
with the Bank, no remedy of law will provide  adequate  relief to the Bank,  and
further  agrees  that the Bank shall be  entitled  to  temporary  and  permanent
injunctive  relief in any such case  without  the  necessity  of proving  actual
damages.

13.      MISCELLANEOUS.
         -------------

         13.1  Obligations  Absolute.  None of the  following  shall  affect the
Obligations  of the  Borrower  to the Bank  under this  Agreement  or the Bank's
rights with respect to the Collateral:

                    (a)  acceptance  or retention by the Bank of other  property
                         or  any  interest  in  property  as  security  for  the
                         Obligations;

                    (b)  release  by  the  Bank  of  all  or  any  part  of  the
                         Collateral  or of any party  liable with respect to the
                         Obligations;

                    (c)  release,    extension,    renewal,    modification   or
                         substitution  by the  Bank  of the  Note,  or any  note
                         evidencing any of the Obligations, or the compromise of
                         the liability of the Obligations; or

                    (d)  failure of the Bank to resort to any other  security or
                         to pursue the Borrower or any other obligor  liable for
                         any of the  Obligations  before  resorting  to remedies
                         against the Collateral.

         13.2  Entire  Agreement.  This  Agreement  (i) is  valid,  binding  and
enforceable  against the Borrower and the Bank in accordance with its provisions
and no conditions  exist as to its legal  effectiveness;  (ii)  constitutes  the
entire agreement  between the parties;  and (iii) is the final expression of the
intentions  of the  Borrower  and the Bank.  No  promises,  either  expressed or
implied,  exist between the Borrower and the Bank, unless contained herein. This
Agreement supersedes all negotiations, representations, warranties, commitments,
offers,  contracts (of any kind or nature,  whether oral or written) prior to or
contemporaneous with the execution hereof.

         13.3  Amendments;  Waivers.  No amendment,  modification,  termination,
discharge or waiver of any provision of this Agreement or of the Loan Documents,
or consent to any  departure  by the Borrower  therefrom,  shall in any event be
effective  unless the same shall be in writing and signed by the Bank,  and then
such waiver or consent  shall be  effective  only for the  specific  purpose for
which given.

         13.4  WAIVER OF  DEFENSES.  THE  BORROWER,  ON BEHALF OF ITSELF AND ANY
GUARANTORS OF ANY OF THE  OBLIGATIONS,  WAIVES EVERY PRESENT AND FUTURE DEFENSE,
CAUSE OF  ACTION,  COUNTERCLAIM  OR SETOFF  WHICH THE  BORROWER  MAY NOW HAVE OR
HEREAFTER MAY HAVE TO ANY ACTION BY THE BANK IN ENFORCING  THIS  AGREEMENT.  THE
BORROWER  WAIVES ANY IMPLIED  COVENANT OF GOOD FAITH AND  RATIFIES  AND CONFIRMS
WHATEVER THE BANK MAY DO PURSUANT TO THE TERMS OF THIS AGREEMENT. THIS PROVISION

                                       36

<PAGE>

IS A MATERIAL  INDUCEMENT FOR THE BANK GRANTING ANY FINANCIAL  ACCOMMODATION  TO
THE BORROWER.

         13.5 WAIVER OF JURY TRIAL. THE BANK AND THE BORROWER,  AFTER CONSULTING
OR  HAVING  HAD  THE  OPPORTUNITY  TO  CONSULT  WITH  COUNSEL,  EACH  KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE IRREVOCABLY, THE RIGHT TO TRIAL BY JURY WITH
RESPECT TO ANY LEGAL  PROCEEDING  BASED  HEREON,  OR ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS AGREEMENT,  THE NOTE OR ANY OF THE OTHER  OBLIGATIONS,  THE
COLLATERAL,  OR ANY OTHER  AGREEMENT  EXECUTED OR CONTEMPLATED TO BE EXECUTED IN
CONJUNCTION  WITH THIS AGREEMENT,  OR ANY COURSE OF CONDUCT OR COURSE OF DEALING
IN WHICH THE BANK AND THE  BORROWER  ARE ADVERSE  PARTIES.  THIS  PROVISION IS A
MATERIAL  INDUCEMENT  FOR THE BANK GRANTING ANY FINANCIAL  ACCOMMODATION  TO THE
BORROWER.

         13.6  LITIGATION.  TO INDUCE THE BANK TO MAKE THE LOANS,  THE  BORROWER
IRREVOCABLY AGREES THAT ALL ACTIONS ARISING, DIRECTLY OR INDIRECTLY, AS A RESULT
OR CONSEQUENCE OF THIS AGREEMENT, THE NOTE[S], ANY OTHER AGREEMENT WITH THE BANK
OR THE COLLATERAL, SHALL BE INSTITUTED AND LITIGATED ONLY IN COURTS HAVING THEIR
SITUS IN THE CITY OF CHICAGO,  ILLINOIS.  THE  BORROWER  HEREBY  CONSENTS TO THE
EXCLUSIVE  JURISDICTION AND VENUE OF ANY STATE OR FEDERAL COURT HAVING ITS SITUS
IN SAID CITY,  AND  WAIVES  ANY  OBJECTION  BASED ON FORUM NON  CONVENIENS.  THE
BORROWER HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS AND CONSENTS THAT
ALL SUCH  SERVICE OF  PROCESS  MAY BE MADE BY  CERTIFIED  MAIL,  RETURN  RECEIPT
REQUESTED,  DIRECTED TO THE BORROWER AS SET FORTH HEREIN IN THE MANNER  PROVIDED
BY APPLICABLE STATUTE, LAW, RULE OF COURT OR OTHERWISE.

         13.7  Assignability.  The Bank may at any time assign the Bank's rights
in this Agreement,  the Note, the Obligations,  or any part thereof and transfer
the Bank's rights in any or all of the Collateral, and the Bank thereafter shall
be relieved from all liability with respect to such Collateral. In addition, the
Bank may at any time sell one or more  participations in the Loans. The Borrower
may not sell or assign this  Agreement,  or any other agreement with the Bank or
any portion  thereof,  either  voluntarily  or by operation of law,  without the
prior written consent of the Bank. This Agreement shall be binding upon the Bank
and the Borrower and their respective legal representatives and successors.  All
references  herein to the  Borrower  shall be deemed to include any  successors,
whether immediate or remote. In the case of a joint venture or partnership,  the
term  "Borrower"  shall be deemed to include  all joint  venturers  or  partners
thereof, who shall be jointly and severally liable hereunder.

         13.8  Confidentiality.  The  Borrower  and the Bank  hereby  agree  and
acknowledge  that any and all information  relating to the Borrower which is (i)
furnished  by the Borrower to the Bank (or to any  affiliate  of the Bank),  and
(ii)  non-public,   confidential  or  proprietary  in  nature,   shall  be  kept
confidential  by the Bank or such affiliate in accordance  with  applicable law,
provided,  however,  that such information and other credit information relating
to the Borrower may be  distributed  by the Bank or such affiliate to the Bank's

                                       37
<PAGE>

or such  affiliate's  directors,  officers.  employees,  attorneys,  affiliates,
auditors  and  regulators,  and upon the order of a court or other  governmental
agency having jurisdiction over the Bank or such affiliate,  to any other party.
The Borrower and the Bank further  agree that this  provision  shall survive the
termination of this Agreement.

         13.9  Binding  Effect.  This  Agreement  shall  become  effective  upon
execution  by the  Borrower  and the  Bank.  If this  Agreement  is not dated or
contains  any  blanks  when  executed  by  the  Borrower,  the  Bank  is  hereby
authorized,  without  notice to the Borrower,  to date this  Agreement as of the
date when it was  executed  by the  Borrower,  and to  complete  any such blanks
according to the terms upon which this Agreement is executed.

         13.10  Governing Law. This  Agreement,  the Loan Documents and the Note
shall be  delivered  and  accepted in and shall be deemed to be  contracts  made
under and  governed by the  internal  laws of the State of Illinois  (but giving
effect to federal laws applicable to national banks), and for all purposes shall
be construed in accordance with the laws of such State, without giving effect to
the choice of law provisions of such State.

         13.11  Enforceability.   Wherever  possible,  each  provision  of  this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable  law, but if any provision of this Agreement  shall be prohibited by,
unenforceable or invalid under any jurisdiction, such provision shall as to such
jurisdiction,  be severable and be ineffective to the extent of such prohibition
or invalidity,  without  invalidating the remaining provisions of this Agreement
or  affecting  the  validity or  enforceability  of such  provision in any other
jurisdiction.

         13.12 Survival of Borrower Representations.  All covenants, agreements,
representations   and   warranties   made   by  the   Borrower   herein   shall,
notwithstanding  any  investigation  by the Bank, be deemed  material and relied
upon by the Bank and shall  survive the making and  execution of this  Agreement
and the Loan  Documents and the issuance of the Note[S],  and shall be deemed to
be continuing representations and warranties until such time as the Borrower has
fulfilled  all of its  Obligations  to the  Bank,  and the Bank has been paid in
full.  The Bank,  in extending  financial  accommodations  to the  Borrower,  is
expressly acting and relying on the aforesaid representations and warranties.

         13.13  Extensions of Bank's  Commitment and Note.  This Agreement shall
secure  and  govern  the  terms of any  extensions  or  renewals  of the  Bank's
commitment hereunder and the Note pursuant to the execution of any modification,
extension or renewal  note  executed by the Borrower and accepted by the Bank in
its sole and absolute discretion in substitution for the Note.

         13.14 Time of Essence. Time is of the essence in making payments of all
amounts due the Bank under this Agreement and in the  performance and observance
by the  Borrower  of  each  covenant,  agreement,  provision  and  term  of this
Agreement.

         13.15  Counterparts.  This  Agreement  may be executed in any number of
counterparts and by different parties hereto in separate  counterparts,  each of
which when so executed and  delivered  shall be deemed to be an original and all
of which taken together shall constitute one and the same instrument.

                                       38
<PAGE>

         13.16 Facsimile Signatures.  The Bank is hereby authorized to rely upon
and accept as an original  any Loan  Documents or other  communication  which is
sent to the Bank by  facsimile,  telegraphic  or other  electronic  transmission
(each, a "Communication")  which the Bank in good faith believes has been signed
by  Borrower  and  has  been  delivered  to the  Bank by a  properly  authorized
representative  of the  Borrower,  whether  or not  that  is in fact  the  case.
Notwithstanding  the  foregoing,  the Bank shall not be  obligated to accept any
such  Communication  as an  original  and may in any  instance  require  that an
original  document be  submitted  to the Bank in lieu of, or in addition to, any
such Communication.

         13.17 Notices. Except as otherwise provided herein, the Borrower waives
all notices and demands in connection  with the enforcement of the Bank's rights
hereunder. All notices,  requests, demands and other communications provided for
hereunder  shall be in writing,  sent by certified or registered  mail,  postage
prepaid,  by  facsimile,  telegram or  delivered  in person,  and  addressed  as
follows:

                  If to the Borrower:     Arlington Hospitality, Inc.
                                          2355 South Arlington Heights Road
                                          Arlington Heights, Illinois 60005
                                          Attention: Legal Department

                  If to the Bank:         LaSalle Bank National Association
                                          2355 South Arlington Heights Road
                                          Arlington Heights, Illinois 60005
                                          Attention: Alan L. Clark
                                                     First Vice President

or, as to each party, at such other address as shall be designated by such party
in a written notice to each other party  complying as to delivery with the terms
of this  subsection.  No notice to or demand on the  Borrower  in any case shall
entitle  the  Borrower  to any other or  further  notice or demand in similar or
other circumstances.

         13.18  Indemnification.  The Borrower  agrees to defend  (with  counsel
satisfactory to the Bank), protect, indemnify and hold harmless each Indemnified
Party from and against any and all liabilities,  obligations,  losses,  damages,
penalties,  actions, judgments, suits, claims, costs, expenses and distributions
of any kind or nature (including,  without limitation, the disbursements and the
reasonable fees of counsel for each Indemnified Party thereto,  which shall also
include,  without limitation,  attorneys' fees and time charges of attorneys who
may be employees of the Bank, any parent  corporation or affiliated  corporation
of the Bank),  which may be imposed on,  incurred by, or asserted  against,  any
Indemnified  Party (whether direct,  indirect or consequential and whether based
on  any  federal,  state  or  local  laws  or  regulations,  including,  without
limitation, securities,  Environmental Laws and commercial laws and regulations,
under common law or in equity,  or based on contract or otherwise) in any manner
relating to or arising out of this  Agreement or any of the Loan  Documents,  or
any act, event or transaction  related or attendant  thereto,  the  preparation,
execution and delivery of this Agreement and the Loan Documents,  including, but
not limited to, the making or issuance and  management of the Loans,  the use or
intended use of the proceeds of the Loans,  the enforcement of the Bank's rights
and remedies under this Agreement,  the Loan Documents,  the Note[S],  any other
instruments  and documents  delivered  hereunder,  or under any other  agreement

                                       39
<PAGE>

between the Borrower and the Bank;  provided,  however,  that the Borrower shall
not have any  obligations  hereunder  to any  Indemnified  Party with respect to
matters caused by or resulting from the willful  misconduct or gross  negligence
of such  Indemnified  Party. To the extent that the undertaking to indemnify set
forth in the preceding sentence may be unenforceable because it violates any law
or public  policy,  the Borrower  shall satisfy such  undertaking to the maximum
extent  permitted by applicable law. Any liability,  obligation,  loss,  damage,
penalty,  cost or  expense  covered  by  this  indemnity  shall  be paid to each
Indemnified Party on demand, and, failing prompt payment,  shall,  together with
interest  thereon at the Default Rate from the date incurred by each Indemnified
Party until paid by the Borrower,  be added to the  Obligations  of the Borrower
and be secured by the  Collateral.  The  provisions  of this SECTION 13.18 shall
survive  the  satisfaction  and  payment  of  the  other   Obligations  and  the
termination of this Agreement.

         13.19 Waiver of Existing Defaults. Bank waives Borrower's failure as of
December  31,  2002 to be in  compliance  with  its  covenants  regarding  Total
Liabilities to Net Worth and  consolidated  EBITDA to consolidated  Debt Service
Charges as set forth in  Sections  10.2 and 10.3 of the Loan  Agreement  and any
Event of Default created thereby solely as of such date. This shall be a limited
waiver and shall not constitute a waiver of any subsequent  covenant  violations
or any other  defaults of Borrower,  if any,  not  expressly  described  herein,
whether of a  different  or like  nature,  nor shall it  constitute  a course of
conduct or dealing.

                                       40
<PAGE>

         IN  WITNESS  WHEREOF,  the  Borrower  and the Bank have  executed  this
Amended and  Restated  Loan and  Security  Agreement  as of the date first above
written.

                                         ARLINGTON HOSPITALITY, INC., a Delaware
                                         corporation
ATTEST:

                                         By:
By:                                      Name:
         ---------------------
Name:                                    Title:
         ---------------------
Title:
         ---------------------           and

                                         By:
                                         Name:
                                         Title:

                                         Agreed and accepted:

                                         LASALLE BANK NATIONAL ASSOCIATION,
                                         a national banking association

                                         By:
                                         Name:
                                         Title:

                                       41
<PAGE>

                                    EXHIBIT A
                                    ---------

                              AMENDED AND RESTATED
                              --------------------
                                 REVOLVING NOTE
                                 --------------

                                                         Chicago, Illinois
$6,500,000.00                                            Dated:  April 30, 2003
                                                         Due:  April 30, 2004

                  FOR VALUE RECEIVED,  ARLINGTON  HOSPITALITY,  INC., a Delaware
corporation (together with its respective  successors and assigns,  individually
and collectively, the "Borrower"),  promises to pay to the order of LASALLE BANK
NATIONAL ASSOCIATION, a national banking association (the "Bank"), the principal
sum of SIX MILLION FIVE HUNDRED THOUSAND AND 00/100 DOLLARS ($6,500,000.00), or,
if less, the aggregate  unpaid principal amount of all advances made by the Bank
to the Borrower hereunder, on April 30, 2004.

                  This Note constitutes the Amended and Restated  Revolving Note
issued pursuant to an Amended and Restated Loan and Security  Agreement dated as
of April 30,  2003,  which  amended  and  restated a certain  Loan and  Security
Agreement  dated as of February 1, 2002, as amended by a certain First Amendment
to Loan and Security  Agreement  dated as of August 9, 2002 and a certain Second
Amendment  to  Loan  and  Security  Agreement  dated  as of  December  10,  2002
(collectively,  the "Loan  Agreement") by and between the Borrower and the Bank,
to which Loan  Agreement  reference  is hereby made for a statement of the terms
and conditions  under which the Revolving Loans evidenced hereby may be made and
a description of the terms and conditions upon which this Note may be prepaid in
whole or in part, but shall not  constitute  payment of the Revolving Note dated
February 1, 2002, as replaced by a Substitute  Revolving Note dated December 10,
2002, or constitute a novation thereof.  In case an Event of Default, as defined
in the Loan  Agreement,  shall occur,  the entire  unpaid  principal and accrued
interest may be automatically due and payable or may be declared due and payable
as provided in the Loan Agreement.

                  The unpaid  principal shall bear interest from the date hereof
until  paid as set forth in the Loan  Agreement.  Interest  shall be  payable in
accordance with the terms of the Loan Agreement.

                  This Note is subject to optional and  mandatory  prepayment in
certain circumstances, all as set forth in the Loan Agreement.

                  In the event  that any  installment  of the  principal  of, or
interest  on, this Note,  is not paid when due (whether at stated  maturity,  by
acceleration or otherwise),  the entire principal amount  outstanding shall bear
interest  at an annual  rate  equal to the Prime  Rate (as  defined  in the Loan
Agreement) plus five percent (5%) per annum, from the due date until all overdue
amounts have been paid in full.

<PAGE>

                  Payments  of both  principal  and  interest  are to be made in
lawful  money of the United  States of America at the offices of the Bank at 135
South LaSalle  Street,  Chicago,  Illinois  60603, or at such other place as the
holder shall designate in writing to the maker.

                  This Note is secured by a security  interest in Collateral (as
defined in the Loan Agreement) and by those certain Mortgages (as defined in the
Loan  Agreement)  dated of even date  herewith,  each made by a  Subsidiary  (as
defined in the Loan Agreement) for the benefit of the Bank.

                  The maker and all endorsers hereby severally waive presentment
for payment,  protest and demand, notice of protest,  demand and of dishonor and
nonpayment of this Note.  Borrower  hereby agrees to pay all reasonable fees and
expenses incurred by the Bank or any subsequent holder, including the reasonable
fees of counsel,  in connection with protection and enforcement of the rights of
the Bank or any subsequent holder under this Note,  including without limitation
the  collection  of any  amounts  due  under  this Note and the  protection  and
enforcement  of such  rights in any  bankruptcy,  reorganization  or  insolvency
proceeding involving the Borrower.

                  This Note is binding  upon  Borrower  and its  successors  and
assigns  and  shall  inure to the  benefit  of the Bank and its  successors  and
assigns.  This  Note is made  under  and  governed  by the laws of the  State of
Illinois, without regard to conflicts of laws principles.

                  IN WITNESS  WHEREOF,  Borrower has  executed  this Amended and
Restated Revolving Note as of the day and year first above written.

                                         ARLINGTON HOSPITALITY, INC.
                                         a Delaware corporation

                                         By:_______________________________
                                         Its:_______________________________

                                         and

                                         By:_______________________________
                                         Its:_______________________________

                                       2

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