ARLINGTON HOSPITALITY INC
SEPARATION AGREEMENT
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<TYPE>EX-10.1
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<FILENAME>c90242exv10w1.txt
<DESCRIPTION>SEPARATION AGREEMENT
<TEXT>
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                                                                    Exhibit 10.1



                              SEPARATION AGREEMENT

         This Separation Agreement ("Agreement") is made and entered into as of
this 29th day of November (the "Execution Date") by and among Arlington
Hospitality, Inc., a Delaware corporation (the "Company") and Jerry H. Herman
("Executive"). (The Company and Executive are hereinafter sometimes referred to
individually as a "Party" and collectively as the "Parties").

         WHEREAS, pursuant to the Employment Agreement, executed December 19,
2002 and effective January 7, 2003, by and between the Company and Executive
(the "Employment Agreement"), Executive has served as president and chief
executive officer of the Company;

         WHEREAS, Executive desires to resign from his position, and the Company
desires to accept Executive's resignation, on the terms and conditions set forth
herein;

         NOW, THEREFORE, for and in consideration of the promises and covenants
made between the Parties and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the Parties agree as follows:

         1. Termination of Employment and Directorship. Inasmuch as Executive
has decided not to relocate to Chicago, Executive hereby resigns as the
Company's president and chief executive officer with such resignation effective
as of December 31, 2004 (the "Effective Date") and the Company hereby accepts
such resignation effective as of the Effective Date. From the Execution Date
through the Effective Date, Executive agrees to continue to perform his duties
as set forth in the Employment Agreement and the Company agrees to continue to
pay Executive his current Base Salary (as defined in the Employment Agreement)
in accordance with the Company's payroll practices. Effective as of the
Execution Date, Executive resigns as a member of the board of directors of the
Company and agrees that, notwithstanding the provisions of Section 3 of the
Employment Agreement, he shall have no further right to a position on the
Company's board of directors, and the Company hereby accepts such resignation
effective as of the Execution Date. Except as otherwise expressly provided
herein, the Parties' rights and obligations under the Employment Agreement shall
be terminated and the Employment Agreement shall be of no further force and
effect.

         2. Separation Payment. The Company agrees to pay Executive three months
Base Salary which shall be payable from January 1, 2005 through March 31, 2005,
in equal installments over such period in accordance with the Company's regular
payroll practices, and which shall be subject to all customary federal, state
and local deductions. Executive shall continue to participate in the Company's
medical and dental insurance plans on terms available to senior executive
officers of the Company through March 31, 2005.

         3. Transition Assistance. From the Effective Date through June 30,
2005, Executive agrees to provide such reasonable assistance to the Company as
is necessary for the Company to transition to a new president and chief
executive officer, including being available at reasonable times by phone during
regular business hours to answer any questions any director or officer of the
Company may have with respect to the operations and finances of the Company;
provided, however, so long as the directors and officers of the Company do not
make more than a reasonable limited number of telephone calls per day and are
cognizant of the other time

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commitments and vacation schedule of Executive and Executive reasonably provides
assistance under such circumstances, then under no circumstances shall any act
or omission under this Section 3 affect the payments to Executive under Section
2 above.

         4. Company Records and Equipment. On the Effective Date, Executive
agrees to return to the Company any and all Company equipment, property,
products, services, processes, technology, inventions, patents, business
strategies, pricing information, current and prospective customer lists,
marketing plans and any and all other materials relating to the Company or its
business in Executive's possession in whatever form or medium whether written,
electronic, recorded or otherwise. The Company hereby agrees that the Company's
outside corporate counsel shall keep true and accurate copies of all board of
director and board committee minutes that were taken during Executive's
employment with the Company. Prior to the Effective Date, Executive agrees to
take all actions necessary to remove himself as a signatory on the Company's
bank accounts as of the Effective Date.

         5. Non-Solicitation and Non-Competition. Executive acknowledges and
agrees that the Restrictive Covenants of Section 8 of the Employment Agreement
shall remain in full force and effect for the time periods set forth therein and
reaffirms his obligations to abide by such Restrictive Covenants; provided,
however, that Exhibit B to the Employment Agreement shall be deemed modified to
limit the same only to AmeriHost Inn and any other Cendant Brand; and provided,
further, that Executive covenants and agrees that he shall not, directly or
indirectly, solicit, pursue, or interfere with the Company's negotiations with
respect to, any potential hotel development site which the Company is
investigating or pursuing, for a period of six months from the Effective Date.

         6. Non-disparagement. Each Party agrees not to, directly or indirectly,
slander, libel or otherwise disparage or make any false statements or take any
action which is, or is intended to, or could reasonably be expected to, be
detrimental to the other Party, its business or reputation.

         7. Release.

             (a) Except for the rights and obligations arising under this
         Agreement and claims related thereto, and except as provided under
         Section 10 below, Executive, for himself and his successors,
         administrators, executors, trusts, trustees, beneficiaries, heirs and
         assigns, hereby fully and generally releases, waives and forever
         discharges the Company, its subsidiaries and affiliates and their
         respective shareholders, directors, officers, employees, agents and
         attorneys whether past or present (the "Released Parties"), from any
         and all actions, suits, debts, demands, damages, claims, judgments,
         liabilities, benefits or other remedial relief of any nature, including
         costs and attorneys' fees, whether known or unknown, including, but not
         limited to, all claims arising out of Executive's employment with or
         separation from the Company, its predecessors, successors and assigns,
         such as (by way of example only) any claim for compensation, expense
         reimbursement, severance or other benefits apart from the benefits
         stated herein; breach of contract; wrongful or tortious discharges;
         impairment of economic opportunity; any claim under common law or
         equity; any tort; claims for reimbursements; claims for commissions;
         implied or express employment contracts or estoppel; or claims for



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         employment discrimination under Title VII of the Civil Rights Act of
         1964, as amended, the Rehabilitation Act of 1973, as amended, the
         Americans with Disabilities Act of 1990, as amended, the Civil Rights
         Act of 1866 and 1991, as amended, or any other state, federal or local
         law, statute or regulation. Executive acknowledges and agrees that this
         release, the release contained in Section 8 and the covenant not to sue
         set forth in Section 9 are essential and material terms of this
         Agreement and that, without such release and covenant not to sue, no
         agreement would have been reached by the parties and no separation
         payment would have been paid.

             (b) Except for the rights and obligations arising under this
         Agreement and claims relating to the willful misconduct or fraud of the
         Executive, the Company for itself and its wholly-owned subsidiaries,
         hereby fully and generally releases, waives and forever discharges the
         Executive, for himself and his successors, administrators, executors,
         trusts, trustees, beneficiaries, heirs and assignees from any and all
         actions, suits, debts, demands, damages, claims, judgments,
         liabilities, benefits or other remedial relief of any nature, including
         costs and attorneys' fees, whether known or unknown, including, but not
         limited to, all claims arising out of Executive's employment with or
         separation from the Company, its predecessors, successors, assigns,
         such as (by way of example only) any claim for compensation, severance
         or other benefits apart from the benefits stated herein; breach of
         contract; impairment of economic opportunity; any claim under common
         law or equity; and any tort.

         8. Executive's Release of Age Claims. EXECUTIVE SPECIFICALLY WAIVES AND
RELEASES THE COMPANY AND ITS AGENTS FROM ALL CLAIMS EXECUTIVE MAY HAVE AS OF THE
DATE EXECUTIVE SIGNS THIS AGREEMENT REGARDING CLAIMS OR RIGHTS ARISING UNDER THE
AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967, AS AMENDED 29 U.S.C. Section 621
("ADEA"). THIS SECTION 8 DOES NOT WAIVE RIGHTS OR CLAIMS THAT MAY ARISE UNDER
THE ADEA AFTER THE DATE EXECUTIVE SIGNS THIS AGREEMENT; EXECUTIVE FURTHER
AGREES: (a) THAT EXECUTIVE'S WAIVER OF RIGHTS UNDER THIS RELEASE IS KNOWING AND
VOLUNTARY AND IN COMPLIANCE WITH THE OLDER WORKER'S BENEFIT PROTECTION ACT OF
1990; (b) THAT EXECUTIVE UNDERSTANDS THE TERMS OF THIS RELEASE; (c) THAT THE
SEPARATION PAYMENT AND OTHER BENEFITS CALLED FOR IN THIS AGREEMENT WOULD NOT BE
PROVIDED TO ANY EXECUTIVE TERMINATING HIS EMPLOYMENT WITH THE COMPANY WHO DID
NOT SIGN A RELEASE SIMILAR TO THIS RELEASE, THAT SUCH PAYMENT AND BENEFITS WOULD
NOT HAVE BEEN PROVIDED HAD EXECUTIVE NOT SIGNED THIS RELEASE, AND THAT THE
PAYMENT AND BENEFITS ARE IN EXCHANGE FOR THE SIGNING OF THIS RELEASE; (d) THAT
EXECUTIVE HAS BEEN ADVISED IN WRITING BY THE COMPANY TO CONSULT WITH AN ATTORNEY
PRIOR TO EXECUTING THIS RELEASE; (e) THAT THE COMPANY HAS GIVEN EXECUTIVE A
PERIOD OF AT LEAST TWENTY-ONE (21) DAYS WITHIN WHICH TO CONSIDER THIS RELEASE
WHICH EXECUTIVE MAY WAIVE BY SIGNING THIS AGREEMENT ON A DATE PRIOR TO THE
EXPIRATION OF THAT TWENTY-ONE (21) DAY PERIOD; (f) THAT EXECUTIVE REALIZES THAT
FOLLOWING EXECUTIVE'S EXECUTION OF THIS RELEASE, EXECUTIVE HAS SEVEN (7) DAYS IN
WHICH TO REVOKE THIS RELEASE BY WRITTEN NOTICE TO THE COMPANY; AND (g) THAT THIS
ENTIRE


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AGREEMENT SHALL BE VOID AND OF NO FORCE AND EFFECT IF EXECUTIVE CHOOSES TO SO
REVOKE, AND IF EXECUTIVE CHOOSES NOT TO SO REVOKE, THAT THIS AGREEMENT AND
RELEASE SHALL THEN BECOME EFFECTIVE AND ENFORCEABLE.

         9. Covenant Not to Sue. To the maximum extent permitted by law, and
except for any claims arising under this Agreement or for claims against
Executive with respect to willful misconduct or fraud, each Party covenants not
to sue or to institute or cause to be instituted any action in any federal,
state or local agency or court against the other Party. In addition, nothing
herein shall be construed to prevent Executive from enforcing any rights he may
have under the Employee Retirement Income Security Act of 1974 ("ERISA").

         10. Indemnification. The Company shall defend, indemnify and hold
harmless Executive in the manner, and to the extent, the Company is required to
defend, indemnify and hold harmless, its officers and directors pursuant to its
Amended and Restated Certificate of Incorporation, as amended and its Amended
and Restated By-Laws, as amended for any claim against Executive relating to
acts performed by Executive as an officer or director of the Company during the
course and scope of his employment or directorship by the Company. The Company
shall use its commercially reasonable best efforts to either continue in effect
its directors and officers liability insurance policy applicable Executive on
terms substantially similar to its presently existing directors and officers
liability insurance policy (the "D&O Policy") for three (3) years after the
Effective Date, or shall procure "tail" coverage for Executive on terms
substantially similar to the D&O Policy.

         11. Acknowledgment. Executive acknowledges by signing this Agreement
that Executive has read and understands the significance and consequences of
this Agreement, that Executive has had an opportunity to review whatever
documents he deemed relevant to his decision to execute this Agreement, that
Executive was advised by the Company to consult with his own legal counsel and
has either conferred with or had the opportunity to confer with his own attorney
regarding the terms and meaning of this Agreement, that no representations or
inducements have been made to Executive except as set forth in this Agreement,
and that Executive has signed this Agreement KNOWINGLY AND VOLUNTARILY.

         12. Press Release and Disclosure. Subject to the provisions of Section
6 above, at any time following the execution of this Agreement, the Company may
make any such public announcements or disclosures regarding Executive's
resignation and this Agreement as the Company reasonably deems necessary to
satisfy its disclosure obligations under applicable federal and state securities
laws. Executive agrees not to make any public disclosures regarding his
resignation and this Agreement without the prior written consent of the Company.

         13. Entire Agreement. This Agreement sets forth the entire agreement
and understanding of the Parties relating to the subject matter contained herein
and merges all prior discussions, correspondence, agreements, promises,
commitments, contracts or other instruments or understandings between them, and
no Party shall be bound by any subsequent instrument, agreement or
representation pertaining to the subject matter contained herein unless
expressed in writing and signed by the Parties hereto.


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         14. Counterparts. This Agreement may be executed in two or more
counterparts, each shall have the same force and effect as the other, as one and
the same instrument.

         15. Governing Law. This Agreement shall be governed by the internal
laws of the State of Illinois.

         16. Binding Agreement. The Parties hereto warrant that each has been
represented by counsel in connection with this Agreement, that they have read
this Agreement, that they intend to be legally bound by the same, that they have
entered into this Agreement freely and voluntarily, and that they have the full
right, power, authority and capacity to enter into and execute the same. The
Parties hereto further warrant that this Agreement is entered into with no Party
relying upon any statement or representation made by any other Party not
expressly embodied in this Agreement.

         17. Equitable Relief. Executive expressly acknowledges and agrees that
the violation of any of the provisions of this Agreement would cause immediate
and irreparable harm, loss and damage to the Company not adequately compensable
by a monetary award. Without limiting any of the other remedies available to the
Company at law or in equity, or the Company's right or ability to collect money
damages, Executive agrees that any actual or threatened violation of any of the
provisions of this Agreement may be immediately restrained or enjoined by any
court of competent jurisdiction, and that a temporary restraining order or
injunction (preliminary or final) or any other equitable relief may be issued in
any court of competent jurisdiction.

         18. Attorneys' Fees. In any claim arising out of or relating to this
Agreement, the prevailing party shall recover his or its reasonable costs and
attorneys' fees.

         19. Venue and Jurisdiction. Venue and jurisdiction of any lawsuit
involving this Agreement shall exist in state and federal courts in Cook County,
Illinois; however, if the Company seeks injunctive relief, the company may file
such action wherever in its judgment relief might most effectively be obtained.

         20. Notices. All notices, requests and other communications hereunder
shall be in writing and shall be deemed to be duly given if delivered or mailed
by prepaid mail addressed to:

             (a)     If to Executive:      Jerry H. Herman
                                           7100 Glenbrook Rd.
                                           Bethesda, Maryland 20814

             (b)     If to the Company:    Arlington Hospitality, Inc.
                                           2355 S. Arlington Heights Rd.
                                           Suite 400
                                           Arlington Heights, Illinois 60005
                                           Attn:  James B. Dale

or such other address as the addressee may direct in writing.

         21. No Presumption Against Drafter. Each of the Parties has jointly
participated in the negotiation and drafting of this Agreement. In the event an
ambiguity or a question of intent


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or interpretation arises, this Agreement shall be construed as if drafted
jointly by each of the Parties and no presumptions or burdens of proof shall
arise favoring any Party by virtue of the authorship of any provisions of this
Agreement.

         22. Captions. The captions applied to the sections of this Agreement
are for convenience only and shall not affect their meaning or construction.

         23. Waiver. The failure of either party to insist in any instance or
performance of any term of this Agreement shall not be construed as a waiver of
future performance of any such term.

         24. Severability. If any portion of this Agreement is held invalid or
unenforceable, the remainder thereof shall remain in full force and effect, and
if the invalidity or unenforceability is due to the unreasonableness of time or
geographical restrictions, such covenants and restrictions shall be effective
for such period of time and for such areas as may be determined to be reasonable
by a court of competent jurisdiction.



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         IN WITNESS WHEREOF, the Parties have hereunto set their hands as of the
date first written above.

EXECUTIVE:                                THE COMPANY:

                                          ARLINGTON HOSPITALITY, INC.

/s/ Jerry H. Herman                       By: /s/ Kenneth M. Fell
-------------------------                     ----------------------------------
JERRY H. HERMAN                               Name:  Kenneth M. Fell
                                                     ---------------------------
                                              Title: Chairman of the Board
                                                     ---------------------------




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