UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

SCHEDULE 14A
(RULE 14a-101)

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934

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Arlington Hospitality, Inc.
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ARLINGTON HOSPITALITY, INC.
2355 S. ARLINGTON HEIGHTS ROAD
SUITE 400
ARLINGTON HEIGHTS, ILLINOIS 60005

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

Notice is hereby given that the Annual Meeting of Stockholders of Arlington
Hospitality, Inc. will be held on December 22, 2004, at 9:00 a.m., local time,
at our headquarters, 2355 S. Arlington Heights Road, Suite 400, Arlington
Heights, Illinois 60005, to act upon the following matters:

TO ELECT OUR DIRECTORS WHO WILL SERVE UNTIL THE NEXT ANNUAL
MEETING OF STOCKHOLDERS OR UNTIL THEIR SUCCESSORS ARE DULY
ELECTED AND QUALIFIED.

TO RATIFY THE APPOINTMENT OF GRANT THORNTON, LLP AS OUR
INDEPENDENT AUDITORS FOR THE YEAR ENDING DECEMBER 31, 2004.

Please refer to the attached proxy statement and proxy, which forms a part of
this notice and is incorporated herein by reference, for further information
with respect to the business to be transacted at the annual meeting.

Only holders of record of our common stock at the close of business on November
24, 2004 will be entitled to notice of and to vote at the meeting and at any
adjournment or postponement of the meeting. You may inspect a complete list of
stockholders eligible to vote at the meeting at our offices during the ten days
prior to the meeting.

BY ORDER OF THE BOARD OF DIRECTORS

/s/ KENNETH M. FELL
-----------------------------------
Kenneth M. Fell, Chairman of the
Board of Directors

Arlington Heights, Illinois
December 1, 2004

TABLE OF CONTENTS

PAGE

INFORMATION ON VOTING AND SOLICITATION OF PROXIES....................................... 1

General Information................................................................ 1

Record Date/Outstanding Shares..................................................... 1

Voting............................................................................. 1

Revocation of Proxies.............................................................. 2

Solicitation of Proxies............................................................ 2

PROPOSAL ONE ELECTION OF DIRECTORS...................................................... 3

General............................................................................ 3

Nominees........................................................................... 3

Executive Officers................................................................. 5

Director Independence.............................................................. 6

Corporate Governance............................................................... 8

Attendance......................................................................... 9

Compensation of Directors.......................................................... 9

Committees......................................................................... 10

Report of the Audit Committee...................................................... 12

Report of the Compensation Committee............................................... 13

Report of the Corporate Governance/Nominating Committee............................ 15

Other Committees................................................................... 16

Executive Compensation............................................................. 17

Stock Options...................................................................... 17

Employment Agreements.............................................................. 18

PROPOSAL TWO RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS........................ 21

Fees Paid to KPMG.................................................................. 21

Change in Certifying Accountant.................................................... 22

STOCK PRICE PERFORMANCE GRAPH........................................................... 22

CERTAIN TRANSACTIONS.................................................................... 24

PRINCIPAL STOCKHOLDERS.................................................................. 24

Beneficial Ownership Table......................................................... 24

Section 16(a) Beneficial Ownership Reporting Compliance............................ 26

STOCKHOLDER PROPOSALS................................................................... 26

OTHER MATTERS........................................................................... 27

"HOUSEHOLDING" OF PROXY MATERIALS....................................................... 27

ARLINGTON HOSPITALITY, INC.
PROXY STATEMENT

INFORMATION ON VOTING AND SOLICITATION OF PROXIES

GENERAL INFORMATION.

This proxy statement is being sent to you in connection with our Annual Meeting
of Stockholders to be held at 9:00 a.m. local time on December 22, 2004, at our
headquarters located at 2355 S. Arlington Heights Road, Suite 400, Arlington
Heights, Illinois 60005. This proxy statement and accompanying proxy were
initially mailed to stockholders on or about December 1, 2004. The proxy
statement, shareholder letter and our Annual Report on Form 10-K are also
available on our website at www.arlingtonhospitality.com.

RECORD DATE/OUTSTANDING SHARES.

Only stockholders of record at the close of business on November 24, 2004, are
entitled to vote at the meeting or any adjournment thereof. As of that date
there were 4,915,598 shares of our common stock outstanding. Our shares are
quoted on the Nasdaq National Market under the symbol "HOST." The closing price
on November 24, 2004 was $2.90 per share. The record list of our holders of
common stock will be available for inspection at our offices by any record
holder for any purpose related to the annual meeting for a period of ten days
prior to the annual meeting.

VOTING.

Each share of our common stock is entitled to one vote on all matters voted upon
at the annual meeting. Holders of common stock are not entitled to cumulate
their votes. A majority of our outstanding shares, represented in person or by
proxy, will constitute a quorum at the meeting. Directors will be elected by a
plurality of the votes of the shares present in person or represented by proxy
at the meeting and entitled to vote on the election of directors. The
affirmative vote of the holders of a majority of the shares voting at the
meeting is necessary to approve the proposal to ratify the appointment of our
independent auditors. If any other matters are properly presented at the annual
meeting, the persons named on the proxy card will be entitled to vote on these
matters for you. As of the date of this proxy statement, we were not aware of
any other matters to be raised at the meeting.

Votes cast by proxy or in person at the annual meeting will be counted by the
persons that we appoint to act as inspectors for the meeting. The inspectors
will treat properly signed proxies that are marked "abstain" as "abstentions"
and properly signed proxies that are held in "street name" by brokers and not
voted on one or more of the items as "broker non-votes." Abstentions and broker
non-votes will be treated as present for purposes of determining the presence of
a quorum.

We have been advised by our officers and directors that they will vote the
shares of common stock they own, directly or indirectly, or have authority to
vote, in favor of the election of each person nominated for election to our
board of directors; and in favor of ratifying the appointment

of our independent auditors. These shares represent approximately 28% of our
outstanding common stock.

REVOCATION OF PROXIES.

A proxy may be revoked at any time prior to its exercise, by written notice to
our Secretary, by signing a later-dated proxy that is received before the annual
meeting or by attending the meeting and voting in person. Merely attending the
meeting, without further action, will not revoke a previously granted proxy.

SOLICITATION OF PROXIES.

The enclosed proxy is solicited on behalf of our board of directors. In addition
to the solicitation of proxies by mail, proxies may be solicited by our
directors, officers and employees by personal interview, telephone or telegram.
We will ask brokers and other fiduciaries that are holders of record of our
common stock to forward proxy soliciting material to the beneficial owners. We
will pay all expenses associated with the annual meeting, including printing and
mailing this proxy statement and proxy and soliciting proxies for use at the
meeting.

PROPOSAL ONE
ELECTION OF DIRECTORS

GENERAL.

At our annual meeting, stockholders will be asked to elect six individuals to
serve as directors until our next annual meeting, or until their successors are
elected and qualified. The proxies duly signed and returned pursuant to this
solicitation will be voted by the persons named on the proxies in favor of the
nominees listed below. If a proxy is signed but no directions are specified in
the proxy, the proxy will be voted for the election of the nominees listed
below. We do not anticipate that any nominee will be unable or unwilling to
serve as a director if elected. If any nominee is unable or unwilling to serve,
the persons named as proxies will be authorized to elect such other persons as
they shall determine.

NOMINEES.

The following table sets forth the names and ages for each person nominated for
election to our board of directors:

Name Age Position
- --------------- --- ----------------------------------

Kenneth M. Fell 46 Chairman of the Board of Directors
Andrew E. Shapiro 43 Vice Chairman of the Board of Directors
Steven J. Belmonte 52 Director
Salomon J. Dayan 58 Director
Gerald T. LaFlamme 65 Director
Thomas J. Romano 52 Director

Below is information on the business experience of our director nominees:

Kenneth M. Fell has been a member of the Board since August 2002. In December
2002, Mr. Fell was elected independent Chairman of the Board. Mr. Fell is a
member of the Audit Committee, the Compensation Committee and the Corporate
Governance/Nominating Committee. Mr. Fell also serves as a member of various ad
hoc committees of the Board, which are formed from time-to-time to address
specific issues. Since 1983, Mr. Fell has been an independent floor trader and
member of various divisions of the Chicago Mercantile Exchange. These include
the Index and Options Market (1983-present), the International Monetary Market
(1984-present), and the Growth and Emerging Market (1995-present). Since 1986,
Mr. Fell has been the President and sole owner of K.F., Inc., a financial
derivatives trading corporation. Mr. Fell is a member of the National
Association of Corporate Directors (NACD).

Andrew E. Shapiro has been a member of the Board since September 2002, and was
elected independent Vice Chairman of the Board in February 2003. Mr. Shapiro is
Chairman of the Corporate Governance/Nominating Committee, and also serves as a
member of the Compensation Committee. Mr. Shapiro also serves as a member of
various ad hoc committees of the Board, which are formed from time-to-time to
address specific issues. Mr. Shapiro has been Managing Member and President of
Lawndale Capital Management, LLC, a Mill Valley, California-based investment
advisory firm, and Chairman and President of a predecessor investment advisor,
and now holding company, Lawndale Capital Management, Inc., since 1992. Prior to
forming the Lawndale Capital entities, Mr. Shapiro obtained numerous years of
experience in highly leveraged investments and lending. He was a Board Observer
of Earl Scheib, Inc. (AMEX-ESH) from August 2002 until September 2004, pursuant
to an agreement with that company's Board, and he is a member of the NACD.

Steven J. Belmonte, CHA, has been a member of the Board since August 2002. Mr.
Belmonte is Chairman of our Compensation Committee, and also serves as a member
of various ad hoc committees of the Board, which are formed from time-to-time to
address specific issues. In 2002, Mr. Belmonte launched Hospitality Solutions,
LLC, a full-service, nationwide consultation firm specializing in lodging
industry issues at the hotel and corporate level. Hospitality Solutions offers
expert witness and mediation services, litigation support, license agreement
formulation or termination negotiation assistance, asset management, special
projects, targeted training programs, and motivational speaking. From 1991 to
2002, Mr. Belmonte oversaw the Ramada hotel chain, which had over 1,000 hotels
and nearly 135,000 hotel rooms throughout the United States, becoming the
longest standing president of a national franchised hotel chain. Mr. Belmonte
has assumed leadership roles in charities related to the hotel industry as
follows: Chairman of the American Hotel Foundation (AHF) and Vice Chairman of
the American Hotel & Lodging Educational Foundation (AH&LEF). Furthermore, Mr.
Belmonte's charitable leadership has also extended to Childreach, whose
activities have included constructing two medical facilities, a Food and Science
Laboratory and a library in Africa, and schools in the Dominican Republic and
Honduras. Mr. Belmonte is a member of the NACD.

Salomon J. Dayan, M.D., has been a member of the Board since August 1996. Dr.
Dayan also serves as a member of various ad hoc committees of the Board, which
are formed from time-to-time to address specific issues. In 1980, Dr. Dayan, a
physician certified in internal and geriatric medicine, founded the Salomon J.
Dayan Ltd., a multi-specialty medical group, which is dedicated to the care of
the elderly in hospital and nursing home settings. He was Chief Executive
Officer from 1980 until the medical group was sold in 1998. Dr. Dayan was the

Medical Director and Executive Director of Healthfirst, a corporation that
operates multiple medical ambulatory facilities in the Chicago, Illinois area
from 1986 until the corporation was sold in 1996. Since 1994, he has been an
assistant professor at Rush Medical Center in Chicago. Dr. Dayan is currently
the Chairman of the Board of Directors of J. D. Financial, a bank holding
company owning Pan American Bank. Dr. Dayan also has numerous investments in
residential and commercial real estate. Dr. Dayan is a member of the NACD.

Gerald T. LaFlamme, C.P.A. has been a member of the Board since August 2002. Mr.
LaFlamme is Chairman of the Audit Committee, and also serves as a member of
various ad hoc committees of the Board, which are formed from time-to-time to
address specific issues. He has been the President and Chief Executive Officer
of JL Development Company, Inc. a real estate development and consulting firm,
since March 2004. From 2001 through 2003, Mr. LaFlamme was the Senior Vice
President and Chief Financial Officer of Davidson Communities, LLC, a real
estate development company, where his responsibilities include land
acquisitions, joint venture transactions and the financing of real estate
projects. From 1997 through 2001, Mr. LaFlamme was retired. From 1978 to 1997,
Mr. LaFlamme was a Managing Partner with Ernst & Young LLP, and a predecessor
accounting firm, and had responsibility for managing the firm's Real Estate
Office in San Diego, California. Mr. LaFlamme has extensive experience in
structuring real estate transactions and in developing business strategies for
Real Estate Investment Trusts, residential and commercial developers, and
hospitality management companies. Mr. LaFlamme is a Certified Public Accountant
and a member of the NACD.

Thomas J. Romano has been a member of the Board since November 1999. Mr. Romano
is a member of the Audit Committee and Corporate Governance/Nominating
Committee. Mr. Romano also serves as a member of various ad hoc committees of
the Board, which are formed to address specific issues. Mr. Romano has been an
Executive Vice President and a member of executive management for Bridgeview
Bank Group since 1997. He served as Chief Credit Officer and President of the
Lake County, Illinois region, responsible for a significant loan portfolio from
1997 until June 2002, at which time he became, responsible for leading the
community banks' marketing efforts for Bridgeview Bank Group and Bridgeview
Capital Solutions. Prior to Bridgeview Bank Group, his experience includes 19
years with First of America Bank where his responsibilities included the
management of the commercial lending functions across the Northern Illinois
Region. Mr. Romano is currently a member of Robert Morris Associates and serves
as a director for Vista National Insurance, Laserage Technology Corporation and
the Goldman Philanthropic Partnerships. Mr. Romano is a member of the NACD.

EXECUTIVE OFFICERS.

The following is information on the business experience of our executive
officers:

Jerry H. Herman has been President and Chief Executive Officer, and a member of
the Board, since January 2003. On November 29, 2004, Mr. Herman resigned as a
member of the Board, and tendered his resignation as our President and Chief
Executive Officer effective as of December 31, 2004 (see "Employment Agreements"
below). Prior to his resignation as a member of the Board, Mr. Herman served as
a member of various ad hoc committees of the Board, which are formed from
time-to-time to address specific issues. From 1992 to 2002, Mr.

Herman was Chief Executive Officer and a member of the Board of Directors of
City Hotels USA, the U.S. holding company of a publicly traded ownership,
development, management and hospitality company headquartered in Belgium with
assets in Europe and the United States. Prior to that, from 1984 to 1991, he was
General Counsel and then Senior Vice President of Hotel Acquisitions for C.R.I.,
Inc., a national real estate investment and management firm with multi-family,
hotel, and commercial ownership and mortgage portfolios. Mr. Herman is a member
of the District of Columbia Bar and the American Bar Association, and he
recently served as a founding member of the National Franchise Advisory Boards
of the Doubletree and Homewood Suites brands.

James B. Dale was promoted to Chief Financial Officer in 1998, in addition to
his responsibilities as Senior Vice President of Finance. Mr. Dale began his
employment with us in May 1994 as our first Corporate Controller. He has been
responsible for overseeing all aspects of our property and corporate accounting
departments, including preparation of all SEC filings. In 1999, Mr. Dale was
elected Corporate Secretary by the Board of Directors. Prior to joining us, Mr.
Dale was an Audit Manager with an international public accounting firm, with
nearly nine years of experience in auditing, financial reporting and taxation.
Mr. Dale is a Certified Public Accountant and is a member of the American
Institute of Certified Public Accountants and the Illinois CPA Society.

Richard Gerhart. Mr. Gerhart has been our senior vice president of hotel
operations since January 2000. From 1997 to 2000, Mr. Gerhart was senior vice
president of operations for MOA Hospitality, a hotel company with a portfolio of
135 limited and full service properties, representing ten hotel brands with
annual sales in excess of $215 million. At MOA Hospitality, Mr. Gerhart's
responsibilities included overseeing the management of the company's hotels. Mr.
Gerhart's hotel experience includes employment with Motel 6 Corporation,
Remington Hotel Corporation, La Quinta Motor Inns, Inc., Registry Resort and
Marriot Corporation.

Stephen Miller. Mr. Miller has been our senior vice president, real estate and
business development since August 2003. From January 2003 to August 2003, Mr.
Miller provided services as a consultant to companies in the hospitality
industry. From 1999 to 2002, Mr. Miller was executive vice president of
development and acquisition for Carlson Hotels Worldwide, responsible for
acquiring, constructing and designing properties. In this position, Mr. Miller
oversaw an acquisition fund of approximately $500 million, and established
development policies, investment guidelines and closing procedures. From 1989 to
1999, Mr. Miller was a vice president for Wyndham International, an owner and
operator of hotels, where he directed the expansion of the Wyndham brand in the
Eastern United States, Canada and the Caribbean. Mr. Miller has also worked in a
senior development capacity for Interstate Hotel Corporation, Embassy Suites
Hotels and Holiday Inns, Inc.

DIRECTOR INDEPENDENCE.

Our by-laws require at least two-thirds of the members of our board of directors
to be "independent." In addition, board action, to be valid, requires that at
least one-half of the directors present and eligible to vote at any meeting to
be "independent" directors. An "independent" director is defined in our by-laws
as a person who:

(a) has not been an employee of ours or any of our subsidiaries for the
previous three years;

(b) is not affiliated with a "significant" customer or supplier of ours,
with "significant" meaning representing more than 1% of annual sales
for either party;

(c) apart from service as a director, has not had, and is not employed
by an entity that has had, during the past two years, any interest
in any significant transaction with us or any of our executive
officers, or any business or financial relationship with us or any
of our executive officers, or any affiliate of ours, which we are
required to disclose under rules promulgated by the Securities and
Exchange Commission;

(d) is not a relative of an executive officer or director of ours;

(e) receives no compensation from us other than as a director;

(f) does not personally receive, and is not an employee, director, or
trustee of a foundation, university, or other institution that
receives, grants or endowments from us that are material to us or to
the recipient, foundation, university or institution; and

(g) is not employed by an entity of which either an executive officer of
ours serves as a director or trustee, or a director of ours serves
in a senior executive capacity.

This by-law provision became effective on June 27, 2002 and when adopted, the
prior board deemed anyone who was a member of the board on that date
"independent" until December 31, 2004. Any nominees for board positions who were
not members of our board on June 27, 2002 must satisfy the criteria described
above. After December 31, 2004, all directors, including those who were members
of the board on June 27, 2002, must satisfy the above criteria to be considered
independent. Of our current directors, Messrs. Belmonte, Fell, LaFlamme, Romano
and Shapiro, satisfy the criteria. Dr. Dayan was a director on June 27, 2002 but
does not otherwise satisfy the criteria, as a result of transactions within the
past two years involving us and entities in which Dr. Dayan had, but no longer
has, an interest. We do not anticipate entering into transactions of this nature
with any of our directors in the future. Mr. Herman, as our president and chief
executive officer, is not considered independent.

In addition to the director independence requirements set forth in our by-laws,
the Marketplace Rules of the Nasdaq Stock Market require that a majority of the
members of our board of directors be "independent" as that term is defined the
Nasdaq Marketplace Rule 4200(a)(15). Additionally, the Nasdaq Marketplace Rules
require that certain committees of our board of directors, our Audit,
Compensation and Corporate Governance/Nominating Committees, be comprised solely
of "independent" directors. Although the definition of "independent" as provided
by our by-laws and Marketplace Rule 4200(a)(15) are substantially similar, there
are slight differences between the two. Therefore, a director may be considered
"independent" under our by-laws but not be independent under the Marketplace
Rules of the Nasdaq Stock Market. Currently, however, each of our "independent"
directors, as determined under the provisions of our by-laws, also qualifies as
an "independent" director for purposes of the Nasdaq requirements. Accordingly,
Messrs. Belmonte, Fell, LaFlamme, Romano and Shapiro qualify as

"independent" directors as defined by the Marketplace Rule 4200(a)(15), and Dr.
Dayan and Mr. Herman do not. As a result, neither Dr. Dayan nor Mr. Herman is a
member of our Audit, Compensation or Corporate Governance/Nominating Committees.

CORPORATE GOVERNANCE.

In 2002, we began implementing various corporate governance initiatives in
response to the Sarbanes-Oxley Act of 2002, as well as the recently adopted
corporate governance listing standards, and have continued implementing such
initiatives in 2003:

- We added four independent directors in 2002 (Messrs. Fell, Shapiro,
LaFlamme, and Belmonte), and eliminated related party relationships
with two existing directors. Currently five of our six directors are
"independent", as determined under our by-laws and the listing
requirements of the Nasdaq Stock Market. Additionally, our Audit,
Compensation, and Corporate Governance/Nominating Committees consist
solely of "independent" directors.

- The Chairman of the Board position was made independent and separate
from the Chief Executive Officer.

- An independent Vice Chairman position was created to improve Board
succession and functioning.

- Our Board determined that Gerald T. LaFlamme, the Chairman of the
Audit Committee, as well as Thomas J. Romano, a member of the Audit
Committee, each qualify as "audit committee financial experts" as
such term is defined under Item 401 of Regulation S-K.

- Our Audit Committee adopted our Audit and Non-Audit Services
Pre-Approval Policy, which sets forth the procedures and the
conditions pursuant to which permissible services to be performed by
our independent public accountants must be pre-approved.

- Our Audit Committee established "Audit Committee Complaint
Procedures" for the receipt, retention and treatment of complaints
regarding accounting, internal accounting controls or auditing
matters, including the anonymous submission by employees of concerns
regarding questionable accounting or auditing matters.

- Our Board established and adopted charters for each of its Audit,
Compensation and Corporate Governance/Nominating Committees.

- Our Board established procedures, via email link through our
website, for shareholders to communicate with our Board and to
provide to the Corporate Governance/Nominating Committee suggestions
of qualified director candidates.

A copy of each of the committee charters is available on our website at
www.arlingtonhospitality.com under the heading "About Us" and subheading
"Corporate Governance" and further subheading "Board Committees and Charters".
The committee charters are also available in print to any stockholder upon
written request addressed to Investor Relations, Arlington Hospitality, Inc.,
2355 S. Arlington Heights Road, Suite 400, Arlington Heights, Illinois 60005.
For purposes of shareholder communication directly with our board or

suggestions of qualified director candidates for consideration by the Corporate
Governance/Nominating Committee, the website also contains an email link to
independent director Mr. Andrew E. Shapiro, Chairman of the Corporate
Governance/Nominating Committee.

ATTENDANCE.

The board of directors held 12 meetings during the year ended December 31, 2003.
Each director attended at least 75% of the meetings of the board and committees
on which the director served during that year. Additionally, each of the
nominees for director attended last year's annual meeting.

COMPENSATION OF DIRECTORS.

In February 2003 our Board of Directors approved a compensation plan for
non-employee directors providing each of our non-employee directors the
following compensation for serving as a member of our board of directors: (i) an
annual cash retainer, (ii) a grant of restricted stock, and (iii) fees for
attending board and committee meetings as well as reimbursement for all
out-of-pocket expenses relating to attendance at these meetings.

Cash Retainer

Each nonemployee director received an annual cash retainer of $9,000 paid in
equal monthly installments, except that as of March 2003, Mr. Fell and Mr.
Shapiro received cash retainer payments at an annual rate of $13,500 and
$11,250, respectively, as consideration for serving as chairman and
vice-chairman of the board, respectively.

Restricted Stock

In November 2003, each non-employee director received 6,000 restricted shares of
our common stock, except for Messrs. Fell and Shapiro, who received 9,000 and
7,500 restricted shares of our common stock, respectively, as consideration for
serving as chairman and vice-chairman of the board, respectively. The restricted
stock was issued under our 2003 Non-Employee Director Restricted Stock Plan that
was approved at our annual shareholder meeting held on October 29, 2003. These
shares may not be transferred for a one-year period, except in the case of a
"change of control." After this one-year period, the shares may not be
transferred until the earlier of a "change of control," five years from the date
of the grant, or the date the director ceases to be a director. "Change of
control" is defined in the plan to cover various circumstances in which 50% or
more of the beneficial ownership of our issued and outstanding stock, either
directly or by merger or other extraordinary transaction is acquired by others.

Meeting Fees

The meeting fees for non-employee directors are summarized in the following
tables:

BOARD OF DIRECTOR MEETING FEES

TELEPHONE IN-PERSON
--------- ---------

Meetings of 1.5 hours or less $250 $1,500
Meetings over 1.5 hours $500 $1,500

The above fees for each meeting of the full board are increased by 50% for the
chairman when he presides and 25% for the vice chairman in the event he presides
over a board meeting.

COMMITTEE MEETING FEES

TELEPHONE IN-PERSON
--------- ---------

Meetings of 1.5 hours or less $150 $ 500
Meetings over 1.5 hours $300 $1,000

The above fees for each committee meeting are increased by 50% for the chairman
of the audit committee and 30% for the individuals who chair other committee
meetings.

COMMITTEES.

The board of directors has established three standing committees and from time
to time forms ad hoc committees to address specific issues. The three standing
committees are:

1. Audit Committee - This committee consists of three directors:
Messrs. Fell, LaFlamme, who is the chairman, and Romano, each of
whom are "independent" as defined in our by-laws and the listing
standards of the Nasdaq Stock Market. Messrs. LaFlamme and Romano
have been designated as the committee's financial experts pursuant
to the rules promulgated under Section 401 of Regulation S-K. The
audit committee is responsible for, among other things, retaining
our independent auditor, meeting with the independent auditor to
review the scope and results of its audit, overseeing our financial
reporting process and internal controls, reviewing compliance with
laws and accounting standards, and providing a direct channel of
communication to the board of directors for the independent auditor,
internal auditors and finance officers. This committee met ten times
during the year ended December 31, 2003.

2. Compensation Committee - This committee consists of three directors:
Messrs. Belmonte, who is the chairman, Fell and Shapiro, each of
whom are "independent" as defined in our by-laws and the listing
standards of the Nasdaq Stock Market. This committee is responsible
for establishing and reviewing executive compensation, administering
all incentive equity-based plans established by us, other than plans
governing compensation payable to our non-employee directors, and
reporting on our executive compensation policies in our annual proxy
statement. This committee met seven times during the year ended
December 31, 2003.

3. Corporate Governance/Nominating Committee - This committee consists
of three directors: Messrs. Fell, Romano and Shapiro, who is the
chairman, each of whom are "independent" as defined in our by-laws
and the listing standards of the Nasdaq Stock Market. This committee
is responsible for considering and making recommendations to the
board of directors concerning the appropriate size, function and
needs of the board. The committee is responsible for recommending
nominees for board positions, recommending ways to enhance services
to, and improve communications with, our stockholders, reviewing all
related party transactions, reviewing candidates for our board of
directors recommended by stockholders and considering all proposals
involving a "change in control" or the purchase or sale of assets
constituting more than 10% of our assets. The existing members of
this committee have served since September 2002. The current members
of this committee met six times during the year ended December 31,
2003.

REPORT OF THE AUDIT COMMITTEE.

Purpose of Audit Committee. The audit committee assists the board of directors
in fulfilling its responsibilities to oversee the company's accounting policies
and internal controls, financial reporting practices, and legal and regulatory
compliance. The committee also assists in maintaining a line of communication
between the board of directors and the company's internal and independent
auditors. The audit committee is composed of three directors, all of whom are
"independent" under the company's by-laws and the rules promulgated by The
Nasdaq Stock Market. The audit committee has reviewed the definition of
"financial expert" promulgated under the Sarbanes-Oxley Act of 2002 and
determined that Mr. LaFlamme and Mr. Romano satisfy the criteria for a financial
expert under the Act.

The audit committee operates under a written charter approved by the board on
June 1, 2000 and amended on February 24, 2003. A copy of the charter, as
amended, is posted on the company's website, or is available upon request to the
company's corporate secretary, James B. Dale.

Responsibilities of the Audit Committee. The audit committee reviews the
company's financial reporting process on behalf of the board of directors. The
company's management has primary responsibility for preparing financial
statements in accordance with generally accepted accounting principles, and the
company's internal controls and financial reporting process. The independent
auditors are responsible for performing an audit of the company's consolidated
financial statements in accordance with generally accepted auditing standards
and issuing a report on the audited financial statements. The members of the
audit committee are neither professionally engaged in the practice of accounting
or auditing, nor, with the exception of Messrs. LaFlamme and Romano, are we
experts in the fields of accounting or auditing. The audit committee relies,
without independent verification, on the information provided to us and on the
representations made by management that the financial statements have been
prepared with integrity and objectivity and on the representations of management
and the opinion of the independent auditors that the financial statements have
been prepared in conformity with generally accepted accounting principles.

The audit committee met with management and the independent auditors to review
and discuss the financial statements as of, and for the twelve months ended,
December 31, 2003. The audit committee also discussed the matters required by
Statement on Auditing Standards No. 61 (Communication with Audit Committees)
("SAS61") with the independent auditors. SAS 61 requires the independent
auditors to provide the company with additional information regarding the scope
and results of the audit of the company's financial statements.

The audit committee also received written disclosures from the company's
independent auditors, KPMG LLP, required by Independence Standards Board
Standard No. 1 (Independence Discussions with Audit Committees). The audit
committee discussed with KPMG the firm's independence, and KPMG has confirmed in
these discussions, that in its professional judgment, KPMG is independent of the
company within the meaning of the securities laws administered by the Securities
and Exchange Commission and the requirements of the Independence Standards
Board. The audit committee approved the retention of KPMG as the company's
independent auditors for the fiscal year ended December 31, 2003.

The audit committee has advised the board of directors that the committee has
determined that the non-audit services rendered by KPMG during the company's
fiscal year ended December 31, 2003 are compatible with maintaining KPMG's
independence.

Based upon the audit committee's discussions with management and the independent
auditors, and the committee's review of the representations of management and
the independent auditors, the audit committee recommended that the board of
directors include the audited consolidated financial statements in the company's
annual report on Form 10-K for the year ended December 31, 2003, filed with the
Securities and Exchange Commission.

Members of the Audit Committee:

Gerald T. LaFlamme, Chairman
Thomas J. Romano
Kenneth M. Fell

REPORT OF THE COMPENSATION COMMITTEE.

Purpose of Compensation Committee. The compensation committee discharges the
responsibility of the board of directors relating to the compensation of the
company's chief executive officer and other executive officers and administers
all incentive compensation plans adopted by the company, other than plans
governing compensation payable to our non-employee directors, which is the
responsibility of our Corporate Governance/Nominating Committee. The charter
governing the compensation committee is posted on the company's web site or may
be obtained upon written request to the company's corporate secretary, James B.
Dale.

Executive Compensation Philosophy. The committee believes that the focus of all
executive compensation should be to align the interests of the company's
executive officers with the objective of maximizing long-term stockholder value.
The committee's compensation philosophy is designed to emphasize long-term
performance-based compensation. As part of this philosophy, the committee grants
primarily restricted stock, rather than options, as a means of providing
long-term incentive to executive officers. Under this system of compensation,
employees typically pay taxes on the grant and therefore have an immediate
economic interest in their shares, and thus the company. The committee believes
that, as a result, a decline in the company's stock price has the same negative
impact on the executive officer as on other stockholders. In contrast, with
options, taxes are not typically paid until sale of the underlying stock and a
decline in stock price does not exact an economic penalty on the option
recipient. Moreover, the committee believes that, unlike options whose exercise
price may be well above the company's stock price, restricted stock retains its
motivational value even if the stock price declines significantly, because any
incremental increase in the company's stock price will still benefit the
executive officer. The committee also prefers restricted stock to options
because in many cases price declines lead to a request from option recipients to
"reprice" the option to a lower exercise price. Finally, grants of restricted
stock are immediately charged as compensation expense. Although the company has
recently adopted a policy of expensing options at the time they are granted, the
amount of the expense charged in connection with an option grant is not as
easily and predictably measured.

The committee believes that a substantial portion of each executive's annual
compensation should be related to, and contingent on, the company's financial
performance. The committee believes that a majority of bonus and incentive
compensation should be based on performance. In determining the long-term
incentive component of the compensation of the company's executive officers, the
committee will generally consider the company's performance and relative
stockholder return and the value of similar incentive awards to chief executive
officers and other executive officers at companies deemed comparable by the
committee. Whenever possible, the committee uses performance vesting schedules
under which vesting occurs proportionately, rather than using "cliff-vesting,"
where disproportionate rewards are paid for small marginal improvements. The
committee believes that avoiding cliff vesting ensures that payments made are
closely correlated to increases in corporate performance, on a more steady
continuum, as opposed to motivating short term performance in order to achieve
the desired "cliff" criteria, to the detriment of long-term performance of the
company. The company's compensation program for executive officers consists of,
and is intended to balance, three elements:

- Base salaries which are based principally on the committee's
evaluation of each executive's job performance and an assessment of
the base salaries and total compensation mix paid to executives with
comparable companies holding similar positions.

- Cash bonuses which are performance-based, primarily on the
correlation between company performance and certain qualitative and
quantitative financial measures.

- Long-term incentive performance based awards consisting of grants of
restricted stock and, in limited circumstances, options.

During 2002, the committee spent significant time conducting a search for the
company's chief executive officer, which culminated in the hiring of Jerry H.
Herman, who succeeded Michael Holtz, the prior chief executive officer who
resigned effective December 12, 2002. The committee negotiated a compensation
package with Mr. Herman reflected in a contract which, in the committee's view,
provides a competitive salary with the potential for a significant cash bonus
and stock incentive compensation upon achievement of performance targets. The
performance targets are based on factors such as, the Company's pre-tax income,
stockholder's equity per share, and development of new AmeriHost Inn franchises,
growth of the AmeriHost Inn brand or completion of construction or development
of new AmeriHost Inn properties. Mr. Herman's contract was executed in December
2002, and he joined the company in January 2003. The contract is described
elsewhere in this proxy statement and is included as an exhibit to a Form 8-K/A
filed by the company on December 23, 2002. Due to the Company's performance in
2003, Mr. Herman did not receive any cash bonus or restricted stock awards.

The company has also entered into employment agreements with James Dale, the
company's senior vice president finance, secretary, treasurer and chief
financial officer, and Richard Gerhart, the company's senior vice president of
hotel operations. During 2003, each of Mr. Dale's and Mr. Gerhart's salary and
bonus increased in accordance with the terms of his contract. Following Mr.
Holtz's resignation, we entered into supplemental retention agreements with Mr.
Dale and Mr. Gerhart designed to: (a) incrementally incentivize performance to
ensure their

focus on productive endeavors rather than concerns related to the transitions in
board and CEO composition; and (b) provide for incremental severance protection
during 2003. These agreements provided Mr. Dale and Mr. Gerhart with the
opportunity to earn bonus payments tied to various performance criteria set
forth in the agreements, as described in more detail under the heading
"Employment Agreements" below. Additionally, these contracts are included as
exhibits to the company's Quarterly Report on Form 10Q for the quarter ended
September 30, 2003 and filed on November 14, 2003. The compensation of Messrs.
Herman, Dale and Gerhart is shown in the compensation table included elsewhere
in this proxy statement.

During 2003 the committee spent significant time providing management with
guidance in structuring compensation packages for several newly hired employees
necessary for the company to implement its revised business plan, which focuses,
to a greater extent, on developing and selling hotel properties, including
Stephen K. Miller who was hired in July 2003 to act as the company's senior vice
president of real estate and business development. Mr. Miller's employment
agreement provides for base salary and incentive bonus compensation. The company
aligned Mr. Miller's incentive compensation with the company's revised business
plan, by basing Mr. Miller's bonus on: (i) the number and prices of hotel sales
achieved by the company in accordance with budgeted goals; (ii) the company
acquiring land and/or existing hotels for new developments in accordance with
budgeted goals; and (iii) the company obtaining equity from development venture
partners in accordance with budgeted goals. Mr. Miller's biography can be found
elsewhere in this proxy statement and his employment agreement is included as an
exhibit to the company's Quarterly Report on Form 10Q for the quarter ended
September 30, 2003 and filed on November 14, 2003. Also during 2003, the
committee oversaw the development and initial implementation of the company's
2003 Long Term Incentive Plan, which was approved at last year's annual meeting.

Compensation Committee:

Steven J. Belmonte, Chairman
Kenneth M. Fell
Andrew E. Shapiro

REPORT OF THE CORPORATE GOVERNANCE/NOMINATING COMMITTEE.

Our board formed a "Corporate Governance/Nominating Committee" in April, 2002
which has focused on establishing director independence and enhancing
accountability and oversight within all levels of the organization. We operate
pursuant to a written charter which was adopted in 2003 and is posted on the
company's website, or is available upon request to the company's corporate
secretary, James B. Dale.

This focus on independence, accountability and oversight starts with our board
which has dramatically changed its makeup. Four of our six directors have joined
us since August 2002 adding new and diverse ideas. As a whole, our board now
holds a meaningful ownership position in our stock. Additionally, we have two
directors who have significant experience in the hotel industry serving on our
board, and two "financial experts" as defined in the Sarbanes-Oxley Act.
Following an extensive nationwide search, our CEO joined us in January 2003 and
has throughout the year worked toward remaking our corporate culture and
operating practices.

During 2003, we adopted a new corporate governance bylaw, mandating that a
supermajority of our board of directors (at least two-thirds) be independent and
that this committee and our audit and compensation committees be composed
entirely of independent directors as defined by the rules of the Nasdaq Stock
Market. Further, over the past two years, we have eliminated all known
related-party transactions.

During 2003 and thus far through 2004, our independent directors have met in
executive session at almost every board meeting, including telephonic meetings.
We separated the CEO and Chairman positions and appointed an independent Vice
Chairman. In 2003, we also adopted an insider trading policy and, related to
that policy, an enhanced disclosure policy, requiring us to issue operating and
development/sales pipeline update press releases on a monthly basis and conduct
quarterly earnings calls open to analysts and our stockholders. Transcripts from
these calls are posted on our website. We also directed management to form an
internal disclosure control committee headed by our general counsel and
reporting to our CEO and audit committee. We reviewed and improved our ability
to recruit and retain directors through up-to-date director compensation
programs, reviewing and revising our director and officer insurance policy and
designing the 2003 Non-Employee Director Restricted Stock Plan which was
approved at last year's annual meeting. All of these steps were aimed at
realigning director and stockholder interests.

In accordance with our charter, we recently created a format for each standing
committee and the board as a whole to conduct annual self-reviews and
evaluations. We have recently conducted our first review and will work to
improve ourselves from this initial evaluation.

We maintain an open door policy for our stockholders and will consider
prospective stockholder nominees to our board and welcome third-party input. Our
committee has met with many of our major stockholders to solicit their advice
and input on our business. In accordance with our charter, we recently conducted
annual director reviews, in an ongoing effort to ensure that board members as
well as management, are reviewed and evaluated.

We expect to continue enhancing these and other governance practices and
principles with a view toward establishing a clear pathway for open minded,
proactive achievements in the future, all designed to enhance long-term
stockholder value.

Corporate Governance/Nominating Committee

Andrew E. Shapiro, Chairman
Kenneth M. Fell
Thomas J. Romano

OTHER COMMITTEES.

Our board has formed several other ad hoc committees. For example, we have
formed an ad hoc investment committee to assist in evaluating hotel development,
acquisition and disposition strategies. Another ad hoc committee has been formed
to assist in evaluating financing options. A third ad hoc committee has been
formed to focus on our ongoing business relationships with Cendant Corporation,
the franchisor of the AmeriHost Inn brand. In each case, a majority of the

particular ad hoc committee's membership is composed of independent directors,
as defined by our by-laws.

EXECUTIVE COMPENSATION.

The following table sets forth certain information concerning the annual and
long-term compensation for the fiscal years ended December 31, 2003, 2002 and
2001, respectively, of each person who served as our chief executive officer
during 2003 or was one of our four other most highly-compensated executive
officers, other than the chief executive officer, earning total annual salary
and bonus exceeding $100,000.

SUMMARY COMPENSATION TABLE

Long-Term
Compensation
----------------------
Annual Compensation Restricted Securities
Name and Principal ------------------------ Stock Underlying All Other
Position Year Salary(5) Bonus(1) Awards(6) Options(2) Compensation(3)
- ------------------------ ---- --------- -------- ---------- ---------- ---------------

Jerry H. Herman 2003 287,308 - - - 2,732
President, Chief Executive
Officer, and Director

James B. Dale 2003 160,442 7,200 - - 1,871
Senior Vice President Finance, 2002 145,000 17,850 - 21,000 2,036
Secretary, Treasurer, and 2001 132,115 9,000 - 21,000 2,214
Chief Financial Officer

Richard A. Gerhart (4) 2003 132,500 9,700 - - 2,329
Senior Vice President Hotel
Operations

(1) Mr. Dale and Mr. Gerhart received cash bonuses of $7,200 and $9,700,
respectively in 2003.

(2) Includes 14,000 and 7,000 options issued in 2002 and 2001, respectively,
to Mr. Dale that did not vest and were forfeited. All other options issued
to Mr. Dale were fully vested as of December 31, 2003.

(3) Includes life insurance premiums paid by us and our 401(k) matching
contributions of $256 for Mr. Gerhart in 2003 and $1,646, $1,586 and
$1,764 for Mr. Dale in 2003, 2002 and 2001, respectively.

(4) Mr. Gerhart, who has been employed by us since 1999, was made an executive
officer in August 2003.

(5) Mr. Dale received $8,387 in 2003 for his services as our interim chief
executive officer from December 12, 2002 to January 6, 2003.

(6) Mr. Dale and Mr. Gerhart were awarded 750 and 971 shares of restricted
stock, respectively, valued at $2,550 and $3,300, in recognition of their
leadership roles in 2002, which restricted stock was issued in 2004.

STOCK OPTIONS.

The following table summarizes the number and terms of stock options granted to
each of the executive officers named above during the year ended December 31,
2003.

OPTION GRANTS IN LAST FISCAL YEAR

Individual Grants Potential Realizable Value at
------------------------------------------------- Assumed Annual Rates of
% of Total Options Stock Price Appreciation
Granted to Exercise or for Option Term
Options Employees in Base Price Expiration -----------------------------
Name Granted(1) Fiscal Year ($/Sh) Date 5%($) 10%($)
- --------------- ---------- ------------ ----------- ---------- ----- ------

Jerry H. Herman 75,000 46.9% $3.16 Feb. 2003 - -
Jerry H. Herman 35,000 21.9% $3.33 Mar. 2003 - -

(1) As part of his initial employment with us on January 7, 2003, Mr. Herman
was granted a 60 day option to purchase 75,000 shares of restricted stock
using an upward exercise price reset formula to the greater of a floor
price, the price on the date of his start date or, with respect to options
not yet exercised on the one month anniversary of his start date, the fair
market value of our shares on that date. Prior to his one-month
anniversary, Mr. Herman exercised 40,000 of the options that were issued.
The exercise price of the remaining 35,000 options was reset upward on his
one-month anniversary and expired without exercise. There were no stock
options granted to Messrs. Dale and Gerhart during 2003.

The following table provides information concerning the exercise of stock
options during 2003 and the year-end value of unexercised options for each of
the executive offices named above.

OPTION EXERCISES AND YEAR-END VALUE TABLE

Number of Unexercised Value of Unexercised
Options Held at in-the-Money Options at
Shares December 31, 2003 December 31, 2003 (1)
Acquired Value -------------------------- --------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ------------------ ----------- -------- ----------- ------------- ----------- -------------

Jerry H. Herman 40,000 $ 12,400 - - $ - $ -
James B. Dale - - 80,500 - 22,277 -
Richard A. Gerhart - - 57,000 - 20,754 -

(1) The closing sale price of our Common Stock on such date on the NASDAQ
National Market was $3.76.

EMPLOYMENT AGREEMENTS.

On January 7, 2003, Jerry H. Herman became our president and chief executive
officer under the terms of an employment agreement dated as of December 19,
2002. The agreement expires on December 31, 2005, unless terminated earlier.
Under the agreement, we pay Mr. Herman a base salary of $300,000 per year and
Mr. Herman is eligible to earn a bonus consisting of a cash portion and
restricted stock portion subject to his and our satisfying certain performance
criteria. The budget for the performance criteria is established each year by
the board of directors. The criteria consist of a pre-tax income benchmark, an
adjusted stockholder equity per share benchmark, and a third benchmark comprised
of up to two components relating to development of franchises or joint ventures,
growth of the AmeriHost brand or construction and development

of hotels. In each case, there are limits on the amount of cash and equity
performance bonus that Mr. Herman may earn each year. Mr. Herman has the right
under the agreement to sell shares received as part of the stock portion of the
bonus, some of which would otherwise had been restricted from transfer, to us in
an amount necessary to pay income taxes, with the number of shares allowed to be
sold determined according to a formula specified in the agreement but no less
than fair market at the time of grant. Mr. Herman is also entitled to bonuses
upon the occurrence of specified capital events, such as the assignment,
conveyance, sale or termination of our agreements with Cendant Corporation, a
merger of us into another corporation, a sale of our assets, a sale of all of
our stock to a new purchaser or the bulk sale of fifteen or more of our hotels
to a new purchaser which result in consideration to us above certain levels. Mr.
Herman also participates in our employee benefit plans and is reimbursed for
business expenses. The agreement granted Mr. Herman the right to purchase up to
75,000 restricted shares of our common stock for 60 days beginning January 7,
2003, with the exercise price determined according to an upward reset formula
specified in the agreement but no less than fair market value of the stock on
the date of the grant. On January 17, 2003, Mr. Herman exercised this right with
regard to 40,000 restricted shares of our common stock, which he purchased at a
price of $3.16 per share. We also agreed to nominate Mr. Herman during the term
of his employment for election to our board of directors and to recommend that
stockholders vote in favor of his election.

Mr. Herman's employment agreement may terminate, at Mr. Herman's option, at any
time upon 60 days' prior written notice to us, on a "change in control," which
is defined as a sale of all or substantially all of our assets, a merger
resulting in the ownership of over 50% of our voting stock by parties
unaffiliated with us before the transaction or the sale of over 50% of our
shares or other equity interests to parties unaffiliated with us before the
transaction. We may terminate Mr. Herman's employment agreement at any time with
60 days' prior written notice, for cause, or if Mr. Herman fails to relocate his
residence to the Chicagoland area within 24 months of the date of the employment
agreement. If Mr. Herman's employment is terminated by us without cause, or Mr.
Herman resigns as the result of a change in control or for "good reason," as
defined in the agreement, he is entitled to severance compensation equal to the
base salary for the remaining term of the agreement but no less than twelve
months and no greater than twenty-four months. "Good reason" is defined in the
agreement to include, among other things, a material reduction in Mr. Herman's
responsibilities not consistent with the agreement, a material decrease in Mr.
Herman's salary or benefits, our failure to nominate and recommend Mr. Herman
for election to the board of directors and any material breach by us of the
agreement.

On November 29, 2004, we entered into a Separation Agreement with Mr. Herman
pursuant to which: (i) Mr. Herman immediately resigned as a director of ours and
resigned as our President and Chief Executive Officer effective as of December
31, 2004; (ii) we agreed to continue to pay Mr. Herman his base salary through
March 31, 2005 in accordance with our customary payroll practices; and (iii) Mr.
Herman agreed to reasonably assist us through June 30, 2005 with our transition
to a new President and Chief Executive Officer. We intend to immediately engage
a national search firm to assist us in connection with our search for a new
President and Chief Executive Officer.

Our senior vice president of finance and chief financial officer, James B. Dale,
provides services to us under the terms of an employment agreement dated January
12, 2001. The agreement

originally expired January 12, 2004, but its term has since been extended to
January 12, 2005, as discussed below. Under the agreement, we paid Mr. Dale a
base salary equal to $152,000 in 2003, which automatically increased by 5% in
2004, to approximately $160,000 per year. The agreement provided for cash
bonuses based on the sale of AmeriHost Inn hotels and the timing of our
financial reporting. Mr. Dale received some, but not all of the performance
bonuses. Mr. Dale also earned 750 shares of restricted stock in 2003, in
recognition of his leadership effort in 2002 which were issued in 2004. Mr.
Dale's employment agreement entitles him to receive severance payments equal to
six months salary if his employment is terminated by us "without cause," as
defined in the agreement. In addition, if we are sold, Mr. Dale is entitled to
receive the sum of six months base salary, at his salary level at the time of
sale.

Our senior vice president of hotel operations, Richard A. Gerhart, provides
services to us under the terms of an employment agreement dated July 1, 2002.
The agreement has a three-year term. Under the agreement, we pay Mr. Gerhart a
base salary equal to $132,500 for the first year of the agreement, $137,800 for
the second year, and $144,000 for the third year. In addition, Mr. Gerhart is
entitled to cash bonuses if various company performance criteria are achieved.
These criteria relate to increases in revenue for AmeriHost Inns owned by us for
at least thirteen months, gross operating profit for AmeriHost Inns as compared
with budgeted and prior year amounts, gross operating profit of non-AmeriHost
Inn hotels and sales of AmeriHost Inn hotels. The performance criteria also
include achieving certain levels of net income, income before taxes,
depreciation and amortization or cash flow. Mr. Gerhart also earned 971 shares
of restricted stock in 2003, in recognition of his leadership efforts in 2002,
which were issued in 2004. If we terminate Mr. Gerhart "without cause," he is
entitled to receive his salary and bonus for six months from the date of
termination.

We entered into supplemental retention and performance agreements with Mr. Dale
and Mr. Gerhart as of December 1, 2002, concurrent with our former Chief
Executive Officer's resignation. Under these agreements, Mr. Dale and Mr.
Gerhart were entitled to severance payments in addition to the severance
payments described above, payable in five monthly installments, had their
employment been terminated before December 31, 2003 other than because of death,
disability, voluntary termination or "for cause." In addition, under the
agreements we agreed to pay each of Mr. Dale and Mr. Gerhart a performance
retention bonus in the form of cash and restricted stock if various performance
criteria were satisfied, and they remained employed with us through January 1,
2004. The performance criteria in Mr. Dale's agreement related primarily to the
timely preparation of financial statements, periodic reports and meeting
minutes, sales of hotels, and assistance in our obtaining financing within
certain time periods. The performance criteria in Mr. Gerhart's agreement
related primarily to hotel revenue and profitability results. Mr. Dale's
supplemental agreement also extended the term of Mr. Dale's employment agreement
with us to January 12, 2005. The amount paid under these supplemental agreements
was approximately $16,500 in the aggregate, including both cash and restricted
stock.

OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE "FOR" ALL NOMINEES.

SHARES REPRESENTED BY SIGNED PROXIES RECEIVED BY US WILL BE VOTED "FOR" THE
ELECTION OF THE NOMINEES UNLESS STOCKHOLDERS OTHERWISE SPECIFY IN THEIR PROXIES.

PROPOSAL TWO

RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS

The audit committee of our board has selected Grant Thornton LLP as our
independent auditors for the fiscal year ending December 31, 2004. A
representative of Grant Thornton will attend the annual meeting, have an
opportunity to make a statement if he or she so desires, and be available to
respond to appropriate questions from stockholders.

FEES PAID TO KPMG.

The following table presents fees for professional audit services rendered and
fees billed for other services rendered by KPMG LLP, our independent auditors
for the fiscal years ended December 31, 2003 and 2002, respectively:

2003 2002
--------- ---------

Audit fees $ 219,000 $ 179,500
Audit-related fees 0 0
Tax fees 78,000 87,000
All other fees 0 0
--------- ---------
$ 297,000 $ 266,500
========= =========

Audit Fees. This category includes fees paid for the audit of our annual
financial statements and review of financial statements included in our
quarterly reports on Form 10-Q. This category also includes advice on audit and
accounting matters that arose during, or as a result of, the audit or the review
of our annual and interim financial statements, including the application of
proposed accounting rules and the preparation of an annual "management letter"
containing observations and discussions on internal control matters.

Audit-Related Fees. KPMG LLP did not perform any services in this category for
us in 2003 or 2002.

Tax Fees. This category consists of professional services rendered by KPMG LLP
for tax compliance and tax advice. The services for the fees disclosed under
this category include tax advisory services associated with our ongoing business
and business ventures.

All Other Fees. KPMG LLP did not perform any services in this category for us in
2003 or 2002.

Our Audit Committee pre-approved all of the services by KPMG LLP. Prior to
engagement, the Audit Committee pre-approves these services by category of
service. The fees are budgeted and the Audit Committee requires the independent
auditor and management to report actual fees versus the budget periodically
throughout the year by category of service. During the year, circumstances may
arise when it may become necessary to engage the independent auditor for
additional services not contemplated in the original pre-approval. In those
instances, the Audit Committee requires specific pre-approval before engaging
the independent auditor.

CHANGE IN CERTIFYING ACCOUNTANT.

On November 10, 2004, the audit committee of our board received notice from KPMG
LLP, then our independent registered public accounting firm, indicating that,
effective immediately, KPMG LLP has resigned as our independent registered
public accounting firm. On November 16, 2004, the audit committee of our board
engaged Grant Thornton LLP to serve as our independent registered public
accounting firm, effective immediately.

The reports of KPMG LLP on our financial statements for the years ended December
31, 2002 and December 31, 2003 contained no adverse opinion or disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principle.

In connection with KPMG LLP's audits of our two most recent fiscal years and
through November 10, 2004, there have been no disagreements with KPMG LLP on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedures, which disagreements, if not resolved to the
satisfaction of KPMG LLP, would have caused it to make reference to the subject
matter of the disagreements in connection with its reports on the financial
statements for such periods. During our two most recent fiscal years and through
November 10, 2004, there were no reportable events as defined in Item
304(a)(1)(iv) of Regulation S-K.

Neither we, nor anyone on our behalf, have consulted Grant Thornton regarding
(i) either the application of accounting principles to a specific completed or
contemplated transaction or the type of audit opinion that might be rendered on
our financial statements; as such, no written or oral advice was provided, and
none was an important factor considered by the audit committee of our board in
reaching a decision as to the accounting, auditing or financial reporting
issues; or (ii) any matter that was a subject of a disagreement or reportable
event with KPMG LLP (as there were none).

OUR BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE APPOINTMENT OF
GRANT THORNTON AS OUR INDEPENDENT AUDITORS.

STOCK PRICE PERFORMANCE GRAPH

Set forth below is a line graph comparing the yearly percentage change in the
cumulative total stockholder return on our common stock against the cumulative
total return of the Nasdaq U.S.

index and the Nasdaq Non-Financial index for the period beginning December 31,
1998 and ending December 31, 2003. All return figures assume that dividends are
reinvested.

COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG ARLINGTON HOSPITALITY, INC.,
NASDAQ MARKET INDEX AND NASDAQ NON-FINANCIAL INDEX

[PERFORMANCE GRAPH]

Date 12/31/98 12/31/99 12/31/00 12/31/01 12/31/02 12/31/03
- ---- -------- -------- -------- -------- -------- --------

Arlington Hospitality, Inc. 100.00 88.51 81.96 54.81 90.74 98.61
Nasdaq US 100.00 185.43 111.83 88.71 61.33 91.70
Nasdaq Non-Financial 100.00 196.05 114.37 87.45 57.14 87.47

Assumes $100 invested on December 31, 1998 in the Common Stock of Arlington
Hospitality, Inc. and The Nasdaq Stock Market and the Nasdaq Non-Financial
Stocks. Assumes reinvestment of dividends.

CERTAIN TRANSACTIONS

Dr. Dayan, one of our directors, and parties related to him, have invested
approximately $3.1 million in seven joint ventures with us since 1988 on the
same terms as all other investors in the joint ventures. In three joint
ventures, we guaranteed minimum annual distributions to the partners equal to
10% of their original capital contribution. We also granted these partners the
right to convert their joint venture interests into shares of our common stock,
under certain conditions. We purchased the limited partners' interests in two of
these joint ventures at prices previously agreed to in September 2000 in
connection with our partners' approval of the sale of the AmeriHost Inn brand
and franchising rights to Cendant Corporation. With regard to the third joint
venture, we paid the limited partners a total of $25,000 in January 2003 to
extend the deadline for acquiring the limited partners' interests. We then
acquired the limited partners' interests in this joint venture for $830,000 in
September 2003. The underlying hotels for two of these joint ventures have since
been sold. Since September 2003, Dr. Dayan and related parties ceased being
investors in any joint venture in which we participate.

Dr. Dayan is also the owner and chairman of the board of directors of the
company that owns Pan American Bank. In 2003, a joint venture in which we were a
partner repaid its remaining loan from Pan American Bank, totaling approximately
$940,000, with proceeds from the sales of the hotel securing this loan.
Subsequent to this loan payoff, we have not entered into any transactions with
Pan American Bank, and we do not intend to transact any future business with Pan
American Bank so long as Dr. Dayan continues to serve as a director and is
affiliated with Pan American Bank.

In June 2003, we reimbursed members of the "Committee to Enhance Shareholder
Value," for out-of-pocket expenses paid by the committee to third parties in
connection with the successful election of Messrs. Fell and Belmonte to our
board of directors at our 2002 annual meeting. The total amount reimbursed was
approximately $64,000. Messrs. Fell and Belmonte, as members of the committee
prior to its dissolution, each received their pro-rata share of this expense
reimbursement. This reimbursement was approved unanimously by all disinterested
members of the Board.

PRINCIPAL STOCKHOLDERS

BENEFICIAL OWNERSHIP TABLE.

The following table sets forth certain information regarding beneficial
ownership of our common stock as of November 18, 2004, by:

- each person who is known by us to own beneficially more than 5% of
our common stock;

- each of our directors;

- each of the executive officers for whom we have provided
compensation information under the heading "PROPOSAL ONE - ELECTION
OF DIRECTORS - Executive Compensation" above; and

- all directors and executive officers as a group.

A person is deemed to be the beneficial owner of securities that they can
acquire within 60 days from November 18, 2004 upon the exercise of warrants or
options. Each beneficial owner's percentage ownership is determined by assuming
that options or warrants that are held by such person, but not those held by any
other person, and which are exercisable within 60 days from November 18, 2004
have been exercised. Unless otherwise indicated, we believe that all persons
named in this table have sole voting and investment power with respect to all
shares of common stock beneficially owned by them. Common stock beneficially
owned is based on 4,915,598 shares of common stock outstanding on November 18,
2004.

Shares Beneficially Owned
As of November 18, 2004
-------------------------
Name Number Percent
- --------------------------------- ------------------------- -------

Wellington Management Company LLP 565,000 (1) 11.5%
Kenneth M. Fell 516,200 (2) 10.5
Andrew E. Shapiro 503,700 (3) 10.3
Lawndale Capital Management LLC 488,700 (3) 9.9
Michael P. Holtz 410,000 (4) 7.7
H. Andrew Torchia 396,032 (5) 7.9
Salomon J. Dayan 316,812 (6) 6.4
Richard A. D'Onofrio 308,519 (7) 6.1
Dimensional Fund Advisors, Inc. 307,000 (8) 6.3
Raymond and Liliane R. Dayan 269,314 (9) 5.4
James B. Dale 84,040 (10) 1.7
Richard A. Gerhart 61,380 (11) 1.2
Jerry H. Herman 40,000 (12) 0.8
Thomas J. Romano 32,500 (13) 0.7
Steven J. Belmonte 27,968 (14) 0.6
Gerald T. LaFlamme 14,480 (15) 0.3

ALL DIRECTORS AND EXECUTIVE
OFFICERS AS A GROUP (9 PERSONS) 1,597,080 31.1%

(1) Based upon information provided in its Form 13F dated September 30, 2004.
Wellington Management Company LLP, in its capacity as investment advisor,
may be deemed the beneficial owner of 565,000 shares of our common stock
that are owned by numerous investment counseling clients. The address of
Wellington Management is 75 State Street, Boston, Massachusetts 02109.

(2) Based upon information filed on Form 4 dated September 7, 2004. Includes
18,000 restricted shares held directly, 207,170 shares held by KF, Inc.
Profit Sharing Plan; 199,430 shares held by Kenneth M. Fell Trust; 88,100
shares held by Mr. Fell's IRA; 2,500 shares held by Mr. Fell's wife,
Margaret A. Fell, IRA; and 1,000 shares issuable upon the exercise of
options. Mr. Fell's address is One South Wacker Drive, Suite 350, Chicago,
Illinois 60606.

(3) Based upon information filed on Form 4 dated September 7, 2004. Includes
15,000 restricted shares held directly by Mr. Shapiro; 426,200 shares
beneficially held by Diamond A. Partners, L.P. and 62,500 shares held by
Diamond A. Investors, L.P. Mr. Shapiro is managing member of Lawndale
Capital Management, LLC, the general partner and investing advisor to
these partnerships. Lawndale Capital Management has only a pro-rata
pecuniary interest in the securities with respect to which indirect
beneficial ownership is reported and disclaims beneficial ownership in
these securities, except to the extent of its pecuniary interest. Mr.
Shapiro disclaims beneficial ownership of these shares. Both Lawndale
Capital Management and Mr. Shapiro disclaim membership in any group in
connection with the ownership of these securities. The address for each of
Mr. Shapiro, Lawndale Capital Management LLC, Diamond A. Partners, L.P.
and Diamond A. Investors, L.P. is 591 Redwood Highway, Suite 2345, Mill
Valley, California 94941.

(4) Based on information provided in a Form 13D dated June 21, 2004. Includes
410,000 shares issuable upon the exercise of options. Mr. Holtz's address
is 490 East Route 22, North Barrington, Illinois 60010.

(5) Based upon information provided in a 13D/A joint filing dated January 13,
2003. Includes 80,443 shares owned directly by Mr. Torchia and 120,000
shares issuable upon the exercise of options held by Mr. Torchia. In
addition, includes 195,589 of the 383,508 shares owned by Urban 2000 Corp.
Mr. Torchia is the 51% stockholder of Urban 2000 Corp. and disclaims
beneficial ownership of all but these 195,589 shares. The address of Urban
2000 Corp. is 10300 West Higgins Road, Suite 105, Rosemont, Illinois
60018.

(6) Based upon information filed in Form 4 dated September 7, 2004. Includes
12,000 restricted shares held directly; 228,812 shares held by the Salomon
J. Dayan UTD 11/08/78; 4,000 shares held by the children of Dr. Dayan and
72,000 shares issuable upon the exercise of options (62,500 of which are
held by the Salomon J. Dayan UTD 11/08/78). Dr. Dayan's address is 2837
Sheridan Place, Evanston, Illinois 60201.

(7) Based upon information provided in a 13D/A joint filing dated January 13,
2003. Consists of 600 shares owned directly by Mr. D'Onofrio and 120,000
options owned by Mr. D'Onofrio, which currently are exercisable. In
addition, includes 187,919 of the 383,508 shares owned by Urban 2000 Corp.
Mr. D'Onofrio is the 49% stockholder of Urban 2000 Corp. and disclaims
beneficial ownership of all but these 187,919 shares. The address of Urban
2000 Corp. is 10300 West Higgins Road, Suite 105, Rosemont, Illinois
60018.

(8) Based upon information provided in its Form 13F dated September 30, 2004,
Dimensional Fund Advisors, Inc. ("DFA"), in its capacity as investment
advisor, may be deemed beneficial owner of 307,000 shares which are owned
by numerous investment counseling clients. Of the shares shown above, DFA
has sole voting and investment power for 307,500 shares. The address of
DFA is 1299 Ocean Avenue, Santa Monica, California 90401.

(9) Consists of 206,814 shares owned by trusts for which Liliane Dayan acts as
trustee, and 62,500 shares issuable upon the exercise of options held by
these trusts. Mrs. Dayan has sole voting and investment power for all
269,314 shares. Mr. Dayan is the brother of Dr. Solomon Dayan, who is one
of our directors and whose beneficial ownership of our shares is also
reflected in the above table. The address of Mr. and Mrs. Dayan is c/o
Michael Best and Friedrich LLP, 401 N. Michigan Ave., Suite 1900, Chicago,
Illinois 60611.

(10) Includes 1,275 shares held directly, 2,265 shares of restricted stock, and
80,500 shares issuable upon the exercise of options.

(11) Includes 2,500 shares held directly, 1,880 shares of restricted stock, and
57,000 shares issuable upon the exercise of options.

(12) Includes 40,000 shares of restricted stock.

(13) Based upon information filed on Form 4 dated September 7, 2004. Includes
12,000 restricted shares directly held; 10,000 shares held directly; 5,000
shares held by Ashley E. Romano UGTMA, with Mr. Romano as custodian; and
5,500 shares subject to options presently exercisable.

(14) Based upon information filed on Form 4 dated September 7, 2004. Includes
12,000 restricted shares directly held; 14,968 shares held directly and
1,000 shares issuable upon the exercise of options.

(15) Based upon information filed on Form 4 dated September 7, 2004. Includes
12,000 restricted shares held directly; 1,480 shares held by the 1988
LaFlamme Family Trust dated January 14, 1988 and 1,000 shares issuable
upon the exercise of options.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.

Section 16(a) of the Securities Exchange Act of 1934 requires our directors and
executive officers, and persons who own more than 10% of the registered class of
our equity securities, to file with the Securities and Exchange Commission and
The Nasdaq Stock Market initial reports of ownership and reports of changes in
ownership of our common stock and other equity securities. These persons are
required by Securities and Exchange Commission regulation to furnish us with
copies of all Section 16(a) forms they file.

We believe, based solely on our review of the copies of the above reports
furnished to us and written representations to us that no other reports were
required, that all the above Section 16(a) filing requirements were complied
with during the fiscal year ended December 31, 2003.

STOCKHOLDER PROPOSALS

From time to time, stockholders present proposals which may be proper subjects
for inclusion in the proxy statement and for consideration at the annual
meeting. To be considered, proposals must be submitted on a timely basis.
Proposals for the 2004 stockholders' meeting must be

received by us not later than August 2, 2005. Any such proposals, as well as any
questions related thereto, should be directed to our Secretary.

OTHER MATTERS

Our management knows of no other business likely to be brought before the
meeting. If other matters do come before the meeting, the persons named in the
form of proxy or their substitute will vote the proxy according to their best
judgment.

"HOUSEHOLDING" OF PROXY MATERIALS

In accordance with the notices we sent to stockholders of record, we are sending
only one copy of our annual report and proxy statement to stockholders who share
the same last name and address, unless they notified us that they want to
continue receiving multiple copies. We understand that the brokerage community
has mailed similar notices to beneficial holders of our shares. This practice,
known as "householding," is permitted by the Securities and Exchange Commission
and is designed to reduce duplicate mailings and save printing and postage costs
as well as natural resources.

Stockholders who currently receive multiple copies of the annual report and
proxy statement at their address and would like to request "householding" of
their communications should contact their broker if they are a beneficial holder
or, if they are a stockholder of record, should contact us at 847-228-5401, ext.
330, or inform us in writing at 2355 S. Arlington Heights Road, Suite 400,
Arlington Heights, Illinois 60005. Stockholders who are "householding" their
communications, but who wish to begin to receive separate copies of the annual
report and proxy statement in the future may also notify us or their broker. We
will promptly deliver, upon written or oral request, a separate copy of the
annual report and proxy statement at a shared address to which a single copy was
delivered.

By the order of the Board of Directors

/s/ James B. Dale
--------------------------------------
JAMES B. DALE
Secretary

Arlington Heights, Illinois
December 1, 2004

PROXY
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS

Arlington Hospitality, Inc.
2355 S. Arlington Heights Road, Suite 400
Arlington Heights, Illinois 60005

The undersigned hereby appoints Kenneth M. Fell and James B. Dale as proxies,
each with the power to appoint his substitute, and hereby authorizes them, each
acting alone, to represent and to vote, as designated on the reverse side, all
the common stock of Arlington Hospitality, Inc. the undersigned is entitled to
vote at the close of business on November 24, 2004, at the annual meeting of
stockholders to be held on December 22, 2004, and any adjournment thereof, with
all the powers the undersigned would possess if present.

This proxy when properly executed will be voted in the manner directed herein by
the undersigned stockholder. If no direction is made, the proxies will vote for
all of the proposals on the reverse side. If any other matters properly come
before the meeting, the proxies will vote on these matters in their discretion.

PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY
USING THE ENCLOSED RETURN ENVELOPE

[AH LOGO]

ARLINGTON HOSPITALITY, INC. VOTE BY MAIL
ATTN: INVESTOR RELATIONS Mark, sign, and date your proxy
2355 S. ARLINGTON HEIGHTS card and return it in the postage-paid
ROAD, SUITE 400 envelope we have provided or return
ARLINGTON HEIGHTS, IL 60005 it to Arlington Hospitality, Inc.,
c/o ADP, 51 Mercedes Way,
Edgewood, NY 11717.

AUTO DATA PROCESSING
INVESTOR COMM SERVICES 16
ATTENTION: 21
TEST PRINT
51 MERCEDES WAY
EDGEWOOD, NY
11717

[BAR CODE]

123,456,789,012.00000
=>000000000000
A/C 1234567890123456789

TO VOTE, MARK BLOCKS BELOW IN
BLUE OR BLACK INK AS FOLLOWS: [X] ARLHS1 KEEP THIS PORTION FOR YOUR RECORDS
- --------------------------------------------------------------------------------
DETACH AND RETURN THIS PORTION ONLY

THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.

ARLINGTON HOSPITALITY, INC.

THE BOARD OF DIRECTORS 02 0000000000 214958286016
RECOMMENDS A VOTE FOR THE
FOLLOWING PROPOSALS.

VOTE ON DIRECTORS FOR WITHHOLD FOR ALL To withhold authority to
ALL ALL EXCEPT vote, mark "For All Except"
and write the nominee's
[ ] [ ] [ ] number on the line below.

-------------------------

1. ELECTION OF DIRECTORS

01) Steven J. Belmonte 04) Thomas J. Romano
02) Salomon J. Dayan 05) Andrew E. Shapiro
03) Kenneth M. Fell 06) Gerald T. LaFlamme

VOTE ON PROPOSAL FOR AGAINST ABSTAIN

2. Proposal to ratify appointment of Grant Thorn LLP [ ] [ ] [ ]
as independent auditors for the year ending
December 31, 2004.

Please sign exactly as name appears on your stock certificates. For joint
accounts, all tenants should sign. If signing for an estate, trust, corporation,
partnership or other entity, title or capacity should be stated.

AUTO DATA PROCESSING
INVESTOR COMM SERVICES
ATTENTION:
TEST PRINT
51 MERCEDES WAY
EDGEWOOD, NY
11717

- ----------------- ---- -------------- ----- 123,456,789,012
Signature [PLEASE Signature 041560103
SIGN WITHIN BOX] Date P05970 (Joint Owners) Date 21