UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
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CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: August 31, 2005
(Date of earliest event reported)
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ARLINGTON HOSPITALITY, INC.
(Exact name of registrant as specified in its charter)
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Delaware 0-15291 36-3312434
(State or other jurisdiction of (Commission (IRS Employer
incorporation) File No.) Identification No.)
2355 South Arlington Heights Road
Suite 400
Arlington Heights, Illinois 60005
(Address of Principal Executive Offices)
(847) 228-5400
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name or former address, if changed since last report)
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Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))
ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT
The description of the debtor-in-possession financing set forth in
response to Item 2.03 below is incorporated herein by reference.
ITEM 1.03. BANKRUPTCY OR RECEIVERSHIP.
On August 31, 2005, Arlington Hospitality, Inc. (the "Company") and its
subsidiaries (collectively, with the Company, the "Debtor") filed a voluntary
petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code (the
"Chapter 11 Filing") in the Bankruptcy Court. As previously reported, on June
22, 2005, the Company's wholly-owned subsidiary, Arlington Inns, Inc. (the
"Subsidiary"), filed a voluntary petition for reorganization under Chapter 11 of
the U.S. Bankruptcy Code in the same Bankruptcy Court. It is expected that the
Debtor's filing and the filing of the Subsidiary will be consolidated into a
single matter (on a consolidated basis, the "Chapter 11 Filing"). The Debtor
remains in possession of its assets and properties and will continue to operate
its business and manage its properties as a debtor-in-possession under the
Bankruptcy Code.
ITEM 2.03 CREATION OF A DIRECT FINANCIAL OBLIGATION OR AN OBLIGATION
UNDER AN OFF-BALANCE SHEET ARRANGEMENT
In connection with the Chapter 11 Filing referenced in Item 1.03 above,
Arlington Hospitality, Inc. (the "Company") and certain of its subsidiaries
(collectively, the "Companies") entered into, subject to approval of the
Bankruptcy Court, a financing agreement (the "DIP Facilities") with Arlington
LF, LLC and the other lenders from time to time party thereto (the "Lender").
The DIP Facilities provide for aggregate financing not to exceed $11 million at
any one time consisting of three loan components.
The first component provides for a revolving credit facility in an
aggregate principal amount of up to $6 million (the "Revolver"). Interest on the
Revolver will be calculated at a rate equal to the 3 month LIBOR rate plus 7.50%
payable quarterly, subject to increase by up to 3.0% in the Event of Default, as
defined, or if the loan is not repaid upon maturity. The proceeds of the
Revolver may be used for working capital and other uses approved by the
Bankruptcy Court, all subject to an approved budget to be agreed upon by the
Lender. The second component provides for a term loan (the "Term Loan A") of up
to $1 million. Interest on the Term Loan A will be calculated at rate equal to
the 3 month LIBOR rate plus 8.50% payable quarterly, subject to increase by up
to 3.0% in the Event of Default, as defined, or if the loan is not repaid upon
maturity. The proceeds of the Term Loan A may be used for the same purposes as
those of the Revolver. The third component provides for a land purchase contract
exercise loan (the "Land Purchase Contract Loan") of up to $4 million. Interest
on the Land Purchase Contract Loan will be calculated at rate equal to the
3-month LIBOR rate plus 9.00% payable quarterly, subject to increase by up to
4.00% in the event that the Land Purchase Contract Loan is not repaid by the
maturity date, or there is an Event of Default, as defined. The proceeds of the
Land Purchase Contract Loan may be used to exercise certain contract rights to
acquire designated parcels of real property (the "Real Property"), subject to
various conditions including a court-approved asset purchase agreement. The fee
payable to the Lender for the Land Purchase Contract Loan is 3.0% of the
aggregate principal amount drawn under the available Land Purchase Contract
Loan. Additionally, if the Companies are unable to exercise any contract to
purchase any parcel of Real Property, then Lender shall have the right to assume
the purchase contracts for a nominal amount and purchase such Real Property for
its own account in return for providing the DIP Facilities.
The fees payable to the Lender in connection with the DIP Facilities
include: (i) a $100,000 commitment fee, (ii) a 3.00% commitment fee on the
Revolver and Term Loan A amount, (iii) a 3.00% commitment fee on the amount
drawn on the Land Purchase Contract Loan, (iv) a servicing fee of $10,000 per
month, and (v) a fee of 0.50% per annum required to be paid on the unused
portion of the Revolver amount. Additionally, the Lender will be reimbursed for
actual expenses incurred for professionals including appraisers and attorneys in
an amount not to exceed $100,000.
The DIP Facilities will be secured by all assets of the Companies
subject only to the first mortgages on the hotels and its office building
located in Arlington Heights, IL.
The DIP Facilities will, if approved, be repaid in full on the earlier
of: (1) the date that is six months from the initial advance date; or (2) the
date of a court-approved asset disposition pursuant to Section 363 of the
Bankruptcy Code.
The DIP Facilities include customary affirmative, negative and
financial covenants binding on the Companies, including implementation of a cash
management system set forth in the DIP Facilities. The negative covenants limit
the ability of the Companies to, among other things, incur debt, incur liens,
make investments, sell assets, or declare or pay any dividends on its capital
stock.
The DIP Facilities include customary events of default including
events of default related to, among other things, (i) failure to make any
payments due to the Lender, as required, (ii) failure to comply with the
covenants set forth in the DIP Facilities, and (iii) the Bankruptcy Court does
not enter an order approving a sale of substantially all of the Companies'
assets, in a form and substance satisfactory to the Lender within ninety (90)
days of the entry of Interim Order approving the DIP Facilities.
The obligations under the DIP Facilities are entitled to super-priority
administrative expense claim status under the Bankruptcy Code. The DIP
Facilities will generally permit the ordinary course payment of professionals
and administrative expenses prior to the occurrence of an event of default under
the DIP Facilities or a default under the Bankruptcy Court orders approving the
DIP Facilities.
Conditions to the final DIP Facilities include, among other matters,
(i) execution of final documentation of the DIP Facilities, (ii) approval of the
final DIP Facilities by the Bankruptcy Court, (iii) Lender's completion of its
due diligence on the Companies, (iv) payment of all fees and expenses then due
to the agents and lenders and their advisors under the DIP Facilities, (v)
delivery of additional loan documents, including collateral documentation, (vi)
approval of a budget reasonably satisfactory to the Lender, and (vii) no
material adverse effect on the Companies occurring since the filing of the
Chapter 11 Filing.
ITEM 2.04. TRIGGERING EVENTS THAT ACCELERATE OR INCREASE A DIRECT
FINANCIAL OBLIGATION OR AN OBLIGATION UNDER AN OFF-BALANCE
SHEET ARRANGEMENT
The filing of the Chapter 11 Filing described in Item 1.03 above
constituted an event of default under the Company's existing revolving line of
credit with LaSalle Bank NA. As a result of the event of default, all
commitments under the line of credit were automatically terminated and all debt
outstanding under the facilities became automatically and immediately due and
payable. As of August 31, 2005, the amount of outstanding debt under the
existing senior credit facilities was approximately $3.5 million.
The Company believes the acceleration of its debt under the existing
line of credit agreement will be stayed as a result of the filing of the Chapter
11 Filing. The Company further contemplates that the revolving line of credit
facility with LaSalle Bank NA will be repaid in full with the proceeds of the
DIP Facility as discussed in Item 2.03 above.
ITEM 3.01. NOTICE OF DELISTING OR FAILURE TO SATISFY A CONTINUED LISTING
RULE OR STANDARD; TRANSFER OF LISTING.
As previously reported on a Form 8-K filed August 29, 2005, as a result
of the Company's failure to file its Form 10-Q for the quarter ended June 30,
2005, the Company's securities will be delisted from The Nasdaq Stock Market at
the opening of business on September 1, 2005.
ITEM 8.01. OTHER MATTERS.
In connection with the Chapter 11 Filing, the Company desires to
conserve its limited cash resources and is attempting to reduce expenses. As
such, the Company has decided not to engage a its independent registered public
accountants to review its Form 10-Q for the quarter ended June 30, 2005, and,
therefore, will be unable to comply with its periodic reporting obligations
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). As a
result, the Company does not intend to continue filing its periodic reports
required under the Exchange Act including its quarterly report on Form 10-Q for
the period ended June 30, 2005. In lieu of filing its periodic reports under the
Exchange Act, the Company plans to file its monthly operating reports filed with
the Bankruptcy Court (the "Bankruptcy Report"). In addition, if material events
occur in the future, the Company will endeavor to report such events to its
stockholders in a reasonable practical manner primarily through filing of a Form
8-K or issuance of a press release.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DATE: September 1, 2005
Arlington Hospitality, Inc.
(Registrant)
By: /s/ Stephen K. Miller
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Stephen K. Miller
Interim Chief Executive Officer
By: /s/ James B. Dale
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James B. Dale
Senior Vice President and
Chief Financial Officer