S-1/A

As filed with the Securities and Exchange Commission on June 4, 2004

Registration No. 333-113410

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

AMENDMENT NO. 2

TO

Form S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

Lodgian, Inc.

(Exact name of registrant as specified in its Charter)

Delaware	7011	52-2093696
(State or other Jurisdiction of Incorporation or Organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)

3445 Peachtree Road, N.E. — Suite 700

Atlanta, Georgia 30326

(404) 364-9400

(Address, Including Zip Code and Telephone Number,

Including Area Code, of Registrant’s Principal Executive Offices)

W. Thomas Parrington
President and Chief Executive Officer
3445 Peachtree Road, N.E. — Suite 700
Atlanta, Georgia 30326
(404) 364-9400 Daniel E. Ellis, Esq.
Senior Vice President,
General Counsel and Secretary
3445 Peachtree Road, N.E. — Suite 700
Atlanta, Georgia 30326
(404) 364-9400

(Name, Address, Including Zip Code, and Telephone Number,

Including Area Code, of Agent for Service)

Copies to:

Jeffrey L. Schulte, Esq.
David M. Calhoun, Esq.
Brandy A. Bayer, Esq.
Leigh E. Wilde, Esq.
Morris, Manning & Martin, LLP
1600 Atlanta Financial Center
3343 Peachtree Road, N.E.
Atlanta, Georgia 30326
(404) 233-7000 Edward F. Petrosky, Esq.
J. Gerard Cummins, Esq.
Sidley Austin Brown & Wood LLP
787 Seventh Avenue
New York, New York 10019
(212) 839-5300

     Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement is declared effective.

     If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended, check the following box.   o

   If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   o

   If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   o

   If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   o

   If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box.   o

   The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment that specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

CALCULATION OF REGISTRATION FEE

	Proposed Maximum
Title of Each Class of	Aggregate Offering	Amount of
Securities to be Registered	Price(1)(2)	Registration Fee
Common Stock, $0.01 par value	$297,045,000	$37,636(3)

(1)  Includes 2,625,000 shares subject to the underwriters’ overallotment option.

(2)	Estimated solely for the purpose of computing the registration fee in accordance with Rule 457 under the Securities Act of 1933, as amended. Pursuant to Rule 457(o), certain information has been omitted from the table.
(3)	$31,675 of this amount has been previously paid.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion

Preliminary Prospectus dated June 4, 2004

PROSPECTUS

17,500,000 Shares

LODGIAN, INC.

Common Stock

          Lodgian, Inc. is offering 17,500,000 shares of its common stock.

          Our common stock is listed on the American Stock Exchange under the symbol “LGN.” On April 29, 2004, we announced a 1-for-3 reverse stock split that became effective on April 30, 2004. On June 3, 2004, the closing price of our common stock as reported on the American Stock Exchange was $14.76 per share.

          Investing in our common stock involves risks that are discussed in the “Risk Factors” section beginning on page 9 of this prospectus.

	Per Share	Total
Public offering price	$	$
Underwriting discount	$	$
Proceeds, before expenses, to us	$	$

          The underwriters may also purchase up to an additional 2,625,000 shares at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus to cover any overallotments.

          Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined that this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

          The shares will be ready for delivery on or about                     , 2004.

Merrill Lynch & Co. Citigroup

Banc of America Securities LLC

Legg Mason Wood Walker

Incorporated

Raymond James

The date of the prospectus is                     , 2004.

TABLE OF CONTENTS

	Page
Forward-Looking Statements		ii
Prospectus Summary		1
Risk Factors		9
Use of Proceeds		23
Price Range of Common Stock		23
Dividend Policy		24
Capitalization		25
Dilution		26
Selected Consolidated Financial Data		27
Management’s Discussion and Analysis of Financial Condition and Results of Operations		29
Business and Properties		69
Management		87
Principal Stockholders		97
Related Party Transactions		99
Description of Capital Stock		100
Shares Eligible For Future Sale		103
Underwriting		105
Legal Matters		109
Experts		109
Where You Can Find Additional Information		109
Index to Financial Statements		F-1
EX-1.1 FORM OF PURCHASE AGREEMENT
EX-3.1 AMENDED CERTIFICATE OF INCORPORATION
EX-4.1 SPECIMEN COMMON STOCK CERTIFICATE
EX-10.5 AMENDED 2002 STOCK INCENTIVE PLAN
EX-10.19 EMPLOYMENT AGREEMENT
EX-10.20.1 LODGIAN, INC. 401(K) PLAN
EX-23.1 CONSENT OF DELOITTE & TOUCHE LLP

          You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized any other person to provide you with different or additional information. If anyone provides you with different or additional information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.

          References in this prospectus to “Lodgian,” “we,” “us,” “our” and “our company” refer to Lodgian, Inc. and, unless the context otherwise requires or otherwise as expressly stated, our subsidiaries.

          Lodgian and our logo are the property of Lodgian, Inc. All other brand and trade names, logos or trademarks contained or referred to in this prospectus are the property of their respective owners, and their appearance in this prospectus may not in any way be construed as participation by, or endorsement of, this offering by any of our franchisors.

          We maintain a website at www.lodgian.com. We are not incorporating the information on our website into this prospectus, and our website should not be considered a part of this prospectus.

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FORWARD-LOOKING STATEMENTS

          This prospectus contains forward-looking statements. These statements include statements relating to our plans, strategies, objectives, expectations, intentions, industry and adequacy of resources, and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The words “believes,” “anticipates,” “expects,” “intends,” “plans,” “estimates,” and “projects” and similar expressions are intended to identify forward-looking statements. These forward-looking statements reflect our current views with respect to future events and the impact of those events on our business, financial condition, results of operations, cash flow, liquidity and prospects and are subject to many risks and uncertainties, including, among other things:

• Matters identified under “Risk Factors” in this prospectus;

•  The effects of regional, national and international economic conditions, including economic conditions in our individual markets;

• Competitive conditions in the lodging industry and increases in room capacity;

•  The effects of actual and threatened terrorist attacks and international conflicts and their impact on domestic and international travel;

•  The effectiveness of changes in management and our ability to retain qualified individuals to serve in senior management positions;

•  Requirements of franchise agreements, including the right of franchisors to immediately terminate their respective agreements if we breach certain provisions, and the cost of franchise renewals;

• Seasonality of the hotel business;

• The financial condition of the airline industry and its impact on air travel;

•  The effect that Internet reservation channels may have on the rates that we are able to charge for hotel rooms;

• Increases in the cost of debt and our continued compliance with the terms of our loan agreements;

• Our high level of secured debt and the fact that all of our hotels are pledged as collateral;

• Our ability to complete planned hotel and land parcel dispositions;

• Our ability to continue to meet the listing requirements of the American Stock Exchange;

•  The effect of self-insured claims in excess of our reserves, or our ability to obtain adequate property and liability insurance to protect against losses or to obtain insurance at reasonable rates;

• Potential litigation, environmental claims, and/or governmental inquiries and investigations;

•  Laws and regulations applicable to our business, including federal, state and local hotel, resort, restaurant and land use regulations, environmental, employment, labor and disability laws and regulations; and

•  The short time that the public market for our common stock has existed and the potential effects of our recent reverse stock split.

          Any of these risks and uncertainties could cause actual results to differ materially from historical results or those anticipated. Although we believe the expectations reflected in these forward-looking statements are based upon reasonable assumptions, we can give no assurance that our expectations will be attained and caution you not to place undue reliance on such statements. We undertake no obligation to publicly update or revise any forward-looking statements to reflect current or future events or circumstances or their impact on our business, financial condition, results of operations, cash flow, liquidity and prospects.

ii

PROSPECTUS SUMMARY

          The following summary may not contain all of the information that may be important to you. All share and per share information set forth in this prospectus has been adjusted to reflect a 1-for-3 reverse stock split that became effective on April 30, 2004. Unless otherwise indicated, the information in this prospectus assumes that the underwriters’ overallotment option is not exercised and that a $370 million refinancing of a substantial portion of our outstanding mortgage indebtedness will be funded on the closing date of this offering under definitive agreements that will be held in escrow, subject to certain conditions, until the closing date. You should read all of the information contained in this prospectus, including our consolidated financial statements and related notes and the risks of investing in our common stock discussed under “Risk Factors,” before making a decision to invest in our common stock.

Our Company

          Lodgian, Inc. is one of the largest independent owners and operators of full-service hotels in the United States in terms of our number of guest rooms and gross annual revenues, as reported by Hotel & Motel Management Magazine in September 2003. We are considered an independent owner and operator because we do not operate our hotels under our own name. We operate substantially all of our hotels under nationally recognized brands, such as “Crowne Plaza,” “Holiday Inn” and “Marriott.” We currently operate 88 hotels, with an aggregate of 16,627 rooms, located in 30 states and Canada. Of the 88 hotels, 78 hotels, with an aggregate of 14,348 rooms, are part of our continuing operations, while ten hotels, with an aggregate of 2,279 rooms, are held for sale.

          Our portfolio of 88 hotels consists of 83 hotels that we wholly own and operate through subsidiaries, four hotels that we operate in joint ventures in which we have a 50% or greater voting equity interest and exercise control, and one hotel that we operate in a joint venture in which we have a 30% non-controlling equity interest.

          Our hotels are primarily full-service properties that offer food and beverage services, meeting space and banquet facilities and compete in the midscale and upscale market segments of the lodging industry. We operate all but three of our hotels under franchises obtained from nationally recognized hospitality franchisors. We operate 60 of our hotels under franchises obtained from InterContinental Hotels Group as franchisor of the Crowne Plaza, Holiday Inn, Holiday Inn Select and Holiday Inn Express brands. We operate 15 of our hotels under franchises obtained from Marriott International as franchisor of the Marriott, Courtyard by Marriott, Fairfield Inn by Marriott and Residence Inn by Marriott brands. We operate another ten hotels under other nationally recognized brands. We believe that these strong national brands afford us many benefits, such as guest loyalty and market share premiums.

          Our corporate office is located in Atlanta, Georgia.

Lodging Industry Outlook

          We believe that we have passed the bottom of the U.S. economic and lodging industry cycle, based on industry forecasts, general economic forecasts and historical data. Smith Travel Research forecasted that revenue per available room, or RevPAR, for the U.S. lodging industry will experience annual growth of 5.2% for 2004, driven by an expected improvement in supply and demand fundamentals. Specifically, Smith Travel Research forecasted an annual increase in demand, as measured by average daily rooms sold, of 4.0% for 2004, which it forecasted will outpace the annual net increase in supply of 1.2% in 2004. Other lodging industry analysts also have forecasted RevPAR growth in 2004 and 2005. Although these are only industry forecasts, and do not apply specifically to our portfolio of hotels, based on forecasted industry fundamentals, we believe that it is an opportune time in the business cycle to own, acquire and reinvest in hotels.

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Competitive Strengths

          Portfolio Improvement Strategy. Our strategy is to own and operate a portfolio of profitable, well maintained and appealing hotels at superior locations in strong markets. We are implementing this strategy by renovating and/or repositioning existing hotels to improve performance, by divesting hotels that do not meet this strategy or that are unlikely to do so without significant effort or expense, and by acquiring or investing in hotels that fit this strategy. In accordance with this strategy and our efforts to reduce debt and interest costs, in 2003 we identified 19 hotels, our one office building and three land parcels for sale. Through May 31, 2004, we have sold nine of these hotels and our one office building, and during 2004 we intend to sell the remaining assets that are held for sale. We also expect to purchase and sell other hotels in the future as we continuously seek to improve our portfolio of hotels.

          Hotel Renovation and Repositioning Program. We seek to renovate and reposition our hotels based on strategic plans designed to address the opportunities presented by each hotel and its particular market. Renovations typically include upgrading guest rooms and public areas, and may include a substantial exterior renovation to improve the hotel’s overall appearance and appeal. Repositioning typically involves upgrading a hotel to a new market segment, such as from midscale to upscale, via physical improvements, rebranding, or both. We believe that selected renovations and repositionings will enable us to improve the financial performance of our hotels by increasing both occupancy and average daily rate, or ADR. In 2002, 2003 and the first five months of 2004, we invested $26.2 million, $30.7 million and $9.0 million, respectively, in renovations and repositionings of selected hotels in our continuing operations. We intend to invest approximately $35 million from the net proceeds of this offering on capital expenditures, including renovations and repositionings of selected hotels. We believe that these investments will fund substantially all deferred capital expenditures at our hotels required by reason of our franchise agreements, undertakings we made in connection with our emergence, and the emergence of one of our subsidiaries, from bankruptcy proceedings in November 2002 and May 2003, respectively, and our own operating plan.

          Nationally Recognized Franchised Brands. We operate substantially all of our hotels under nationally recognized hotel brands. We are the second largest franchisee of InterContinental Hotels Group, which is the franchisor of the Holiday Inn, Holiday Inn Express, Holiday Inn Select and Crowne Plaza brands. We also have hotel franchise agreements with Marriott International, Hilton Hotels and three other national hospitality franchisors. We believe that, in addition to benefits in terms of guest loyalty and market share premiums, our hotels benefit from franchisors’ central reservation systems, their global distribution systems and their brand Internet booking sites. Furthermore, as an independent owner and operator of hotels, we have the flexibility to utilize the brands most suitable to a market or a property, subject to availability of the brand in that location.

          Experienced Management Team. Our management consists of an experienced team of professionals with extensive lodging industry experience led by our president and chief executive officer, W. Thomas Parrington, who has been in the lodging industry for over 30 years, including most recently as chief executive officer of Interstate Hotels Company through 1998. Our chief operating officer, Michael W. Amaral, and our three regional vice presidents have a combined 90 years of industry experience and our vice president of sales and marketing has 20 years of industry experience. We will use the experience of our management team to improve property-level performance, implement our hotel renovation and repositioning program, dispose of hotels that do not fit our portfolio improvement strategy, identify potential acquisitions and maintain our relationships with our franchisors.

          Reduced Leverage and Enhanced Financial Flexibility. We intend to utilize $158.2 million (estimated as of July 30, 2004) of the net proceeds of this offering to redeem all of our outstanding mandatorily redeemable 12.25% cumulative Series A Preferred Stock. As of March 31, 2004, our total long-term debt associated with our continuing operations (including our Series A Preferred Stock, but excluding the current portion of long-term debt) was approximately $550.5 million and pro forma for the offering, the redemption of our Series A Preferred Stock, and our debt refinancing, our total long-term

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debt associated with our continuing operations (excluding the current portion of long-term debt) will be approximately $409.2 million, representing a 25.7% reduction.

          We have executed a commitment letter with Merrill Lynch Mortgage Lending, Inc. to refinance a substantial portion of our outstanding mortgage debt and, on the date of the consummation of this offering, the funding of that refinancing will be completed, which is a condition to completing this offering. As a result, our maturing debt (excluding principal amortizations) will total none and $5.5 million in the remainder of 2004 and 2005, respectively. Among other things, the refinancing will:

• extend the maturities of approximately $354 million of our indebtedness;

•  cause $260 million of our mortgage debt, previously bearing interest at a floating rate, to bear interest at a fixed rate; and

• ease certain of the covenant limitations imposed upon us.

          We believe these actions, as well as our intent to use a portion of the net proceeds from the sale of selected assets as part of our portfolio improvement strategy to repay a portion of our debt, will provide us with a stronger balance sheet and greater operating and financial flexibility.

          Net Operating Loss Carryforwards Available to Offset Our Taxable Income. As of December 31, 2003, we had approximately $270 million of historical net operating loss carryforwards for federal income tax purposes. To the extent that we do not have sufficient future taxable income to offset these net operating loss carryforwards, unused losses will expire between 2004 and 2023. Our ability to use these net operating loss carryforwards to offset future income is also subject to annual limitations under the Internal Revenue Code, and we anticipate that our use of net operating losses will be subject to an annual limitation of approximately $7.6 million.

Growth Strategy

          Internal Growth. We believe that occupancy and ADR, and consequently RevPAR, in our continuing operations will increase as a result of an expected improvement in lodging industry supply and demand fundamentals, our hotel renovation and repositioning program and our strong management team. We believe our planned capital expenditures and operational improvements will generate increased revenues and enhance our financial performance. During the first quarter of 2004, our RevPAR improved 5.6% compared to the first quarter of 2003. Additionally, we will continue to monitor the ongoing performance of our hotels as part of our portfolio improvement strategy.

          Growth from Hotel Acquisitions. Based on the expected improvement in lodging industry fundamentals, we believe it is an opportune time in the lodging industry cycle to own and acquire hotels. We intend to acquire or invest in additional hotels primarily through joint ventures with other investors. We currently have five joint ventures and we believe that entering into joint ventures will enable us to increase our revenues and enhance our financial performance from both the management fees we would receive for managing the hotels owned by the joint ventures, as well as from our ownership interest in those hotels. Under certain circumstances, we also may seek to acquire select hotels on a wholly-owned basis.

          We intend to focus our acquisition and investment efforts on limited service, midscale and upscale hotels that are less than five years old, contain approximately 100 to 250 rooms and enhance our brand diversification.

Corporate History

          Lodgian was formed as a new parent company in a merger of Servico, Inc. and Impac Hotel Group, LLC in December 1998. Servico was incorporated in Delaware in 1956 and was an owner and operator of hotels under a series of different entities. Impac was a private hotel ownership, management

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and development company organized in Georgia in 1997 through a reorganization of predecessor entities. After the consummation of the merger, our portfolio consisted of 142 hotels.

          Between December 1998 and the end of 2001, a number of factors, including our heavy debt load, a lack of available funds to maintain the quality of our hotels, a weakening U.S. economy, and the severe decline in travel after the terrorist attacks on September 11, 2001, combined to place adverse pressure on our cash flow and liquidity. As a result, on December 20, 2001, Lodgian and substantially all of our subsidiaries that owned hotels filed for voluntary reorganization under Chapter 11 of the Bankruptcy Code. At the time of the filing, our portfolio consisted of 106 hotels.

          Following the consummation of our reorganization, we emerged from Chapter 11 with 97 hotels, eight of our hotels having been conveyed to a lender in satisfaction of outstanding debt obligations and one hotel having been returned to the lessor of a capital lease of the property. Of these 97 hotels, 78 hotels emerged from Chapter 11 on November 25, 2002, 18 hotels emerged from Chapter 11 on May 22, 2003 and one hotel never filed under Chapter 11. All of our pre-Chapter 11 unsecured and secured debt obligations were restructured or otherwise settled in our reorganization. Certain pre-Chapter 11 unsecured claims remain subject to compromise. These remaining claims have been fully accrued in our financial statements and are payable solely out of the disputed claims reserve, which consists of 27,946 shares of our common stock and 79,278 shares of our Preferred Stock having an aggregate liquidation preference of approximately $2.0 million (issued pursuant to our reorganization plan but not yet distributed to claimants), and cash in a total amount that currently is below $100,000. We intend to use a portion of the net proceeds from this offering to redeem all of our Preferred Stock. From and after the redemption date, we intend to substitute for the shares of Preferred Stock held in the disputed claims reserve an amount of cash equal to the liquidation preference of those shares, plus accrued dividends and a 4% prepayment premium.

          Pursuant to our portfolio improvement strategy, during 2003 and through May 31, 2004, we sold nine hotels and our one office building. Our current hotel portfolio consists of 88 hotels, 78 of which are reflected in continuing operations (including one hotel that we do not consolidate).

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Our Portfolio

          Set forth below is a summary of our current hotel portfolio, organized by franchisor, with the brand, number of hotels and rooms represented by each, in continuing operations and discontinued operations (including one hotel that we do not consolidate):

		Continuing				Discontinued
		Operations				Operations				Total
		No. of		No. of		No. of		No. of		No. of		No. of
		Hotels		Rooms		Hotels		Rooms		Hotels		Rooms
InterContinental Hotels Group PLC (IHG)
	Holiday Inn		36		6,737		8		1,693		44		8,430
	Holiday Inn Express		4		504		—		—		4		504
	Holiday Inn Select		4		1,096		1		397		5		1,493
	Crowne Plaza(1)		7		1,902		—		—		7		1,902
Total IHG			51		10,239		9		2,090		60		12,329
Marriott International, Inc.
	Marriott		1		238		—		—		1		238
	Courtyard by Marriott		7		760		—		—		7		760
	Fairfield Inn by Marriott		5		563		—		—		5		563
	Residence Inn by Marriott		2		177		—		—		2		177
Total Marriott			15		1,738		—		—		15		1,738
Hilton Hotels Corporation
	Hilton		3		587		—		—		3		587
	DoubleTree		1		189		—		—		1		189
Total Hilton			4		776		—		—		4		776
Choice Hotels International, Inc.
	Clarion		2		590		—		—		2		590
	Quality		2		307		—		—		2		307
Total Choice			4		897		—		—		4		897
Starwood Hotels & Resorts Worldwide, Inc.
	Four Points		—		—		1		189		1		189
Carlson Companies
	Radisson		1		163		—		—		1		163
Non-Franchised Hotels			3		535		—		—		3		535
Total All Hotels			78		14,348		10		2,279		88		16,627

(1)  The mortgage debt for our Crowne Plaza Hotel, in Macon, Georgia, matures on June 30, 2004, and we have escrowed foreclosure documents with respect to this debt; however, we expect to repay this debt as part of the Merrill Lynch Mortgage Lending, Inc. refinancing.

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The Offering

Common stock offered	17,500,000 shares
Common stock outstanding after this offering(1)	19,804,326 shares
Use of proceeds	We estimate that the net proceeds of this offering will be $238.6 million, assuming an offering price of $14.76 per share. We intend to use the net proceeds from this offering:
	• to redeem all outstanding shares of our Series A Preferred Stock ($158.2 million, estimated as of July 30, 2004).
	• to fund approximately $35.2 million of capital expenditures, consisting of:
	• a lender-controlled reserve account relating to hotels securing our refinancing debt ($22.7 million) and
	• capital expenditures related to renovations and repositionings of other selected hotels ($12.5 million).
	• to fund a reserve account pursuant to other requirements in our debt refinancing agreements ($3 million).
	• for general corporate purposes, including funding our growth strategy.
American Stock Exchange symbol	LGN
Risk Factors	See “Risk Factors” for a discussion of factors you should carefully consider before deciding to invest in our common stock.

(1)  The number of shares of common stock outstanding after this offering is based on 2,304,326 shares of our common stock outstanding as of May 31, 2004, as adjusted to give effect to this offering. The number of shares outstanding after this offering excludes 27,946 shares of common stock held in a disputed claims reserve pending final resolution of Chapter 11 claims. The number of shares of common stock outstanding after this offering also excludes shares of common stock reserved for issuance under our Stock Incentive Plan (currently estimated at 2,842,432 shares), including options to purchase 153,847 shares of common stock at a weighted average option price of $13.89, options to purchase 377,500 shares of common stock to be awarded on the closing date of this offering at a price per share equal to the fair market value of the common stock determined in accordance with our Stock Incentive Plan, and 68,048 restricted stock units representing the right to receive an equal number of shares of common stock. The number of shares available for issuance under the Stock Incentive Plan will be fixed upon the consummation of this offering based upon 12% of the fully diluted shares immediately following this offering (including the entire number of shares subject to the underwriters’ overallotment option). The number of shares of common stock outstanding also excludes 503,546 shares reserved for issuance upon the exercise of outstanding Class A warrants to purchase our common stock at an exercise price of $54.87 per share and 343,122 shares reserved for issuance upon the exercise of outstanding Class B warrants to purchase our common stock at an exercise price of $76.32 per share. In addition, the number of shares of common stock outstanding after this offering assumes that the underwriters’ overallotment option is not exercised. If the overallotment option is exercised in full, we will issue and sell an additional 2,625,000 shares of common stock.

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Summary Consolidated Financial and Operating Data

          We present, in the table below, summary financial data derived from our historical financial statements for the three years ended December 31, 2003 and for the three months ended March 31, 2004 and 2003. On November 22, 2002, in connection with our emergence from Chapter 11 and in accordance with GAAP (generally accepted accounting principles in the U.S.) requiring fresh start reporting, we restated our assets and liabilities to reflect their fair values. As a result, our financial statements for the periods subsequent to November 22, 2002 are those of a new reporting entity and are not comparable with the financial statements for periods on or prior to November 22, 2002. For this reason, we use the term “successor” when we refer to periods subsequent to November 22, 2002 and the term “predecessor” when we refer to periods on or prior to November 22, 2002. In certain places in this prospectus, we have combined the predecessor’s results for the period January 1, 2002 to November 22, 2002 with the successor’s results for the period November 23, 2002 to December 31, 2002 and refer to it as the 2002 Combined Period.

		Successor												Predecessor
		Three months
		ended March 31,						Year ended			November 23,			January 1, to			Year ended
								December 31,			to December 31,			November 22,			December 31,
		2004			2003			2003			2002			2002			2001
		(in thousands, except per												(in thousands, except per
		share data)												share data)
Income statement data:
Revenues — continuing operations		$	76,805		$	73,379		$	311,414		$	25,306		$	299,267		$	351,072
Revenues — discontinued operations			10,740			12,286			61,137			6,441			78,757			96,484
Revenues — continuing and discontinued operations			87,545			85,665			372,551			31,747			378,024			447,556
(Loss) income — continuing operations			(6,384	)		(5,841	)		(27,074	)		(6,745	)		16,999			(87,537	)
Loss — discontinued operations, net of taxes			(702	)		(3,243	)		(4,603	)		(2,581	)		(4,633	)		(55,227	)
Net (loss) income			(7,086	)		(9,084	)		(31,677	)		(9,326	)		12,366			(142,764	)
Net (loss) income attributable to common stock			(7,086	)		(12,860	)		(39,271	)		(10,836	)		12,366			(142,764	)
(Loss) income from continuing operations attributable to common stock before discontinued operations			(6,384	)		(9,617	)		(34,668	)		(8,255	)		16,999			(87,537	)
Earnings per common share, basic and diluted:
	(Loss) income — continuing operations		(2.74	)		(2.50	)		(11.60	)		(2.89	)		0.60			(3.09	)
	Loss — discontinued operations, net of taxes		(0.30	)		(1.39	)		(1.98	)		(1.11	)		(0.17	)		(1.95	)
	Net (loss) income		(3.04	)		(3.89	)		(13.58	)		(4.00	)		0.43			(5.04	)
	Net (loss) income attributable to common stock		(3.04	)		(5.51	)		(16.83	)		(4.64	)		0.43			(5.04	)
(Loss) income from continuing operations attributable to common stock before discontinued operations			(2.74	)		(4.12	)		(14.86	)		(3.54	)		0.60			(3.09	)
Basic and diluted weighted average shares(1)			2,334			2,333			2,333			2,333			28,480			28,350
Balance sheet data (at period end):
Total assets		$	695,793					$	709,174		$	762,164		$	967,131		$	975,362
Assets held for sale			55,788						68,567			—			—			—
Long-term debt(2)			550,506						551,292			389,752			7,215			7,652
Liabilities related to assets held for sale			47,340						57,948			—			—			—
Liabilities subject to compromise(2)			—						—			93,816			926,387			925,894
Mandatorily redeemable 12.25% cumulative Series A Preferred Stock(3)			—						—			126,510			—			—
Total liabilities			659,807						666,248			553,581			990,682			982,043
Total liabilities and Series A Preferred Stock			659,807						666,248			680,091			990,682			982,043
Total stockholders’ equity (deficit)			33,519						40,606			78,457			(28,841	)		(6,681	)

(1)  The number of shares in the successor period ended December 31, 2002 represents the shares issued on the consummation of the first of the two plans of reorganization on November 25, 2002. The 28,479,837 old shares were cancelled and 2,333,333 shares were issued, including shares held in a disputed claims reserve. The common share and per share data for the successor presented in this table have been adjusted to reflect our 1-for-3 reverse stock split that became effective on April 30, 2004.

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(2)

Reported long-term debt was affected in 2001 by our filing for Chapter 11. On the filing of Chapter 11, all our debts (except the debt relating to a non-filed entity) and certain other liabilities were classified as liabilities subject to compromise. On emergence from Chapter 11, some of our debt was discharged. The remaining long-term debt and other settled claims were reclassified out of liabilities subject to compromise to long-term debt (if long-term) and current liabilities (if short-term).

(3)

The Series A Preferred Stock was issued on November 25, 2002. At December 31, 2002, the Series A Preferred Stock was classified between long-term debt and equity on our consolidated balance sheet, called the mezzanine section. In accordance with Statement of Financial Accounting Standards (“SFAS”)  No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity which was effective on July 1, 2003, we reclassified the Series A Preferred Stock to long-term debt. The Series A Preferred Stock outstanding was $146.5 million at March 31, 2004, $130.3 million at March 31, 2003, $142.2 million at December 31, 2003 and $126.5 million at December 31, 2002. In addition, the dividends for the applicable periods from July 1, 2003 to March 31, 2004 were reported in interest expense. In accordance with SFAS No. 150, we continued to show the dividends for the periods from January 1, 2003 to June 30, 2003 and from November 23, 2002 to December 31, 2002 as deductions from retained earnings.

          We believe that results of operations in the lodging industry are best explained by three key performance measures: occupancy, average daily rate, or ADR, and revenue per available room, or RevPAR, levels. These measures are influenced by a variety of factors, including national, regional and local economic conditions, the degree of competition with other hotels in the area and changes in travel patterns. The demand for accommodations is also affected by normally recurring seasonal patterns and most of our hotels experience lower occupancy levels in the fall and winter months (November through February) generally resulting in lower revenues, lower net income and less cash flow during these months. RevPAR is derived by dividing room revenues by the number of available room nights for a given period or, alternatively, by multiplying the occupancy by the ADR.

          Earnings before interest, taxes, depreciation and amortization, or EBITDA, is a widely used industry measure of performance and also is used in the assessment of hotel property values. EBITDA is not a GAAP measure and should not be used as a substitute for measures such as net income (loss), cash flows from operating activities, or other measures computed in accordance with GAAP. We believe that EBITDA provides pertinent information to investors as an additional indicator of our performance.

          Presented below are the following:

•  Occupancy, ADR and RevPAR for the 78 hotels in our continuing operations for the three months ended March 31, 2004 and 2003 and for 2003, the 2002 Combined Period and 2001; and

•  EBITDA for the 77 hotels that we consolidate in our continuing operations for the three months ended March 31, 2004 and 2003 and for 2003, the 2002 Combined Period and 2001 (we do not calculate EBITDA for our non-controlling equity interest in one hotel because we account for it under the equity method).

			Three months
			Ended March 31,									2002
	No. of											Combined
	Hotels		2004			2003			2003			Period			2001
Occupancy		78		59.0	%		56.6	%		59.7	%		61.4	%		63.0	%
ADR		78	$	75.65		$	74.64		$	74.34		$	74.83		$	77.39
RevPAR		78	$	44.59		$	42.23		$	44.35		$	45.94		$	48.77
EBITDA (in thousands)(1)		77	$	12,898		$	7,853		$	50,953		$	43,763		$	41,862

(1)  We present a reconciliation of EBITDA, a non-GAAP measure, with our (loss) income from continuing operations in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — EBITDA.” The three months ended March 31, 2004 and 2003 EBITDA figures presented in the table include $0.2 million and $2.2 million of post-emergence Chapter 11 related expenses, respectively, that were reported in general, administrative and other, and the three months ended March 31, 2003 EBITDA figure includes $1.2 million of reorganization expenses. The 2003 and 2002 Combined Period EBITDA figures presented in the table include $1.4 million and $22.3 million of reorganization expenses, respectively, and $4.6 million and $0.8 million of post-emergence Chapter 11 related expenses, respectively, that were reported in general, administrative and other. The 2001 EBITDA figure presented in the table includes $21.7 million of reorganization expenses.

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RISK FACTORS

          An investment in the shares of our common stock involves a high degree of risk. In addition to the other information in this prospectus, the following risk factors should be considered carefully in evaluating an investment in our common stock. If any of the following risks actually occur, our business, financial condition, results of operations, cash flow, liquidity and prospects are likely to suffer. In that case, the trading price of our common stock could decline and you may lose all or part of your investment in our common stock.

Refinancing Risk

This offering is contingent upon the refinancing with Merrill Lynch Mortgage of a substantial portion of our outstanding mortgage debt.

          We have executed a commitment letter with Merrill Lynch Mortgage Lending, Inc. (“Merrill Lynch Mortgage”), an affiliate of one of our underwriters, to refinance approximately (1) $291 million of our outstanding mortgage debt with Merrill Lynch Mortgage, (2) $56 million of our outstanding mortgage debt with The Lehman Brothers Holdings, Inc. (“Lehman”) and (3) $7 million of the outstanding mortgage debt of Macon Hotel Associates, L.L.C., an entity in which we own a 60% interest. On the date of the consummation of this offering, the funding of the $370 million refinancing by Merrill Lynch Mortgage (the “Refinancing Debt”) (which includes fees for the Refinancing Debt and prepayment penalties for the existing debt being refinanced) will be completed, which is a condition to the completion of this offering. This Refinancing Debt will be comprised of a $110 million floating rate loan and four separate fixed rate loans totaling $260 million ranging in principal amounts from approximately $61.5 million to $67.9 million (individually, a “Refinancing Loan” and collectively, the “Refinancing Loans”).

          The completion of the Refinancing Debt is subject to the following conditions, as to the satisfaction of which no assurance can be given:

•  no material adverse change in the fair market value of the mortgaged hotels or the financial condition of our company and its subsidiaries taken as a whole; and

•  no material disruption or material adverse change in current financial, banking or capital market conditions that, in the sole reasonable judgment of Merrill Lynch Mortgage, could materially impair the satisfactory syndication of the loans.

Risks Related to Our Business

We may not be able to meet the requirements imposed by our franchisors in our franchise agreements and therefore could lose the right to operate one or more hotels under a national brand and default under one of our loan agreements.

          We operate substantially all of our hotels pursuant to franchise agreements with franchisors for nationally recognized hotel brands. The franchise agreements generally contain specific standards for, and restrictions and limitations on, the operation and maintenance of a hotel in order to maintain uniformity within the franchisor system. The standards are subject to change over time. Compliance with any new standards could cause us to incur significant expenses and capital expenditures.

          If we do not comply with standards or terms of any of our franchise agreements, those franchise agreements may be terminated after we have been given notice and an opportunity to cure the noncompliance or default. As of May 31, 2004, we have been notified that we were not in compliance with some of the terms of seven of our franchise agreements and have received default and termination notices from franchisors with respect to an additional three hotels. We cannot assure you that we will be able to complete our action plans (which we estimate will cost approximately $3.1 million) to cure the alleged instances of noncompliance and default prior to the specified termination dates or be granted additional time in which to cure any defaults or other noncompliance.

          In addition, as part of our bankruptcy reorganization proceedings, we entered into stipulations with each of our major franchisors setting forth a timeline for completion of capital expenditures for some of

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our hotels. However, as of May 31, 2004, we have not completed the required capital expenditures for 32 hotels (including one of the hotels for which we have received a default and termination notice from the franchisor) in accordance with the stipulations and we estimate that the cost of completing these required capital expenditures is $22.3 million. The franchisor could therefore seek to declare its franchise agreement in default and could seek to terminate the franchise agreement.

          If a franchise agreement is terminated, we will either select an alternative franchisor or operate the hotel independently of any franchisor. However, terminating or changing the franchise affiliation of a hotel could require us to incur significant expenses, including franchise termination payments and capital expenditures. Moreover, the loss of a franchise agreement could have a material adverse effect upon the operations or the underlying value of the hotel covered by the franchise because of the loss of associated guest loyalty, name recognition, marketing support and centralized reservation systems provided by the franchisor. Loss of a franchise agreement may result in a default under, and acceleration of, the related mortgage debt. In particular, we would be in default under a Refinancing Loan if we experience either:

•  multiple franchise agreement defaults for hotels whose allocated loan amounts total 10% or more of the outstanding principal amount of such Refinancing Loan;

•  the termination of franchise agreements for one or more of the hotels whose allocated loan amounts represent more than 5% of the outstanding principal amount of such Refinancing Loan, and such hotels continue to operate for more than five consecutive days without being subject to replacement franchise agreements; or

•  a franchise termination for any hotel currently subject to a franchise agreement that remains without a franchise agreement for more than six months.

A single franchise agreement termination could materially and adversely affect our revenues, cash flow and liquidity.

          In connection with this offering and the Refinancing Debt, we have agreed to renew during 2004 our 15 Marriott franchise agreements and to pay, over a three year period, a fee aggregating approximately $500,000, subject to offsets. In connection with these renewals, and after Marriott reviews the capital improvements we have made at our Marriott franchised hotels during 2004, Marriott may in its reasonable business judgment require us to make additional property improvements and to place amounts into a reserve account for the purpose of funding those property improvements.

          Our current franchise agreements terminate at various times and have differing remaining terms. For example, the terms of five, thirteen and nine of our franchise agreements are scheduled to expire in 2004, 2005 and 2006. As a condition to any franchise agreement renewal, our franchise agreements frequently contemplate a renewal application process, which may require substantial capital improvements to be made to the hotel and substantial increases in franchise fees payable to the franchisor. Significant unexpected capital expenditures and franchise fees would adversely affect our results of operations and cash flows.

Hotels require a high level of capital expenditures, maintenance and repairs and if we are not able to meet these requirements of our hotels appropriately, our business, cash flow and operating results will suffer.

          In order to maintain our hotels in good condition and attractive appearance, it is necessary to replace furnishings, fixtures and equipment periodically, generally every five to seven years, and to maintain and repair public areas and exteriors on an ongoing basis. Due to a lack of available funds, made worse by our heavy debt load, weakness in the U.S. economy, and the severe decline in travel in the aftermath of the terrorist attacks of September 11, 2001, we have deferred many capital expenditures on our hotels. If we do not make the maintenance, repairs and capital improvements that we have planned to make using the proceeds of this offering and our other sources of funds, occupancy and room rates could fall, thereby adversely affecting our operating results and cash flow, and we risk termination of franchise agreements at the affected hotels. Further, the process of renovating a hotel can be disruptive to operations, and a failure

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to properly plan and execute renovations and to schedule them during seasonal declines in business can result in renovation displacement, an industry term for a temporary loss of revenue due to implementing renovations.

All of our hotels are pledged as collateral for mortgage loans, and we have a significant amount of debt that could limit our operational flexibility or otherwise adversely affect our financial condition.

          Pro forma for the offering, the redemption of the Series A Preferred Stock and the Refinancing Debt, we will have $458.7 million of total long-term debt outstanding ($409.2 million of which will be associated with our continuing operations, net of the current portion of our long-term debt). We are subject to the risks normally associated with significant amounts of debt, such as:

•  We may not be able to repay, refinance or extend our maturing indebtedness on favorable terms or at all;

•  If we are unable to refinance or extend the maturity of our maturing indebtedness, we may not otherwise be able to repay such indebtedness. Debt defaults could lead to us being forced to sell one or more of our hotels on unfavorable terms or, in the case of secured debt, convey the mortgaged hotel(s) to the lender, causing a loss of any anticipated income and cash flow from, and our invested capital in, such hotel(s);

•  Substantially all of our hotels will be pledged as collateral for mortgage loans, which at the closing of this offering and as adjusted to reflect the Refinancing Debt will total approximately $452.3 million as of March 31, 2004 and represented 77.8% of the book value of our hotel property, plant and equipment, net, and, as a result, we have limited flexibility to sell our hotels to satisfy cash needs;

• Increased vulnerability to downturns in our business, the lodging industry and the general economy;

• Our cash flow from operations may be insufficient to make required debt service payments;

• Our ability to obtain other financing to fund future working capital, capital expenditures and other general corporate requirements may be limited;

• We may be required to dedicate a substantial portion of our cash flow from operations to debt service payments, reducing the availability of our cash flow to fund working capital, capital expenditures, and other needs and placing us at a competitive disadvantage with other companies that have greater resources and/or less debt;

•  Our flexibility in planning for, or reacting to, changes in our business and industry may be restricted, placing us at a competitive disadvantage to our competitors with greater financial strength than we have; and

•  As a result of limitations contained in our debt agreements on the ability of our subsidiaries to distribute any excess cash flow to us, we currently are, and may in the future be, unable to pay dividends on our common stock or to access such cash flow for other purposes.

The terms of our debt instruments place many restrictions on us, which reduce operational flexibility and create default risks.

          Our debt instruments, including the Refinancing Debt, will subject us to financial covenants, including leverage and coverage ratios. Our compliance with these covenants depends substantially upon the financial results of our hotels. In particular, the Refinancing Debt requires minimum debt yield and debt service coverage ratios. The fixed rate and floating rate Refinancing Loans provide that when either (i) the debt yield for the hotels securing the respective loans for the trailing 12-month period is below 9% during the first year and 10%, 11%, 12% and 13% during each of the next four years of the loans, respectively (in the case of the floating rate loan, to the extent the loan is extended for a third, fourth or fifth year), or (ii) with respect to the floating rate loan, the debt service coverage ratio for the hotels

11

securing the floating rate loan is below 1.30x in the fourth year of the loan, if extended, or 1.35x in the fifth year of the loan, if extended, excess cash flows produced by the mortgaged hotels securing the applicable loan (after payment of operating expenses, management fees, required reserves, service fees, principal and interest) must be deposited in a restricted cash account. These funds can be used for the prepayment of the applicable fixed or floating rate Refinancing Loan in an amount required to satisfy the applicable test, capital expenditures reasonably approved by the lender for the hotels securing the applicable loan, and up to an aggregate $3.0 million of scheduled principal and interest payments due under the applicable loan. Funds will no longer be deposited into the restricted cash account when the debt yield ratio and, if applicable, the debt service coverage ratio for the hotels securing the applicable Refinancing Loan are sustained above the minimum requirements for three consecutive months.

          Through our wholly-owned subsidiaries, we owe approximately $10.6 million under industrial revenue bonds secured by the Holiday Inns Lawrence, Kansas and Manhattan, Kansas hotels. For the year ended December 31, 2003, the cash flows of the two hotels were insufficient to meet the minimum debt service coverage ratio requirements. If the bond trustee were to assert its rights against us under the indenture and declare a default, we estimate that it would cost us approximately $250,000 to remedy the default. If a default were declared and not cured, the two hotels would be subject to foreclosure and we would be obligated to reimburse bondholders pursuant to a partial guaranty of approximately $1.4 million. In addition, we could be obligated to pay our franchisor liquidated damages in the amount of $1.3 million.

          The restrictive covenants in our debt documents may reduce our flexibility in conducting our operations and may limit our ability to engage in activities that may be in our long-term best interest. Our failure to comply with our debt documents, including these restrictive covenants, may result in additional interest being due and would constitute an event of default, in some cases with notice or the lapse of time, that, if not cured or waived, could result in the acceleration of the defaulted debt and the sale or foreclosure of the affected hotels. As noted above, under certain circumstances the termination of a hotel franchise agreement could also result in the same effects. A foreclosure would result in a loss of any anticipated income and cash flow from, and our invested capital in, the affected hotel. No assurance can be given that we will be able to repay, through financings or otherwise, any accelerated indebtedness or that we will not lose all or a portion of our invested capital in any hotels that we sell in such circumstances.

Rising interest rates could have an adverse effect on our cash flow and interest expense.

          A significant portion of our indebtedness is, or will be, subject to variable interest rates (including $110 million of the Refinancing Debt upon the closing thereof). In the future, we may incur additional indebtedness bearing interest at a variable rate, or we may be required to refinance our existing indebtedness at higher interest rates. Accordingly, increases in interest rates will increase our interest expense and adversely affect our cash flow, reducing the amounts available to make payments on our indebtedness, fund our operations and our capital expenditure program, make acquisitions or pursue other business opportunities.

To service our indebtedness, we require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control, and a cash shortfall could adversely affect our ability to fund our operations, planned capital expenditures and other needs.

          Our ability to make payments on and to refinance our indebtedness and to fund our operations, planned capital expenditures and other needs will depend on our ability to generate cash in the future. Various factors could adversely affect our ability to meet operating cash requirements, many of which are subject to the operating risks inherent in the lodging industry and therefore are beyond our control. These risks include the following:

•  Dependence on business and leisure travelers, who have been and continue to be affected by threats of terrorism, or other outbreaks of hostilities, and whose lodging needs may otherwise fluctuate and be seasonal;

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• Cyclical overbuilding in the lodging industry;

• Varying levels of demand for rooms and related services;

• Competition from other hotels, motels and recreational properties, some of which may be owned or operated by companies having greater marketing and financial resources than we do;

• Effects of economic and market conditions;

• Decreases in air travel;

• Fluctuations in operating costs;

• Changes in governmental laws and regulations that influence or determine wages or required remedial expenditures;

• Changes in interest rates and in the availability, cost and terms of credit; and

• The perception of the lodging industry and companies in the debt and equity markets.

The value of our hotels and our ability to repay or refinance our debt are dependent upon the successful operation and cash flows of the hotels.

          The value of our hotels is heavily dependent on their cash flows. If cash flows decline, the hotel values may also decline and the ability to repay or refinance our debt could also be adversely affected. Factors affecting the performance of our hotels include, but are not limited to, construction of competing hotels in the markets served by our hotels, loss of franchise affiliations, the need for renovations, the effectiveness of renovations or repositionings in attracting customers, changes in travel patterns and adverse economic conditions.

          We may not be able to fund future capital needs, including necessary working capital, funds for capital expenditures or acquisition financing, from operating cash flow. Consequently, we may need to rely on third-party sources to fund our capital needs. We may not be able to obtain the financing on favorable terms or at all, which could materially and adversely affect our operating results, cash flow and liquidity. Any additional debt we incur will increase our leverage, which would reduce our operational flexibility and increase our risk exposure. Our access to third-party sources of capital depends, in part, on:

• general market conditions;

• the market’s perception of our growth potential;

• our current debt levels and property encumbrances;

• our current and expected future earnings;

• our cash flow and cash needs; and

• the market price per share of our common stock.

If we are not able to implement our growth strategy, we may not be able to improve our financial performance.

          Following the completion of this offering, we intend to pursue a full range of growth opportunities, including identifying hotels for renovation, repositioning, acquisition or investment. We cannot assure you that the execution of our growth strategy will produce improved financial performance at the affected hotels. We compete for acquisition opportunities with national and regional hospitality companies, many of which have greater name recognition, marketing support and financial resources than we do. Our ability to make acquisitions and investments is dependent upon, among other things, our relationships with owners of existing hotels, our ability to identify suitable joint venture partners and to identify and consummate joint venture opportunities, financing acquisitions and successfully integrating new hotels into our operations. We cannot assure you that suitable hotels for acquisition, investment, management or rebranding, or a desired nationally recognized brand in a particular market, will be available on favorable terms or at all. Our

13

failure to compete successfully for acquisitions, to finance those acquisitions on favorable terms, to attract or maintain relationships with hotel owners and major hotel investors, or to achieve favorable returns on investments in hotel acquisitions, renovations and repositionings, could adversely affect our ability to expand our system of hotels. An inability to implement our growth strategy successfully would limit our ability to grow our revenues, net income and cash flow.

Our current and future joint venture investments could be adversely affected by our lack of sole decision-making authority, our reliance on joint venture partners’ financial condition and performance and any disputes that may arise between us and our joint venture partners.

          We currently have an ownership interest in five of our hotels through joint ventures. We anticipate that a significant portion of any future hotel acquisitions will be made through joint ventures, although no assurance can be given that we will identify suitable joint venture partners or opportunities or enter into joint venture agreements on favorable terms or at all. We generally will not be in a position to exercise sole decision-making authority regarding the hotels owned through such joint ventures. Investments in joint ventures may, under certain circumstances, involve risks not present when a third party is not involved, including the possibility that joint venture partners might become bankrupt or fail to fund their share of required capital contributions. Joint venture partners may have business interests, strategies or goals that are inconsistent with our business interests, strategies or goals and may be, and in cases where we have a minority interest will be, in a position to take actions contrary to our policies, strategies or objectives. Joint venture investments also entail a risk of impasse on decisions, such as acquisitions or sales, because neither we nor our joint venture partner would have full control over the joint venture. Any disputes that may arise between us and our joint venture partners may result in litigation or arbitration that could increase our expenses and could prevent our officers and/or directors from focusing their time and effort exclusively on our business strategies. Consequently, actions by or disputes with our joint venture partners might result in subjecting hotels owned by the joint venture to additional risks. In addition, we may in certain circumstances be liable for the actions of our third-party joint venture partners.

Because fresh start reporting will make future financial statements difficult to compare with our historical financial statements, it may be difficult for investors to measure our financial performance or assess our prospects for growth.

          In accordance with the requirements of SOP 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code, we adopted fresh start reporting effective November 22, 2002. Because SOP 90-7 required us to reset our assets and liabilities to current fair value, our financial position, results of operations and cash flows for periods ending after November 22, 2002 will not be comparable to the financial position, results of operations and cash flows reflected in our historical financial statements for periods ending on or prior to November 22, 2002 included elsewhere in this prospectus. The use of fresh start reporting will make it difficult to assess our future prospects based on historical performance.

Our prior bankruptcy could hinder our ability to negotiate effectively with third parties and could adversely affect our operations going forward.

          On December 20, 2001, Lodgian and substantially all of our subsidiaries that owned hotels filed for voluntary reorganization under Chapter 11 of the Bankruptcy Code. Lodgian and affiliates owning 78 hotels officially emerged from bankruptcy on November 25, 2002. However, the adverse publicity and news coverage regarding our Chapter 11 reorganization and financial condition and performance could adversely affect our operations going forward. Our bankruptcy filing had an adverse affect on our credit standing with our lenders, certain suppliers and other trade creditors. This can increase our costs of doing business and can hinder our negotiating power with our lenders, certain suppliers and other trade creditors. The failure to negotiate favorable terms could adversely affect our financial performance. Though we have emerged from Chapter 11, the distribution of shares to the general unsecured creditors is not complete as we continue to reconcile the claims made by these creditors. Until this process is complete, we will continue to incur expenses with respect to the reorganization process.

14

We have a history of significant losses and we may not be able to successfully improve our performance to achieve profitability.

          We incurred cumulative net losses of $327.1 million from January 1, 1999 through March 31, 2004 and had an accumulated deficit of $57.2 million as of March 31, 2004. Our ability to improve our performance to achieve profitability is dependent upon a recovery in the general economy, combined with an improvement in the lodging industry specifically, and the successful implementation of our business strategy. Our failure to improve our performance could have a material adverse effect on our business, results of operations, financial condition, cash flow, liquidity and prospects. The economic downturn which commenced in early 2001 and the terrorist attacks of September 11, 2001 and the subsequent threat of terrorism resulted in a sharp decline in demand for hotels and continued to affect our results during 2002 and 2003. The lodging industry experienced some recovery during the second half of 2003, but we were not able to benefit fully from the recovery due to deferred capital expenditures and renovation displacement at some of our hotels. Although Smith Travel Research recently forecasted RevPAR growth for the U.S. lodging industry in 2004 due to rising occupancy and rates and an improving economy, this forecast does not apply specifically to our portfolio of hotels. As a result, we may not realize some or any of the benefits of that growth, particularly as some of our hotels are still under renovation while others need to be renovated. Furthermore, the forecasted RevPAR growth for the U.S. lodging industry may not be realized and, if an economic slowdown returns or worsens for a protracted period of time, it could have a material adverse effect on our business, results of operations, financial condition, cash flow, liquidity and prospects.

Acts and threats of terrorism, the ongoing war against terrorism, military conflicts and other factors have had and may continue to have a negative effect on the lodging industry and our results of operations.

          The terrorist attacks of September 11, 2001 and the continued threat of terrorism, including changing threat levels announced by the U.S. Department of Homeland Security, have had a negative impact on the lodging industry and on our hotel operations from the third quarter of 2001 to the present. These events have caused a significant decrease in occupancy and ADR in our hotels due to disruptions in business and leisure travel patterns and concerns about travel safety. In particular, major metropolitan area and airport hotels have been adversely affected by concerns about air travel safety and a significant overall decrease in the amount of air travel. In addition, terrorist attacks may directly affect the value of our hotels through damage, destruction, loss or increased security costs. Certain losses resulting from these types of events are uninsurable or not covered by insurance we carry on our hotels. The uncertainty associated with future terrorist threats and incidents, military conflicts and the possibility of hostilities with other countries may continue to hamper business and leisure travel patterns and our hotel operations for the foreseeable future, and if these matters worsen the effects could become materially more adverse.

If we are unable to sell real estate, including our assets held for sale, in a timely manner or at expected prices, our ability to implement our portfolio improvement strategy would be impaired.

          We currently have ten hotels and three land parcels listed as assets available for sale; however, real estate assets generally cannot be sold quickly. No assurance can be given that we will be able to sell one or more of these hotels on favorable terms or at all or that franchisor approval for transfer of a brand can be obtained when requested. We may be required to expend funds to correct defects or to make improvements before a hotel can be sold. We cannot assure you that we will have funds available to correct those defects or to make those improvements at the time desired to sell any particular hotel. A franchisor may refuse to approve a transfer in its sole discretion. Furthermore, even if we are able to sell these hotels, we may not be able to realize any cash proceeds from the sales after paying off the related lenders. Additionally, we may not be able to sell these hotels in sufficient time to apply the proceeds to fund our working capital, capital expenditures and debt service needs. If a franchise agreement relating to a hotel is in default or is terminated by the franchisor, the value of the hotel could decline, perhaps substantially. In the future, we may not be able to vary our portfolio of hotels or other real estate promptly

15

in response to changes in hotel performance or economic or other conditions affecting the real estate market that are beyond our control. This inability to respond promptly could adversely affect our cash flow and our ability to manage and grow our business and improve our financial performance.

Our expenses may remain constant or increase even if revenues decline, which would have a negative effect on our financial condition, results of operations and cash flow.

          The expenses of owning a hotel are not necessarily reduced when circumstances such as market factors and competition cause a reduction in revenues from the hotel. Our financial condition, results of operations and cash flow could be adversely affected by:

• Rising interest rate levels;

• The lack of available financing on favorable terms, or at all, to fund our working capital, debt service requirements, planned capital expenditures or other cash needs;

• Increased costs associated with wages, employee benefits and taxes, property taxes, utilities and insurance; and

•  Changes in and the cost of compliance with government regulations, including those governing environmental, usage, zoning and tax matters.

We may make acquisitions or investments that are not successful and that adversely affect our ongoing operations.

          We may acquire or make investments in hotel companies or hotel portfolios that we believe complement our business. We have not previously made these types of acquisitions. As a result, our ability to identify, execute and properly manage the integration of these types of acquisitions or investments is unproven. If we fail to properly evaluate, execute and integrate these types of acquisitions or investments, it may have a material adverse effect on the operation of our business and our financial results. In making or attempting to make acquisitions or investments, we face a number of risks, including:

• Identifying suitable acquisition or investment candidates, performing appropriate due diligence, identifying potential liabilities and negotiating favorable terms for acquisitions and investments;

• Reducing our working capital and hindering our ability to expand or maintain our business, including making capital expenditures and funding operations;

• The potential distraction of our management, diversion of our resources and disruption of our business;

•  Competing for acquisition opportunities with competitors that are larger than we are or have greater financing and other resources than we have or where such competition may increase the cost of an acquisition;

•  Accurately forecasting the financial impact of an acquisition or investment or the customer demand in any new geographic market that we may enter; and

• Effectively integrating acquired companies or investments and achieving expected performance.

Losses may exceed our insurance coverage or estimated reserves, which could impair our results of operations, financial condition and liquidity.

          We are self-insured up to certain amounts with respect to our insurance coverages. Various types of catastrophic losses, including those related to environmental, health and safety matters, may not be insurable or may not be economically insurable. In the event of a substantial loss, our insurance coverage may not cover the full current market value or replacement cost of our lost investment. Inflation, changes

16

in building codes and ordinances, environmental considerations and other factors might cause insurance proceeds to be insufficient to fully replace or renovate a hotel after it has been damaged or destroyed.

          We cannot assure you that:

•  the insurance coverages that we have obtained will fully protect us against insurable losses (i.e., losses may exceed coverage limits);

• we will not incur losses from risks that are not insurable or that are not economically insurable; or

• current coverages will continue to be available at reasonable rates.

          Should a material uninsured loss or a loss in excess of insured limits occur with respect to any particular property, we could lose our capital invested in the property, as well as the anticipated income and cash flow from the property. Any such loss would have an adverse effect on our results of operations, financial condition and liquidity. In addition, if we are unable to maintain insurance that meets our debt and franchise agreement requirements, and if we are unable to amend or waive those requirements, it could result in an acceleration of that debt and impair our ability to maintain franchise affiliations.

Competition in the lodging industry could have a material adverse effect on our business and results of operations.

          The lodging industry is highly competitive. There is no single competitor or small number of competitors that are dominant in the lodging industry. We generally operate in areas that contain numerous other competitors, some of which may have substantially greater financial strength than we have. Competitive factors in the lodging industry include, among others, supply in a particular market, franchise affiliation, reasonableness of room rates, quality of accommodations, service levels, convenience of locations and amenities customarily offered to the traveling public. There can be no assurance that demographic, geographic or other changes in markets will not adversely affect the convenience or desirability of the locales in which our hotels operate, competing hotels will not pose greater competition for guests than presently exists, or that new hotels will not enter such locales. New or existing competitors could offer significantly lower rates or greater conveniences, services or amenities or significantly expand or improve existing facilities or introduce new facilities in markets in which we compete. Any of these factors could materially and adversely affect our business, results of operations, financial condition and prospects.

Adverse conditions in markets in which we do substantial amounts of business, such as our four largest markets of Baltimore/Washington, D.C., Pittsburgh, Buffalo/Niagara Falls and Phoenix, could negatively affect our results of operations.

          Our operating results depend upon our ability to achieve and maintain adequate room rates and occupancy levels in our hotels. Adverse economic or other conditions in markets, such as Pittsburgh, in which we have multiple hotels may negatively affect our occupancy and ADR, which in turn would negatively affect our revenue and could materially and adversely affect our results of operations. Our hotels located in Baltimore/Washington, D.C., Pittsburgh, Buffalo/Niagara Falls and Phoenix provided an aggregate of approximately 27.2% of our consolidated 2003 revenues and contained an aggregate of approximately 22.5% of our total available rooms during the year ended December 31, 2003. As a result of this geographic concentration of our hotels in these markets, we are particularly exposed to the risks of downturns in these local economies and to other local conditions, which could adversely affect the operating results of our hotels in these markets.

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Lack of diversification in our franchisor brands could materially and adversely affect us by exposing us to negative events applicable to the franchisor.

          We are subject to the risks that are found in concentrating our hotel investments in several franchise brands. We currently have franchise agreements with six different franchisors. There is no limit on the number of hotels of a particular franchisor brand which we may acquire. A negative event relating to a franchisor with brands in which we have a concentration of hotels, such as InterContinental Hotels Group PLC (IHG), which accounts for 51 of our 78 hotels in continuing operations that operate under franchise arrangements, could materially and aversely affect us.

Seasonality in the lodging business may result in significant variations in our quarterly revenues.

          Demand for accommodations, and the resulting revenues, vary seasonally. The high season tends to be the summer months for hotels located in colder climates and the winter months for hotels located in warmer climates. Aggregate demand for accommodations at the hotels in our portfolio is, however, lowest during the winter months. Levels of demand are dependent upon many factors that are beyond our control, including general and local economic conditions and changes in levels of leisure and business-related travel. Our hotels depend on both business and leisure travelers for revenues. Additionally, our hotels operate in areas that contain numerous other competitive lodging facilities.

Because we have experienced significant changes in our senior management team, it may be difficult for investors to evaluate our prospects for improved performance.

          There have been a number of changes in our senior management team during the last two years and since our emergence from bankruptcy. Our chief executive officer was hired in July 2003 and our chief financial officer and our chief operating officer were promoted to their positions in October 2003 and May 2002, respectively. If our new management team is unable to develop successful business strategies, achieve our business objectives or maintain effective relationships with employees, suppliers, creditors and customers, our ability to grow our business and successfully meet operational challenges could be impaired.

If we lose or are unable to obtain key personnel, our ability to effectively operate our business could be hindered.

          Our ability to maintain or enhance our competitive position will depend to a significant extent on the efforts and ability of our executive and senior management, particularly our chief executive officer. Our future success and our ability to manage future growth will depend in large part upon the efforts of our management team and on our ability to attract and retain other highly qualified personnel. Competition for personnel is intense, and we may not be successful in attracting and retaining our personnel. Our inability to retain our current management team and attract and retain other highly qualified personnel could adversely affect our results of operations and hinder our ability to effectively manage our business.

The increasing use of third-party travel websites by consumers may adversely affect our profitability.

          Some of our hotel rooms are booked through third-party travel websites such as Travelocity.com, Expedia.com, Priceline.com and Hotels.com. If these Internet bookings increase, these intermediaries may be able to obtain higher commissions, reduced room rates or other significant contract concessions from us. Moreover, some of these Internet travel intermediaries are attempting to offer hotel rooms as a commodity, by increasing the importance of price and general indicators of quality (such as “three-star downtown hotel”) at the expense of brand identification. We believe that the goal of these Internet intermediaries is to have consumers eventually develop brand loyalties to their reservation systems rather than to our brands. Although most of the business for our hotels is expected to be derived from traditional channels, if the amount of sales made through Internet intermediaries increases significantly, room revenues may flatten or decrease and our profitability may be adversely affected.

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We may be unable to utilize our net operating loss carryforwards, which if unused will expire and no longer be available to offset future income.

          As of December 31, 2003, we had approximately $270 million of historical net operating loss carryforwards for federal income tax purposes. To the extent that we do not have sufficient future taxable income to offset these net operating loss carryforwards, unused losses will expire between 2004 and 2023. Our ability to use these net operating loss carryforwards to offset future income is also subject to annual limitations. Our reorganization under Chapter 11 resulted in a change of ownership as defined in Section 382 of the Internal Revenue Code, following which we determined our annual limitation to be approximately $10 million. It is anticipated that this offering will result in another change of ownership under Section 382, which we expect will subject our use of net operating losses (including those experienced both before and after our reorganization) to an annual limitation of approximately $7.5 million. An audit or review by the Internal Revenue Service could result in a further reduction in the net operating loss carryforwards available to us.

Aspects of our operations are subject to government regulation, and changes in government regulations may adversely affect our results of operations and financial condition.

          A number of states and local governments regulate the licensing of hotels and restaurants, including occupancy and liquor license grants, by requiring registration, disclosure statements and compliance with specific standards of conduct. Occupancy licenses are obtained prior to the opening of a hotel but may require renewal if there is a major renovation. We believe that our hotels are substantially in compliance with these requirements or, in the case of liquor licenses, that they have or will promptly obtain the appropriate licenses. Operators of hotels also are subject to employment laws, including minimum wage requirements, overtime, working conditions and work permit requirements. Compliance with, or changes in, these laws could increase the cost of operating the affected hotels and/or reduce the revenue from our hotels and could otherwise adversely affect our results of operations and financial condition.

          Under the Americans with Disabilities Act, or ADA, all public accommodations are required to meet federal requirements related to access and use by disabled persons. These requirements became effective in 1992. Although we have invested and continue to invest significant amounts in connection with ADA-required upgrades to our hotels, a determination that any of our hotels are not in compliance with the ADA could result in a judicial order requiring compliance, imposition of fines or an award of damages to private litigants.

Costs of compliance with environmental laws and regulations could adversely affect operating results.

          Under various federal, state, local and foreign environmental laws, ordinances and regulations, a current or previous owner or operator of real property may be liable for noncompliance with applicable environmental and health and safety requirements and for the costs of investigation, monitoring, removal or remediation of hazardous or toxic substances. These laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of hazardous or toxic substances. The presence of these hazardous or toxic substances on a property could also result in personal injury or property damage or similar claims by private parties. In addition, the presence of contamination, or the failure to report, investigate or properly remediate contaminated property, may adversely affect the operation of the property or the owner’s ability to sell or rent the property or to borrow funds using the property as collateral. Persons who arrange for the disposal or treatment of hazardous or toxic substances may also be liable for the costs of removal or remediation of those substances at the disposal or treatment facility, whether or not that facility is or ever was owned or operated by that person.

          The operation and removal of underground storage tanks also are regulated by federal, state and local laws. In connection with the ownership and operation of our hotels, we could be held liable for the costs of remedial action for regulated substances and storage tanks and related claims.

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          Some of our hotels contain asbestos-containing building materials, or ACBMs. Environmental laws require that ACBMs be properly managed and maintained, and may impose fines and penalties on building owners or operators for failure to comply with these requirements. Third parties may be permitted by law to seek recovery from owners or operators for personal injury associated with exposure to contaminants, including, but not limited to, ACBMs. Operation and maintenance programs are typically developed for those hotels which are known to contain ACBMs.

          Many, but not all, of our hotels have undergone Phase I environmental site assessments, which generally provide a nonintrusive physical inspection and database search, but not soil or groundwater analyses, by a qualified independent environmental consultant. The purpose of a Phase I assessment is to identify potential sources of contamination for which the hotel owner or others may be responsible. None of the Phase I environmental site assessments revealed any past or present environmental liability that we believe would have a material adverse effect on us. Nevertheless, it is possible that these assessments did not reveal all environmental liabilities or compliance concerns or that material environmental liabilities or compliance concerns exist of which we are currently unaware.

          Some of our hotels may contain microbial matter such as mold, mildew and viruses. The presence of microbial matter could adversely affect our results of operations. Phase I assessments performed on certain of our hotels in connection with previous financings identified mold in several of our hotels. We have undertaken or are undertaking all necessary remediation for these properties. In addition, if any hotel in our portfolio is not properly connected to a water or sewer system, or if the integrity of any such system is breached, microbial matter or other contamination can develop. If this were to occur, we could incur significant remedial costs and we may also be subject to private damage claims and awards.

          Any liability resulting from noncompliance or other claims relating to environmental matters could have a material adverse effect on our insurability for such matters in the future and on our results of operations, financial condition, liquidity and prospects.

Risks Related to this Offering and Our Common Stock

Purchasers in this offering may experience immediate dilution if the net tangible book value of the shares of common stock is lower than the public offering price.

          Our net tangible book value per share at March 31, 2004 was $15.42. If the public offering price of the shares of common stock is higher than the net tangible book value per share of our common stock, each stockholder purchasing in this offering would experience immediate dilution. Dilution is the excess of the public offering price per share over the net tangible book value per share of common stock. For more information about how net tangible book value per share is calculated, please see “Dilution” below.

By exercising their registration rights and selling a large number of shares, our principal investors could cause the price of our common stock to decline.

          Four stockholders, including our affiliates Oaktree Capital Management, LLC (“Oaktree”) and The Blackstone Group (“Blackstone”), beneficially owning an aggregate of approximately 1,272,600 shares of our common stock, are parties to a registration rights agreement with us that provides for mandatory and supplemental registration rights for such stockholders’ shares until they can be sold without restriction under Rule 144(k) under the Securities Act of 1933. We have filed a resale registration statement with respect to those shares. That registration statement is not yet effective, but may be declared effective promptly. Three of the four stockholders who are parties to the registration rights agreement, beneficially owning approximately 1,243,887 shares of common stock, are also parties to lock-up agreements with respect to their shares covered by that agreement until the earlier of December 15, 2004 or the date that is 180 days after the effectiveness of the registration statement of which this prospectus is a part. See “Shares Eligible for Future Sale — Lock-Up Agreements.” However, upon expiration of these lock-up agreements, the holders of shares of common stock with registration rights may, upon effectiveness of our resale registration statement, sell those shares in the public market. Sales of substantial amounts of

20

common stock or the perception that those sales could occur may adversely affect the market price for our common stock.

Merrill Lynch will receive benefits from this offering in addition to its underwriting discounts and advisory fee, which could create a conflict of interest for Merrill Lynch.

          Merrill Lynch, Pierce, Fenner & Smith Incorporated (“Merrill Lynch”), which is serving as a joint lead managing underwriter for this offering with Citigroup Global Markets Inc. (“Citigroup”), and its affiliates will receive benefits from this offering in addition to its underwriting discounts and advisory fee. In November 2002, in connection with our emergence from Chapter 11 bankruptcy, we received exit financing of $302.7 million of senior and mezzanine debt from Merrill Lynch Mortgage, an affiliate of Merrill Lynch. This financing currently is secured by 53 of our hotels and as of March 31, 2004 had an outstanding balance of $291.2 million. We have executed a commitment letter with Merrill Lynch Mortgage to refinance this debt as well as $56 million of our outstanding mortgage debt with Lehman and $7 million of the outstanding mortgage debt of Macon Hotel Associates, L.L.C., an entity in which we own a 60% interest. On the date of the consummation of this offering, the funding of the $370 million of Refinancing Debt by Merrill Lynch Mortgage, which is a condition to the completion of this offering and will result in the mortgaging of 64 hotels as collateral, will be completed. The funding of the Refinancing Debt will also result in our payment to Merrill Lynch Mortgage of fees related to the Refinancing Debt and prepayment penalties in connection with the prepayment of the outstanding mortgage debt held by Merrill Lynch Mortgage.

          Merrill Lynch is the owner of 473,867 shares of our Series A Preferred Stock. A portion of the net proceeds from this offering will be used to redeem all of the outstanding shares of our Series A Preferred Stock, including the shares of our Series A Preferred Stock held by Merrill Lynch. In addition, Merrill Lynch is the beneficial owner of 260,611 shares of our common stock, including warrants to purchase 4,287 shares of our common stock.

          The foregoing matters create a potential conflict of interest because Merrill Lynch has an interest in the successful completion of this offering beyond the underwriting discounts and advisory fee it will receive. In light of these circumstances, although not required under the Conduct Rules of NASD, Inc., this offering is being made using a “qualified independent underwriter” as contemplated by Rule 2720. Citigroup has assumed the responsibilities of acting as a qualified independent underwriter. In such role, Citigroup has performed a due diligence investigation of us and participated in the preparation of this prospectus and the registration statement. The initial public offering price of the shares of common stock offered hereby will be no higher than the price recommended by Citigroup. See “Use of Proceeds” and “Underwriting.”

Our common stock could be de-listed from the American Stock Exchange if the listing standards are not maintained, which could result in a less liquid market for our common stock and/or a decline in our stock price.

          The rules of the American Stock Exchange allow the exchange to de-list securities if it determines that a company’s securities fail to meet its guidelines in respect of corporate net worth, public float, number of shareholders, aggregate market value of shares or price per share. We cannot assure purchasers of our common stock that we will continue to meet the American Stock Exchange listing requirements. If our common stock is delisted from the American Stock Exchange, it would likely trade on the OTC Bulletin Board, which is a quotation service for securities that are not listed or traded on a national securities exchange. The OTC Bulletin Board is viewed by most investors as less desirable and a less liquid marketplace. Thus, delisting from the American Stock Exchange could result in investors being unable to liquidate their investment or make trading our shares more difficult or expensive for investors, leading to declines in share price. It would also make it more difficult for us to raise additional capital. In addition, we would incur additional costs under state blue sky laws to sell equity if our common stock is not traded on a national securities exchange.

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Our stock price may be volatile.

          The market price of our common stock could decline and fluctuate significantly in response to various factors, including:

• Actual or anticipated variations in our results of operations;

• Announcements of new services or products or significant price reductions by us or our competitors;

• Market performance by our competitors;

• Future issuances of our common stock, or securities convertible into or exchangeable or exercisable for our common stock, by us directly, or the perception that such issuances are likely to occur;

• Sales of our common stock by stockholders or the perception that such sales may occur in the future;

• The size of our market capitalization;

• Loss of our franchises;

• Increases in our leverage;

• Default on our indebtedness and/or foreclosure of our properties;

• Changes in key management personnel;

• Changes in financial estimates by securities analysts; and

• Domestic and international economic, legal and regulatory factors unrelated to our performance.

We may never pay dividends on our common stock, in which event investors’ only return on their investment, if any, will occur on the sale of our common stock.

          We have not yet paid any dividends on our common stock, and we do not intend to do so in the foreseeable future. As a result, an investor’s only return on its investment, if any, will occur on the sale of our common stock.

Our charter documents, employment contracts and Delaware law may impede attempts to replace or remove our management or inhibit a takeover, which could adversely affect the value of our common stock.

          Our certificate of incorporation and bylaws, as well as Delaware corporate law, contain provisions that could delay or prevent changes in our management or a change of control that you might consider favorable and may prevent you from receiving a takeover premium for your shares. These provisions include, for example:

• Authorizing the issuance of preferred stock, the terms of which may be determined at the sole discretion of the board of directors;

• Establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted on by stockholders at meetings; and

• Requiring all stockholder action to be taken at a duly called meeting, not by written consent.

          In addition, we have entered, or will enter, into employment contracts with certain of our employees that contain change of control provisions. See “Management — Employment Agreements.”

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USE OF PROCEEDS

          We estimate that the net proceeds of this offering will be $238.6 million (or approximately $275 million assuming the underwriters’ exercise of the overallotment option in full), assuming an offering price of $14.76 per share. We intend to use approximately $158.2 million (estimated as of July 30, 2004) of the net proceeds to redeem all of the shares of our outstanding mandatorily redeemable 12.25% cumulative Series A Preferred Stock (including accrued dividends and a 4% prepayment premium) (the “Preferred Stock”). We intend to use approximately $35.2 million from the net proceeds of this offering for capital expenditures, of which $22.7 million will be deposited in a lender-controlled reserve account with Merrill Lynch Mortgage (the “Reserve Account”) relating to hotels securing the Refinancing Debt and $12.5 million will be used for renovations and repositionings of other selected hotels. We intend to deposit an additional $3 million of the net proceeds in a reserve account pursuant to other requirements in the Refinancing Debt agreements. We will use the remaining net proceeds for general corporate purposes, including funding of our growth strategy.

          Merrill Lynch, which is serving as a joint lead managing underwriter for this offering with Citigroup, owns 473,867 shares of Preferred Stock that will be redeemed with approximately $13.4 million of the net proceeds from this offering. In addition, Oaktree and Blackstone, representatives of which serve on our board of directors, and/or affiliates own 1,785,082 shares and 789,779 shares, respectively, of Preferred Stock that will be redeemed with approximately $50.3 million and $22.3 million of the net proceeds from this offering, respectively.

          See “Related Party Transactions” and “Underwriting” for more information on relationships between us and Merrill Lynch, Oaktree and/or Blackstone, as the case may be.

PRICE RANGE OF COMMON STOCK

          We emerged from reorganization proceedings under Chapter 11 on November 25, 2002. Pursuant to our First Amended Joint Plan of Reorganization confirmed by the Bankruptcy Court on November 5, 2002 (the “Joint Plan of Reorganization”), our previous common stock was cancelled and new common stock became available for issuance. The new common stock began trading on the American Stock Exchange on January 28, 2003 under the symbol “LGN.” The following table sets forth, for the periods indicated, the high and low closing prices of our common stock reported on the American Stock Exchange, as adjusted to reflect a 1-for-3 reverse stock split that became effective on April 30, 2004.

          There is no meaningful market information relating to the price of our common stock prior to the listing of the new common stock on the American Stock Exchange on January 28, 2003.

	High		Low
2004
Second Quarter (through June 3, 2004)	$	18.60	$	14.75
First Quarter		23.94		15.60
2003
Fourth Quarter		27.75		15.12
Third Quarter		17.25		8.85
Second Quarter		10.23		7.71
First Quarter (from January 28, 2003)		15.75		8.85

          As of May 31, 2004, there were 2,304,326 shares of our common stock issued and outstanding that were held by approximately 1,655 stockholders of record. On June 3, 2004 the last reported sale price of our common stock on the American Stock Exchange was $14.76 per share.

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DIVIDEND POLICY

          We have not declared or paid any cash dividends on our common stock and our board of directors does not anticipate declaring or paying any cash dividends in the foreseeable future. We anticipate that all of our earnings and other cash resources, if any, will be retained to fund our business and will be available for other strategic opportunities that may develop. Also, our ability to pay dividends has been, and in the event we fail to satisfy certain covenants in the Refinancing Loans will be, constrained by limitations contained in our debt agreements on the ability of our subsidiaries to distribute any excess cash flow to us. Future dividend policy will be subject to the discretion of our board of directors, and will be contingent upon our results of operations, financial position, cash flow, liquidity, capital expenditure plan and requirements, general business conditions, restrictions imposed by financing arrangements, if any, legal and regulatory restrictions on the payment of dividends and other factors that our board of directors deems relevant.

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CAPITALIZATION

          The table below shows our capitalization as of March 31, 2004:

•  On an actual basis, which reflects our capitalization as of March 31, 2004 without any adjustments to reflect subsequent or anticipated events; and

•  On an as adjusted basis, which reflects the issuance and sale by us of 17,500,000 shares of common stock in this offering at an assumed offering price of $14.76 per share, deduction of the estimated underwriting discounts and commissions and offering expenses payable by us, redemption of the Series A Preferred Stock, the closing of the Refinancing Debt and the application of the estimated net proceeds to us, as described above under “Use of Proceeds.”

          You should read the information in this table together with our consolidated financial statements, including the notes thereto, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this prospectus.

			As of
			March 31, 2004
			Actual			As Adjusted
			(in thousands)
Long-term debt:
	Mandatorily redeemable 12.25% cumulative Series A Preferred Stock		$	146,462		$	—
	Long-term obligations			404,044			409,163
		Total long-term debt		550,506			409,163
Stockholders’ equity:
	Common stock, $.01 par value, 30,000,000 shares authorized(1); 2,333,832 shares issued and outstanding (actual) and 19,833,832 shares issued and outstanding (as adjusted)			23			198
	Additional paid-in capital			89,878			348,003
	Unearned stock compensation			(458	)		(458	)
	Accumulated deficit			(57,193	)		(57,193	)
	Accumulated other comprehensive income			1,269			1,269
		Total stockholders’ equity		33,519			291,819
		Total capitalization	$	584,025		$	700,982

(1)  On April 29, 2004, we filed an amendment to our certificate of incorporation that, among other things, increased the number of our authorized shares of common stock to 60,000,000.

          The above information excludes:

• shares of our common stock reserved for issuance under our stock incentive plan or our outstanding warrants;

• shares of our common stock issuable by us if the underwriters exercise their overallotment option;

•  $43.3 million (actual) and $34.8 million (as adjusted) of debt associated with properties held for sale, in accordance with U.S. generally accepted accounting principles (“GAAP”); and

• $19.0 million (actual) and $14.8 million (as adjusted) of current portion of long-term debt.

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DILUTION

          As of March 31, 2004, our net tangible book value was approximately $36 million, or $15.42 per share of common stock. Net tangible book value per share represents the amount of our total tangible assets (which includes deferred acquisition costs) less total liabilities, divided by the number of shares of common stock outstanding. Dilution in net tangible book value per share represents the difference between the public offering price per share and the pro forma net tangible book value per share immediately after this offering.

          After giving effect to the sale of                      shares of common stock at an assumed public offering price of $           per share and before deducting underwriting discounts and estimated offering expenses, our pro forma net tangible book value at March 31, 2004 would have been approximately $           million, or $           per share of common stock. This represents an immediate increase in net tangible book value of $           per share to existing common stockholders and an immediate decrease in net tangible book value of $           per share to new investors purchasing shares of common stock in this offering. The following table illustrates this per share dilution to new investors:

Assumed public offering price per share				$
	Net tangible book value per share as of March 31, 2004	$	15.42
	Increase in net tangible book value per share attributable to new investors	$
Pro forma net tangible book value per share after the offering				$
Dilution per share to new investors				$

          The following table sets forth, as of March 31, 2004, the differences between our existing stockholders and new investors with respect to the number of shares issued by us, the total consideration paid and the average price per share:

		Shares Purchased					Total Consideration
											Average Price
		Number		Percent			Amount	Percent			Per Share
Existing common stockholders			2,333,832				$				$
New investors							$				$
	Total				100.0	%	$		100.0	%

Assuming full exercise of the underwriters’ overallotment option, the percentage of shares held by existing common stockholders would be      % of the total number of shares of common stock to be outstanding after this offering, and the number of shares held by new investors would be increased to      % of the total number of shares of common stock to be outstanding after the offering.

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SELECTED CONSOLIDATED FINANCIAL DATA

          We present, in the table below, selected financial data derived from our historical financial statements for the five years ended December 31, 2003 and for the three months ended March 31, 2004 and 2003. On November 22, 2002, in connection with our emergence from Chapter 11 and in accordance with GAAP requiring fresh start reporting, we restated our assets and liabilities to reflect their fair values. As a result, our financial statements for periods subsequent to November 22, 2002 are those of a new reporting entity and are not comparable with the financial statements for the periods on or prior to November 22, 2002. For this reason, we use the term “successor” when we refer to periods subsequent to November 22, 2002 and the term “predecessor” when we refer to periods on or prior to November 22, 2002.

          In addition, in accordance with generally accepted accounting principles, our results of operations distinguish between the results of operations of those properties which we plan to retain in our portfolio for the foreseeable future, referred to as “continuing operations,” and the results of operations of those properties which have been sold or have been identified for sale, referred to as “discontinued operations.”

          You should read the financial data below in conjunction with our consolidated financial statements, including the notes thereto, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this prospectus.

          The financial data for the corresponding periods were extracted from our audited financial statements as of December 31, 2003 and 2002 and for the year ended December 31, 2003, the period November 23, 2002 to December 31, 2002, the period January 1, 2002 to November 22, 2002, and the year ended December 31, 2001. The financial data for the three months ended March 31, 2004 and 2003 were extracted from our unaudited condensed consolidated financial statements as of March 31, 2004 and 2003 and for the three months ended March 31, 2004 and 2003. In our opinion, they contain all adjustments, consisting primarily of normally recurring adjustments, necessary to present fairly our financial position and results of operations as of and for those periods. Our results for interim periods are not necessarily indicative of our results for the entire year. The income statement data for 2000 and the balance sheet data as of December 31, 2001 and 2000 were based upon financial statements previously reported by us but were subsequently adjusted to distinguish between our continuing operations and our discontinued operations. The financial data for 1999 were based upon financial statements previously reported by us but were subsequently adjusted to distinguish between our continuing operations and our discontinued operations.

	Successor												Predecessor
	Three Months
	Ended March 31,						Year ended			November 23,			January 1, to			Year ended December 31,
							December 31,			to December 31,			November 22,
	2004			2003			2003			2002			2002			2001			2000			1999
	(in thousands, except per share data)												(in thousands, except per share data)
Income statement data:
Revenues — continuing operations	$	76,805		$	73,379		$	311,414		$	25,306		$	299,267		$	351,072		$	468,271		$	479,240
Revenues — discontinued operations		10,740			12,286			61,137			6,441			78,757			96,484			112,626			113,180
Revenues — continuing and discontinued operations		87,545			85,665			372,551			31,747			378,024			447,556			580,897			592,420
(Loss) income — continuing operations		(6,384	)		(5,841	)		(27,074	)		(6,745	)		16,999			(87,537	)		(91,025	)		(77,597	)
Loss — discontinued operations, net of taxes		(702	)		(3,243	)		(4,603	)		(2,581	)		(4,633	)		(55,227	)		3,070			16,904
Net (loss) income		(7,086	)		(9,084	)		(31,677	)		(9,326	)		12,366			(142,764	)		(87,955	)		(60,693	)
Net (loss) income attributable to common stock		(7,086	)		(12,860	)		(39,271	)		(10,836	)		12,366			(142,764	)		(87,955	)		(60,693	)
(Loss) income from continuing operations attributable to common stock before discontinued operations		(6,384	)		(9,617	)		(34,668	)		(8,255	)		16,999			(87,537	)		(91,025	)		(77,597	)

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		Successor												Predecessor
		Three Months
		Ended March 31,						Year ended			November 23,			January 1, to			Year ended December 31,
								December 31,			to December 31,			November 22,
		2004			2003			2003			2002			2002			2001			2000			1999
		(in thousands, except per share data)												(in thousands, except per share data)
Earnings per common share, basic and diluted:
	(Loss) income — continuing operations		(2.74	)		(2.50	)		(11.60	)		(2.89	)		0.60			(3.09	)		(3.23	)		(2.85	)
	Loss — discontinued operations, net of taxes		(0.30	)		(1.39	)		(1.98	)		(1.11	)		(0.17	)		(1.95	)		0.11			0.62
	Net (loss) income		(3.04	)		(3.89	)		(13.58	)		(4.00	)		0.43			(5.04	)		(3.12	)		(2.23	)
	Net (loss) income attributable to common stock		(3.04	)		(5.51	)		(16.83	)		(4.64	)		0.43			(5.04	)		(3.12	)		(2.23	)
(Loss) income from continuing operations attributable to common stock before discontinued operations			(2.74	)		(4.12	)		(14.86	)		(3.54	)		0.60			(3.09	)		(3.23	)		(2.85	)
Basic and diluted weighted average shares(1)			2,334			2,333			2,333			2,333			28,480			28,350			28,186			27,222
Balance sheet data (at period end):
Total assets		$	695,793					$	709,174		$	762,164		$	967,131		$	975,362		$	1,160,344		$	1,421,996
Assets held for sale			55,788						68,567			—			—			—			—			—
Long-term debt(2)			550,506						551,292			389,752			7,215			7,652			674,038			856,675
Liabilities related to assets held for sale			47,340						57,948			—			—			—			—			—
Liabilities subject to compromise(2)			—						—			93,816			926,387			925,894			—			—
Mandatorily redeemable 12.25% cumulative Series A Preferred Stock(3)			—						—			126,510			—			—			—			—
Total liabilities			659,807						666,248			553,581			990,682			982,043			1,027,067			1,197,454
Total liabilities and preferred stock			659,807						666,248			680,091			990,682			982,043			1,027,067			1,197,454
Total stockholders’ equity (deficit)			33,519						40,606			78,457			(28,841	)		(6,681	)		136,880			224,542

(1)	The number of shares in the successor period ended December 31, 2002 represents the shares issued on the consummation of the first of the two plans of reorganization on November 25, 2002. The 28,479,837 old shares were cancelled and 2,333,333 shares were issued, including shares held in a disputed claims reserve. The common share and per share data for the successor presented in this table have been adjusted to reflect our 1-for-3 reverse stock split that became effective on April 30, 2004.
(2)	Reported long-term debt was affected in 2001 by our filing for Chapter 11. On the filing of Chapter 11, all our debts (except the debt relating to a non-filed entity) and certain other liabilities were classified as liabilities subject to compromise. On emergence from Chapter 11, some of our debt was discharged. The remaining long-term debt and other settled claims were reclassified out of liabilities subject to compromise to long-term debt (if long-term) and current liabilities (if short-term).
(3)	The Preferred Stock was issued on November 25, 2002. At December 31, 2002, the Preferred Stock was classified between long-term debt and equity on our consolidated balance sheet, called the mezzanine section. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 150, which was effective on July 1, 2003, we reclassified the Preferred Stock to long-term debt. The Preferred Stock outstanding was $146.5 million at March 31, 2004, $130.3 million at March 31, 2003, $142.2 million at December 31, 2003 and $126.5 million at December 31, 2002. In addition, the dividends for the applicable periods from July 1, 2003 to March 31, 2004 were reported in interest expense. In accordance with SFAS No. 150, we continued to show the dividends for the periods from January 1, 2003 to June 30, 2003 and from November 23, 2002 to December 31, 2002 as deductions from retained earnings.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

          The following discussion should be read in conjunction with our audited consolidated financial statements and accompanying notes and our unaudited condensed consolidated financial statements and accompanying notes, which appear elsewhere in this prospectus. It contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this prospectus. See “Forward-Looking Statements.”

Executive Summary

          We are one of the largest independent owners and operators of full-service hotels in the United States in terms of our number of guest rooms and gross annual revenues, as reported by Hotel & Motel Management Magazine in September 2003. We are considered an independent owner and operator because we do not operate our hotels under our own name. We operate substantially all of our hotels under nationally recognized brands, such as “Crowne Plaza,” “Holiday Inn” and “Marriott.” We currently operate 88 hotels with an aggregate of 16,627 rooms, located in 30 states and Canada. Of the 88 hotels, 78 hotels, with an aggregate of 14,348 rooms, are part of our continuing operations, while ten hotels, with an aggregate of 2,279 rooms, are being held for sale and classified as discontinued operations. Our portfolio of 88 hotels consists of:

• 83 hotels that we wholly own and operate through subsidiaries;

• four hotels that we operate in joint ventures in which we have a 50% or greater voting equity interest and exercise control; and

• one hotel that we operate in a joint venture in which we have a 30% non-controlling equity interest.

          We consolidate all of these entities in our financial statements, other than the one entity in which we hold a non-controlling equity interest and for which we account under the equity method.

          On December 20, 2001, due to a number of factors, including our heavy debt load, a lack of available funds to maintain the quality of our hotels, a weakening U.S. economy, and the severe decline in travel in the aftermath of the terrorist attacks on September 11, 2001, we filed for voluntary reorganization under Chapter 11 of the Bankruptcy Code. At the time of the Chapter 11 filing, our portfolio consisted of 106 hotels.

          Following the consummation of our two plans of reorganization, we emerged from Chapter 11 with 97 hotels, eight of the hotels having been conveyed to a lender in satisfaction of outstanding debt obligations and one having been returned to the lessor of a capital lease. Of the portfolio of 97 hotels, 78 hotels emerged from Chapter 11 on November 25, 2002, 18 hotels emerged from Chapter 11 on May 22, 2003 and one hotel never filed under Chapter 11.

          Our strategy is to own and operate a portfolio of profitable, well-maintained and appealing hotels at superior locations in strong markets. In 2003, we developed a portfolio improvement strategy to accomplish this by:

• renovating and repositioning certain of our existing hotels to improve performance;

• divesting hotels that do not fit this strategy or that are unlikely to do so without significant effort or expense; and

• acquiring selected hotels that better fit this strategy.

          In accordance with this strategy and our efforts to reduce debt and interest costs, in 2003 we identified 19 hotels, our one office building property and three land parcels for sale. Through May 31, 2004, we have sold nine of these hotels and our one office building for an aggregate sales price of

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$48.3 million. Of the $44.9 million aggregate net proceeds from the sales of these assets, we used $35.5 million to pay down debt and $9.4 million for general corporate purposes, including capital expenditures. As a result of these sales, as of May 31, 2004, our portfolio consisted of 88 hotels and three land parcels, of which ten hotels and the three land parcels are held for sale. During 2004 we intend to sell the remaining assets that are held for sale. We also expect to purchase and sell other hotels in the future as we continuously seek to improve our portfolio of hotels.

Reverse Stock Split

          On April 27, 2004, our Board of Directors authorized a reverse stock split of our common stock in a ratio of one-for-three (1:3). The reverse split affected all of our issued and outstanding common shares, warrants and stock options. The record date for the reverse split was April 29, 2004 and our new common stock began trading under the split adjustment on April 30, 2004.

          Fractional shares which resulted from the reverse stock split are payable in cash. Each holder of a fractional share of common stock after the effective date of the reverse split has been or will be paid cash equal to the product of (i) the average of the closing prices of the common stock for the last ten trading days prior to April 30, 2004, multiplied by (ii) the fraction of a share of common stock held by such holder.

Operating Summary

          Below is a summary of our results of operations for the first quarter of 2004, which are discussed in more detail in “— Results of Operations — Continuing Operations — First Quarter 2004 Compared to First Quarter 2003”:

•  Revenues increased as a result of an increase in leisure and business travel as the hospitality industry and the economy showed signs of recovery in the first quarter 2004. In addition, some of our hotels which were undergoing renovation in the first quarter 2003 experienced improved occupancy levels with the completion of renovation activities.

•  Operating expenses, including direct hotel operating expenses, decreased approximately $1.0 million in the first quarter 2004 as compared to the first quarter 2003. Our hotels were negatively affected by increased employment costs (401k, worker’s compensation, union costs, group medical and state unemployment rate increases), higher utilities, advertising and repairs and maintenance costs. The hotels, however, benefited from stabilization in the insurance premium markets, successful appeals on property tax assessments, an adjustment to the additional base rent calculation for one hotel and reduced corporate overhead costs primarily due to reduced post emergence bankruptcy costs. Depreciation and amortization charges also decreased due to a reduced asset base as a result of impairment charges recorded after the first quarter of 2003.

•  Interest expense increased as a result of the $80 million financing with Lehman completed in May 2003 (the “Lehman Financing”). This financing replaced debt on which we were not required to pay interest while the hotels collateralizing the debt were in Chapter 11.

•  Net loss attributable to common stock was $7.1 million for the first quarter 2004 and $12.9 million for the first quarter 2003.

          Below is a summary of our results of operations for 2003 and the 2002 Combined Period, which are discussed in more detail in “— Results of Operations — Continuing Operations — Year Ended December 31, 2003 Compared to the 2002 Combined Period”:

• Revenues declined in 2003 and the 2002 Combined Period as a result of a lack of available funds to maintain the quality and competitiveness of our hotels, the weak U.S. economy and the severe decline in the lodging industry in the aftermath of the terrorist attacks of September 11, 2001. Though the lodging industry experienced some recovery during the

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	second half of 2003, we were not able to benefit fully from the recovery due to deferred capital expenditures and renovation displacement at some of our hotels.
•	Operating expenses declined in 2003 and the 2002 Combined Period primarily as a result of lower revenues. As revenues declined, variable expenses also fell. Operating expenses also declined, in part, as a result of our cost reduction efforts in the wake of the weak economy and lower revenues.
•	Interest expense declined in 2003 and the 2002 Combined Period because we were able to reorganize our debt as part of the Chapter 11 proceedings. The reorganization resulted in lower principal amounts on some of our debt due to debt forgiveness, and lower interest rates on other of our debt. Also, during the bankruptcy proceedings, we did not pay interest on certain debt, as approved by the Bankruptcy Court.
•	Depreciation and amortization expense declined in 2003 and the 2002 Combined Period due to the restatement of our assets to fair value as part of fresh start reporting. Since we are depreciating a lower asset base, our depreciation in 2003 was significantly less than in the 2002 Combined Period.
•	During 2003, after identifying assets held for sale, we recorded impairment charges where the carrying values exceeded the estimated selling prices, net of selling costs. We also analyzed our assets held for use at December 31, 2003 and recorded impairment charges, as appropriate, when the carrying values exceeded their undiscounted future cash flows. During the 2002 Combined Period, we recorded a significant write down of our hotels as part of our fresh start reporting. We also recorded significant impairment losses in 2001.

Summary of Discontinued Operations

          Discontinued operations include results of operations for both assets sold during the reporting period and assets that have been identified for sale. At various times during 2003, we carried 28 hotels, one office building and three land parcels as held for sale. As previously discussed, pursuant to the terms of the plan of reorganization approved by the Bankruptcy Court on November 5, 2002, we conveyed eight wholly-owned hotels to the lender in January 2003 in satisfaction of outstanding debt obligations and one wholly-owned hotel was returned to the lessor of a capital lease. Due primarily to the application of fresh start reporting in November 2002, in which these and other assets were adjusted to their respective fair values, there were no gains or losses on these transactions. In addition, pursuant to the strategy outlined above, we sold one hotel and an office building during 2003.

          The 18 hotels and three land parcels held for sale at December 31, 2003 and the liabilities related to these assets are separately disclosed as current assets and current liabilities, respectively, in our consolidated balance sheet at December 31, 2003. Between January 1, 2004 and May 31, 2004, we sold eight hotels identified as held for sale.

          Where the carrying values of the assets held for sale exceeded their estimated fair values, net of selling costs, we reduced the carrying values and recorded impairment charges. Fair values were determined using market prices and where the estimated selling prices, net of selling costs, exceeded the carrying values, no adjustments were recorded. We classify an asset as held for sale if we expect to dispose of it within one year and it satisfies the other criteria specified by SFAS No. 144. We intend to complete the disposition of these assets held for sale by the end of 2004. While we believe the completion of these dispositions is probable, the sale of these assets is subject to market conditions and we cannot provide assurance that we will finalize the sale of all or any of these assets on favorable terms or at all.

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          Between November 1, 2003 and May 31, 2004, we sold nine hotels and our one office building for an aggregate sales price of $48.3 million, of which we used $35.5 million to pay down debt.

Critical Accounting Policies and Estimates

          Our financial statements are prepared in accordance with GAAP. As we prepare our financial statements, we make estimates and assumptions which affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from our estimates. A summary of our significant accounting policies and estimates is included in Note 1 of the notes to our audited consolidated financial statements. We consider the following to be our critical accounting policies and estimates:

          Consolidation policy — All of our hotels are owned by operating subsidiaries. We consolidate the assets, liabilities and results of operations of those hotels where we own at least 50% of the voting equity interest and we exercise control. All of the subsidiaries are wholly owned except for five joint ventures, one of which is not consolidated but is accounted for under the equity method.

          When we consolidate hotels in which we own less than 100% of the voting equity interest, we include the assets and liabilities of those hotels in our consolidated balance sheet. The third party interests in the net assets of those hotels are reported as minority interest on our consolidated balance sheet. In addition, our consolidated statement of operations reflects the full revenues and expenses of those hotels and the third party portion of the net income or loss is reported as minority interest in our consolidated statements of operations. If the loss applicable to the minority interest exceeds the minority’s equity, we report the entire loss in our consolidated statement of operations.

          When we account for an entity under the equity method, we record only our share of the investment on our consolidated balance sheet and our share of the net income or loss in our consolidated statement of operations. We own a 30% non-controlling equity interest in an unconsolidated joint venture and have included our share of this investment in “other assets” on our consolidated balance sheet. Our share of the net income or loss of the unconsolidated joint venture is shown in “interest income and other” in our consolidated statements of operations. Our investment in this entity at December 31, 2003 was $0.2 million and our share of the loss was $20,000.

          Deferral policy — We defer franchise application fees on the acquisition or renewal of a franchise as well as loan origination costs related to new or renewed loan financing arrangements. Deferrals relating to the acquisition or renewal of a franchise are amortized on a straight-line basis over the period of the franchise agreement. We amortize deferred financing costs over the term of the loan using the effective interest method. The effective interest method incorporates the present values of future cash outflows and the effective yield on the debt in determining the amortization of loan fees. At December 31, 2003, these deferrals totaled $15.1 million, of which $11.6 million related to our continuing operations. If we were to write these expenses off in the year of payment, our operating expenses in those years would be significantly higher.

          Asset impairment — We invest significantly in real estate assets. Property, plant and equipment represent approximately 80% of the total assets on our consolidated balance sheet. Our policy on asset impairment is, therefore, considered critical. Under GAAP, real estate assets are stated at the lower of depreciated cost or fair value, if deemed impaired. We periodically evaluate our real estate assets to determine if there has been any impairment in the carrying value. We record impairment charges if there are indicators of impairment and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying values.

          As part of this evaluation, and in accordance with SFAS No. 144, we classify our properties into two categories, assets held for sale and assets held for use.

          The fair values of the assets held for sale are based on the estimated selling prices less estimated costs to sell. We determine the estimated selling prices in conjunction with our real estate brokers. The

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estimated selling costs are based on our experience with similar asset sales. We record impairment charges and write-down respective hotel assets if their carrying values exceed the estimated selling prices less costs to sell. As a result of this evaluation, during the first quarter of 2004, we recorded impairment losses of $2.2 million and during 2003, we recorded impairment losses of $5.4 million on assets held for sale.

          With respect to assets held for use, we estimate the undiscounted cash flows to be generated by these assets. We then compare the estimated undiscounted cash flows for each hotel with their respective carrying values to determine if there are indicators of impairment. If there are indicators of impairment, we determine the estimated fair values of these assets in conjunction with our real estate brokers. As a result of this evaluation, we recorded no impairment losses for the first quarter of 2004 and impairment losses during 2003 of $12.7 million on assets held for use. In connection with our emergence from Chapter 11, and the application of fresh start reporting in which we were required to restate our assets to fair values, we recorded a net write-down of $222.1 million on our real estate assets during 2002. In 2001, we recorded impairment losses of $67.3 million.

          Reorganization items — In accordance with GAAP, income and expenses related to our Chapter 11 proceedings were classified as reorganization items while the respective hotels were in Chapter 11. We continue to incur expenses as a result of the Chapter 11 proceedings but now classify these as general, administrative and other expenses. The classification between reorganization items and operating expenses while we were in Chapter 11 involved judgment on the part of management. In addition, as a result of the separation required between continuing operations and discontinued operations, we allocated the reorganization items incurred during the Chapter 11 proceedings between continuing operations and discontinued operations based on the values assigned to the respective properties subsequent to their emergence from Chapter 11.

          Accrual of self-insured obligations — We are self-insured up to certain amounts with respect to employee medical, employee dental, property insurance, general liability insurance, personal injury claims, workers’ compensation, automobile liability and other coverages. We establish reserves for our estimates of the loss that we will ultimately incur on reported claims as well as estimates for claims that have been incurred but not yet reported. Our reserves, which are reflected in accrued liabilities in our consolidated balance sheet, are based on actuarial valuations and our history of claims. Our actuaries incorporate historical loss experience and judgments about the present and expected levels of costs per claim. Trends in actual experience are an important factor in the determination of these estimates. We believe that our estimated reserves for such claims are adequate, however, actual experience in claim frequency and amount could materially differ from our estimates and adversely affect our results of operations, cash flow, liquidity and financial condition. As of March 31, 2004 and December 31, 2003, we had approximately $10.3 million and $10.0 million, respectively, reserved for such claims.

Income Statement Overview

          On November 22, 2002, in connection with our emergence from Chapter 11 and in accordance with GAAP, we applied fresh start reporting. Under fresh start reporting, assets and liabilities are restated to reflect their fair values. As a result, for accounting purposes, our financial statements for periods subsequent to November 22, 2002 are considered to be those of a new reporting entity and are not considered to be comparable with the financial statements for periods on or prior to November 22, 2002. For this reason, we use the term “successor” when we refer to periods subsequent to November 22, 2002, and the term “predecessor” when we refer to periods on or prior to November 22, 2002. Although we are required to make this distinction under GAAP, for purposes of the discussion of results below, we have combined the predecessor’s results for the period January 1, 2002 to November 22, 2002 with the successor’s results for the period November 23, 2002 to December 31, 2002 and refer to it as the “2002 Combined Period.” The differences between periods due to fresh start reporting are explained where necessary.

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          The discussion below focuses primarily on our continuing operations. In the continuing operations discussions, we compare the results of operations for the last three years for the 77 consolidated hotels that we plan to retain in our portfolio for the foreseeable future.

Revenues

          We categorize our revenues into the following three categories:

• Room revenues — derived from guest room rentals;

• Food and beverage revenues — derived from hotel restaurants, room service, hotel catering and meeting room rentals; and

• Other revenues — derived from guests’ long-distance telephone usage, laundry services, parking services, in-room movie services, vending machine commissions, leasing of hotel space and other miscellaneous revenues.

          Transient revenues, which generally account for approximately 70% of our room revenues, are revenues derived from individual guests who stay only for brief periods of time without a long-term contract. Demand from groups makes up approximately 23% of our room revenues while our contract revenues (such as contracts with airlines for crew rooms) account for the remaining 7%.

          We believe revenues in the hotel industry are best explained by the following three key performance indicators:

• Occupancy — computed by dividing total room nights sold by the total available room nights;

• Average daily rate (ADR) — computed by dividing total room revenues by total room nights sold; and

• Revenue per available room (RevPAR) — computed by dividing total room revenues by total available room nights. RevPAR can also be obtained by multiplying the occupancy by the ADR.

          To obtain available room nights for a year, we multiply the number of rooms in our portfolio by the number of days in the year. To obtain available room nights for a hotel sold during the year, we multiply the number of rooms in the hotel by the number of days between January 1 and the date the hotel was sold.

          These measures are influenced by a variety of factors, including national, regional and local economic conditions, the degree of competition with other hotels in the area and changes in travel patterns. The demand for accommodations is also affected by normally recurring seasonal patterns and most of our hotels experience lower occupancy levels in the fall and winter months (November through February) which generally results in lower revenues, lower net income and less cash flow during these months.

Operating expenses

          Operating expenses fall into the following categories:

• Direct expenses — these expenses tend to vary with available rooms and occupancy. However, hotel level expenses contain significant elements of fixed costs and, therefore, do not decline proportionately with revenues. Direct expenses are further categorized as follows:

• Rooms expenses — expenses incurred in generating room revenues;

• Food and beverage expenses — expenses incurred in generating food and beverage revenues; and

• Other direct expenses — expenses incurred in generating the revenue activities classified in “other revenues.”

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• General, administrative and other expenses, which include:

• Salaries for hotel management;

• Advertising and promotion;

• Franchise fees;

• Repairs and maintenance;

• Utilities;

• Equipment, ground and building rentals;

• Insurance;

• Property and other taxes;

• Legal and professional fees; and

• Corporate overhead, including corporate salaries and benefits, accounting services, directors’ fees, costs for office space and information technology costs. Also included in general, administrative and other expenses for the year ended December 31, 2003 are expenses relating to post-emergence Chapter 11 activities.

• Depreciation and amortization expense — depreciation of fixed assets (primarily hotel assets) and amortization of deferred franchise fees.

• Impairment charges — charges which were required to write down hotel carrying values to their fair values.

Non-operating items

          Non-operating items include:

• Interest expense, Preferred Stock dividends and amortization of deferred loan fees;

• Gain on disposal of assets;

• Interest income;

• Our 30% share of the income or loss of our non-controlling equity interest in one hotel, for which we account under the equity method; and

• Minority interests — our equity partners’ share of the income or loss of the four hotels owned by joint ventures that we consolidate.

Results of Operations — Continuing Operations

First Quarter 2004 Compared to First Quarter 2003

Revenues — Continuing Operations

		Three Months Ended
		March 31,			March 31,
		2004			2003			Increase (Decrease)
Revenues (unaudited in thousands):
	Rooms	$	57,563		$	53,914		$	3,649		6.8	%
	Food and beverage		16,488			16,607			(119	)	(0.7	)%
	Other		2,754			2,858			(104	)	(3.6	)%
	Total revenues	$	76,805		$	73,379		$	3,426		4.7	%
Occupancy			59.2	%		56.8	%		n/m		4.3	%
ADR		$	75.74		$	74.78		$	0.96		1.3	%
RevPAR		$	44.84		$	42.45		$	2.39		5.6	%

          The 6.8% increase in room revenues is a result of a 5.6% increase in RevPAR and the impact of the leap year. RevPAR increased as a result of a 4.3% increase in occupancy (from a 56.8% to a 59.2% occupancy rate) and a 1.3% increase in ADR. The increase in occupancy reflects an increase in both leisure and business travel in the first quarter 2004 as the economy strengthened. In addition, some of our

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hotels which were undergoing renovation during 2003 have now begun to realize a benefit from the renovations as well as the recovery in the economy. Some of our hotels are still being renovated or are in need of renovation and are therefore not achieving their full earning potential. As we renovate these hotels, we expect to see further improvements in occupancy which we believe should lead to improvements in room rates if business and leisure travel continue to improve.

          Food and beverage revenues were negatively affected by a reduction in group banquet and catering functions. Other revenues declined by 3.6% and were affected by a 21.8% decline in telephone revenues as a result of the increased usage of cell phones by our guests as well as the availability of free high speed Internet access at some of our hotels. The reduction in telephone revenues was, however, offset by a 3.2% increase in other revenue activities such as in-room movies, parking services, laundry services and vending machine commission and sales, which increased as a result of the increase in hotel occupancy.

          To assist us in isolating the temporary effects on hotels which have undergone major change or are undergoing change, we have identified a group of hotels as “stabilized hotels.” Stabilized hotels are those hotels included in our portfolio on March 31, 2004 which:

• were not held for sale;

•  were not undergoing major renovation during 2003 or 2004 (we consider a major renovation to be a renovation which in the aggregate exceeded $5,000 per room); or

• were not subject to brand changes during 2003 or 2004.

          Due to the deferral of capital expenditures at some of our hotels in the recent past, the group of stabilized hotels includes many properties in need of renovation. The table below presents data on our stabilized hotels:

	Three Months Ended
	March 31, 2004			March 31, 2003			% Increase (Decrease)
Number of stabilized hotels		63			63			—
Number of rooms		11,558			11,558			—
Occupancy		58.7	%		57.2	%		2.6	%
ADR	$	74.43		$	73.29			1.6	%
RevPAR	$	43.66		$	41.91			4.2	%

          Of the 14 hotels included in continuing operations that are not considered stabilized hotels, three hotels were changed from independent to branded hotels and experienced increases in occupancy ranging from 29.5% to 75.0% as compared to the first quarter 2003. Additionally, four hotels underwent renovations in 2003 that contributed to increases in occupancy ranging from 15.4% to 54.8% as compared to the first quarter 2003. These hotels helped drive the occupancy results for the hotels classified in continuing operations. As a result, the occupancy increase for our continuing operations group of hotels was stronger than the stabilized group of hotels, some of which are still in need of renovation.

          The 1.6% increase in ADR for our stabilized hotels compared to the 1.3% increase for the hotels classified in continuing operations was primarily due to an improved exchange rate between the US and Canadian dollar, which enabled our Canadian hotel to report an increase in ADR of 13%.

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Direct operating expenses — Continuing Operations

		Three Months Ended
		March 31,			March 31,			Increase
		2004			2003			(Decrease)
		(Unaudited in
		thousands)
Direct operating expenses:
	Rooms	$	16,018		$	15,363		$	655		4.3	%
	Food and beverage		11,534			11,734			(200	)	(1.7	)%
	Other		1,972			1,938			34		1.8	%
		$	29,524		$	29,035		$	489		1.7	%
	% of total revenues		38.4	%		39.6	%

          Rooms expenses, which vary with rooms revenues, were higher due to increased revenues. However, these expenses did not increase proportionately due to fixed expenses. Rooms expenses as a percentage of rooms revenues for the first quarter 2004 were 27.8% as compared to 28.5% for the first quarter 2003. Payroll and related benefits, on an actual cost per occupied room basis, were $13.48 for the first quarter 2004 as compared to $13.86 for the first quarter 2003. Other rooms expenses, on an actual cost per occupied room basis, increased from $7.45 in the first quarter 2003 to $7.59 for the first quarter 2004 primarily driven by increases in guest loyalty programs and credit card commissions.

          Although food and beverage revenues fell by 0.7%, food and beverage department expenses declined 1.7% in the first quarter 2004 compared with the first quarter 2003. Food and beverage costs as a percentage of revenues were lower in the first quarter 2004 as a result of our improved purchasing program and stronger inventory controls.

          Other direct operating expenses include telephone service expenses and the costs of providing ancillary services to our guests such as in-room movies, parking, laundry and vending machine sales. Other direct operating expenses for the first quarter 2004 increased 1.8% as compared to the first quarter 2003 while other revenues declined 3.6%. First quarter 2004 telephone expenses declined 11.3% as compared to the first quarter 2003 while first quarter 2004 ancillary service costs increased 8.5% as compared to the first quarter 2003 primarily due to a 27.6% increase in movie costs.

Other operating expenses — Continuing Operations

			Three Months Ended
			March 31,			March 31,
			2004			2003			Increase (Decrease)
			(Unaudited in
			thousands)
Other operating expenses:
	General, administrative and other		$	34,236		$	35,106		$	(870	)	(2.5	)%
	Depreciation and amortization			6,805			7,422			(617	)	(8.3	)%
			$	41,041		$	42,528		$	(1,487	)	(3.5	)%
		% of total revenues		53.4	%		58.0	%

          Included in general, administrative and other are the following categories of expenses:

• Hotel operating costs;

• Property and other taxes, insurance, leases; and

• Corporate expenses.

          The hotel operating cost component of general, administrative and other increased due to the following:

•  Hotel administration costs increased $0.2 million, primarily as a result of salary and employee benefit increases;

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•  Advertising and promotion costs increased $0.4 million, also primarily due to salary and employee benefit increases;

•  Franchise fees increased $0.5 million as a result of the increase in revenues as substantially all franchise fees are revenue-based;

•  Repairs and maintenance costs increased $0.3 million primarily as a result of our continuing preventative maintenance program and maintenance costs related to our renovation projects; and

• Utility costs increased $0.3 million as a result of rate and consumption increases.

          Property and other taxes, insurance and leases fell as a result of stabilization in the insurance markets and improved loss experience, successful appeals related to property tax assessments, and an adjustment for the recalculation of additional base rent on one of our hotels.

          Corporate expenses fell as a result of the significant reduction in post-emergence legal, professional and other costs related to the Chapter 11 proceedings. For the first quarter 2004, these costs totaled $0.2 million compared to $2.2 million for the first quarter 2003 (not including the $1.2 million of reorganization items).

          Depreciation and amortization expense declined as a result of our reduced asset base on the continuing operations hotels. The asset base on these hotels fell as a result of $12.7 million of impairment charges recorded after the first quarter 2003 on assets held for use.

Non-operating income (expenses) — Continuing Operations

		Three Months Ended
		March 31,			March 31,
		2004			2003			Increase (Decrease)
		(Unaudited in
		thousands)
Non-operating income (expenses):
Interest income and other		$	43		$	83		$	(40	)	(48.2	)%
Interest expense:
	Preferred stock dividend		(4,285	)		—			4,285		n/m
	Other interest expense		(8,159	)		(6,279	)		1,880		29.9	%
Reorganization items			—			(1,237	)		(1,237	)	(100.0	)%
Minority interests			(147	)		(148	)		(1	)	(0.7	)%

          The Preferred Stock dividend relates to dividends on the Preferred Stock issued on November 25, 2002. Dividends for the period January 1, 2004 to March 31, 2004 totaled $4.3 million. In accordance with SFAS No. 150 effective for us on July 1, 2003, dividends relating to the period after the effective date are reported as interest expense. Dividends for the period prior to the effective date continue to be shown as a deduction from retained earnings with no effect on our results of operations. As a result, the $4.3 million dividend accrued for the period January 1, 2004 to March 31, 2004 is reported in interest expense while the $3.8 million dividend accrued for the period January 1, 2003 to March 31, 2003 is shown as a deduction from retained earnings.

          Other interest expense for the first quarter 2004 increased primarily as result of costs associated with the Lehman Financing obtained in May 2003. Though the Lehman Financing replaced previous debt, we paid no interest during the first quarter 2003 on the debt which it replaced, as approved by the Bankruptcy Court. In addition, included in other interest expense for the first quarter 2004 and 2003 are amortization of loan fees of $1.5 and $0.6 million, respectively. The increase in amortization of loan fees is also related to the Lehman Financing.

          Reorganization items for the first quarter 2003 of $1.2 million represent Chapter 11 expenses incurred between January 1, 2003 and March 31, 2003 relating to the 18 hotels which emerged from Chapter 11 on May 22, 2003. We continue to incur expenses related to the Chapter 11 proceedings but currently report these expenses as part of general, administrative and other expenses. In accordance with

38

GAAP, all Chapter 11 expenses incurred in the first quarter 2003 relating to the 18 hotels were reported as reorganization items.

          Minority interests represent the third party owners’ share of the net income of the four joint ventures in which we have a controlling equity interest. The aggregate results of these joint ventures for the first quarter 2004 were similar to the results for the first quarter 2003 and hence our share of the joint ventures’ income for the first quarter 2004 was flat compared to the first quarter 2003.

Year Ended December 31, 2003 Compared to the 2002 Combined Period

Revenues — Continuing Operations

					2002
					Combined
		2003			Period			Increase (decrease)
Revenues ($ in thousands):
	Rooms	$	229,519		$	237,800		$	(8,281	)	(3.5	)%
	Food and beverage		70,791			74,124			(3,333	)	(4.5	)%
	Other		11,104			12,649			(1,545	)	(12.2	)%
	Total revenues	$	311,414		$	324,573		$	(13,159	)	(4.1	)%
Occupancy			59.9	%		61.5	%		n/m		(2.6	)%
ADR		$	74.44		$	75.02		$	(0.58	)	(0.8	)%
RevPAR		$	44.57		$	46.16		$	(1.59	)	(3.4	)%

          The 3.5% decline in room revenues results from the decline in occupancy and ADR. Occupancy declined by 2.6% (from a 61.5% to a 59.9% occupancy rate) while ADR declined by 0.8%. The decline in occupancy reflected the general decline in the lodging industry but also reflected, in part, some loss in volume due to renovations being performed at some of our hotels, brand changes and reduced performance at some hotels due to their need for renovation. The decline in ADR was due to lower demand for hotels as well as a change in buying patterns with more guests purchasing discounted rooms via the Internet.

          Food and beverage and other revenues were also affected by the decline in occupancy and a reduction in group banquet and catering functions. Other revenues, which declined by 12.2%, were affected by a decline in telephone revenues as a result of the increased usage of cell phones by our guests as well as the availability of free high speed Internet access at some of our hotels.

          Some positive signs have started to emerge for the lodging industry. Smith Travel Research recently forecasted RevPAR growth in 2004 due to rising occupancy and room rates and improving supply and demand fundamentals. We expect to realize some of the benefits of that growth but believe that we will not benefit fully from the recovery, particularly as some of our hotels are still under renovation and some need to be renovated. Some of our hotels recently have been renovated and we expect that these and others will benefit from the recovery.

          To assist us in isolating the temporary effects on hotels which have undergone major change or are undergoing change, we have identified a group of hotels as “stabilized hotels.” Stabilized hotels are those hotels included in our portfolio on December 31, 2003 which:

• were not held for sale;

•  were not undergoing major renovation during 2002 or 2003 (we consider a major renovation to be a renovation which in the aggregate exceeded $5,000 per room); or

• were not subject to brand changes during 2002 or 2003.

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          Due to the deferral of capital expenditures at some of our hotels in the recent past, the group of stabilized hotels includes many properties in need of renovation. The table below presents data on our stabilized hotels:

				2002
				Combined
	2003			Period			% increase (decrease)
Number of stabilized hotels		58			58			—
Number of rooms		10,659			10,659			—
Occupancy		62.5	%		64.1	%		(2.5	)%
ADR	$	75.59		$	76.30			(0.9	)%
RevPAR	$	47.22		$	48.87			(3.4	)%

          The decline in occupancy for our stabilized hotels was lower than the decline in occupancy for our hotels included in continuing operations, as stabilized hotels were not affected by displacements from hotel renovations. The ADR decline for our stabilized hotels exceeded the decline of our continuing operations hotels, resulting in the decline in RevPAR for our continuing operations hotels being the same as for our stabilized hotels.

Direct operating expenses — Continuing Operations

					2002
					Combined
		2003			Period			Increase (decrease)
		($ in thousands)
Direct operating expenses:
	Rooms	$	65,814		$	65,624		$	190		0.3	%
	Food and beverage		48,686			52,269			(3,583	)	(6.9	)%
	Other		7,970			8,716			(746	)	(8.6	)%
	Total direct operating expenses	$	122,470		$	126,609		$	(4,139	)	(3.3	)%
% of total revenues			39.3	%		39.0	%

          Direct operating expenses, which vary with revenues, were lower due to lower revenues. However, these expenses were not reduced proportionately with revenues due to fixed costs and the need to maintain minimum levels of service regardless of occupancy declines. Fixed costs primarily relate to salaried employees and benefits.

          Rooms expenses on an actual cost per occupied room basis increased as a result of increases in benefit costs (28% of the total increase), enhanced complimentary food and beverage items to guests enrolled in our brand loyalty programs (31% of the total increase) and general cost increases for expendable items used in the rooms department. Benefit costs include group health insurance, our 401(k) plan and workers’ compensation. Due to declining room demand in the first half of 2003 and a shift in room demand to Internet booking sites that provide discounted room rates, we were unable to achieve gains in ADR to offset these cost increases.

          The food and beverage department benefited from our improved purchasing program and greater controls on inventory, partially offset by increased benefit costs.

          Other expenses decreased by $0.7 million due in part due to a $0.4 million decline in telephone expenses as a result of increased usage of cell phones by our guests.

          We continued to realize cost efficiencies through the negotiation of national purchase contracts for all of our hotels. Through such contracts, we have benefited from lower unit costs on some of our routinely purchased items.

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Other operating expenses — Continuing Operations

					2002
					Combined
		2003			Period			Increase (decrease)
		($ in thousands)
Other operating expenses:
	General, administrative and other	$	137,888		$	132,194		$	5,694		4.3	%
	Depreciation and amortization		29,761			43,636			(13,875	)	(31.8	)%
	Impairment of long-lived assets		12,667			—			12,667		n/m
	Total other operating expenses	$	180,316		$	175,830		$	4,486		2.6	%
% of total revenues			57.9	%		54.2	%

          General, administrative and other expenses were $5.7 million higher in 2003 as a result of increases in the following:

•  We incurred $4.6 million in legal, professional and other costs related to the Chapter 11 proceedings. Prior to our emergence from Chapter 11, these costs would have been classified as reorganization expenses;

• Insurance costs increased $1.7 million due to increased insurance premium costs and safety training programs;

• Utility costs increased $1.6 million due to increases in rates and increases in consumption caused by severe weather conditions in the Northeast;

• Ground and property rent increased $0.5 million due to escalation clauses in the lease agreements; and

• Repairs and maintenance costs increased $0.4 million due to enhanced preventative maintenance programs as well as to delayed renovations on some of our hotels.

          These higher expenses were offset by reductions in other expenses, as follows:

• Legal and other professional fees decreased by approximately $1.2 million partially as a result of our reduced reliance on external professional services and also as a result of the resolution of a number of litigation cases through the Chapter 11 proceedings;

• Equipment rentals decreased by $0.5 million as a result of the initiation of improved lease programs for hotel vans, copiers and other equipment;

• Franchise fees decreased by $0.4 million. Substantially all of our franchise fees are revenue-based and, therefore, fell as a result of the reduction in revenues; and

• Bad debt expense decreased by $1.8 million. This was partially due to the release of a previous reserve during 2003 of $0.8 million that was no longer needed and an improvement in our portfolio as compared to the 2002 Combined Period.

          Depreciation and amortization expense declined by $13.9 million. Depreciation expense was reduced as a result of fresh start reporting. As part of fresh start reporting, we were required to adjust our assets to fair values and, as a result, recorded a net write-down of fixed assets of $193.2 million. After implementing fresh start reporting, our monthly depreciation decreased by $1.2 million ($14.4 million annualized). This decrease was partially offset by an increase in amortization of deferred franchise fees due to an increase in the fair values of deferred franchise fees. Amortization of deferred franchise fees increased by approximately $34,000 per month ($0.4 million annualized).

          The impairment of long-lived assets of $12.7 million recorded during 2003 represents reductions made to the carrying values of certain hotels held for use, to bring them in line with their estimated fair values.

41

Non-operating income (expenses) — Continuing Operations

						2002
						Combined
			2003			Period			Increase (decrease)
			($ in thousands)
Non-operating income (expenses):
	Interest income and other		$	807		$	4,954		$	(4,147	)	(83.7	)%
	Interest expense:
		Preferred Stock dividend		(8,092	)		—			8,092		n/m
		Other interest expense		(28,581	)		(28,273	)		308		1.1	%
	Gain on asset dispositions			445			—			445		n/m
	Reorganization items			(1,397	)		11,038			(12,435	)	(112.7	)%
	Minority interests			1,294			273			1,021		374.0	%

          Interest income and other for the 2002 Combined Period included $4.4 million of gain on extinguishment of debt. This gain related to discharge of a promissory note in the name of Macon Hotel Associates, LLC (“MHA”), a 60% owned subsidiary. The lender discharged the indebtedness of $3.9 million plus related accrued interest approximating $0.7 million in exchange for payment by MHA of $0.2 million.

          The Preferred Stock dividend relates to dividends on the Preferred Stock issued on November 25, 2002. Dividends for the period January 1, 2003 to December 31, 2003 totaled $15.7 million. In accordance with SFAS No. 150, effective for us on July 1, 2003, dividends relating to the period after the effective date are reported as interest expense. Dividends for the period prior to the effective date continue to be shown as a deduction from retained earnings with no effect on our results of operations. As a result, the $8.1 million dividend accrued for the period July 1, 2003 to December 31, 2003 is reported in interest expense while the $7.6 million dividend accrued for the periods January 1, 2003 to June 30, 2003 is shown as deductions from retained earnings.

          Included in other interest expense for 2003 is amortization of loan fees of $3.9 million. For the 2002 Combined Period, amortization of loan fees were de minimus because we wrote off all deferred loan fees when we filed for Chapter 11 in December 2001.

          A significant portion of our debt is variable based primarily on one month LIBOR. Our variable rate debt at December 31, 2003 approximated $382.8 million. Interest expense on our variable rate debt fell as a result of reductions in LIBOR and reductions in the interest rate spread. LIBOR averaged 1.25% for 2003 and 1.77% for the 2002 Combined Period. Also, the interest rate spread on the Merrill Lynch Mortgage debt incurred in November 2002 is approximately 200 basis points, or 2%, lower than the interest rate spread on the variable rate debt that it replaced. The interest expense associated with the Lehman Financing served to offset the reduction in interest discussed above. Though the Lehman Financing replaced previous debt, we paid no interest during 2002 on the debt that it replaced, as approved by the Bankruptcy Court.

          The gain on asset dispositions for 2003 relates to consideration received for condemned land less the carrying values.

          Reorganization items for 2003 of $1.4 million represent Chapter 11 expenses incurred between January 1, 2003 and May 22, 2003 relating to the 18 hotels that emerged from Chapter 11 on May 22, 2003. We continue to incur expenses related to the Chapter 11 proceedings but currently report these expenses as part of general, administrative and other expenses. In accordance with GAAP, all expenses related to the Chapter 11 proceedings between January 1, 2002 and November 22, 2002 were reported as reorganization items, including the fair value adjustments recorded on the implementation of fresh start reporting.

42

          Reorganization items for the 2002 Combined Period consisted of the following:

• Adjustments recorded on the application of fresh start reporting of $33.3 million consisting of a gain on extinguishment of debt of $223.1 million offset by fixed asset write downs and other fresh start adjustments of $189.8 million; and

• Expenses incurred as a result of the Chapter 11 proceedings of approximately $22.3 million, consisting mainly of legal and professional fees.

          Minority interests represent the third party owners’ share of the net income or loss of the four joint ventures in which we have a controlling equity interest. The increase of $1.0 million relates primarily to one joint venture owning one hotel. The net loss of this joint venture was higher in 2003 as a result of an impairment charge recorded to write down the carrying value of the hotel.

The 2002 Combined Period Compared to the Year Ended December 31, 2001

Revenues — Continuing Operations

		2002
		Combined
		Period			2001			Increase (decrease)
Revenues ($ in thousands):
	Rooms	$	237,800		$	257,100		$	(19,300	)	(7.5	)%
	Food and beverage		74,124			79,554			(5,430	)	(6.8	)%
	Other		12,649			14,418			(1,769	)	(12.3	)%
	Total revenues	$	324,573		$	351,072		$	(26,499	)	(7.5	)%
Occupancy			61.5	%		63.0	%		n/m		(2.4	)%
ADR		$	75.02		$	77.60		$	(2.58	)	(3.3	)%
RevPAR		$	46.16		$	48.91		$	(2.75	)	(5.6	)%

*  Revenues for 2001 in the table above include the revenues of six hotels sold in 2001, while occupancy, ADR and RevPAR in the table exclude the six hotels sold in 2001. Revenues in 2001 for these six hotels were:

	(in thousands)
Rooms	$	5,041
Food and beverage		1,520
Other		465
Total revenues	$	7,026

          After excluding the $5.0 million from the 2001 room revenues for six hotels sold in 2001, thereby producing room revenues for a comparable portfolio, the decline in room revenues was 5.7%. This reduction in room revenues resulted from declines in both occupancy and ADR. Occupancy declined by 2.4% (from a 63.0% to a 61.5% occupancy rate) while ADR declined by 3.3%. These reductions reflected the general decline in the economy and the lodging industry in the aftermath of the terrorist attacks of September 11, 2001 and hotel quality issues due to the liquidity constraints which led to our Chapter 11 filing. Occupancy, ADR and RevPAR were also affected by renovation displacement at some of our hotels.

          The lower food and beverage revenues were due to the lower occupancy levels in the 2002 Combined Period. Other revenues declined in the 2002 Combined Period primarily due to a $1.3 million reduction in telephone revenues resulting from increased cell phone usage.

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          The table below presents data on our stabilized hotels:

	2002
	Combined						% increase
	Period			2001			(decrease)
Number of stabilized hotels		58			58			—
Number of rooms		10,659			10,659			—
Occupancy		64.1	%		64.4	%		(0.5	)%
ADR	$	76.30		$	79.31			(3.8	)%
RevPAR	$	48.87		$	51.11			(4.4	)%

          The decline in occupancy for our stabilized hotels was lower than the decline in occupancy for all hotels included in our continuing operations, as stabilized hotels were not affected by renovation displacements. In addition, ADR of stabilized hotels declined more than ADR of all hotels in continuing operations because stabilized hotels included a higher proportion of hotels in need of renovation, resulting in the decline in RevPAR for our stabilized hotels being greater than the decline in RevPAR for all hotels included in our continuing operations.

Direct operating expenses — Continuing Operations

		2002
		Combined
		Period			2001			Increase (decrease)
		($ in thousands)
Direct operating expenses:
	Rooms	$	65,624		$	69,257		$	(3,633	)	(5.2	)%
	Food and beverage		52,269			55,459			(3,190	)	(5.8	)%
	Other		8,716			8,540			176		2.1	%
	Total direct operating expenses	$	126,609		$	133,256		$	(6,647	)	(5.0	)%
% of total revenues			39.0	%		38.0	%

*  Direct operating expenses for 2001 in the table above include the direct operating expenses of six hotels sold in 2001. Direct operating expenses in 2001 for these six hotels were:

	(in thousands)
Rooms	$	1,794
Food and beverage		1,241
Other		202
Total direct expenses	$	3,237

          After excluding the $1.8 million from the 2001 room expenses for six hotels sold in 2001, thereby producing room expenses for a comparable portfolio, the decline in room expenses was 2.7%. As a percentage of room revenues, our room expenses increased in the 2002 Combined Period but the actual cost per occupied room declined. Our margins were also affected by the decline in ADR.

          Food and beverage margins were negatively affected by a decline in banquet catering and meetings business in the 2002 Combined Period. The banquet catering and meetings business is the most profitable area of our food and beverage operations.

          Other operating expenses remained flat despite lower sales due to our inability to offset a large portion of fixed expenses in this department.

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Other operating expenses — Continuing Operations

		2002
		Combined
		Period			2001			Increase (decrease)
		($ in thousands)
Other operating expenses:
	General, administrative and other	$	132,194		$	154,320		$	(22,126	)	(14.3	)%
	Depreciation and amortization		43,636			46,065			(2,429	)	(5.3	)%
	Impairment of long-lived assets		—			20,503			(20,503	)	(100.0	)%
	Total other operating expenses	$	175,830		$	220,888		$	(45,058	)	(20.4	)%
% of total revenues			54.2	%		62.9	%

          General, administrative and other expenses decreased by $22.1 million. Of the $22.1 million decrease, $3.3 million related to six hotels sold in 2001. In addition, the property level component of general, administrative and other expenses was lower in the 2002 Combined Period, primarily as a result of reductions in revenues. General, administrative and other expenses for the 2002 Combined Period also declined as a result of reductions in corporate overhead due to cost reductions at the corporate office. These initiatives included reductions in staffing, office space and technology.

          Depreciation and amortization expense for the 2002 Combined Period decreased by $2.4 million. Of the $2.4 million decrease, $0.6 million was attributable to six hotels sold in 2001. The reduction in depreciation and amortization expense was also due to the reduced carrying values of certain assets arising from impairment charges recorded in the fourth quarter of 2001. This decrease was partially offset by additional depreciation related to capital improvements. Also, depreciation for the period November 23, 2002 to December 31, 2002 declined as a result of the write-down of fixed assets recorded when we implemented fresh start reporting.

          The $20.5 million of impairment charges for 2001 consisted of the following:

•  A $6.9 million charge related to revised estimates of fair value for properties previously held for sale; and

•  Impairment charges on assets held for use of $21.0 million, partially offset by a recapture of $7.4 million of impairment charges related to assets previously held for sale that were no longer being actively marketed for sale.

Non-operating income (expenses) — Continuing Operations

		2002
		Combined
		Period			2001			Increase (decrease)
		($ in thousands)
Non-operating income (expenses):
	Interest income and other	$	4,954		$	709		$	4,245		598.7	%
	Interest expense		(28,273	)		(71,817	)		(43,544	)	(60.6	)%
	Gain on asset dispositions		—			23,975			(23,975	)	(100.0	)%
	Reorganization items		11,038			(21,672	)		(32,710	)	(150.9	)%
	Minority interests — Preferred redeemable securities		—			(12,869	)		12,869		(100.0	)%
	Minority interests — Other		273			38			235		618.4	%

          Interest income and other increased significantly in the 2002 Combined Period primarily as the result of a discharge of indebtedness in respect of MHA, a 60% owned subsidiary. The resulting gain on extinguishment of this indebtedness was $4.4 million and resulted from the exchange of a promissory note

45

of $3.9 million plus related accrued interest approximating $0.7 million in exchange for payment by MHA of $0.2 million.

          Interest expense for the 2002 Combined Period decreased as a result of the suspension of interest payments on debt secured by highly leveraged hotels while we were in Chapter 11. Where the estimated value of the underlying collateral in respect of certain debts was considered to be less than the carrying value of that debt, we ceased accruing interest on those debts. Contractual interest expense in respect of those debts that was not recorded for the 2002 Combined Period (excluding interest on our Convertible Redeemable Equity Structured Trust Securities (“CRESTS”)) approximated $28.2 million. Recorded interest expense for the 2002 Combined Period also declined as a result of decreasing interest rates on our variable rate debt. LIBOR for the 2002 Combined Period averaged 1.77% while the average for 2001 was 3.71%.

          The gain on asset disposition for 2001 related primarily to the sale of one hotel in the first quarter of 2001 and represents the excess of the net proceeds of the sale over the net book value of assets sold.

          Reorganization items for the 2002 Combined Period consisted of the following:

• Adjustments recorded on the application of fresh start reporting of $33.3 million, consisting of gain on extinguishment of debt of $223.1 million offset by fixed asset write downs and other fresh start adjustments of $189.8 million; and

• Expenses incurred as a result of the Chapter 11 proceedings of approximately $22.3 million, consisting mainly of legal and professional fees.

          Reorganization items for 2001 consisted of write-offs of deferred loan fees of $18.7 million and expenses incurred as a result of the Chapter 11 proceedings of approximately $3.0 million.

          Minority interest differed significantly in the 2002 Combined Period compared to 2001 as a result of the non-accrual of interest on the CRESTS. We ceased accruing interest on the CRESTS while we were in Chapter 11 as these were unsecured debts. CRESTS interest not accrued for the 2002 Combined Period approximated $12.7 million.

Results of Operations — Discontinued Operations

          Discontinued operations include results of operations for both assets sold during the reporting period and assets that have been identified for sale. Consequently, the 13 hotels and three land parcels that were held for sale at March 31, 2004, as well as the 15 hotels and the office building that were sold or otherwise disposed of between January 1, 2003 and March 31, 2004, are included in discontinued operations. We present these hotels as discontinued operations in the results of operations for the three months ended March 31, 2004 and 2003, the year ended December 31, 2003, the 2002 Combined Period and the year ended December 31, 2001.

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Quarter Ended March 31, 2004 Compared Ended March 31, 2003  

          Set forth below are the condensed combined statement of operations for the properties classified as discontinued operations:

			Three Months Ended
			March 31,			March 31,			Increase
			2004			2003*			(Decrease)
			(Unaudited in thousands)
Revenues:
		Rooms	$	7,944		$	9,134		$	(1,190	)
		Food and beverage		2,318			2,359			(41	)
		Other		478			793			(315	)
				10,740			12,286			(1,546	)
Operating expenses:
	Direct:
		Rooms		2,696			3,196			(500	)
		Food and beverage		1,834			2,028			(194	)
		Other		385			598			(213	)
				4,915			5,822			(907	)
				5,825			6,464			(639	)
Other operating expenses:
	General, administrative and other			6,063			7,750			(1,687	)
	Depreciation and amortization			133			1,447			(1,314	)
	Impairment of long-lived assets			2,153			—			2,153
		Other operating expenses		8,349			9,197			(848	)
				(2,524	)		(2,733	)		209
Other income (expense):
	Interest expense			(1,185	)		(510	)		(675	)
	Gain on asset dispositions			3,007			—			3,007
	Loss before income taxes			(702	)		(3,243	)		2,541
	Benefit (provision) for income taxes			—			—			—
Net loss			$	(702	)	$	(3,243	)	$	2,541

*  The first quarter 2003 revenues and expenses in the table above includes de minimus amounts for the eight hotels conveyed to a lender in January 2003 and the one hotel returned to the lessor of a capital lease, also in January 2003.

          First quarter 2004 revenues and expenses reflected in discontinued operations above are not fully comparable with the first quarter 2003 revenues and expenses as a result of the following:

•  For the first quarter 2004 there are no revenues and expenses in the table for the hotel and office building sold during 2003. The hotel was sold in November 2003 and the office building was sold in December 2003. Hence, the first quarter 2003 results reflect the full quarter’s operations for these two properties. For the first quarter 2003, revenues for these two properties were $0.8 million and direct operating expenses were $0.3 million in aggregate.

•  Less than a quarter’s revenues and expenses are included in the results for the first quarter 2004 for the five hotels sold at various times during the quarter.

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          Additionally the following factors affected the results of the hotels included in discontinued operations:

•  Depreciation on these hotels was suspended by our classification of these assets as held for sale. All nineteen hotels identified for sale during 2003 were identified subsequent to the first quarter 2003 and hence the full quarter’s depreciation would have been recorded in the first quarter 2003 with no depreciation on these assets being recorded during the first quarter 2004. Impairment charges of $2.2 million recorded in the first quarter 2004 represent the excess of the carrying values of assets held for sale over the revised estimated selling prices less estimated selling costs.

•  Interest expense increased as a result of the Lehman Financing which was executed in May 2003 and which replaced debt on which we were not required to pay interest while the related hotels were in Chapter 11.

•  The gain on asset dispositions of $3.0 million represents the gain on sale of four of the five hotels sold during the first quarter 2004.

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Year Ended December 31, 2003, the 2002 Combined Period and Year Ended December 31, 2001

          Set forth below is the condensed combined statement of operations for properties classified as discontinued operations:

						2002						Increase			Increase
						Combined						(decrease)			(decrease)
			2003			Period			2001			2003 versus 2002			2002 versus 2001
			(28 hotels)(1)			(28 hotels)			(28 hotels)
									(in thousands)
Revenues:
	Rooms		$	46,451		$	63,860		$	71,752		$	(17,409	)	$	(7,892	)
	Food and beverage			11,264			16,709			19,020			(5,445	)		(2,311	)
	Other			3,422			4,629			5,712			(1,207	)		(1,083	)
				61,137			85,198			96,484			(24,061	)		(11,286	)
Operating expenses:
	Direct:
		Rooms		14,439			20,782			22,158			(6,343	)		(1,376	)
		Food and beverage		8,905			13,516			15,206			(4,611	)		(1,690	)
		Other		2,483			3,075			3,662			(592	)		(587	)
				25,827			37,373			41,026			(11,546	)		(3,653	)
				35,310			47,825			55,458			(12,515	)		(7,633	)
Other operating expenses:
	General, administrative and other			29,643			40,478			40,515			(10,835	)		(37	)
	Depreciation and amortization			3,367			13,558			16,480			(10,191	)		(2,922	)
	Impairment of long-lived assets			5,387			—			46,837			5,387			(46,837	)
		Other operating expenses		38,397			54,036			103,832			(15,639	)		(49,796	)
				(3,087	)		(6,211	)		(48,374	)		3,124			42,163
Other income (expense):
	Interest expense			(3,953	)		(3,855	)		(3,509	)		(98	)		(346	)
	Gain on asset dispositions			3,085			—			—			3,085			—
	Loss before income taxes and reorganization items			(3,955	)		(10,066	)		(51,883	)		6,111			41,817
	Reorganization items			(648	)		1,652			(3,344	)		(2,300	)		4,996
	Loss before income taxes			(4,603	)		(8,414	)		(55,227	)		3,811			46,813
	Benefit (provision) for income taxes			—			1,200			—			(1,200	)		1,200
Net loss			$	(4,603	)	$	(7,214	)	$	(55,227	)	$	2,611		$	48,013

(1)  The 2003 revenues and expenses in the table above include de minimus amounts of the eight hotels conveyed to a lender in January 2003 and the one hotel returned to the lessor of a capital lease, also in January 2003.

          The disposition of nine hotels in January 2003 adversely affects comparability between periods of results of operations for the properties included in discontinued operations. Results of operations for our discontinued operations were affected by the same macroeconomic factors discussed above for our continuing operations. Additional factors affecting the results for 2003, the 2002 Combined Period and 2001 are discussed below.

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Year Ended December 31, 2003 Compared to the 2002 Combined Period

          Revenues and expenses included in discontinued operations were affected by hotel dispositions in January 2003.

          The 2002 Combined Period results include the following revenues and expenses for eight hotels conveyed to a lender in satisfaction of related debt and one hotel returned to the lessor of a capital lease in January 2003:

			2002
			Combined
			Period
			(in thousands)
Revenues:
	Rooms		$	17,116
	Food and beverage			4,657
	Other			716
				22,489
Operating expenses:
	Direct:
		Rooms		5,959
		Food and beverage		3,781
		Other		653
				10,393
			$	12,096
General, administrative and other			$	10,406
Depreciation and amortization			$	2,938

          Substantially all of the total revenue, direct expense, and general, administrative and other expense differences between 2003 and the 2002 Combined Period are a result of the disposition of these nine hotels. Of the $10.2 million decrease in depreciation and amortization expense between 2003 and the 2002 Combined Period, $2.9 million was attributable to the disposition of these nine hotels. Additionally, the lower asset base as a result of fresh start reporting and the effect of not depreciating assets once they are identified for sale accounted for an additional $4.8 million and $2.3 million of the decrease, respectively.

          The impairment of long-lived assets of $5.4 million recorded in 2003 represents the write-down of assets held for sale. In accordance with GAAP, assets identified for sale are valued at the lower of their estimated selling prices, less costs to sell, and their carrying values. Where the estimated net selling prices exceeded the carrying values, no gain was recorded.

          Gain on asset dispositions of $3.1 million represents gain on the sale of one hotel and one office building in November 2003. The gain represents the excess of the net proceeds of the sale over the carrying values of these two properties. The income tax benefit for the 2002 Combined Period related to a hotel sold during 2001 and represented reductions of accruals for state income tax provisions recorded during 2001.

The 2002 Combined Period Compared to the Year Ended December 31, 2001

          The reduction in depreciation and amortization expense between the 2002 Combined Period and 2001 was due to the reduced carrying values of certain assets arising from impairment charges recorded in the fourth quarter of 2001. This decrease was partially offset by additional depreciation related to capital improvements. Also, depreciation for the period November 23, 2002 to December 31, 2002 declined as a result of the write-down of fixed assets recorded on the implementation of fresh start reporting.

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          Of the impairment charges of $46.8 million for 2001, $50.3 million related to assets held for use and $1.5 million related to assets held for sale. These charges were partially offset by a recapture of $4.9 million of impairment charges related to assets previously held for sale that were no longer being actively marketed for sale.

          Reorganization items for the 2002 Combined Period consisted of:

• Adjustments recorded on the application of fresh start reporting of $5.0 million, consisting of gain on extinguishment of debt of $33.3 million offset by fixed asset write downs and other fresh start adjustments of $28.3 million; and

• Expenses incurred as a result of the Chapter 11 proceedings of approximately $3.3 million, consisting mainly of legal and professional fees.

          Reorganization items for 2001 consisted of write-offs of deferred loan fees of $2.8 million and expenses incurred as a result of the Chapter 11 proceedings of approximately $0.5 million.

Income taxes

          Because we incurred net losses, we paid no federal income tax for the year ended December 31, 2003, the 2002 Combined Period or the year ended December 31, 2001. At December 31, 2003, we had available net operating loss carryforwards of approximately $270 million for federal income tax purposes, which will expire in 2004 through 2023. Under our plans of reorganization, substantial amounts of net operating loss carryforwards were utilized to offset income from debt cancellations in the 2002 Combined Period. The Company’s ability to use its net operating loss carryforward to offset future income is subject to annual limitations. Our reorganization under Chapter 11 resulted in a change of ownership as defined in Section 382 of the Internal Revenue Code, following which we determined our annual limitation to be approximately $10 million. It is anticipated that this offering of our common stock will result in another change of ownership under Section 382, which we expect will subject our use of net operating losses (including those experienced both before and after our reorganization) to an annual limitation of approximately $7.5 million. Any annual limitation amount that we fail to utilize in any particular taxable year, however, will increase the limitation amount available in the following taxable year. At December 31, 2003, we established a valuation allowance of $140.0 million to fully offset our net deferred tax asset.

          In addition, we recognized an income tax provision of $0.2 million for 2003, a benefit of $1.3 million for the 2002 Combined Period and a provision of $2.8 million for 2001. The benefit for the 2002 Combined Period related primarily to a reduction of the provision recorded in 2001, while the 2003 and 2001 provisions related primarily to liabilities for state income taxes.

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EBITDA

          Earnings before interest, taxes, depreciation and amortization (“EBITDA”) is a widely-used industry measure of performance and also is used in the assessment of hotel property values. EBITDA is a non-GAAP measure and should not be used as a substitute for measures such as net income (loss), cash flows from operating activities, or other measures computed in accordance with GAAP. Depreciation and amortization are significant non-cash expenses for us as a result of the high proportion of our assets which are long-lived, including property, plant and equipment. We depreciate property, plant and equipment over their estimated useful lives and amortize deferred financing and franchise fees over the term of the applicable agreements. We believe that EBITDA provides pertinent information to investors as an additional indicator of our operating performance.

          The following table presents EBITDA, a non-GAAP measure, for the three months ended March 31, 2004 and 2003, and 2003, the 2002 Combined Period and 2001 and provides a reconciliation with our (loss) income from continuing operations, a GAAP measure:

	For the Three Months
	Ended March 31,
										2002
	2004			2003			2003			Combined Period			2001
	(in thousands)
Continuing operations:
(Loss) income — continuing operations	$	(6,384	)	$	(5,841	)	$	(27,074	)	$	10,254		$	(87,537	)
Depreciation and amortization		6,805			7,422			29,761			43,636			46,065
Impairment of long-lived asset		—			—			12,667			—			20,503
Fresh start adjustments		—			—			—			(33,318	)		—
Interest income and other		(43	)		(83	)		(807	)		(4,954	)		(709	)
Interest expense		8,159			6,279			28,581			28,273			71,817
Preferred stock dividends		4,285			—			8,092			—			—
Gain on asset dispositions		—			—			(445	)		—			(23,975	)
Interest on the preferred redeemable securities (CRESTS)		—			—			—			—			12,869
Provision (benefit) for income taxes — continuing operations		76			76			178			(128	)		2,829
EBITDA	$	12,898		$	7,853		$	50,953		$	43,763		$	41,862

          EBITDA for the three periods presented above were negatively affected by the following reorganization expenses:

		For the Three Months
		Ended March 31,
								2002
		2004		2003		2003		Combined Period		2001
		(in thousands)
Write-off of deferred financing costs		$	—	$	—	$	—	$	—	$	18,628
Other reorganization items:
	Legal and professional fees		—		237		311		19,414		2,766
	Loan extension fees		—		1,000		1,025		—		—
	Other		—		—		61		2,864		278
		$	—	$	1,237	$	1,397	$	22,278	$	21,672

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          In addition, EBITDA for the three months ended March 31, 2004 and 2003, for the year ended December 31, 2003 and for the 2002 Combined Period were affected by other Chapter 11 expenses (included in general, administrative and other) of $0.2 million, $2.2 million, $4.6 million, and $0.8 million, respectively.

Quarterly Results of Operations

          The following table presents certain quarterly data for the nine quarters ended March 31, 2004. The data have been derived from our unaudited condensed consolidated financial statements for the periods indicated. Our unaudited consolidated financial statements have been prepared on substantially the same basis as our audited consolidated financial statements included elsewhere in this prospectus and include all adjustments, consisting primarily of normal recurring adjustments, that we consider to be necessary to present fairly this information when read in conjunction with our consolidated financial statements and notes thereto appearing elsewhere in this prospectus. The results of operations for any quarter are not necessarily indicative of the results to be expected for future periods. Total revenues and total expenses for each quarter were as reported in our quarterly filings with the Securities and Exchange Commission. However, the allocation of the revenues and expenses between our continuing operations and discontinued operations may not be as reported in our previous quarterly filings because the results of discontinued operations, in the tables below, are based on the hotels held for sale as of March 31, 2004. The allocation of results of operations between our continuing operations and discontinued operations, at the time of the quarterly filings, was based on the assets held for sale, if any, as of the dates of those filings.

			Successor																		Predecessor
																		Fourth Quarter 2002
			First			Fourth			Third			Second			First									Third			Second			First
			Quarter			Quarter			Quarter			Quarter			Quarter			November 23			October 1 to			Quarter			Quarter			Quarter
			2004			2003			2003			2003			2003			to December 31			November 22			2002			2002			2002
			($ in thousands, except per share data)																		($ in thousands, except per share data)
Revenues:
	Continuing operations		$	76,805		$	73,706		$	81,754		$	82,825		$	73,379		$	25,340		$	49,657		$	83,629		$	89,565		$	76,616
	Direct operating — Continuing operations			29,524			30,758			31,740			30,936			29,035			12,573			18,664			32,091			33,566			29,717
		Gross profit		47,281			42,948			50,014			51,889			44,344			12,767			30,993			51,538			55,999			46,899
Net income (loss)*			$	(7,086	)	$	(16,506	)	$	(3,646	)	$	(2,441	)	$	(9,084	)	$	(9,326	)	$	27,890		$	(4,557	)	$	3,463			(14,430	)
Net income (loss) attributable to common stock*			$	(7,086	)	$	(16,506	)	$	(3,646	)	$	(6,259	)	$	(12,860	)	$	(10,836	)	$	27,890		$	(4,557	)	$	3,463		$	(14,430	)
Basic and diluted loss per common share attributable to common stock			$	(3.04	)	$	(7.08	)	$	(1.56	)	$	(2.67	)	$	(5.51	)	$	(4.65	)	$	0.98		$	(0.16	)	$	0.12		$	(0.51	)
Percentage data:
	Direct operating expenses as a % of revenues			38.4	%		41.7	%		38.8	%		37.4	%		39.6	%		49.6	%		37.6	%		38.4	%		37.5	%		38.8	%
	Gross contribution as a % of revenues			61.6	%		58.3	%		61.2	%		62.6	%		60.4	%		50.4	%		62.4	%		61.6	%		62.5	%		61.2	%

*  There were no extraordinary items or cumulative effect of accounting change adjustments during the above periods.

          Historically, our operations and related revenues and operating results have varied substantially from quarter to quarter. We expect these variations to continue for a variety of reasons, primarily seasonality. However, due to the fixed nature of certain expenses, such as marketing and rent, our operating expenses do not vary as significantly from quarter to quarter.

Liquidity and Capital Resources

Working Capital

          We use our cash flows primarily for operating expenses, debt service, and capital expenditures. Currently, our principal sources of liquidity consist of cash flows from operations and existing cash

53

balances. Cash flows from operations may be adversely affected by factors such as a reduction in demand for lodging or certain large scale renovations being performed at our hotels. To the extent that significant amounts of our accounts receivable are due from airline companies, a further downturn in the airline industry also could materially and adversely affect the collectibility of our accounts receivable, and hence our liquidity. At March 31, 2004 and December 31, 2003, airline receivables represented approximately 16% and 25% of our accounts receivable, net of allowances. A further downturn in the airline industry could also affect our revenues by decreasing the aggregate levels of demand for travel. We expect that the sale of certain assets will provide additional cash to pay down outstanding debt and to fund a portion of our capital expenditures. One of our hotels and our one office building were sold during 2003, eight hotels were sold between January 1, 2004 and May 31, 2004, and as of May 31, 2004 we have 10 hotels and three land parcels held for sale. Of the nine hotels and one office building sold between November 1, 2003 and May 31, 2004, the aggregate net proceeds were $44.9 million, $35.5 million of which was used to pay down debt and $9.4 million of which was used for general corporate purposes, including capital expenditures.

          Our ability to make scheduled debt service payments and fund operations and capital expenditures depends on our future performance and financial results, including the successful implementation of our business strategy and, to a certain extent, the general condition of the lodging industry and the general economic, political, financial, competitive, legislative and regulatory environment. In addition, our ability to refinance our indebtedness depends to a certain extent on these factors as well. Many factors affecting our future performance and financial results, including the severity and duration of macroeconomic downturns, are beyond our control. See “Risk Factors — Risks Related to Our Business.”

          We intend to use approximately $158.2 million (estimated as of July 30, 2004) of the net proceeds of this offering to redeem all of the shares of our Preferred Stock, including accrued dividends and a 4% prepayment premium. We intend to use approximately $35.2 million from the net proceeds of this offering for capital expenditures, of which $22.7 million will be deposited in the Reserve Account with Merrill Lynch Mortgage relating to hotels securing the Refinancing Debt and $12.5 million will be used for renovations and repositionings of other selected hotels. We also will deposit in the Reserve Account all of the funds held in reserve under our existing mortgage debt. As of May 31, 2004, these funds totaled $7.8 million. In addition, we intend to deposit an additional $3 million of the net proceeds of this offering in a reserve account pursuant to other requirements in the Refinancing Debt agreements. We will use any remaining net proceeds from this offering for general corporate purposes, including funding our growth strategy.

          We intend to continue to use our cash flows to make scheduled debt service payments and fund our operations and capital expenditures and, therefore, do not anticipate paying dividends on our common stock in the foreseeable future. As provided by the terms of the Preferred Stock, we paid the dividends that were due on our Preferred Stock on November 21, 2003 by the issuance of additional shares of Preferred Stock, with fractional shares paid in cash.

          Although we have emerged from Chapter 11, the distribution of shares to the general unsecured creditors is not complete as we continue to reconcile the claims made by those creditors. We have established a disputed claims reserve out of which those claims will be paid. Until this process is complete, we will continue to incur expenses in respect of these claims as well as Bankruptcy Court fees and professional fees.

          In accordance with GAAP, all assets held for sale, including assets that would normally be classified as long-term assets in the ordinary course of business, were reported as “assets held for sale” in current assets. Similarly, all liabilities related to assets held for sale were moved to the current liability category, including debt that would otherwise be classified as long-term liabilities in the ordinary course of business.

          At March 31, 2004, after reclassifying assets held for sale as current assets and liabilities related to the assets held for sale as current liabilities, we had working capital (current assets less current liabilities) of $0.4 million, compared with working capital of $2.4 million at December 31, 2003. See

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Note 11 of the notes to our audited consolidated financial statements with respect to our decision to include the existing Merrill Lynch Mortgage debt financing in our long-term debt.

          Although there was some recovery in the hotel industry during the second half of 2003, the weak U.S. economy and the severe decline in the lodging industry after the terrorist attacks on September 11, 2001 continued to negatively affect lodging demand during 2003. Although we, and the lodging industry in general, experienced improved performance in the first quarter of 2004, it is difficult to predict when or if the industry will recover fully and our revenues from continuing operations will reach satisfactory levels. We continue to focus on hotel renovations and repositionings, both as a means of improving our competitive position in individual markets and to comply with franchisor requirements. During the first five months of 2004, we spent $9.0 million on capital expenditures, and we plan to invest approximately $35.2 million from the net proceeds of this offering for capital expenditures. We believe these investments will fund substantially all deferred capital expenditures at our hotels required by reason of our franchise agreements, undertakings we made in connection with our bankruptcy proceedings and our own operating plan. In the short term, we continue to diligently monitor our costs.

          We believe that the combination of the net proceeds from this offering, cash flows from operations, and the proceeds of asset dispositions will be sufficient to meet our liquidity needs for the next 24 months. We have executed the commitment letter with Merrill Lynch Mortgage to refinance a substantial portion of our outstanding mortgage debt and, on the date of the consummation of this offering, the funding of the Refinancing Debt will be completed, which is a condition to completing this offering. We purchased, for approximately $1.9 million, a derivative instrument to assist in managing our exposure to rising interest rates on the Fixed Rate Debt prior to the consummation of the closing of the Refinancing Debt. If interest rates decline prior to the closing of the Refinancing Debt, we will receive the benefit of the decline in rates, although the derivative instrument will lose some or all of its value.

          Our ability to meet our longer-term cash needs is dependent on the continuation and extent of the recovery of the economy and the lodging industry, improvement in our operating results, the successful implementation of our portfolio improvement strategy and our ability to obtain third party sources of capital on favorable terms as and when needed. Our future liquidity needs and sources of working capital are subject to uncertainty and we can provide no assurance that we will have sufficient liquidity to be able to meet our operating expenses, debt service requirements, including scheduled maturities, and planned capital expenditures. We could lose the right to operate certain hotels under nationally recognized brand names, and furthermore, the termination of one or more franchise agreements could lead to defaults and acceleration under one or more of our loan agreements as well as obligations to pay franchise termination payments under the franchise agreements. See “Risk Factors” for further discussion of conditions that could adversely affect our estimates of future liquidity needs and sources of working capital.

Cash Flow

Operating activities

          Net cash provided by operating activities was $6.1 million and $6.3 million for the first quarter 2004 and the first quarter 2003, respectively. Although EBITDA of $12.9 million for first quarter 2004 was $5.0 million higher than first quarter 2003, net cash provided by operating activities was $0.2 million lower in first quarter 2004 primarily as the result of the release of bankruptcy-related restricted cash during 2003.

          During the first quarter 2003, $7.6 million of restricted cash was released and made available for our operations.

          During 2003, operating activities generated $34.8 million in cash, while cash flows used in operating activities for the 2002 Combined Period was $6.0 million. The increase in cash provided by operating activities is partially attributable to the availability in 2003 of cash which was previously restricted and also to the reduction in Chapter 11 expenses.

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Investing activities

          Investing activities provided net cash flow of $11.1 million for the first quarter 2004, while for the first quarter 2003, investing activities accounted for a net cash outflow of approximately $4.5 million. The increase in investing activities in the first quarter 2004 over the first quarter 2003 was primarily a result of cash inflows from the sale of hotels during the first quarter 2004. Net proceeds from the sale of five hotels during the first quarter 2004 totaled $14.0 million. Investing activities for the first quarter 2004 also consisted of withdrawals of deposits from capital expenditure escrows of $2.2 million and capital expenditure outlays of $4.7 million. Due primarily to large scale renovations being performed at some of our hotels during the first quarter 2003, capital expenditures totaled $10.3 million, which were partially funded by withdrawals of $6.2 million from lender-controlled capital expenditure escrows.

          Investing activities accounted for an outlay of approximately $22.9 million for 2003 compared with $30.6 million for the 2002 Combined Period. Due primarily to large scale renovations performed at some of our hotels during 2003, capital expenditures totaled $30.8 million, $7.5 million higher than the $23.3 million spent in the 2002 Combined Period. Capital expenditures in 2003 were partially funded by withdrawals of $7.2 million from lender-controlled capital expenditure escrows, while in the 2002 Combined Period, these escrow balances were increased by $6.2 million. We also received proceeds of $0.8 million in 2003 as compensation for the condemnation of land. Net proceeds from the sale of a hotel and an office building totaled $12.3 million. Though the net sale proceeds of $12.3 million formed part of our cash provided from investing activities, on a consolidated basis, this is not reflected in the investing activities for our continuing operations on our consolidated statement of cash flows since it forms part of the cash flows of our discontinued operations. Other investing activities consisted primarily of other deposits and payments of franchise application fees net of refunds.

Financing activities

          Primarily as a result of the sale of the five hotels, we paid down portions of our debt in the first quarter 2004. Principal payments, including scheduled principal payments, were approximately $14.9 million for the first quarter 2004 compared with principal payments of $2.4 million in the first quarter 2003. Financing activities also included payments of financing costs of $0.6 million and $0.4 million for the first quarter 2004 and first quarter 2003, respectively.

          Cash flows used in financing activities were $11.8 million for 2003 while cash provided by financing activities was $33.7 million for the 2002 Combined Period. Financing activities for 2003 consisted primarily of proceeds of long-term debt of $80.0 million from the Lehman Financing and proceeds from the working capital revolver of $2.0 million, offset by repayment of other long-term debt of $87.1 million and the revolver of $2.0 million. The repayment of long-term obligations of $87.1 million includes the repayment of the mortgage debt which was secured by 18 hotels that emerged from Chapter 11 on May 22, 2003. This debt was repaid from the proceeds of the Lehman Financing. Payment of deferred loan fees for 2003 of $4.8 million relates to the Lehman Financing. For the 2002 Combined Period, financing activities consisted of proceeds of long-term debt of $309.0 million from our exit financing, received in November 2002, less payments of long-term debt of $267.8 million, primarily relating to debt repaid from the exit financing. The payments of deferred loan fees for the 2002 Combined Period of $7.6 million related primarily to costs of obtaining the exit financing.

          On September 18, 2003, we drew down the full availability of $2.0 million under a revolving loan agreement with OCM Real Estate Opportunities Fund II, L.P. (“OCM Fund II”). Borrowings under the facility bore interest at the fixed rate of 10% per annum and were repaid in December 2003 out of the proceeds we received from the sale of an office building. The facility was secured by two land parcels located in California and New Jersey and expired on May 1, 2004.

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Debt, contractual obligations and franchise agreements

Debt and contractual obligations (prior to debt refinancing)

          The following table sets forth our debt and contractual obligations as of December 31, 2003 and accordingly does not reflect the Refinancing Debt (see “— Refinancing Debt” below for a presentation of our debt and contractual obligations, as adjusted to reflect the Refinancing Debt and the redemption of our Preferred Stock):

			Debt and contractual obligations due by year
	Total		2004		2005		2006		2007		2008		After 2008
	(in thousands)
Exit Financing
Merrill Lynch Mortgage Lending, Inc. — Senior	$	216,052	$	3,338	$	212,714	$	—	$	—	$	—	$	—
Merrill Lynch Mortgage Lending, Inc. — Mezzanine		83,281		1,287		81,994		—		—		—		—
Merrill Lynch Mortgage Lending, Inc. — Total		299,333		4,625		294,708		—		—		—		—
Computershare Trust Company of Canada		7,521		222		240		259		6,800		—		—
Lehman Financing
Lehman Brothers Holdings, Inc.		76,449		1,084		75,365		—		—		—		—
Other Financings
Column Financial, Inc.		27,300		2,242		2,491		2,768		3,076		3,418		13,305
Lehman Brothers Holdings, Inc.		23,409		482		529		580		21,818		—		—
JP Morgan Chase Bank, Trustee		10,644		530		570		615		665		720		7,544
DDL Kinser		2,385		98		2,287		—		—		—		—
First Union Bank		3,359		56		63		69		3,171
Column Financial, Inc.		8,943		398		437		480		528		580		6,520
Column Financial, Inc.		3,206		137		3,069		—		—		—		—
Robb Evans, Trustee		6,982		6,982		—		—		—		—		—
		86,228		10,925		9,446		4,512		29,258		4,718		27,369
Total mortgage debt		469,531		16,856		379,759		4,771		36,058		4,718		27,369
Long-term debt — other		9,351		478		4,755		391		397		382		2,948
Total long-term debt (including current portion)(1)		478,882		17,334		384,514		5,162		36,455		5,100		30,317
12.25% cumulative Series A Preferred Stock subject to mandatory redemption		140,294		—		—		—		—		—		140,294
Ground and parking lease obligations		114,784		3,320		3,339		3,355		3,361		3,398		98,012
	$	733,960	$	20,654	$	387,853	$	8,517	$	39,816	$	8,498	$	268,623

(1)  Debt on hotels held for sale at December 31, 2003 totalled $53.2 million, with $771,000 of principal amortization scheduled in 2004.

          In the table above, approximately 18.5% of our long-term mortgage debt (including current portion) at December 31, 2003, bears interest at a fixed rate and 81.5% bears interest at a floating rate.

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          We did not include the following information in the table above:

•  Interest obligations — A substantial portion of our interest payments vary with LIBOR and would be difficult to project. For 2003, interest paid with respect to our continuing operations was $29.8 million.

• Franchise fees — Substantially all of our franchise fees vary with our revenues. Franchise fees expense for 2003 relating to our continuing operations are shown below under the caption “Franchise Agreements and Capital Expenditures.”

•  Equipment rentals and costs relating to our maintenance contracts — These items are of a short-term nature and are cancellable by us. For 2003, costs relating to equipment rentals and maintenance contracts for our continuing operations were approximately $1.9 million and $4.6 million, respectively.

• Property and income taxes — These taxes vary from year to year and are not estimable. For 2003, property taxes relating to our continuing operations were $12.2 million. We paid no federal income taxes for 2003. State income taxes paid, net of refunds, for 2003 were $0.2 million.

• Other purchase obligations — As of December 31, 2003, we had no material purchase obligations.

Existing Debt to be Refinanced

          The following description is only a brief summary of the terms of our existing mortgage debt that is being refinanced. Please see Note 11 to the notes to our audited consolidated financial statements for a more complete description of the history of these financings in connection with our emergence from Chapter 11, the amendment of the terms of the debt in March 2003, and the current terms of this debt.

          We have existing mortgage debt with Merrill Lynch Mortgage consisting of senior debt of $209.9 million as of June 1, 2004 and mezzanine debt of $80.9 million as of June 1, 2004, secured by 53 of our hotels. The senior debt bears interest at the rate of LIBOR plus 2.36% and the mezzanine debt bears interest at the rate of LIBOR plus 8.79%, for a blended interest rate on the existing Merrill Lynch Mortgage debt of LIBOR plus 4.15%. The senior debt and mezzanine debt mature in November 2004, but have three one-year options which could extend the maturity date for up to an additional three years, subject to the satisfaction of certain conditions. On or after May 28, 2004, if we prepay the senior and mezzanine debt we must pay Merrill Lynch Mortgage a prepayment penalty of 1% of the loan balance at the time of prepayment, and if the debt is prepaid in full on or after October 29, 2004, the prepayment penalty does not apply. The senior and mezzanine agreements provide that when either the debt yield ratio for the trailing 12-month period or the debt service coverage ratio falls below certain thresholds, excess cash flows produced by the mortgaged hotels (after payment of operating expenses, management fees, required reserves, services fees, principal and interest) must be deposited in a restricted cash account, until the debt yield and debt service coverage ratios are sustained above the minimum requirements for three consecutive months. As of May 31, 2004, $3.5 million was being retained in the restricted cash account.

          We also have existing mortgage debt with Lehman consisting of approximately $56 million as of June 1, 2004, secured by 13 of our hotels, which bears interest at the higher of 7.25% or LIBOR plus 5.25%. The Lehman debt matures on May 22, 2005, with an optional one-year extension for an extension fee of $3.0 million. We are permitted to prepay the Lehman Financing in whole or in part, provided that we give the lender prior written notice and pay all amounts due, including interest through the prepayment date and an additional interest payment, which is $4.1 million for prepayment in whole.

          On September 30, 2003, first mortgage debt of approximately $7.0 million of MHA became due. We own 60% of MHA, and MHA’s sole asset is the Crowne Plaza Hotel in Macon, Georgia. The lender initially agreed to extend the term of the debt to December 31, 2003, and then to June 30, 2004, while we explore alternative financing opportunities. We have escrowed foreclosure documents that will allow the lender to foreclose on the property on June 30, 2004 if we have not repaid the mortgage debt by that date.

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Other Financings

          On November 25, 2002, loans approximating $83.5 million, secured by 20 hotels, were substantially reinstated on their original terms, except for the extension of certain maturities. The terms of one other loan, in the amount of $2.5 million and secured by one hotel, were amended to provide for a new interest rate and a new maturity date.

          Our indebtedness to J.P. Morgan Chase, as trustee, of approximately $10.6 million represents industrial revenue bonds issued on the Holiday Inn Lawrence and Holiday Inn Manhattan, both Kansas properties. The industrial revenue bonds require a minimum debt service coverage ratio, calculated as of the end of each calendar year. For the year ended December 31, 2003, the cash flows of both hotels were insufficient to meet the minimum debt service coverage ratio requirements. The trustee of the industrial revenue bonds may give notice of default, at which time we could remedy the default by depositing with the trustee an amount estimated as of March 31, 2004 at approximately $0.3 million. In the event a default is declared and not cured, the properties would be subject to foreclosure and we would be obligated to reimburse bondholders, pursuant to a partial guaranty, of approximately $1.4 million. In addition, we could be obligated to pay our franchisor liquidated damages in the amount of $1.3 million. Total revenues for these two hotels for the year ended December 31, 2003, the 2002 Combined Period and the year ended December 31, 2001 were $8.0 million, $7.2 million and $9.1 million, respectively.

Mortgaged Properties (prior to debt refinancing)

          Set forth below, by debt pool, is a summary of our long-term obligations (including current portion) at December 31, 2003 with the applicable interest rates and the carrying values of the property, plant and equipment which collateralize our existing long-term obligations (and accordingly does not reflect the Refinancing Debt):

					December 31, 2003
		No.			Property, plant			Long-term			Interest
		of Hotels			and equipment, net(1)			obligations(1)			rates
		($ in thousands)
Exit Financing
Merrill Lynch Mortgage Lending, Inc. — Senior								$	216,052			LIBOR plus 2.36%
Merrill Lynch Mortgage Lending, Inc. — Mezzanine									83,281			LIBOR plus 8.79%
Merrill Lynch Mortgage Lending, Inc. — Total			56		$	401,793			299,333
Computershare Trust Company of Canada			1			14,106			7,521			7.88%
Lehman Financing
Lehman Brothers Holdings, Inc.			17			69,539			76,449			Higher of 7.25% or LIBOR plus 5.25%
Other Financings
Column Financial, Inc.			9			61,681			27,300			10.59%
Lehman Brothers Holdings, Inc.			5			38,125			23,409			$16,496 at 9.40%; $6,913 at 8.90%
JP Morgan Chase Bank, Trustee			2			8,913			10,644			7.25%
DDL Kinser			1			3,188			2,385			8.25%
First Union Bank			1			4,297			3,359			9.38%
Column Financial, Inc.			1			6,491			8,943			9.45%
Column Financial, Inc.			1			6,120			3,206			10.74%
Robb Evans, Trustee			1			6,365			6,982			Prime plus 4.00%
	Total — Other Financings		21			135,180			86,228
			95			620,618			469,531			6.33%(2)
Long-term debt — other
	Deferred interest — long-term		—			—			4,337
	Deferred rent on a long-term ground lease		—			—			2,506
	Tax notes issued pursuant to our Joint Plan of Reorganization		—			—			1,957
	Other		—			—			551
			—			—			9,351
Property, plant and equipment — other			—			4,824			—
			95			625,442			478,882
Held for sale			(18	)		(61,624	)		(53,204	)
Total December 31, 2003			77		$	563,818		$	425,678

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(1)	Long-term obligations and property, plant and equipment of the one hotel in which we have a non-controlling equity interest and do not consolidate are excluded from the table above.
(2)	Represents the annual weighted average cost at December 31, 2003.

Refinancing Debt

          We have executed a commitment letter with Merrill Lynch Mortgage, an affiliate of one of our underwriters, to refinance (1) our outstanding mortgage debt with Merrill Lynch Mortgage, which as of June 1, 2004 had a balance of $290.9 million, (2) certain of our outstanding mortgage debt with Lehman, which as of June 1, 2004 had a balance of $56.1 million and (3) the outstanding mortgage debt of Macon Hotel Associates, L.L.C., an entity in which we own a 60% interest, which as of June 1, 2004 had a balance of $7.0 million. On the date of the consummation of this offering, the funding of the $370 million of Refinancing Debt (which includes fees for the Refinancing Debt and prepayment penalties for the existing debt being refinanced) will be completed, which is a condition to the completion of this offering. The Refinancing Debt will consist of a loan of approximately $110 million bearing a floating rate of interest (the “Floating Rate Debt”) and secured by 29 of our hotels, and loans (collectively, the “Fixed Rate Loans”) totalling approximately $260 million each bearing a fixed rate of interest (the “Fixed Rate Debt”) and secured, in the aggregate, by 35 of our hotels. Merrill Lynch Mortgage also has the right to further divide the Refinancing Debt into first priority mortgage loans and mezzanine loans. Prior to any securitization of the four Fixed Rate Loans, such loans will be cross-defaulted and cross-collateralized.

          Each loan comprising the Fixed Rate Debt is a five-year loan with no optional extension and bears a fixed rate of interest of 2.25% plus the yield of the five-year mid-market swap rate per annum at time of closing. We have purchased, for $1.9 million, a derivative instrument to help assure that the interest rate on the Fixed Rate Debt does not exceed 6.77%. If interest rates decline prior to the closing date, we will receive the benefit of the decline in rates, although the derivative instrument will lose some or all of its value. We may not prepay the Fixed Rated Debt, except without penalty during the 60 days prior to maturity. We may, after the earlier of 30 months after the closing of the Fixed Rate Debt or the second anniversary of the securitization of a Fixed Rate Loan, defease such Fixed Rate Loan in whole or in part.

          The Floating Rate Debt is a two-year loan with three one-year extension options and bears interest at LIBOR plus 3.40%. The first extension option will be available to us only if no defaults exist and we have entered into the requisite interest rate cap agreement. The second and third extension options will be available to us only if no defaults exist, a minimum debt yield ratio of 13% is met, and minimum debt service coverage ratios of 1.30x for the second extension and 1.35x for the third extension are met. An extension fee of 0.25% of the outstanding Floating Rate Debt is payable if we opt to exercise each of the second and third extensions. We may prepay the Floating Rate Debt in whole or in part, subject to a prepayment penalty in the amount of 3% of the amount prepaid during the first year of the loan and 1% of the amount prepaid during the second year of the loan. If the loan is prepaid after we exercise a one-year extension, the prepayment penalty does not apply.

          The Refinancing Debt provides that when either (i) the debt yield ratio for the hotels securing the Floating Rate Debt or any Fixed Rate Loan for the trailing 12-month period is below 9% during the first year, 10% during the second year and 11%, 12% and 13% during each of the next three years (in the case of the Floating Rate Debt to the extent extended), or (ii) in the case of the Floating Rate Debt (to the extent extended), the debt service coverage ratio is less than 1.30x in the fourth year or 1.35x in the fifth year, excess cash flows produced by the mortgaged hotels securing the applicable loan (after payment of operating expenses, management fees, required reserves, service fees, principal and interest) must be deposited in a restricted cash account. These funds can be used for the prepayment of the applicable loan in an amount required to satisfy the applicable test, capital expenditures reasonably approved by the lender with respect to the hotels securing the applicable loan, and scheduled principal and interest payments due on the Floating Rate Debt of up to $0.9 million or any Fixed Rate Loan of up to $525,000, as applicable. Funds will no longer be deposited into the restricted cash account when the debt yield ratio and, if applicable, the debt service coverage ratio are sustained above the minimum requirements for three

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consecutive months and there are no defaults. As of the date of this prospectus, our debt yield ratios are above the minimum requirements.

          Each loan comprising the Refinancing Debt is non-recourse; however, we will agree to indemnify Merrill Lynch Mortgage in certain situations, such as fraud, waste, misappropriation of funds, certain environmental matters, asset transfers in violation of the loan agreements, or violation of certain single-purpose entity covenants. In addition, each loan comprising the Refinancing Debt will become full recourse in certain cases of bankruptcy or certain contests by us of the enforcement of the loan agreement. During the term of the Refinancing Debt, we will be required to fund, on a monthly basis, a reserve for furniture, fixtures and equipment, or FF&E, equal to 4% of the previous month’s gross revenues from the hotels securing each of the respective loans comprising the Refinancing Debt.

          The following table sets forth our debt as of December 31, 2003, as adjusted to reflect the Refinancing Debt and the redemption of all the shares of our Preferred Stock:

					Debt due by year(2)
		Total(2)(3)			2004		2005		2006		2007		2008		After 2008
		(in thousands)
Refinancing Debt:
Merrill Lynch Mortgage Lending, Inc. — Floating(1)		$	110,000		$	615	$	1,390	$	107,995	$	—	$	—	$	—
Merrill Lynch Mortgage Lending, Inc. — Fixed(1)			260,000			1,927		4,212		4,511		4,830		5,124		239,396
Merrill Lynch Mortgage Lending, Inc. — Total			370,000			2,542		5,602		112,506		4,830		5,124		239,396
Computer Share Trust Company of Canada(4)			7,391			224		242		262		6,663		—		—
Other Financings:(4)
Column Financial, Inc.			27,300			2,242		2,491		2,768		3,076		3,418		13,305
Lehman Brothers Holdings, Inc.			23,409			482		529		580		21,818		—		—
JP Morgan Chase Bank, Trustee			10,644			530		570		615		665		720		7,544
DDL Kinser			2,385			98		2,287		—		—		—		—
Column Financial, Inc.			8,943			398		437		480		528		580		6,520
Column Financial, Inc.			3,206			137		3,069		—		—		—		—
	Total — Other Financings		75,887			3,887		9,383		4,443		26,087		4,718		27,369
			453,278			6,653		15,227		117,211		37,580		9,842		266,765
Long-term debt — other(5)			6,404			2,723		826		840		854		639		522
Total long-term debt		$	459,682		$	9,376	$	16,053	$	118,051	$	38,434	$	10,481	$	267,287
Less: Held for sale			(34,800	)
Total long-term debt continuing operations(5)		$	424,882

(1)	Existing Merrill Lynch senior and mezzanine debt, certain Lehman debt and Robb Evans (Macon) debt will be repaid with proceeds from the Refinancing Debt. The interest rate assumed for the Fixed Rate Debt was 6.77%.
(2)	Long-term obligations owed by one hotel in which we have a non-controlling equity interest and which we do not consolidate are excluded from the table above.
(3)	Excludes final maturity payments and scheduled principal payments in respect of assets disposed of between January 1, 2004 and June 1, 2004 of $32.3 million.
(4)	Long-term obligations are not affected by the Refinancing Debt.
(5)	Debt on assets held for sale of $34.8 million reflects new allocated loan amounts as part of the Refinancing Debt.

          In the table above, approximately 75.7% of our long-term mortgage debt (including current portion) at December 31, 2003, as adjusted to reflect the Refinancing Debt and the redemption of all of our Preferred Stock, bears interest at a fixed rate and 24.3% bears interest at a floating rate.

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          The following table sets forth, by debt pool, a summary of our long-term obligations (including current portion) as of March 31, 2004, with the applicable interest rates and the carrying values of the property, plant and equipment which collateralize our long-term obligations, as adjusted to reflect the Refinancing Debt and the redemption of all the shares of our Preferred Stock as of March 31, 2004.

					March 31, 2004
		Number			(Unaudited in thousands)
		of			Property, plant			Long-term
		Hotels(1)			and equipment, net			obligations			Interest rates
					(2)			(2)
Exit financing
Merrill Lynch Mortgage Lending, Inc. — Fixed			35					$	260,000			6.77%(3)
Merrill Lynch Mortgage Lending, Inc. — Floating			29						110,000			LIBOR plus 3.40%
Merrill Lynch Mortgage Lending, Inc. — Total			64			442,339			370,000
Computershare Trust Company of Canada(4)			1			13,874			7,391			7.88%
Other financings(4)
Column Financial, Inc.			9			61,505			26,761			10.59%
Lehman Brothers Holdings, Inc.			5			37,976			23,292			$16,414 at 9.40%; $6,878 at 8.90%
JP Morgan Chase Bank, Trustee			2			8,806			10,516			7.25%
DDL Kinser			1			3,166			2,360			8.25%
Column Financial, Inc.			1			7,762			8,847			9.45%
Column Financial, Inc.			1			6,082			3,173			10.74%
Total — other financing			19			125,297			74,949
			84			581,510			452,340			6.69%(5)
Long-term debt — other
	Deferred rent on a long-term ground lease		—			—			1,817
	Tax notes issued pursuant to our Joint Plan of Reorganization(4)		—			—			4,014
	Other(4)		—			—			573
			—			—			6,404
Property, plant and equipment — other(6)			3			14,848			—
			87			596,358			458,744
Held for sale			(10	)		(34,897	)		(34,800	)
Total March 31, 2004			77		$	561,461		$	423,944

(1)	Excludes all assets sold before June 1, 2004.
(2)	Long-term obligations and property, plant and equipment, net, of one hotel in which we have a non-controlling equity interest and which we do not consolidate are excluded from the table above.
(3)	We have purchased a derivative instrument to help assure that the interest rate on the Fixed Rate Debt, which will be set at the closing of the Refinancing Debt at a rate equal to the five year mid-market swap rate plus 2.25%, does not exceed 6.77%.
(4)	Long-term obligations and property, plant and equipment, net, are not affected by the Refinancing Debt.
(5)	The 6.69% in the table above represents our annual weighted average cost of our long-term obligations on a pro forma basis assuming the closing of the Refinancing Debt. The rates used to calculate the weighted averages for LIBOR and the five year mid-market swap rate were 1.10% and 4.52%, respectively.
(6)	Includes property, plant and equipment, net, for three hotels that will be unencumbered after the closing of the Refinancing Debt.

          The documents governing the terms of the Refinancing Debt contain covenants that place restrictions on certain of our subsidiaries’ activities, including acquisitions, mergers and consolidations, the sale of our assets, and the incurrence of liens. Failure to comply with the covenants under a loan agreement would constitute, and one or more franchise agreement terminations could cause, an event of default that would permit acceleration by a lender. Acceleration of a loan agreement could materially and adversely affect us. See “Risk Factors — Risks Related to Our Business.”

Preferred Stock

          On November 25, 2002, we issued 5,000,000 shares of Preferred Stock with a par value of $0.01 at $25.00 per share. Each share of Preferred Stock has a liquidation preference over our common stock. The dividend is cumulative, compounded annually and is payable at the rate of 12.25% per annum on November 21 of each year. As provided by the terms of the Preferred Stock, the first dividend was paid on

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November 21, 2003 by means of the issuance of additional shares of Preferred Stock, with fractional shares paid in cash. We thus issued 594,299 shares of Preferred Stock as dividends and paid cash dividends of approximately $18,500 for fractional shares. If any Preferred Stock is then outstanding, the board of directors will determine whether the dividends due November 21, 2004 and 2005 will be paid in cash or in kind via the issuance of additional shares of Preferred Stock. The Preferred Stock is subject to redemption at any time at our option upon thirty days prior written notice and to mandatory redemption on November 21, 2012. If we redeem the Preferred Stock prior to November 21, 2004, the redemption price will be 104% of the liquidation value per share of the Preferred Stock. The liquidation value is $25.00 per share plus accrued dividends. The redemption price is reduced by 1% for each succeeding twelve-month period through November 20, 2007, after which the Preferred Stock is redeemable for the liquidation value. We intend to use a portion of the net proceeds from this offering to redeem all of our Preferred Stock, and intend to deliver our related notice of redemption as promptly as practicable after the consummation of this offering.

          On July 1, 2003, in accordance with SFAS No. 150, we reclassified the Preferred Stock to the liability section of our consolidated balance sheet and began presenting the related dividends in interest expense, which totaled $8.1 million for the period July 1, 2003 to December 31, 2003 and $4.3 million for the period January 1, 2004 to March 31, 2004. Prior to the adoption of SFAS No. 150, we presented the Preferred Stock between liabilities and equity in our consolidated balance sheet (called the “mezzanine” section) and reported the Preferred Stock dividend as a deduction from retained earnings, with no effect on our results of operations. In accordance with SFAS No. 150, the Preferred Stock and the dividends for the periods prior to July 1, 2003 have not been reclassified.

Franchise Agreements and Capital Expenditures

          We benefit from the superior brand qualities of the Crowne Plaza, Holiday Inn, Marriott, Hilton and other brands, including the reputation of these brands, reservation bookings through their central reservation systems, global distribution systems, guest loyalty programs and brand Internet booking sites. Reservations made by means of these franchisor facilities generally account for approximately 30% of our total reservations.

          To obtain these franchise affiliations, we enter into franchise agreements with hotel franchisors that generally have terms of between 10 and 20 years. These franchise agreements typically authorize us to operate a hotel under the franchise name, at a specific location or within a specified area, and require that we operate the hotel in accordance with the standards specified by the franchisor. As part of our franchise agreements, we are generally required to pay a royalty fee, an advertising/marketing fee, a fee for the use of the franchisor’s nationwide reservation system and certain ancillary charges. Royalty fees generally range from 3.0% to 6.0% of gross room revenues, advertising/marketing fees generally range from 1.0% to 4.0% of gross room revenues and reservation system fees generally range from 1.0% to 2.0% of gross room revenues. In the aggregate, royalty fees, advertising/marketing fees and reservation fees for the various brands under which we operate our hotels range from 5.0% to 12.0% of gross room revenues.

          The costs incurred in connection with these agreements are primarily monthly payments due to the franchisors based on a percentage of room revenues. These costs vary with revenues and are not fixed commitments. Franchise fees incurred for the three months ended March 31, 2004 and 2003, and the year ended December 31, 2003, the 2002 Combined Period and the year ended December 31, 2001 were:

	March 31,						2002
							Combined
	2004		2003		2003		Period		2001
	(in thousands)
Continuing operations	$	5,250	$	4,780	$	20,569	$	20,996	$	22,531
Discontinued operations		588		725		3,816		5,303		6,053
	$	5,838	$	5,505	$	24,385	$	26,299	$	28,584

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          In connection with this offering and the Refinancing Debt, we have agreed to renew during 2004 our 15 Marriott franchise agreements, and to pay, over a three year period, a fee aggregating approximately $500,000, subject to offsets. In connection with these renewals, and after Marriott reviews the capital improvements we have made at our Marriott franchised hotels during 2004, Marriott may in its reasonable business judgement require us to make additional property improvements and to place amounts into a reserve account for the purpose of funding those property improvements.

          During the term of the franchise agreements, the franchisors may require us to upgrade facilities to comply with their current standards. Our current franchise agreements terminate at various times and have differing remaining terms. As franchise agreements expire, we may apply for a franchise renewal. In connection with renewals, the franchisor may require payment of a renewal fee, increased royalty and other recurring fees and substantial renovation of the facilities, or the franchisor may elect at its sole discretion not to renew the franchise.

          If we do not comply with the terms of a franchise agreement, following notice and an opportunity to cure the noncompliance or default, the franchisor has the right to terminate the agreement, which could lead to a default and acceleration under one or more of our loan agreements, which could materially and adversely affect us. In the past, we have been able to cure most cases of noncompliance and most defaults within the cure periods. If we perform an economic analysis of the hotel and determine that it is not economically justifiable to comply with a franchisor’s requirements, we will either select an alternative franchisor or operate the hotel without a franchise affiliation. This could adversely affect us. See “Risk Factors — Risks Related to Our Business.”

          As of May 31, 2004, we have been notified that we were not in compliance with some of the terms of seven of our franchise agreements and have received default and termination notices from franchisors with respect to an additional three hotels. We cannot assure you that we will be able to complete our action plans (which we estimate will cost approximately $3.1 million) to cure the alleged instances of noncompliance and default prior to the specified termination dates or be granted additional time in which to cure any defaults or other noncompliance. We believe we are in compliance with our other franchise agreements.

          In addition, as part of our bankruptcy reorganization proceedings, we entered into stipulations with each of our major franchisors setting forth a timeline for completion of capital expenditures for some of our hotels. However, as of May 31, 2004, we have not completed the required capital expenditures for 32 hotels in accordance with the stipulations and estimate that the cost of completing the required capital expenditures is $22.3 million. The franchisor could therefore seek to declare its franchise agreement in default and could seek to terminate the franchise agreement.

          During the first five months of 2004, we invested $9.0 million in renovations and repositionings of selected hotels in our continuing operations. We intend to use approximately $35.2 million from the net proceeds of this offering for capital expenditures, of which $22.7 million will be deposited in the Reserve Account with Merrill Lynch Mortgage relating to hotels securing the Refinancing Debt and $12.5 million will be used for renovations and repositionings of other selected hotels. We also will deposit in the Reserve Account funds held in reserve under our existing mortgage debt. As of May 31, 2004, these funds totaled $7.8 million. In addition, we intend to deposit an additional $3 million of the net proceeds of this offering in a reserve account pursuant to other requirements in the Refinancing Debt agreements. We believe these investments will fund substantially all deferred capital expenditures at our hotels required by reason of our franchise agreements, undertakings we made in connection with our bankruptcy proceedings and our own operating plan.

          We believe that we will cure the noncompliance and defaults on the hotels whose franchisors have given us notice before the applicable termination dates, but we cannot provide assurance that we will be able to do so or that we will be able to obtain additional time in which to do so. If a franchise agreement is terminated, we will either select an alternative franchisor or operate the hotel independently of any franchisor. However, terminating or changing the franchise affiliation of a hotel could require us to incur significant expenses, including franchise termination payments and capital expenditures.

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Off Balance Sheet Arrangements

          We have no off balance sheet arrangements.

Quantitative and Qualitative Disclosure About Market Risk

Refinancing Debt

          We are exposed to interest rate risks on our Floating Rate Debt. Upon the closing of the Refinancing Debt, we will have outstanding Floating Rate Debt of approximately $110 million. Without regard to additional borrowings or scheduled amortization, the annualized effect of each 25 basis point increase in LIBOR would be a reduction in income before income taxes of approximately $275,000. As part of the Refinancing Debt, we are required to enter into an interest rate cap agreement that effectively caps the interest rate on our Floating Rate Debt at LIBOR of 5% or less plus the spread (See “— Liquidity and Capital Resources”). We have not yet determined the rate at which we intend to cap our LIBOR exposure. We will earn periodic settlement payments, at specified intervals, under our interest rate cap when LIBOR exceeds the cap, on dates that generally coincide with the dates on which interest is payable on the underlying debt. When LIBOR is below the cap, there is no settlement from the interest rate cap. We are exposed to interest rate risk on the Refinancing Debt for increases in LIBOR up to the cap. The one-month LIBOR as of June 1, 2004 was 1.125%.

          With respect to the fair market value of our proposed interest rate cap, we believe that our interest rate risk will be minimal. The impact on annual results of operations of a hypothetical one-point interest rate reduction on the interest rate cap, assuming an interest rate cap of 5% and a notional amount of $110 million, would be a reduction in net income of approximately $235,000. These derivative financial instruments are viewed as risk management tools and are entered into for hedging purposes only. We do not use derivative financial instruments for trading or speculative purposes. However, we have not elected to follow the hedging requirements of SFAS No. 133. We plan to recognize the fair value of our planned interest rate cap on our balance sheet in other assets, and reflect adjustments to the carrying value of the interest rate cap in our income statement as interest expense.

          The nature of the $260 million of Fixed Rate Debt incurred as part of the Refinancing Debt does not expose us to fluctuations in interest payments. The derivative instrument that we purchased to hedge the risk of an increase in interest rates on the Fixed Rate Debt prior to the closing of the Refinancing Debt was an option with a cost of $1.9 million. If interest rates decline prior to the closing of the Refinancing Debt, we will receive the benefit of the decline in rates, although the derivative instrument will lose some or all of its value. The impact on the fair value of the Fixed Rate Debt of a hypothetical one-point interest rate increase would be a reduction in value, to the holders of the debt, of approximately $10.5 million.

Debt Outstanding Prior to the Refinancing

          We are exposed to interest rate risks on our variable rate debt. At March 31, 2004, December 31, 2003 and December 31, 2002, we had outstanding variable rate debt of approximately $369.2 million, $382.8 million and $310.2 million, respectively.

          In order to manage our exposure to fluctuations in interest rates on the U.S. portion of the exit financing received in November 2002 ($291.2 million, $299.3 million and $302.7 million at March 31, 2004, December 31, 2003 and December 31, 2002, respectively), we entered into two interest rate cap agreements, which allowed us to obtain exit financing at floating rates and effectively cap them at LIBOR of 6.44% plus the spread (See “— Liquidity and Capital Resources”). Thus, we will earn periodic settlement payments under our interest rate caps when LIBOR exceeds 6.44% at specified intervals set forth in the caps, which generally coincide with the dates on which interest is payable on the underlying debt. When LIBOR is below 6.44%, there is no settlement from the interest rate caps. We are exposed to interest rate risks on the exit financing debt for increases in LIBOR up to 6.44%. The one-month LIBOR as of March 31, 2004 and December 31, 2003 was 1.09% and 1.13%, respectively. The notional principal

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amount of the interest rate caps outstanding was $302.2 million, $302.2 million and $302.8 million at March 31, 2004, December 31, 2003 and at December 31, 2002, respectively.

          On May 22, 2003, we finalized an $80.0 million financing with Lehman. The Lehman Financing is a two-year term loan with an optional one-year extension and bears interest at the higher of 7.25% or LIBOR plus 5.25%. In order to manage our exposure to fluctuations in interest rates with the Lehman Financing, we entered into an interest rate cap agreement, which allowed us to obtain this financing at a partial floating rate and effectively caps the interest rate at LIBOR of 5.00% plus 5.25%. When LIBOR exceeds 5.00%, the contracts require settlement of net interest receivable at specified intervals, which generally coincide with the dates on which interest is payable on the underlying debt. When LIBOR is below 5.00%, there is no settlement from the interest rate cap. We are exposed to interest rate risks on the Lehman Financing for LIBOR of between 2.00% and 5.00%. The notional principal amount of the interest rate cap outstanding was $79.2 million and $80.0 million at March 31, 2004 and December 31, 2003.

          With respect to the fair market value of the three interest rate caps (the two related to the exit financing and the one related to the Lehman Financing), we believe that our interest rate risk at March 31, 2004, December 31, 2003 and December 31, 2002 was minimal. The impact on annual results of operations of a hypothetical one-point interest rate reduction on the interest rate caps as of March 31, 2004 and December 31, 2003 would be a reduction in net income of approximately $1,000 and $14,000, respectively. These derivative financial instruments are viewed as risk management tools and are entered into for hedging purposes only. We do not use derivative financial instruments for trading or speculative purposes. However, we have not elected to follow the hedging requirements of SFAS No. 133.

          The fair values of the three interest rate caps as of March 31, 2004 and December 31, 2003 and the two interest rate caps at December 31, 2002 were approximately $1,000, $15,000 and $100,000, respectively. The fair values of the interest rate caps were recognized on the balance sheet in other assets. Adjustments to the carrying values of the interest rate caps are reflected in our income statement as interest expense.

          The nature of our fixed rate obligations does not expose us to fluctuations in interest payments. The impact on the fair value of our fixed rate obligations of a hypothetical one-point interest rate increase on the outstanding fixed-rate debt as of March 31, 2004, December 31, 2003 and December 31, 2002 would be a reduction in value, to the holders of the debt, of approximately $2.9 million, $3.0 million and $3.1 million, respectively.

          In addition, the hotel business is inherently capital intensive and the hotels which constitute the vast majority of assets are long-lived. Our exposure to market risk associated with changes in interest rates relates primarily to our debt obligations. Approximately 79.2% of the long-term mortgage debt (including current portion) at March 31, 2004 carried floating rates of interest. For the balance of long-term debt, the nature of fixed rate obligations does not expose us to the risk of changes in the fair value of these instruments. Our outstanding secured debt at March 31, 2004 and December 31, 2003, including current maturities and debt related to assets held for sale, was $466.3 million and $478.9 million, respectively.

          At March 31, 2004 and December 31, 2003, approximately $369.2 million and $382.8 million of debt instruments outstanding were subject to changes in LIBOR or the prime rate. Without regard to additional borrowings under those instruments or scheduled amortization, the annualized effect of each 25 basis point increase in LIBOR and the prime rate would be a reduction in income before income taxes as of March 31, 2004 and December 31, 2003 of approximately $0.9 million and $1.0 million, respectively. The fair value of the fixed rate debt at March 31, 2004 (book value $85.7 million) and December 31, 2003 (book value $86.8 million) was estimated at $86.9 million and $86.7 million, respectively.

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Changes in Accounting Standards

          The table below summarizes recent accounting pronouncements and their effects on us:

				Effective date for	Summary of major
	Description	Month Issued		Lodgian	provisions	Effect on Lodgian
SFAS No. 144	Accounting for the Impairment or Disposal of Long-Lived Assets		August-01	January-02	Operating results of real estate assets sold and to be sold must be classified as discontinued operations.	Assets held for sale and assets disposed of in 2003 and 2004 are included in discontinued operations.
FIN No. 45	Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others		November-02	December-02	Elaborates on disclosures to be made by a guarantor. At the inception of the guarantee, the guarantor must recognize the fair value of the guarantee as a liability.	No effect, since guarantees all relate to subsidiaries which are consolidated.
SFAS No. 148	Accounting for Stock- Based Compensation  — Transition and Disclosure		December-02	November 22, 2002	Amends SFAS No. 123 to provide alternative methods of transition for an entity that voluntarily changes to the fair-value-based method.	Not applicable
					Amends SFAS No. 123 to require prominent disclosure about the effect of the fair value method on reported net income and earnings per share and about an entity’s accounting policy.	Required disclosures are included in the financial statements starting on page F-1.
FIN No. 46	Consolidation of Variable Interest Entities		January-03	Special purpose entities — December 31, 2003. Other entities — first quarter of 2004.	Addresses consolidation by a business of variable interest entities in which it is the primary beneficiary.	No impact, since we have no variable interest entities.
SFAS No. 149	Amendment of Statement 133 on Derivative Instruments and Hedging Activities		April-03	July-03	Amends and clarifies accounting for derivative instruments including certain derivative instruments embedded in other contracts and hedging activities.	Immaterial impact, since our investment in derivatives is minimal.

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				Effective date for	Summary of major
	Description	Month Issued		Lodgian	provisions	Effect on Lodgian
SFAS No. 150	Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity		May-03	July-03	Aims to eliminate diversity by requiring that certain types of freestanding instruments be reported as liabilities including mandatorily redeemable shares which unconditionally obligate the issuer to redeem the shares for cash or by transferring other assets.	Our Mandatorily Redeemable 12.25% Cumulative Series A Preferred Stock has been reclassified to long-term debt in the Consolidated Financial Statements starting on page F-1 and the related dividends for the applicable periods from July 1, 2003 to March 31, 2004 have been included in interest expense.
SFAS No. 132 (Revised 2003)	Employers’ Disclosures about Pensions and Other Postretirement Benefits		December-03	January-04	Increases existing disclosures by requiring more details about plan assets, benefit obligations, cash flows, benefit costs and related information.	No impact, since our costs in relation to pension and post- retirement benefits are insignificant.

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BUSINESS AND PROPERTIES

Our Company

          We are one of the largest independent owners and operators of full-service hotels in the United States in terms of our number of guest rooms and gross annual revenues, as reported by Hotel & Motel Management Magazine in September 2003. We are considered an independent owner and operator because we do not operate our hotels under our own name. We operate substantially all of our hotels under nationally recognized brands, such as “Crowne Plaza,” “Holiday Inn” and “Marriott.” We currently operate 88 hotels with an aggregate of 16,627 rooms, located in 30 states and Canada. Of the 88 hotels, 78 hotels, with an aggregate of 14,348 rooms, are part of our continuing operations, while ten hotels, with an aggregate of 2,279 rooms, are held for sale. Our portfolio of 88 hotels consists of:

• 83 hotels that we wholly own and operate through subsidiaries;

• four hotels that we operate in joint ventures in which we have a 50% or greater voting equity interest and exercise control; and

• one hotel that we operate in a joint venture in which we have a 30% non-controlling equity interest.

          We consolidate all of these entities in our financial statements, other than the one entity in which we hold a non-controlling equity interest and for which we account under the equity method.

          Our hotels are primarily full-service properties that offer food and beverage services, meeting space and banquet facilities and compete in the midscale and upscale market segments of the lodging industry. We operate all but three of our hotels under franchises obtained from nationally recognized hospitality franchisors. We operate 60 of our hotels under franchises obtained from InterContinental Hotels Group as franchisor of the Crowne Plaza, Holiday Inn, Holiday Inn Select and Holiday Inn Express brands. We operate 15 of our hotels under franchises from Marriott International as franchisor of the Marriott, Courtyard by Marriott, Fairfield Inn by Marriott and Residence Inn by Marriott brands. We operate another ten hotels under other nationally recognized brands. We believe that these strong national brands afford us many benefits, such as guest loyalty and market share premiums.

          Our management consists of an experienced team of professionals with extensive lodging industry experience led by our president and chief executive officer, W. Thomas Parrington, who has been in the lodging industry for over 30 years, including most recently as chief executive officer of Interstate Hotels Company through 1998. Our chief operating officer, Michael Amaral, and our three regional vice presidents have a combined 90 years of industry experience and our vice president of sales and marketing has 20 years of industry experience. We will use the experience of our management team to improve property-level performance, implement our hotel renovation and repositioning program, dispose of hotels that do not fit our strategy, identify potential acquisitions and maintain our relationships with our franchisors.

Our Operations

          Our operations team is responsible for the management of our properties. Our chief operating officer and three regional vice presidents of operations are responsible for the supervision of our general managers, who oversee the day-to-day operations of our hotels. Our corporate office is located in Atlanta, Georgia. The centralized management services provided by our corporate office include sales and marketing, purchasing, finance and accounting, information technology, renovations, human resources, legal services, training and quality programs. We believe that our centralized services and functions provide significant cost savings due to economies of scale.

          Our corporate management team coordinates the financial and accounting functions of our business. These functions include internal audits, insurance and contract review and overseeing the budgeting and forecasting for our hotels. The corporate management team also identifies new systems and

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procedures to employ within our hotels to improve efficiency and profitability. The corporate management team also coordinates the sales forces for our hotels, designs sales training programs, tracks future business under contract and identifies, employs and monitors marketing programs aimed at specific target markets. Interior design of all hotels, each hotel’s product quality, and the detailed refurbishment of existing properties are also managed from our corporate headquarters.

          We use information systems at the corporate office to track each hotel’s daily occupancy, ADR, room revenues and food and beverage revenues. By having current information available, we are better able to respond to changes in each market by focusing sales efforts and making appropriate adjustments to control expenses and maximize profitability.

          Creating cost and guest service efficiencies in each hotel is a top priority. With a total of 88 hotels in our portfolio, we believe we are able to realize significant cost savings due to economies of scale and that we are able to secure volume pricing from vendors that may not be available to smaller hotel companies.

Corporate History

          Lodgian was formed as a new parent company in a merger of Servico, Inc. and Impac Hotel Group, LLC in December 1998. Servico was incorporated in Delaware in 1956 and was an owner and operator of hotels under a series of different entities. Impac was a private hotel ownership, management and development company organized in Georgia in 1997 through a reorganization of predecessor entities. After the consummation of the merger, our portfolio consisted of 142 hotels.

          Between December 1998 and the end of 2001, a number of factors, including our heavy debt load, a lack of available funds to maintain the quality of our hotels, a weakening U.S. economy, and the severe decline in travel in the aftermath of the terrorist attacks of September 11, 2001, combined to place adverse pressure on our cash flow and liquidity. As a result, on December 20, 2001, Lodgian and substantially all of our subsidiaries that owned hotels filed for voluntary reorganization under Chapter 11 of the Bankruptcy Code. At the time of the Chapter 11 filing, our portfolio consisted of 106 hotels.

          Following the consummation of our reorganization, we emerged from Chapter 11 with 97 hotels, eight of our hotels having been conveyed to a lender in satisfaction of outstanding debt obligations and one having been returned to the lessor of a capital lease of the property. Of these 97 hotels, 78 hotels emerged from Chapter 11 on November 25, 2002, 18 hotels emerged from Chapter 11 on May 22, 2003 and one hotel never filed under Chapter 11.

          Pursuant to our portfolio improvement strategy, during 2003 and through May 31, 2004, we sold nine hotels and our one office building. Our portfolio currently consists of 88 hotels, 78 of which are reflected in continuing operations (including one hotel that we do not consolidate).

Franchise Affiliations

          We operate substantially all of our hotels under nationally recognized brands. We believe that in addition to benefits in terms of guest loyalty and market share premiums, our hotels benefit from franchisors’ central reservation systems, their global distribution systems and their brand Internet booking sites. Reservations made by means of these franchisor facilities generally account for approximately 30% of our total reservations.

          We enter into franchise agreements, generally for terms of between 10 and 20 years, with hotel franchisors. The franchise agreements typically authorize us to operate a hotel under the franchise name, at a specific location or within a specified area, and require that we operate the hotel in accordance with the standards specified by the franchisor. As part of our franchise agreements, we are generally required to pay a royalty fee, an advertising/marketing fee, a fee for the use of the franchisor’s nationwide reservation system and certain ancillary charges. Royalty fees generally range from 3.0% to 6.0% of gross room revenues, advertising/marketing fees generally range from 1.0% to 4.0% of gross room revenues and

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reservation system fees generally range from 1.0% to 2.0% of gross room revenues. In the aggregate, royalty fees, advertising/marketing fees and reservation fees for the various brands under which we operate our hotels range from 5.0% to 12.0% of gross room revenues.

          Set forth below is a summary of our current hotel portfolio organized by franchisors, with the brands, number of hotels and rooms represented by each, in continuing operations and discontinued operations (including one hotel that we do not consolidate):

		Continuing				Discontinued
		Operations				Operations				Total
		No. of		No. of		No. of		No. of		No. of		No. of
		Hotels		Rooms		Hotels		Rooms		Hotels		Rooms
InterContinental Hotels Group PLC (IHG)
	Holiday Inn		36		6,737		8		1,693		44		8,430
	Holiday Inn Express		4		504		—		—		4		504
	Holiday Inn Select		4		1,096		1		397		5		1,493
	Crowne Plaza(1)		7		1,902		—		—		7		1,902
Total IHG			51		10,239		9		2,090		60		12,329
Marriott International, Inc.
	Marriott		1		238		—		—		1		238
	Courtyard by Marriott		7		760		—		—		7		760
	Fairfield Inn by Marriott		5		563		—		—		5		563
	Residence Inn by Marriott		2		177		—		—		2		177
Total Marriott			15		1,738		—		—		15		1,738
Hilton Hotels Corporation
	Hilton		3		587		—		—		3		587
	DoubleTree		1		189		—		—		1		189
Total Hilton			4		776		—		—		4		776
Choice Hotels International, Inc.
	Clarion		2		590		—		—		2		590
	Quality		2		307		—		—		2		307
Total Choice			4		897		—		—		4		897
Starwood Hotels & Resorts Worldwide, Inc.
	Four Points		—		—		1		189		1		189
Carlson Companies
	Radisson		1		163		—		—		1		163
Non-franchised hotels			3		535		—		—		3		535
Total All Hotels			78		14,348		10		2,279		88		16,627

(1)  The mortgage debt for our Crowne Plaza Hotel, in Macon, Georgia, matures on June 30, 2004, and we have escrowed foreclosure documents with respect to this debt; however, we expect to repay this debt as part of the Refinancing Debt.

          In connection with this offering and the Refinancing Debt, we have agreed to renew during 2004 our 15 Marriott franchise agreements, and to pay, over a three year period, a fee aggregating approximately $500,000, subject to offsets. In connection with these renewals, and after Marriott reviews the capital improvements we have made at our Marriott franchised hotels during 2004 Marriott may in its reasonable business judgement require us to make additional property improvements and to place amounts into a reserve account for the purpose of funding those property improvements.

          During the term of our franchise agreements, the franchisors may require us to upgrade facilities to comply with their current standards. Our current franchise agreements terminate at various times and have differing remaining terms. As franchise agreements expire, we may apply for a franchise renewal. In connection with renewals, the franchisor may require payment of a renewal fee, increased royalty and other recurring fees and substantial renovation of the facilities, or the franchisor may elect at its sole discretion not to renew the franchise.

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          If we do not comply with the terms of a franchise agreement, following notice and an opportunity to cure the noncompliance or default, the franchisor has the right to terminate the agreement, which could lead to a default and acceleration under one or more of our loan agreements, which could materially and adversely affect us. In the past, we have been able to cure most cases of noncompliance and most defaults within the cure periods. If we perform an economic analysis of the hotel and determine that it is not economically justifiable to comply with a franchisor’s requirements, we will either select an alternative franchisor or operate the hotel without a franchise affiliation. This could adversely affect us. See “Risk Factors — Risks Related to Our Business.”

          As of May 31, 2004, we have been notified that we were not in compliance with some of the terms of seven of our franchise agreements and have received default and termination notices from franchisors with respect to an additional three hotels. We cannot assure you that we will be able to complete our action plans (which we estimate will cost approximately $3.1 million) to cure the alleged instances of noncompliance and default prior to the specified termination dates or be granted additional time in which to cure any defaults or other noncompliance. We believe we are in compliance with our other franchise agreements.

          In addition, as part of our bankruptcy reorganization proceedings, we entered into stipulations with each of our major franchisors setting forth a timeline for completion of capital expenditures for some of our hotels. However, as of May 31, 2004, we have not completed the required capital expenditures for 32 hotels in accordance with the stipulations and estimate that the cost of completing the required capital expenditures is $22.3 million. A franchisor could therefore seek to declare its franchise agreement in default and could seek to terminate the franchise agreement.

          During the first five months of 2004, we invested $9.0 million in renovations and repositionings of selected hotels in our continuing operations. We intend to use approximately $35.2 million from the net proceeds of this offering for capital expenditures, of which $22.7 million will be deposited in the Reserve Account with Merrill Lynch Mortgage relating to hotels securing the Refinancing Debt and $12.5 million will be used for renovations and repositionings of other selected hotels. We also will deposit in the Reserve Account all of the funds held in reserve under our existing mortgage debt. As of May 31, 2004, these funds totaled $7.8 million. In addition, we intend to deposit an additional $3 million of the net proceeds of this offering in a reserve account pursuant to other requirements in the Refinancing Debt agreements. We believe these investments will fund substantially all deferred capital expenditures at our hotels required by reason of our franchise agreements, undertakings we made in connection with our bankruptcy proceedings and our own operating plan.

          We believe that we will cure the noncompliance and defaults on the hotels whose franchisors have given us notice before the applicable termination dates, but we cannot provide assurance that we will be able to do so or that we will be able to obtain additional time in which to do so. If a franchise agreement is terminated, we will either select an alternative franchisor or operate the hotel independently of any franchisor. However, terminating or changing the franchise affiliation of a hotel could require us to incur significant expenses, including franchise termination payments and capital expenditures.

Sales and Marketing

          We market our hotels through national marketing programs that we coordinate with local sales managers and a director of sales at most of our hotels. Although we make periodic modifications to our marketing plans in order to address local differences and maintain a sales organization structure based on market needs and local preferences, we generally utilize the same major marketing plans throughout the country. We develop these concepts at our headquarters, while modifications are implemented by our hotels’ regional managers and local sales force, all of whom are experienced in hotel marketing. Our local sales force reacts promptly to local changes and market trends in order to customize marketing programs to meet each hotel’s competitive needs. The local sales force is also responsible for developing and implementing marketing programs targeted at specific customer segments within their respective markets.

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Our marketing efforts focus primarily on business travelers, who account for roughly half of the rooms rented in our hotels.

          Our core market consists of business travelers who visit a given area several times per year, such as sales people who cover a regional territory, government and military personnel, and technicians. We believe that business travelers are attracted to our hotels because of their convenient locations, their proximity to corporate headquarters, plants, convention centers or other major facilities, the availability of ample meeting space and our high level of service. Our sales force markets to organizations that can utilize a high volume of room nights and that have a significant number of individuals traveling in our operating regions. We also target groups and conventions by focusing on the proximity of our hotels to nearby convention or trade centers. Our hotels’ group meeting logistics include flexible space readily adaptable to groups of varying size, up-to-date audio-visual equipment and on-site catering facilities.

          In addition to the business market, our targeted customers include leisure travelers looking for comfortable and convenient lodging at an affordable price.

          Our franchised hotels use the centralized reservation systems of our franchisors, which we believe are among the more advanced reservation systems in the lodging industry. The franchisors’ reservation systems receive reservation requests entered (1) on terminals located at all of their respective properties, (2) at reservation centers utilizing 1-800 phone access, (3) through global distribution systems and (4) through Internet booking sites. These reservation systems immediately confirm reservations or indicate accommodations available at alternate hotels in the respective franchisors’ systems. Confirmations are transmitted automatically to the hotel for which the reservations are made. These systems are effective in directing customers to our franchised hotels and have historically accounted for approximately 30% of our revenues.

Joint Ventures

          We currently operate four hotels in joint ventures in which we have a 50% or greater voting equity interest and exercise control, and we operate one hotel in a joint venture in which we have a 30% non-controlling equity interest. In each joint venture, we share decision making authority with our joint venture partner and may not, and in the case of our hotel in which we do not have a controlling interest, do not, have sole discretion with respect to a hotel’s disposition.

Growth Strategy

          We believe that occupancy and ADR, and consequently RevPAR, in our continuing operations will increase as a result of an expected improvement in lodging industry supply and demand fundamentals, our hotel renovation and repositioning program and our strong management team. We believe our planned capital expenditures and operational improvements will generate increased revenues and enhance our financial performance. Additionally, we will continue to monitor the ongoing performance of our hotels as part of our portfolio improvement strategy.

          Based on the expected improvement in lodging industry fundamentals, we believe it is an opportune time in the lodging industry cycle to own and acquire hotels. We intend to acquire or invest in additional hotels primarily through joint ventures with other investors. We believe that entering into joint ventures will enable us to increase our revenues and enhance our financial performance from both the management fees we would receive for managing the hotels owned by the joint ventures, as well as from our ownership interest in those hotels. Under certain circumstances, we also may seek to acquire select hotels on a wholly-owned basis.

          We intend to focus our acquisition and investment efforts on limited service, midscale and upscale hotels that are less than five years old, contain approximately 100 to 250 rooms and enhance our brand diversification.

73

Competition and Seasonality

          The hotel business is highly competitive. Each of our hotels competes in its market area with numerous other hotels operating under various lodging brands, and with other lodging establishments. National chains, including in many instances chains from which we obtain franchises, may compete with us in various markets. There is, however, no single competitor or group of competitors of our hotels that is consistently located nearby and competing with most of our hotels. Our competition is highly fragmented and is comprised of public companies, privately-held equity funds, and relatively small, private owners and operators of hotels. Competitive factors in the lodging industry include, among others, supply in a particular market, franchise affiliations, reasonableness of room rates, quality of accommodations, service levels, convenience of locations and amenities customarily offered to the traveling public. In addition, the development of travel-related Internet websites has increased price awareness among travelers and price competition among similarly located, comparable hotels.

          Demand for accommodations, and the resulting revenues, vary seasonally. The high season tends to be the summer months for hotels located in colder climates and the winter months for hotels located in warmer climates. Aggregate demand for accommodations in our portfolio is, however, lowest during the winter months. Levels of demand are dependent upon many factors that are beyond our control, including general and local economic conditions and changes in levels of leisure and business-related travel. Our hotels depend on both business and leisure travelers for revenues.

          We also compete with other hotel owners and operators with respect to obtaining desirable franchises for upscale and midscale hotels in targeted markets and acquiring hotels to renovate and reposition.

The Lodging Industry

          We believe that we have passed the bottom of the U.S. economic and lodging industry cycle, based on industry forecasts, general economic forecasts and historical data. After two consecutive years of declines in 2001 and 2002 in RevPAR, the U.S. lodging industry showed signs of recovery in the second half of 2003, with full year RevPAR growth of 0.5% according to Smith Travel Research. For 2004, Smith Travel Research forecasted annual U.S. lodging industry RevPAR growth of 5.2% and an annual increase in demand, as measured by average daily rooms sold, of 4.0%, which it forecasted will outpace the annual net increase in supply of 1.2%. Although these are only industry forecasts, and do not apply specifically to our portfolio of hotels, based on forecasted industry fundamentals, we believe that it is an opportune time in the business cycle to own, acquire and reinvest in hotels.

74

          As illustrated by the graph below, the U.S. lodging industry enjoyed nine years of consecutive positive RevPAR growth from 1992 through 2000 following the economic recession of 1991. The periods of greater RevPAR growth over this time period generally occurred when growth in room demand exceeded new supply growth.

Properties

          We retain responsibility for all aspects of the day-to-day management of each of our hotels. We establish and implement standards for hiring, training and supervising staff, developing and maintaining financial controls, complying with laws and regulations relating to hotel operations and providing for the repair and maintenance of the hotels:

Portfolio

          Our current hotel portfolio, by franchisor, is set forth below.

				Year of Last Major
				Renovation or
Franchisor/Hotel Name	No. of Rooms		Location	Construction
InterContinental Hotels Group PLC (IHG) (60 hotels)
Crowne Plaza Albany*		384	Albany, NY		2001
Crowne Plaza Cedar Rapids		275	Cedar Rapids, IA		1998
Crowne Plaza Houston*		291	Houston, TX		1999	(3)
Crowne Plaza Macon (60% owned)(1)		297	Macon, GA		1996
Crowne Plaza Pittsburgh		193	Pittsburgh, PA		2001
Crowne Plaza West Palm Beach (50% owned)*		219	West Palm Beach, FL		2001
Crowne Plaza Worcester*		243	Worcester, MA		1996
Holiday Inn Arden Hills		156	St. Paul, MN		1995	(3)
Holiday Inn Austin –South(2)		210	Austin, TX		1994
Holiday Inn Brunswick		126	Brunswick, GA		1998	(3)
Holiday Inn BWI Airport*		260	Baltimore, MD		2000	(3)
Holiday Inn City Center (30% owned)		240	Columbus, OH		2002
Holiday Inn Clarksburg*		159	Clarksburg, WV		1997
Holiday Inn Cromwell Bridge*		139	Cromwell Bridge, MD		2000

75

					Year of Last Major
					Renovation or
Franchisor/Hotel Name		No. of Rooms		Location	Construction
Holiday Inn East Hartford			130	East Hartford, CT		2000
Holiday Inn Express Dothan			112	Dothan, AL		2002
Holiday Inn Express Gadsden			141	Gadsden, AL		1996
Holiday Inn Express Palm Desert			129	Palm Desert, CA		2003
Holiday Inn Express Pensacola University Mall			122	Pensacola, FL		2002
Holiday Inn Fairmont			106	Fairmont, WV		1997
Holiday Inn Florence(2)			105	Florence, KY		1997
Holiday Inn Fort Wayne			208	Fort Wayne, IN		1995
Holiday Inn Frederick			158	Frederick, MD		2000
Holiday Inn Frisco			217	Frisco, CO		1997
Holiday Inn Glen Burnie North*			127	Glen Burnie, MD		2000
Holiday Inn Grand Island(2)			261	Grand Island, NY		2000
Holiday Inn Greentree			201	Pittsburgh, PA		2000
Holiday Inn Hamburg			130	Buffalo, NY		1998
Holiday Inn Hilton Head*			201	Hilton Head, SC		2001	(3)
Holiday Inn Inner Harbor*			375	Baltimore, MD		2000	(3)
Holiday Inn Jamestown			146	Jamestown, NY		1998
Holiday Inn Jekyll Island(2)			198	Jekyll Island, GA		2000
Holiday Inn Lancaster (East)			189	Lancaster, PA		2000
Holiday Inn Lansing West*			244	Lansing, MI		1998
Holiday Inn Lawrence			192	Lawrence, KS		2002
Holiday Inn Manhattan*			197	Manhattan, KS		2002
Holiday Inn Marietta			193	Marietta, GA		2003
Holiday Inn McKnight Road*			146	Pittsburgh, PA		1995
Holiday Inn Meadowlands			138	Pittsburgh, PA		1996	(3)
Holiday Inn Melbourne* (50% owned)			295	Melbourne, FL		2002
Holiday Inn Memphis(2)			173	Memphis, TN		1998
Holiday Inn Monroeville			188	Monroeville, PA		1998	(3)
Holiday Inn Morgantown(2)			147	Morgantown, WV		1997
Holiday Inn SunSpree Resort Myrtle Beach			133	Myrtle Beach, SC		1998
Holiday Inn Parkway East(2)			177	Pittsburgh, PA		2001
Holiday Inn Phoenix West			144	Phoenix, AZ		2003
Holiday Inn Rolling Meadows(2)			422	Rolling Meadows, IL		2000
Holiday Inn Santa Fe			130	Santa Fe, NM		2003
Holiday Inn Select DFW Airport			282	Dallas, TX		1997
Holiday Inn Select Niagara Falls(2)			397	Niagara Falls, NY		1999
Holiday Inn Select Phoenix Airport*			298	Phoenix, AZ		Being Renovated
Holiday Inn Select Strongsville*			302	Cleveland, OH		1996	(3)
Holiday Inn Select Windsor*			214	Windsor, Ontario		Being Renovated
Holiday Inn Sheffield			201	Sheffield, AL		1996
Holiday Inn Silver Spring*			231	Silver Spring, MD		1998	(3)
Holiday Inn St. Louis North			390	St. Louis, MO		1996
Holiday Inn University Mall			152	Pensacola, FL		1997
Holiday Inn Valdosta			167	Valdosta, GA		2003
Holiday Inn Winter Haven			228	Winter Haven, FL		1998
Holiday Inn York			100	York, PA		2000
	Total IHG		12,329
Marriott International, Inc. (15 hotels)
Courtyard by Marriott Abilene			99	Abilene, TX		1996	(3)
Courtyard by Marriott Bentonville*			90	Bentonville, AR		1996	(3)
Courtyard by Marriott Buckhead*			181	Atlanta, GA		Being renovated
Courtyard by Marriott Florence			78	Florence, KY		Being renovated
Courtyard by Marriott Lafayette*			90	Lafayette, LA		1997	(3)
Courtyard by Marriott Paducah*			100	Paducah, KY		1997	(3)
Courtyard by Marriott Tulsa			122	Tulsa, OK		1997	(3)
Fairfield Inn by Marriott Augusta			117	Augusta, GA		2002
Fairfield Inn by Marriott Colchester			117	Colchester, VT		2002
Fairfield Inn by Marriott Jackson			105	Jackson, TN		2002
Fairfield Inn by Marriott Merrimack			116	Merrimack, NH		1998	(3)

76

					Year of Last Major
					Renovation or
Franchisor/Hotel Name		No. of Rooms		Location	Construction
Fairfield Inn by Marriott Valdosta			108	Valdosta, GA		1997	(3)
Marriott Denver Airport*			238	Denver, CO		1998
Residence Inn by Marriott Dedham			81	Dedham, MA		Being renovated
Residence Inn by Marriott Little Rock			96	Little Rock, AR		1998	(3)
	Total Marriott		1,738
Hilton Hotels Corporation (4 hotels)
DoubleTree Club Philadelphia*			189	Philadelphia, PA		2003
Hilton Fort Wayne			244	Fort Wayne, IN		2003
Hilton Columbia*			152	Columbia, MD		2003
Hilton Northfield			191	Troy, MI		2003
	Total Hilton		776
Choice Hotels International, Inc. (4 hotels)
Clarion Northwoods Atrium Inn			197	Charleston, SC		1994
Quality Hotel Metairie			205	New Orleans, LA		1995	(3)
Clarion Hotel Louisville			393	Louisville, KY		2000
Quality Inn Dothan			102	Dothan, AL		1996
	Total Choice		897
Starwood Hotels and Resorts Worldwide, Inc. (1 hotel)
Four Points Niagara Falls(2)			189	Niagara Falls, NY		1999
	Total Starwood		189
Carlson Companies (1 hotel)
Radisson Phoenix Hotel			163	Phoenix, AZ		Being renovated
	Total Carlson		163
Non-franchised hotels (3 hotels)
French Quarter Suites Memphis			105	Memphis, TN		1997
New Orleans Airport Plaza Hotel (82% owned)			244	New Orleans, LA		1996	(3)
University Inn, Bloomington			186	Bloomington, IN		1992
	Total Non-franchised hotels(3)		535
	All Hotels (88 hotels)		16,627

*	One of our top 25 hotels as measured by 2003 net operating income.
(1)	The existing debt for this hotel matures on June 30, 2004, and we have escrowed foreclosure documents with respect to this debt; however, we expect to repay this debt as part of the Refinancing Debt.
(2)	These hotels are held for sale and are accounted for in discontinued operations.
(3)	Renovations planned for 2004.

          We sold the following hotels between January 1, 2004 and May 31, 2004:

• Holiday Inn Baltimore West, MD;

• Holiday Inn Market Center, Dallas, TX;

• Holiday Inn Syracuse, NY;

• Holiday Inn Fort Mitchell, KY;

• Holiday Inn Express, Pensacola North, FL;

• Courtyard by Marriott, Revere, MA;

• Downtown Plaza Hotel, Cincinnati, OH; and

• The Mayfair House, Miami, FL.

77

          Thirteen of our hotels are located on land subject to long-term leases. Generally, these leases are for terms in excess of the depreciable lives of the building. We also have a right of first refusal on several leases if a third party offers to purchase the land. We pay fixed rents on some of these leases; on others, we pay fixed rents plus additional rents based on a percentage of revenue or cash flow. Some of the leases are subject to periodic rate increases. The leases generally require us to pay the cost of repairs, insurance and real estate taxes.

Dispositions

          During 2001, prior to our Chapter 11 filing, we sold six hotels. In January 2003, in connection with our emergence from Chapter 11, eight hotels were conveyed to a secured lender in satisfaction of indebtedness and one hotel was returned to the lessor of a capital lease. During 2003, we developed a plan to reduce debt and interest costs, and to implement a portfolio improvement strategy, in order to enhance our future growth. Pursuant to this strategy, during 2003 and through May 31, 2004, we sold nine of these hotels and our one office building, and of the remaining assets identified as held for sale, two hotels and the three land parcels currently are under contract. In 2004 we intend to sell the ten hotels and three land parcels that have been identified for sale. We also expect to purchase and sell other hotels in the future as we continuously seek to improve our portfolio of hotels. Our current portfolio consists of 88 hotels, 78 of which are reflected in continuing operations (including one hotel that we do not consolidate).

		Number of
					Land		Office
		Hotels			parcels		buildings
Operated at January 1, 2001			112			3		1
	Sold during 2001		(6	)		—		—
Operated at December 31, 2001			106			3		1
	Dispositions during 2002		—			—		—
Operated at December 31, 2002			106			3		1
	Conveyed to lender in January 2003		(8	)		—		—
	Returned to the lessor of a capital lease in January 2003		(1	)		—		—
	Sold in 2003		(1	)		—		(1	)
Operated at December 31, 2003			96			3		—
	Sold between January 1 and May 31, 2004		(8	)		—		—
Operated at May 31, 2004			88			3		—

          As previously discussed, ten hotels and three land parcels remain held for sale as of May 31, 2004.

78

Hotel data by market segment and region

      The following two tables present data on occupancy, ADR and RevPAR for the hotels in our portfolio (including one hotel that we do not consolidate) at March 31, 2004, March 31, 2003 and December 31, 2003, by market segment for 2003, the 2002 Combined Period and 2001. From January 1, 2004 through May 31, 2004, we sold eight of the hotels included in the following table as part of our discontinued operations.

Combined Continuing and Discontinued Operations

		Capital		Quarter Ended
		Expenditures											2002
		Quarter Ended		March 31,			March 31,			December 31,			Combined			December 31,
		March 31, 2004		2004			2003			2003			Period			2001
		(in thousands $)
Upper Upscale		$	447
	Number of properties				4			4			4			4			4
	Number of rooms				825			825			825			825			825
	Occupancy				64.0	%		61.5	%		60.7	%		65.6	%		64.1	%
	ADR			$	94.24		$	92.50		$	90.98		$	93.41		$	101.92
	RevPAR			$	60.31		$	56.90		$	55.23		$	61.32		$	65.36
Upscale			1,673
	Number of properties				18			18			18			18			19
	Number of rooms				3,156			3,156			3,156			3,156			3,400
	Occupancy				67.2	%		66.0	%		65.9	%		67.6	%		64.3	%
	ADR			$	88.05		$	86.41		$	82.78		$	83.20		$	86.40
	RevPAR			$	59.14		$	57.06		$	54.54		$	56.27		$	55.52
Midscale with Food & Beverage			2,612
	Number of properties				55			55			59			59			60
	Number of rooms				11,198			11,048			11,945			11,795			11,981
	Occupancy				53.0	%		51.5	%		56.3	%		57.4	%		60.1	%
	ADR			$	69.48		$	68.75		$	70.79		$	70.68		$	73.00
	RevPAR			$	36.80		$	35.42		$	39.87		$	40.58		$	43.87
Midscale without Food & Beverage			121
	Number of properties				9			7			10			8			10
	Number of rooms				1,067			833			1,281			1,047			1,281
	Occupancy				57.0	%		45.1	%		52.9	%		55.7	%		59.6	%
	ADR			$	61.27		$	60.41		$	57.51		$	55.94		$	57.29
	RevPAR			$	34.95		$	27.23		$	30.41		$	31.17		$	34.16
Independent Hotels			2
	Number of properties				5			7			5			7			3
	Number of rooms				957			1,341			957			1,341			677
	Occupancy				35.1	%		38.8	%		38.2	%		44.6	%		43.9	%
	ADR			$	87.21		$	73.40		$	73.90		$	73.48		$	92.51
	RevPAR			$	30.64		$	28.45		$	28.23		$	32.78		$	40.62
All Hotels			4,855
	Number of properties				91			91			96			96			96
	Number of rooms				17,203			17,203			18,164			18,164			18,164
	Occupancy				55.4	%		53.4	%		57.0	%		58.5	%		60.4	%
	ADR			$	75.09		$	73.99		$	73.41		$	73.70		$	76.50
	RevPAR			$	41.57		$	39.48		$	41.83		$	43.13		$	46.22

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Continuing Operations — 78 hotels

		Capital		Quarter Ended
		Expenditures											2002
		Quarter Ended		March 31,			March 31,			December 31,			Combined			December 31,
		March 31, 2004		2004			2003			2003			Period			2001
		(in thousands $)
Upper Upscale		$	447
	Number of properties				4			4			4			4			4
	Number of rooms				825			825			825			825			825
	Occupancy				64.0	%		61.5	%		60.7	%		65.6	%		64.1	%
	ADR			$	94.24		$	92.50		$	90.98		$	93.41		$	101.92
	RevPAR			$	60.31		$	56.90		$	55.23		$	61.32		$	65.36
Upscale			1,609
	Number of properties				17			17			17			17			18
	Number of rooms				3,002			3,002			3,002			3,002			3,246
	Occupancy				68.7	%		65.9	%		66.1	%		67.5	%		64.3	%
	ADR			$	88.52		$	87.94		$	83.45		$	83.58		$	85.83
	RevPAR			$	60.78		$	57.95		$	55.14		$	56.39		$	55.18
Midscale with Food & Beverage			2,518
	Number of properties				45			44			45			44			45
	Number of rooms				8,919			8,526			8,919			8,526			8,712
	Occupancy				56.9	%		56.7	%		59.2	%		61.6	%		63.9	%
	ADR			$	70.84		$	69.85		$	71.57		$	72.23		$	74.66
	RevPAR			$	40.30		$	39.62		$	42.35		$	44.47		$	47.67
Midscale without Food & Beverage			121
	Number of properties				9			7			9			7			9
	Number of rooms				1,067			833			1,067			833			1,067
	Occupancy				57.0	%		45.1	%		53.9	%		57.6	%		62.4	%
	ADR			$	61.27		$	60.41		$	58.70		$	56.54		$	57.79
	RevPAR			$	34.95		$	27.23		$	31.64		$	32.55		$	36.07
Independent Hotels			—
	Number of properties				3			6			3			6			2
	Number of rooms				535			1,162			535			1,162			498
	Occupancy				34.9	%		36.2	%		41.4	%		44.1	%		39.6	%
	ADR			$	58.20		$	58.38		$	61.98		$	64.34		$	65.83
	RevPAR			$	20.28		$	21.11		$	25.64		$	28.40		$	26.07
All Hotels			4,695
	Number of properties				78			78			78			78			78
	Number of rooms				14,348			14,348			14,348			14,348			14,348
	Occupancy				58.9	%		56.6	%		59.7	%		61.4	%		63.0	%
	ADR			$	75.65		$	74.64		$	74.34		$	74.83		$	77.39
	RevPAR			$	44.59		$	42.23		$	44.35		$	45.94		$	48.77

          The categories in the tables above are based on the Smith Travel Research Chain Scales and are defined as:

• Upper Upscale: Hilton and Marriott;

• Upscale: Courtyard by Marriott, Crowne Plaza, Radisson and Residence Inn by Marriott;

• Midscale with Food & Beverage: Clarion, DoubleTree, Four Points, Holiday Inn, Holiday Inn Select, Holiday Inn SunSpree Resort and Quality Inn; and

• Midscale without Food & Beverage: Fairfield Inn by Marriott and Holiday Inn Express.

80

          The following two tables present data on occupancy, ADR and RevPAR for the hotels in our portfolio (including one hotel that we do not consolidate) at March 31, 2004, March 31, 2003 and December 31, 2003, by geographic region for 2003, the 2002 Combined Period and 2001. From January 1, 2004 through May 31, 2004, we sold eight of the hotels included in the following table as part of our discontinued operations.

Combined Continuing and Discontinued Operations

		Capital		Quarter Ended
		Expenditures											2002
		Quarter ended		March 31,			March 31,			December 31,			Combined			December 31,
		March 31, 2004		2004			2003			2003			Period			2001
		(in thousands $)
Northeast Region		$	991
	Number of properties				35			35			37			37			37
	Number of rooms				6,722			6,722			7,009			7,009			7,009
	Occupancy				52.2	%		51.5	%		60.3	%		61.8	%		61.7	%
	ADR			$	78.34		$	76.41		$	79.56		$	77.92		$	80.82
	RevPAR			$	40.87		$	39.33		$	47.95		$	48.16		$	49.87
Southeast Region			1,702
	Number of properties				31			31			33			33			33
	Number of rooms				5,267			5,267			5,695			5,695			5,695
	Occupancy				57.6	%		54.4	%		55.2	%		55.8	%		57.9	%
	ADR			$	70.28		$	68.09		$	67.02		$	67.93		$	69.94
	RevPAR			$	40.46		$	37.04		$	37.00		$	37.91		$	40.49
Midwest Region			321
	Number of properties				18			18			19			19			19
	Number of rooms				3,895			3,895			4,141			4,141			4,141
	Occupancy				51.5	%		50.4	%		52.0	%		54.9	%		59.7	%
	ADR			$	70.57		$	71.23		$	69.05		$	71.44		$	74.72
	RevPAR			$	36.32		$	35.93		$	35.91		$	39.23		$	44.60
West Region			1,841
	Number of properties				7			7			7			7			7
	Number of rooms				1,319			1,319			1,319			1,319			1,319
	Occupancy				74.2	%		67.4	%		62.8	%		64.0	%		66.8	%
	ADR			$	87.64		$	89.67		$	77.69		$	79.92		$	84.83
	RevPAR			$	65.03		$	60.45		$	48.79		$	51.12		$	56.68
All Hotels			4,855
	Number of properties				91			91			96			96			96
	Number of rooms				17,203			17,203			18,164			18,164			18,164
	Occupancy				55.4	%		53.4	%		57.0	%		58.5	%		60.4	%
	ADR			$	75.09		$	73.99		$	73.41		$	73.70		$	76.50
	RevPAR			$	41.57		$	39.48		$	41.83		$	43.13		$	46.22

Continuing Operations — 78 hotels

				Quarter Ended
		Capital Expenditures											2002
		Quarter ended		March 31,			March 31,			December 31,			Combined			December 31,
		March 31, 2004		2004			2003			2003			Period			2001
		(in thousands $)
Northeast Region		$	840
	Number of properties				28			28			28			28			28
	Number of rooms				5,154			5,154			5,154			5,154			5,154
	Occupancy				58.9	%		57.1	%		64.3	%		66.3	%		66.2	%
	ADR			$	80.60		$	79.32		$	81.76		$	81.09		$	84.12
	RevPAR			$	47.45		$	45.26		$	52.57		$	53.76		$	55.66
Southeast Region			1,708
	Number of properties				27			27			27			27			27
	Number of rooms				4,612			4,612			4,612			4,612			4,612
	Occupancy				58.3	%		55.8	%		56.8	%		57.8	%		60.0	%
	ADR			$	68.52		$	66.44		$	67.12		$	67.42		$	68.46
	RevPAR			$	39.92		$	37.10		$	38.15		$	38.96		$	41.08

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				Quarter Ended
		Capital Expenditures											2002
		Quarter ended		March 31,			March 31,			December 31,			Combined			December 31,
		March 31, 2004		2004			2003			2003			Period			2001
		(in thousands $)
Midwest Region			306
	Number of properties				16			16			16			16			16
	Number of rooms				3,263			3,263			3,263			3,263			3,263
	Occupancy				53.9	%		52.5	%		55.0	%		57.7	%		60.7	%
	ADR			$	71.31		$	71.13		$	69.67		$	71.67		$	75.01
	RevPAR			$	38.42		$	37.32		$	38.33		$	41.35		$	45.57
West Region			1,841
	Number of properties				7			7			7			7			7
	Number of rooms				1,319			1,319			1,319			1,319			1,319
	Occupancy				74.2	%		67.4	%		62.8	%		64.0	%		66.8	%
	ADR			$	87.64		$	89.67		$	77.69		$	79.92		$	84.83
	RevPAR			$	65.03		$	60.45		$	48.79		$	51.12		$	56.68
All Hotels			4,695
	Number of properties				78			78			78			78			78
	Number of rooms				14,348			14,348			14,348			14,348			14,348
	Occupancy				58.9	%		56.6	%		59.7	%		61.4	%		63.0	%
	ADR			$	75.65		$	74.64		$	74.34		$	74.83		$	77.39
	RevPAR			$	44.59		$	42.23		$	44.35		$	45.94		$	48.77

          The regions in the tables above are defined as:

• Northeast: Canada, Connecticut, Massachusetts, Maryland, New Hampshire, New York, Ohio, Pennsylvania, Vermont, West Virginia;

• Southeast: Alabama, Florida, Georgia, Kentucky, Louisiana, South Carolina, Tennessee;

• Midwest: Arkansas, Iowa, Illinois, Indiana, Kansas, Michigan, Minnesota, Missouri, Oklahoma, Texas; and

• West: Arizona, California, Colorado, New Mexico.

Hotel encumbrances

          All of our hotels are currently pledged as collateral to secure long-term debt. We have executed a commitment letter with Merrill Lynch Mortgage to refinance a substantial portion of our outstanding mortgage debt and, on the date of the consummation of this offering, the funding of the $370 million of Refinancing Debt will be completed, which is a condition to the completion of this offering. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Debt, contractual obligations and franchise agreements — Refinancing Debt.” Upon consummation of the Refinancing Debt, three of our properties will be unencumbered.

          The following table summarizes the book values of our hotel assets (except for one hotel that we do not consolidate) along with the related existing long-term debt (including current portion) which they collateralize as of March 31, 2004 (and accordingly does not reflect the Refinancing Debt). “Book value” means the value at which the asset is reflected in our consolidated financial statements. Financial statement book values are presented in accordance with GAAP, but do not necessarily represent fair market values.

			March 31, 2004
	Number		Property, plant		Long-term
	of Hotels		and equipment, net(1)		obligations(1)
			(Unaudited in thousands)
Exit Financing
Merrill Lynch Mortgage Lending, Inc. — Senior					$	210,160
Merrill Lynch Mortgage Lending, Inc. — Mezzanine						81,010
Merrill Lynch Mortgage Lending, Inc. — Total		53	$	391,249		291,170
Computershare Trust Company of Canada		1		13,874		7,391

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					March 31, 2004
		Number			Property, plant			Long-term
		of Hotels			and equipment, net(1)			obligations(1)
					(Unaudited in thousands)
Lehman Financing
Lehman Brothers Holdings, Inc.			15			65,141			71,071
Other financing
Column Financial, Inc.			9			61,505			26,761
Lehman Brothers Holdings, Inc.			5			37,976			23,292
JP Morgan Chase Bank			2			8,806			10,516
DDL Kinser			1			3,166			2,360
First Union Bank			1			4,353			3,345
Column Financial, Inc.			1			7,762			8,847
Column Financial, Inc.			1			6,082			3,173
Robb Evans, Trustee			1			6,661			6,958
Total — other financing			21			136,311			85,252
			90			606,575			454,884
Long-term debt — other
	Deferred interest — long-term		—			—			4,288
	Deferred rent on a long-term ground lease		—			—			2,549
	Tax notes issued pursuant to our Joint Plan of Reorganization		—			—			4,014
	Other		—			—			574
			—			—			11,425
Property, plant and equipment — other			—			4,468			—
			90			611,043			466,309
Held for sale(2)			(13	)		(49,582	)		(43,294	)
Total March 31, 2004			77		$	561,461		$	423,015

(1)	Long-term obligations and property, plant and equipment of one hotel in which we have a non-controlling equity interest that we do not consolidate are excluded from the table above.
(2)	Subsequent to March 31, 2004, we sold three hotels for $20.7 million. From the net proceeds of the sale, $18.1 million was used to pay down debt and the balance was used for general corporate purposes.

Insurance

          We maintain the following types of insurance:

• general liability;

• property damage;

• directors’ and officers’ liability;

• liquor liability;

• workers’ compensation;

• fiduciary liability;

• business automobile; and

• environmental insurance (on certain properties).

          We are self-insured up to certain amounts with respect to our insurance coverages. We establish liabilities for these self-insured obligations annually, based on actuarial valuations and our history of claims. If these claims exceed our estimates, our future financial condition and results of operations would be adversely affected. As of March 31, 2004, we had an accrued balance of approximately $10.3 million for these expenses.

          There are other types of losses for which we cannot obtain insurance at all or at a reasonable cost, including losses caused by acts of war. If an uninsured loss or a loss that exceeds our insurance limits were to occur, we could lose both the revenues generated from the affected hotel and the capital that we have

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invested. We also could be liable for any outstanding mortgage indebtedness or other obligations related to the hotel. Any such loss could materially and adversely affect our financial condition and results of operations.

          We believe that we maintain sufficient insurance coverage for the operation of our business.

Regulation

          Our hotels are subject to certain federal, state and local regulations which require us to obtain and maintain various licenses and permits. These licenses and permits must be periodically renewed and may be revoked or suspended for cause at any time.

          Occupancy licenses are obtained prior to the opening of a hotel and may require renewal if there has been a major renovation. The loss of the occupancy license for any of the larger hotels in our portfolio could have a material adverse effect on our financial condition and results of operations. Liquor licenses are required for hotels to be able to serve alcoholic beverages and are generally renewable annually. We believe that the loss of a liquor license for an individual hotel would not have a material effect on our financial condition and results of operations. We are not aware of any reason why we should not be in a position to maintain our licenses.

          We are subject to certain federal and state labor laws and regulations such as minimum wage requirements, regulations relating to working conditions, laws restricting the employment of illegal aliens, and the Americans with Disabilities Act. As a provider of restaurant services, we are subject to certain federal, state and local health laws and regulations. We believe that we comply in all material respects with these laws and regulations. We are also subject in certain states to dramshop statutes, which may give an injured person the right to recover damages from us if we wrongfully serve alcoholic beverages to an intoxicated person who causes an injury. We believe that our insurance coverage relating to contingent losses in these areas is adequate.

          Our hotels also are subject to environmental regulations under federal, state and local laws. These environmental regulations have not had a material adverse effect on our operations. However, such regulations potentially impose liability on property owners for cleanup costs for hazardous waste contamination. If material hazardous waste contamination problems exist on any of our properties, we would be exposed to liability for the costs associated with the cleanup of those sites.

Employees

          At March 31, 2004, we had 4,234 full-time and 2,597 part-time employees. We had 124 full-time employees engaged in administrative and executive activities. The balance of our employees manage, operate and maintain our properties. At March 31, 2004, 665 of our full and part-time employees located at nine hotels were covered by collective bargaining agreements. These agreements expire between 2004 and 2008. We consider relations with our employees to be satisfactory.

Legal Proceedings

     Bankruptcy Proceedings

          On December 20, 2001, Lodgian and substantially all of our subsidiaries that owned hotels filed for voluntary reorganization under Chapter 11 of the Bankruptcy Code in the Southern District of New York. At the time of the filing, our portfolio included 106 hotels.

          Less than one year after filing for bankruptcy, on November 5, 2002, the Bankruptcy Court confirmed the Joint Plan of Reorganization and, on November 25, 2002, Lodgian and our subsidiaries owning 78 of our hotels emerged from Chapter 11. Pursuant to the terms of the Joint Plan of Reorganization, eight of our wholly-owned hotels were conveyed to a lender in satisfaction of outstanding debt obligations and one hotel was transferred to the lessor of a capital lease secured by the property in January 2003.

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          Pursuant to the Joint Plan of Reorganization, the following significant events took effect upon our emergence from reorganization proceedings:

• 5,000,000 shares of Preferred Stock, par value $0.01, initial liquidation value $25 per share, were issued or reserved for issuance in satisfaction of outstanding debt and other obligations;

•  2,333,333 shares of common stock, par value $0.01 per share, were issued or reserved for issuance in satisfaction of outstanding debt and other obligations;

•  Class A warrants to purchase an aggregate of 503,546 shares of common stock at $54.87 per share were made available for issuance in satisfaction of outstanding debt and other obligations;

•  Class B warrants to purchase an aggregate of 343,122 shares of common stock at $76.32 per share were made available for issuance in satisfaction of outstanding debt and other obligations;

•  Our previous equity, consisting of an aggregate of 28,479,837 shares, was cancelled, and in exchange our stockholders received their pro rata share of 69,300 shares of common stock, plus Class A warrants to purchase an aggregate of 83,941 shares of common stock and Class B warrants to purchase an aggregate of 259,434 shares of common stock;

•  Our CRESTS were cancelled and the holders received their pro rata share of 289,333 shares of the common stock, plus Class A warrants to purchase 419,605 shares of common stock and Class B warrants to purchase 83,687 shares of common stock;

•  Our 12.25% Senior Subordinated Notes were cancelled and the holders of the notes received their pro rata share of 4,690,600 shares of Preferred Stock and 1,852,503 shares of common stock;

•  The holders of allowed general unsecured claims became entitled to 309,400 shares of Preferred Stock and 122,196 shares of common stock, referred to as the “disputed claims reserve.” Until distributed, these shares are part of the disputed claims reserve for the pre-bankruptcy petition general unsecured creditors. These shares are periodically distributed as the disputed claims are resolved;

•  We closed on $302.7 million of exit financing arrangements with Merrill Lynch Mortgage which was used to repay previous debt obligations, fund payments of certain allowed claims and fund portions of certain required cash escrows. These financings were secured initially by 56 of our hotels;

•  We closed on a $6.3 million (CAD $10.0 million) exit financing arrangement with Computershare Trust Company of Canada, that is secured by one of our hotels;

• Loans from lenders approximating $86.0 million, secured by 21 of our hotels, were reinstated on their previous terms, except for the extension of certain maturities and, in the case of one loan, a new interest rate; and

• In accordance with AICPA, Statement of Position 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code, we implemented fresh start reporting effective November 22, 2002 (the date on which the exit financing agreement was signed). As a result, our assets and liabilities have been recorded based on fair values. Our consolidated financial statements since our emergence from Chapter 11 are those of a new reporting entity (referred to as the “successor”) and are not comparable with our financial statements on or prior to the effective date of the Joint Plan of Reorganization (our former reporting entity is referred to as the “predecessor”).

          Eighteen additional hotels previously owned by two subsidiaries, Impac Hotels II, L.L.C. and Impac Hotels III, L.L.C., were not part of the Joint Plan of Reorganization. On April 24, 2003, the

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Bankruptcy Court confirmed a plan of reorganization relating to these 18 hotels (the “Impac Plan of Reorganization”). These 18 hotels remained in Chapter 11 until May 22, 2003, the date on which we finalized the Lehman Financing. We used the proceeds from the Lehman Financing primarily to satisfy the remaining amounts due to the lender of the debt secured by these hotels. The Impac Plan of Reorganization also provided for a pool of funds of approximately $0.3 million to be paid in cash to the general unsecured creditors of the 18 hotels, of which $0.1 million is still outstanding as of May 31, 2004.

Other Litigation

          From time to time, as we conduct our business, legal actions and claims are brought against us. The outcome of these matters is uncertain. However, we believe that all currently pending matters will be resolved without a material adverse effect on our results of operations or financial condition. Claims relating to the period before we filed for Chapter 11 are limited to the amounts approved by the Bankruptcy Court for settlement of such claims and are payable out of the disputed claims reserve, which, in the case of the Joint Plan of Reorganization, consists of our securities, and in the case of the Impac Plan of Reorganization, consists of cash. We have reserved for all claims approved by the Bankruptcy Court that have not yet been paid.

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MANAGEMENT

Directors, Executive Officers and other Senior Management

          The table below sets forth the names and ages of our directors, executive officers and other senior management, as well as the positions and offices held by such persons. A summary of the background and experience of each of these individuals is set forth after the table.

Name	Age		Position
W. Thomas Parrington(1)		59	Director, President and Chief Executive Officer
Sean F. Armstrong(1)(2)(4)		42	Director
Russel S. Bernard		46	Director and Chairman of the Board
Stewart J. Brown(3)		56	Director
Kenneth A. Caplan(1)(2)(4)		30	Director
Stephen P. Grathwohl(1)(3)		56	Director
Jonathan D. Gray		34	Director
Kevin C. McTavish(2)(3)(4)		47	Director
Michael W. Amaral		46	Executive Vice President and Chief Operating Officer
Manuel E. Artime		38	Executive Vice President and Chief Financial Officer
Samuel J. Davis		44	Senior Vice President of Construction and Development
Daniel E. Ellis		35	Senior Vice President, General Counsel and Secretary
Linda Borchert Philp		41	Vice President and Chief Accounting Officer
Daniel K. Abernethy		41	Vice President of Sales and Marketing
Deborah N. Ethridge		34	Vice President of Finance and Investor Relations
Mark T. DiPiazza		46	Vice President of Operations
Paul J. Hitselberger		43	Vice President of Operations
David T. Robinson		51	Vice President of Operations and Food and Beverage

(1)	Member of the executive committee.
(2)	Member of the compensation committee.
(3)	Member of the audit committee.
(4)	Member of the nominating committee.

          W. Thomas Parrington, 59, has served as our president and chief executive officer since July 2003, following service as our interim chief executive officer from May 2003 until that date, and has been a director since our emergence from Chapter 11 on November 25, 2002. Mr. Parrington has been involved in the lodging industry for over 30 years. Until December 1998, Mr. Parrington was president and chief executive officer of Interstate Hotels Company, a publicly traded company that merged with Wyndham Hotels in June 1998. During his 17-year tenure with Interstate, Mr. Parrington also served as chief financial officer and chief operating officer. Since leaving Interstate, Mr. Parrington has focused on real estate investments (primarily hotels) and consultancy.

          Sean F. Armstrong, 42, has been a director of Lodgian since our emergence from Chapter 11 on November 25, 2002. Mr. Armstrong also is chairman of the executive committee of our board of directors. He is a managing director of Oaktree, with which he has been associated since 1995. Prior to joining Oaktree, Mr. Armstrong was a vice president of Trust Company of the West.

          Russel S. Bernard, 46, has been a director and chairman of the board of directors of Lodgian since our emergence from Chapter 11 on November 25, 2002. He is a principal of Oaktree, with which he has been associated since 1995, and is the portfolio manager of Oaktree’s real estate and mortgage funds. Prior to joining Oaktree, Mr. Bernard was a managing director of Trust Company of the West. Under sub-

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advisory relationships with Oaktree, he continues to serve as portfolio manager for the TCW Special Credits distressed mortgage funds.

          Stewart J. Brown, 56, has been a director of Lodgian since our emergence from Chapter 11 on November 25, 2002. Since December 2002, he has been serving as a senior consultant with Booz Allen Hamilton as part of its Defense Team. He served active duty as a Colonel in the United States Army Reserve from September 2001 until he joined Booz Allen Hamilton in December 2002. During this time, he served as Chief of the Crisis Action Team in the Army Operation Center. Colonel Brown had previously served in the Army and Army Reserves between 1970 and 2002 where, among other duties, he served as Director of Training and Education in the Strategic Readiness System. Between 1997 and 2001, Colonel Brown served as principal and president of Real Estate Capital Services, LLC, a real estate consulting and finance firm. Colonel Brown has extensive experience in strategic and tactical planning, operational implementation, crisis management and turn around situations.

          Kenneth A. Caplan, 30, has been a director of Lodgian since our emergence from Chapter 11 on November 25, 2002. Mr. Caplan also is chairman of the compensation committee of our board of directors. Mr. Caplan is a managing director at The Blackstone Group, with which he has been associated since 1997. Mr. Caplan has been involved in a variety of real estate investments and investment initiatives, including property acquisitions, hotel investments and corporate ventures. Prior to joining Blackstone, he was an analyst in the real estate investment banking group of Lazard Frères & Co.

          Stephen P. Grathwohl, 56, has been a director of Lodgian since our emergence from Chapter 11 on November 25, 2002. Mr. Grathwohl also is chairman of the audit committee of our board of directors. Mr. Grathwohl has been principal of Burr Street Equities, LLC, a boutique real estate advisory company, since 1997 and is a director of ShoreBank, a commercial bank chartered by the State of Illinois and headquartered in Chicago, Illinois. He also is a director of Shorebank Development Corporation, a Chicago based real estate development and management company, and Shorebank Advisory Services, an international financial research and consulting company, each an affiliate of ShoreBank.

          Jonathan D. Gray, 34, has been a director of Lodgian since our emergence from Chapter 11 on November 25, 2002. He is a senior managing director at The Blackstone Group, with which he has been associated since 1992. Mr. Gray oversees the domestic investment activities of Blackstone Real Estate Advisors, a major investment manager of commercial real estate. He also is a member of the board of directors of The Savoy Group and Homestead Studio Suites. Mr. Gray also has worked in the Mergers & Acquisitions Advisory group and the Private Equity group at Blackstone.

          Kevin C. McTavish, 47, has been a director of Lodgian since our emergence from Chapter 11 on November 25, 2002. Mr. McTavish is a principal of Summit Capital, LLC, a real estate investment firm based in Dallas, Texas. From 1995 to 2003, he was a principal at Colony Capital, LLC, an opportunistic real estate firm, where he sourced domestic and international opportunities. In addition to focusing on new investments during his seven years at Colony Capital, he was chief operating officer of Colony Advisors, the related asset management company to Colony Capital, from 1996 until 1998. In this capacity he was responsible for managing a 50 person asset management group and over $5 billion of real estate assets. He was a member of the Colony Capital Investment Committee and Major Asset Review Committee. Prior to joining Colony Capital, Mr. McTavish worked with the Robert M. Bass Group in Fort Worth, Texas. There, he was a founder of Brazos Asset Management, LP which purchased, managed and sold over $3 billion of real estate assets during his five years with the firm. He is a member of the Pension Real Estate Association, the Urban Land Institute and the Samuel Zell Real Estate Center at the Wharton Business School.

          Michael W. Amaral, 46, was appointed senior vice president of operations in November 2001 and executive vice president and chief operating officer of Lodgian in May 2002. Mr. Amaral brings over 20 years of hospitality experience to his position. Prior to November 2001, he was the vice president of operations for our Eastern Region, a position he held from December 1998. Between August 1990 and December 1998, Mr. Amaral was employed by Servico Inc., our predecessor company, where he held the position of regional vice president of the Pittsburgh Region. Prior to joining Servico, Mr. Amaral held

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other senior positions within the lodging industry including general manager of Atlantic Hospitality and Director of Operations of Prime Motor Inns, Fairfield, New Jersey, where he also served as general manager.

          Manuel E. Artime, 38, was appointed executive vice president and chief financial officer of Lodgian on October 13, 2003. He joined Lodgian in December 2001 as vice president and controller. Mr. Artime assisted in the Chapter 11 restructuring for Mariner Health Care Inc., serving as its Director of Financial Restructuring between February 2000 and December 2001. Between May 1993 and February 2000, Mr. Artime served in the Financial Advisory Services Group of Ernst & Young in Atlanta. Mr. Artime is a Certified Public Accountant. In addition to his undergraduate degree, Mr. Artime holds a Masters of Business Administration degree from Georgia State University.

          Samuel J. Davis, 44, was appointed senior vice president of construction and development in November 2001. He joined Lodgian in December 1998 as vice president of construction and development. Mr. Davis served as Vice President of Design and Construction with Impac Hotel Group, LLC from 1982 to December 1998. Prior to that, he was with the United States Navy where he served as an engineer.

          Daniel E. Ellis, 35, was appointed senior counsel of Lodgian in July 1999. He was appointed secretary and vice president of legal affairs in November 2001. In March 2002, he was promoted to senior vice president, general counsel and secretary. Between 1995 and 1997, Mr. Ellis served as Assistant District Attorney for the State of Georgia and as attorney in private practice between 1997 and 1999. Mr. Ellis holds a law degree from the University of Mississippi and a Masters of Business Administration degree from Mercer University.

          Linda Borchert Philp, 41, was appointed vice president and chief accounting officer in November 2003. She joined Lodgian in May 2002 as vice president and treasurer. Ms. Philp was a consultant for Lodgian from October 2001 to May 2002. From 1987 to 2001, Ms. Philp worked for consumer product companies PepsiCo, Kraft, Pizza Hut and Campbell Soup in finance, marketing, logistics and strategic planning roles. Ms. Philp is a Certified Public Accountant. In addition to her undergraduate degree, Ms. Philp holds a Masters in Business Administration from the University of Wisconsin — Madison.

          Daniel K. Abernethy, 41, joined Lodgian in October 1998 as regional director of sales. After leaving the company briefly in June 2001 to serve as Director of Marketing at Wyndham Orlando Resort, Mr. Abernethy returned to Lodgian in December 2001 as regional director of sales, and was promoted to vice president of sales & marketing in October 2002. Mr. Abernethy has over 20 years of experience in the hospitality industry. His career began in hotel operations at Hilton and Marriott hotels. He moved over to sales and marketing and has worked as a property Director of Sales for Radisson and Sheraton hotels.

          Deborah N. Ethridge, 34, joined Lodgian in June 2001, has served as vice president of strategic planning, and was appointed vice president, finance and investor relations in October 2003. Prior to joining Lodgian, Ms. Ethridge served in various development, finance and strategic positions with InterContinental Hotels Group from March 1994 to May 2000. Previously she was with the public accounting firm of PricewaterhouseCoopers LLP. Ms. Ethridge is a Certified Public Accountant. In addition to her undergraduate degree, Ms. Ethridge holds a Masters of Business Administration degree from Emory University.

          Mark T. DiPiazza, 46, joined Lodgian in 1996, has served as a general manager, area general manager, regional operations manager, and was appointed vice president of operations in 2003. Mr. DiPiazza has over 20 years of experience in the hospitality industry including 14 years at Marriott International and eight years at Lodgian. At Marriott, Mark had multiple roles and assignments including nine years in the field and five years in the corporate office.

          Paul J. Hitselberger, 43, joined Lodgian in 1998 as a regional operations manager, and was promoted to vice president of operations in June 2001. Mr. Hitselberger has over 22 years experience in the hospitality industry. In 1982 Paul began his hospitality career as a chef and has an extensive background in food and beverage operations including a first place award at the 1984 New York

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International Culinary Salon. In December 1984 he moved into hotel operations with Tollman Hundley Hotels.

          David T. Robinson, 51, joined Lodgian in 1999 as a regional operations manager and was promoted to vice president of operations and food and beverage in 1999. After leaving the company briefly in January 2000 to serve as Vice President of Bayshore Development, a family business consisting of three hotels and two entertainment complexes, he returned to Lodgian in June 2002 as vice president of food and beverage and in November 2002 also was named vice president of operations. Mr. Robinson has extensive experience operating Holiday Inn, Hilton and Sheraton hotels as a General Manager.

Terms of Directors

          The board of directors currently consists of eight members, seven of whom are “independent” as defined under the American Stock Exchange corporate governance rules, and each of whom is elected for a one-year term that will expire upon the election and qualification of successor directors at the next annual meeting of stockholders. There are no family relationships between any of the directors or executive officers.

Committees of the Board of Directors

          The board of directors currently has four standing committees: the compensation committee, the audit committee, the executive committee and the nominating committee.

          Compensation Committee. The compensation committee consists of Kenneth A. Caplan (Chairman), Kevin C. McTavish and Sean F. Armstrong. It met two times during fiscal 2003. The principal functions of the compensation committee are to approve, or in some cases to recommend to the board of directors, remuneration arrangements and compensation plans involving our directors and executive officers, review bonus criteria and bonus recommendations, review compensation of directors and administer our Stock Incentive Plan. The board of directors has determined that all members of the compensation committee are “independent” under the American Stock Exchange corporate governance rules. The compensation committee has a written charter that is posted in the Investor Relations section of our website, www.lodgian.com.

          Audit Committee. The audit committee consists of Stephen P. Grathwohl (Chairman), Stewart J. Brown and Kevin C. McTavish. The audit committee is responsible, under its written charter, for:

• Engaging independent auditors to audit our financial statements and perform other services related to the audit, including determining the compensation to be paid to such independent auditors;

• Reviewing the scope and results of the audit with the independent auditors;

• Preapproving all non-audit services provided to Lodgian by the independent auditors;

• Periodically assessing the independence of Lodgian’s auditors;

• Reviewing and discussing with management and the independent auditors quarterly and annual financial statements, audit results and reports;

• Establishing guidelines for our internal audit function and periodically reviewing the adequacy of our internal controls;

• Establishing clear policies for Lodgian to follow in hiring employees or former employees of the independent auditors;

• Reviewing and periodically updating our Code of Ethics;

• Considering changes in accounting practices;

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• Reviewing any correspondence, report, complaint or concern that raises issues regarding our financial statements or accounting policies and establishing procedures for (1) the receipt, retention and treatment of such complaints, and (2) the confidential, anonymous submission by employees of such concerns; and

• Reviewing and reassessing the adequacy of the Audit Committee Charter on an annual basis.

          The board of directors has determined that the audit committee Chairman, Mr. Grathwohl, qualifies as an “audit committee financial expert” and that all members of the audit committee are “independent” under the American Stock Exchange corporate governance rules. The Audit Committee Charter, which was adopted on January 24, 2003 and amended on February 9, 2004, is posted in the Investor Relations section of our website, www.lodgian.com.

          Executive Committee. The board of directors also has established an executive committee, on which Sean F. Armstrong (Chairman), Kenneth A. Caplan, Stephen P. Grathwohl and W. Thomas Parrington serve. The executive committee has the right to exercise all of the powers of the full board of directors in our management and affairs, other than with respect to any of the following matters: (1) approving or adopting, or recommending to stockholders, any action expressly required by Delaware law to be submitted to the stockholders; (2) adopting, amending or repealing our certificate of incorporation or any bylaws; or (3) exercising any right or power expressly reserved for another committee of the board of directors.

          Nominating Committee. The nominating committee was formed by the board of directors on February 10, 2004 and consists of Sean F. Armstrong, Kenneth A. Caplan and Kevin C. McTavish. The board of directors has determined that all members of the nominating committee are “independent” under the American Stock Exchange corporate governance rules. The nominating committee is responsible for assisting the board of directors in identifying, screening and recommending qualified candidates to serve as directors. The nominating committee has a written charter, which was adopted on February 10, 2004, that is posted in the Investor Relations section of our website, www.lodgian.com.

Compensation Committee Interlocks and Insider Participation

          None of the members of our compensation committee is or has been an executive officer of Lodgian or any of our subsidiaries, and no interlocking relationships exist between any such person and the directors or executive officers of any other company.

Director Compensation

          We pay the non-employee members of the board of directors a quarterly retainer of $6,000, as well as fees of $1,500 per board meeting, $1,000 per board committee meeting, and $500 per telephonic board or board committee meeting. We also reimburse each director for reasonable out-of-pocket expenses incurred in attending meetings of the board of directors and any of its committees. Directors who are employees do not receive any compensation for services performed in their capacity as directors. On September 5, 2003, we granted options to purchase 1,666 shares of common stock to each of the members of the audit committee of the board of directors. The options were immediately vested as to one-third of the grant amount, with the remainder vesting in equal installments over two years on each of the anniversary dates of the grant date.

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Executive Compensation

          The following table sets forth certain summary information concerning compensation paid or accrued by us, for each of the last three fiscal years, to or on behalf of each person who served as our chief executive officer during 2003 and to each of our four most highly compensated executive officers other than the chief executive officer during 2003, and one person who was an executive officer during 2003 but was not serving as an executive officer at the end of the 2003 fiscal year (the “Named Executive Officers”).

Summary Compensation Table

											Long-Term
				Annual Compensation							Compensation
											Restricted		Securities
								All Other			Stock		Underlying
Name and Principal Position		Year		Salary		Bonus(1)		Compensation			Award($)		Options
W. Thomas Parrington(2)			2003		$341,154		$200,000		$14,183		$	600,000		33,333
	President and Chief Executive Officer		2002		—		—		—			—		—
			2001		—		—		—			—		—
David E. Hawthorne(3)			2003		209,233		—		800,372			—		—
	Former President and Chief		2002		400,000		1,000,000		—			—		—
	Executive Officer		2001		90,770		250,000		—			—		333,333	(3)
Richard Cartoon(4)			2003		406,688		—		—			—		—
	Former Executive Vice President		2002		699,536		500,000		—			—		—
	and Chief Financial Officer		2001		162,750		—		—			—		—
Michael W. Amaral			2003		250,002		—		346	(7)		—		13,333
	Executive Vice President		2002		250,503		516,275		—			—		—
	and Chief Operating Officer		2001		184,570		93,995		—			—		—
Manuel E. Artime(5)			2003		174,427		—		122	(7)		—		10,000
	Executive Vice President and		2002		162,256		105,425		—			—		—
	Chief Financial Officer		2001		22,060		25,000		—			—		—
Daniel E. Ellis			2003		149,360		—		81	(7)		—		8,333
	Senior Vice President, General		2002		126,484		107,595		—			—		—
	Counsel and Secretary		2001		107,908		41,914		—			—		—
Linda Borchert Philp(6)			2003		137,680		—		—			—		2,500
	Vice President and Chief		2002		84,214		30,000		—			—		—
	Accounting Officer		2001		—		—		—			—		—

(1)

For the fiscal year ended December 31, 2002, substantially all of the bonuses were awarded in recognition of efforts in connection with our successful restructuring, including restructuring bonuses of $1,000,000 for Mr. Hawthorne, $500,000 each for Messrs. Cartoon and Amaral, $100,000 each for Messrs. Artime and Ellis and $30,000 for Ms. Philp.

(2)

Mr. Parrington was named interim chief executive officer in May 2003, with permanent appointment as president and chief executive officer in July 2003. Pursuant to the employment agreement we entered into with Mr. Parrington in July 2003, we awarded Mr. Parrington a signing bonus in the form of (1) restricted stock units representing the right to receive 66,666 shares of common stock, (2) an option to purchase an additional 33,333 shares of common stock and (3) $100,000 in cash payable in two payments on each of April 1, 2004 and April 1, 2005. The restricted shares and the option each vest as to one-third of the original award on each of July 15, 2004, 2005 and 2006. As of December 31, 2003, no shares of Mr. Parrington’s restricted stock were vested or issued; however, the value of the restricted shares was $600,000 based on a price of $9.00 per share, which is the closing price of the common stock as reported on the American Stock Exchange as of July 15, 2003, the date our board of directors approved the issuance of the shares. Mr. Parrington also received a bonus for 2003 of $100,000 on April 9, 2004, paid in cash of $75,000 and restricted stock units representing the right to receive 1,382 shares of common stock subject to certain vesting conditions. The amount

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shown under “All Other Compensation” includes $683 for premiums paid for life insurance over $50,000 and $13,500 in director fees paid before his appointment as chief executive officer.

(3)	Mr. Hawthorne began his employment in October 2001 as interim chief executive officer and president with formal appointment in November 2001. He resigned from all of his positions in May 2003 and received a severance payment of $800,000 in accordance with his employment agreement. The other $372 represents life insurance premiums we paid on behalf of Mr. Hawthorne. Mr. Hawthorne was granted options to acquire 333,333 shares of our common stock, which were to vest equally over a period of three years. However, in accordance with his employment agreement, the options terminated automatically upon our commencement of bankruptcy proceedings.
(4)	Mr. Cartoon joined Lodgian in October 2001 and resigned from his employment in October 2003. The amount shown as salary for 2002 represents fees charged by Richard Cartoon, LLC for the services of Richard Cartoon from January 1, 2002 to December 31, 2002. The amount shown for 2001 represents fees charged by Richard Cartoon, LLC for the services of Mr. Cartoon from October 4, 2001 to December 31, 2001.
(5)	Mr. Artime joined Lodgian in December 2001 as vice president and controller. He was appointed executive vice president and chief financial officer in October 2003.
(6)	Ms. Philp joined Lodgian in May 2002 as vice president and treasurer. She was appointed vice president and chief accounting officer in November 2003.
(7)	The amounts represent life insurance premiums we paid on behalf of these employees for life insurance with a death benefit in excess of $50,000.

Option Grants in Last Fiscal Year

          The following table sets forth all individual grants of stock options during the fiscal year ended December 31, 2003, to each of the Named Executive Officers:

	Individual Grants									Potential Realizable
										Value at Assumed
	Number of		Percent of							Annual Rates of Stock
	Securities		Total Options							Price Appreciation for
	Underlying		Granted to			Exercise or				Option Term(4)
	Options		Employees in			Base Price		Expiration
Name	Granted		Fiscal Year			Per Share(3)		Date		5%		10%
W. Thomas Parrington(1)		33,333		21.3	%	$	9.00		7/15/13	$	338,668	$	628,123
David E. Hawthorne		—		—			—		—		—		—
Richard Cartoon		—		—			—		—		—		—
Michael W. Amaral(2)		13,333		8.5	%		15.21		9/5/13		270,340		466,011
Manuel E. Artime(2)		2,833		1.8	%		15.21		9/5/13		57,447		99,027
		7,166		4.6	%		15.66		10/13/13		150,561		258,846
Daniel E. Ellis(2)		8,333		5.3	%		15.21		9/5/13		168,962		291,257
Linda Borchert Philp(2)		2,500		1.6	%		15.21		9/5/13		50,689		87,377

(1)	Mr. Parrington’s options become exercisable in equal installments beginning on the first anniversary of the date of grant and continuing for two years thereafter until fully vested.
(2)	These grants were exercisable immediately for one-third of the grant amount, with the remainder becoming exercisable in equal installments on each of the first and second anniversary of the date of grant.
(3)	The exercise price of the options granted was equal to fair market value of the underlying stock on the date of grant.
(4)	Amounts represent hypothetical gains that could be achieved for the respective options if exercised at the end of the option term. These gains are based on the fair market value per share on the date of grant and assumed rates of stock price appreciation of 5% and 10% compounded annually from the date the respective options were granted to their expiration date. These assumptions are mandated by

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the rules of the Securities and Exchange Commission and are not intended to forecast future appreciation of our stock price. The potential realizable value computation is net of the applicable exercise price, but does not take into account federal or state income tax consequences and other expenses of option exercises or sales of appreciated stock. Actual gains, if any, are dependent upon the timing of such exercises and the future performance of our common stock. There can be no assurance that the rates of appreciation in this table can be achieved. This table does not take into account any appreciation in the price of our common stock to date.

Aggregated Option Exercises in Last Fiscal Year and Year-End Option Values

          The following table sets forth information concerning option exercises and the year-end values of unexercised options, including the aggregate dollar value of in-the-money options, held by the Named Executive Officers as of December 31, 2003.

	Shares				Number of Securities				Value of Unexercised
	Acquired on		Value		Underlying Unexercised				In-the-Money Options
	Exercise		Realized		Options at Fiscal Year-End				at Fiscal Year-End(1)
Name	(#)		($)		Exercisable		Unexercisable		Exercisable		Unexercisable
W. Thomas Parrington		—		—		—		33,333	$	—	$	225,000
David E. Hawthorne		—		—		—		—		—		—
Richard Cartoon		—		—		—		—		—		—
Michael W. Amaral		—		—		4,444		8,888		2,400		4,800
Manuel E. Artime		—		—		3,333		6,666		725		1,450
Daniel E. Ellis		—		—		2,778		5,555		1,500		3,000
Linda Borchert Philp		—		—		833		1,666		450		900

(1)  Amounts disclosed in this column do not reflect amounts actually received by the Named Executive Officers but are calculated based on the difference between the fair market value on December 31, 2003 and the exercise price of the options. The Named Executive Officers will receive cash only if and when they sell the common stock issued upon exercise of the options, and the amount of cash received by such individuals is dependent on the price of the common stock at the time of such sale. The values are based on the closing price of the common stock on December 31, 2003 of $15.75 per share as reported on the American Stock Exchange, less the exercise price payable upon exercise of such options. The values do not include options that were not in-the-money as of December 31, 2003.

Stock Incentive Plan

          On November 25, 2002, we adopted the Lodgian, Inc. 2002 Stock Incentive Plan which replaced the option plan previously in place. The Stock Incentive Plan was not approved, nor was it required to be approved, by our security holders, because it was approved by the Bankruptcy Court in connection with the Joint Plan of Reorganization. In accordance with the Stock Incentive Plan, awards of shares of common stock may be granted to our directors, officers or other key employees or consultants. Awards may consist of stock options, stock appreciation rights, stock awards, performance share awards, section 162(m) awards or other awards determined by our compensation committee. Stock options granted pursuant to the Stock Incentive Plan cannot be granted at an exercise price which is less than 100% of the fair market value per share on the date of the grant. Vesting, exercisability, payment and other restrictions pertaining to any awards made pursuant to the Stock Incentive Plan are determined by the compensation committee. Under the Stock Incentive Plan, upon the completion of this offering, a number of shares of common stock will be reserved for issuance equal to the lesser of (1) 3,367,400 shares or (2) a number of shares that constitutes 12% of our issued and outstanding common stock immediately following the consummation of this offering, calculated on a fully-diluted basis and assuming the exercise in full of the underwriters’ over-allotment option. The number of shares to be reserved under the Stock Incentive Plan following consummation of this offering is currently estimated to be 2,842,432.

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          As of May 31, 2004, options to purchase 153,847 shares of our common stock were outstanding under the Stock Incentive Plan. We also have approved the grant of options to purchase an additional 377,500 shares of common stock to be awarded on the closing date of this offering. Additionally, pursuant to our employment agreement with Mr. Parrington, we have awarded restricted stock units representing the right to receive 68,048 shares of common stock to Mr. Parrington under the Stock Incentive Plan subject to certain vesting requirements. We have not yet issued these shares. The employment agreement further requires that, subject to the approval of our board of directors, we grant to Mr. Parrington options to purchase up to an additional 50,000 shares of common stock, and/or shares of restricted common stock, over the next three years, the number of such shares and vesting of which will be determined based on the achievement of certain company performance objectives. After taking into account the outstanding options, previously exercised options and the options and shares of restricted common stock that we have agreed to grant in the future under the Stock Incentive Plan, as of May 31, 2004 we had 383,000 shares of common stock authorized for issuance under the Stock Incentive Plan, of which 80,664 shares of common stock remained available for issuance, and assuming 2,842,432 shares authorized for issuance upon the consummation of this offering, at that time we would have 2,162,873 shares of common stock available for grant under the Stock Incentive Plan.

Employment Agreements

          W. Thomas Parrington is employed by us pursuant to a written employment agreement. Mr. Parrington’s employment agreement has an initial term of three years beginning July 1, 2003 and is automatically renewed for an additional one-year period unless either party provides written notice of termination at least 60 days in advance of the expiration date of the current term. We will pay Mr. Parrington an annual base salary of not less than $650,000. On July 15, 2003, we awarded Mr. Parrington a signing bonus in the form of (1) restricted stock units representing the right to receive up to 66,666 shares of common stock, (2) an option to purchase an additional 33,333 shares of common stock and (3) $100,000 payable in cash in two payments on each of April 1, 2004 and April 1, 2005. The restricted shares and the option each vest as to one-third of the original award on each of July 15, 2004, 2005 and 2006. Subject to the approval of our board of directors, we have also agreed to grant Mr. Parrington additional options to purchase up to 50,000 additional shares of common stock over the next three years, the vesting of which will be determined based on the achievement of certain company performance objectives. In addition, if the company performance goals and certain other conditions are met, Mr. Parrington will have the right to receive restricted shares of common stock in an amount determined by a formula as set forth in his employment agreement and, in that event, an equal number of shares of common stock covered by such option will lapse.

          Mr. Parrington also is eligible for an annual bonus of up to 100% of his base salary, payable 75% in cash and 25% in restricted shares of common stock, to be determined based on the achievement of certain company performance objectives. For 2003 Mr. Parrington received the minimum bonus of $100,000 on April 9, 2004, paid in cash of $75,000 and restricted stock units representing the right to receive 1,382 shares of common stock subject to certain vesting conditions. Following Mr. Parrington’s termination from employment in certain events, such as termination without cause or his resignation for good reason, which includes a change of control of Lodgian (as defined in the employment agreement), his employment agreement provides for our continued payment of his base salary, any unpaid cash signing bonus, medical benefits and eligible annual performance bonus through the expiration of the date of the agreement or two years, whichever is shorter. In addition, Mr. Parrington’s outstanding options and restricted stock awards will be vested in full in the event of such termination of employment. The employment agreement also includes post-employment restrictive covenants not to disclose our confidential information or recruit our employees.

          We have entered into employment agreements with four of our other executive officers and intend to enter into employment agreements with one other executive officer. These employment agreements have an initial term of two years and automatically renew for additional one-year periods unless either party provides written notice of termination at least 180 days in advance of the expiration of the current term. In

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the event of a termination of employment in certain circumstances, such as termination without cause, resignation for good reason, death or disability, or nonrenewal of the employment agreement, the agreements provide for a lump sum severance payment equal to the greater of (1) the employee’s current base salary for the remainder of the term of the agreement or (2) the employee’s base salary for a period of up to 12 months. In addition, the severance benefit provides for payment of medical insurance premiums, acceleration of unvested options and payment of a pro rated portion of any earned bonus. In the event the employment agreement is not renewed by us within 180 days after a change of control (as defined in the agreements), the employee will be entitled to payment equal to the greater of (1) the employee’s current base salary for the remainder of the term of the agreement or (2) the employee’s base salary for a period of between six and 12 months, payment of medical insurance premiums, acceleration of unvested options, and payment of a pro rated portion of any earned bonus. If we choose not to renew an employment agreement, the employee will be entitled to a lump sum payment equal to up to 50% of annual base salary upon expiration of the agreement, and, in certain circumstances, acceleration of unvested options and payment of medical insurance premiums for up to six months.

Limitation of Liability and Indemnification of Officers and Directors

          Our certificate of incorporation and bylaws provide that we will indemnify our directors and officers to the fullest extent permitted by Delaware law. We believe that the provisions in our certificate of incorporation and bylaws are necessary to attract and retain qualified persons as directors and officers.

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PRINCIPAL STOCKHOLDERS

          The following table sets forth certain information regarding ownership of our common stock and Preferred Stock as of May 31, 2004, by (i) each person known to us to be the beneficial owner of more than 5% of the issued and outstanding common stock or Preferred Stock, (ii) each of the members of the board of directors, (iii) each of the Named Executive Officers in the summary compensation table and (iv) all directors and executive officers as a group. All shares were owned directly with sole voting and investment power unless otherwise indicated.

	Common Stock								Series A Preferred Stock
	Beneficially Owned								Beneficially Owned
			Percentage of			Percentage of
	Number of		Class Before			Class After			Number of		Percentage of
Name	Shares(1)		Offering(1)			Offering(1)			Shares(1)		Class(1)
Oaktree Capital Management, LLC(2)		554,916		24.1	%		2.8	%		1,785,082		32.3	%
Third Avenue Management, LLC(3)		439,809		17.0	%		2.2	%		—		*
BRE/HY Funding LLC(4)		277,875		12.1	%		1.4	%		789,779		14.3	%
Merrill Lynch, Pierce, Fenner & Smith Incorporated(5)		260,611		11.3	%		1.3	%		473,867		8.6	%
Northeast Investors Trust(6)		171,356		7.4	%		*			—		*
Michael W. Amaral(7)		7,843		*			*			—		*
Sean F. Armstrong(2)		—		*			*			—		*
Manuel E. Artime(8)		3,333		*			*			—		*
Russel S. Bernard(2)		—		*			*			—		*
Stewart J. Brown(9)		555		*			*			1,347		*
Kenneth A. Caplan(4)		—		*			*			—		*
Daniel E. Ellis(10)		2,795		*			*			—		*
Stephen P. Grathwohl(11)		555		*			*			—		*
Jonathan D. Gray(4)		—		*			*			—		*
Kevin C. McTavish(12)		6,555		*			*			561		*
W. Thomas Parrington(13)		34,999		1.5	%		*			—		*
Linda Borchert Philp(14)		833		*			*			—		*
All directors and executive officers as a group (13 persons)(15)		59,440		2.5	%		*			1,905		*

* Less than one percent.

(1)

Ownership percentages are based on 2,304,326 shares of common stock outstanding and 5,531,741 shares of Preferred Stock outstanding, in each case as of May 31, 2004, and 19,804,326 shares of common stock outstanding following the completion of this offering. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission that deem shares to be beneficially owned by any person or group who has or shares voting or investment power with respect to such shares and includes any security that such person or persons have or have the right to acquire within 60 days.

(2)

Oaktree Capital Management, LLC filed a Schedule 13D/ A with the Securities and Exchange Commission on June 25, 2003, reporting beneficial ownership of 554,916 shares of common stock and 1,590,275 shares of Preferred Stock. Oaktree now beneficially owns 1,785,082 shares of Preferred Stock following our payment of an in kind dividend on November 21, 2003. The shares of common stock include 526,203 shares owned by OCM Real Estate Opportunities Fund II, L.P. (“OCM Fund II”) and 28,713 shares owned by a third party separate account (the “Account”). The shares of Preferred Stock include (i) 1,495,578 shares owned by OCM Fund II, (ii) 201,657 shares owned by OCM Real Estate Opportunities Fund III, L.P. (“OCM Fund III”), (iii) 6,237 shares owned by OCM Real Estate Opportunities Fund IIIA, L.P. (“OCM Fund IIIA”), and (iv) 81,610 shares owned by the Account. Oaktree is (x) the general partner of OCM Fund II, (y) the managing

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member of OCM Real Estate Opportunities Fund III GP, LLC, which is the general partner of OCM Fund III and OCM Fund IIIA, and (z) the investment manager for the Account. Accordingly, Oaktree may be deemed to beneficially own the shares of common stock owned by OCM Fund II and the Account, and the shares of Preferred Stock owned by OCM Fund II, OCM Fund III, OCM Fund IIIA and the Account. Oaktree disclaims any such beneficial ownership. To the extent that Russel S. Bernard, a principal of Oaktree, and Sean F. Armstrong, a managing director of Oaktree, participate in the process to vote or to dispose of shares of common stock and Preferred Stock beneficially owned by Oaktree, each may be deemed to be a beneficial owner of such shares of common stock and Preferred Stock. Messrs. Bernard and Armstrong, each of whom is a director of Lodgian, disclaim any such beneficial ownership. Oaktree’s business address is 333 South Grand Avenue, 28th Floor, Los Angeles, California 90071.

(3)	Third Avenue Management, LLC filed a Schedule 13G/A with the Securities and Exchange Commission on January 16, 2004, reporting beneficial ownership of 439,809 shares of common stock, which includes 238,299 shares of common stock issuable upon exercise of outstanding warrants with an exercise price of $54.87 per share and 47,527 shares of common stock issuable upon exercise of outstanding warrants with an exercise price of $76.32 per share. Third Avenue Management’s business address is 767 Third Avenue, New York, New York 10017-2023.
(4)	BRE/HY Funding LLC filed a Schedule 13D with the Securities and Exchange Commission on December 5, 2002, reporting beneficial ownership of 277,875 shares of common stock and 703,590 shares of Preferred Stock. BRE/HY now owns 789,779 shares of Preferred Stock following our payment of an in kind dividend on November 21, 2003. BRE/HY’s business address is 345 Park Avenue, 31st Floor, New York, New York 10154. Jonathan D. Gray, a senior managing director of The Blackstone Group L.P., an affiliate of BRE/HY, and Kenneth A. Caplan, a managing director of Blackstone, each may be deemed to be a beneficial owner of securities owned by BRE/HY. Messrs. Gray and Caplan, each of whom is a director of Lodgian, disclaim any such beneficial ownership.
(5)	Merrill Lynch, Pierce, Fenner & Smith Incorporated filed a Schedule 13G/ A with the Securities and Exchange Commission on March 4, 2004, reporting beneficial ownership of 260,611 shares of common stock, which includes 3,571 shares of common stock issuable upon exercise of outstanding warrants with an exercise price of $54.87 per share and 716 shares of common stock issuable upon exercise of outstanding warrants with an exercise price of $76.32 per share. Merrill Lynch filed a Form 4 on June 18, 2003 reporting beneficial ownership of 422,155 shares of Preferred Stock. Merrill Lynch now owns 473,867 shares of Preferred Stock following our payment of an in kind dividend on November 21, 2003. Merrill Lynch’s business address is 4 World Financial Center, North Tower, 12th Floor, New York, New York 10080.
(6)	Northeast Investors Trust filed a Schedule 13G with the Securities and Exchange Commission on February 13, 2004, reporting beneficial ownership of 171,356 shares of common stock. Northeast Investors Trust’s business address is 50 Congress Street, Boston, Massachusetts 02109-4096.
(7)	This number includes 13 shares of common stock issuable upon exercise of outstanding warrants with an exercise price of $54.87 per share, 42 shares of common stock issuable upon exercise of outstanding warrants with an exercise price of $76.32 per share and 4,444 shares subject to exercisable options held by Mr. Amaral. This number excludes 8,888 shares subject to options held by Mr. Amaral that are not exercisable within 60 days and 40,000 shares subject to options to be awarded on the closing date of this offering. Mr. Amaral’s business address is c/o Lodgian, Inc., 3445 Peachtree Road, N.E., Suite 700, Atlanta, Georgia 30326.
(8)	This number includes 3,333 shares subject to exercisable options held by Mr. Artime. This number excludes 6,666 shares subject to options held by Mr. Artime that are not exercisable within 60 days and 32,500 shares subject to options to be awarded on the closing date of this offering. Mr. Artime’s business address is c/o Lodgian, Inc., 3445 Peachtree Road, N.E., Suite 700, Atlanta, Georgia 30326.

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(9)  This number includes 555 shares of common stock subject to exercisable options held by Mr. Brown. This number excludes 1,111 shares of common stock subject to options held by Mr. Brown that are not exercisable within 60 days. Mr. Brown’s business address is c/o Booz Allen Hamilton, 3190 Fairview Park Drive, Falls Church, Virginia 22042.

(10)	This number includes 4 shares of common stock issuable upon exercise of outstanding warrants with an exercise price of $54.87 per share, 13 shares of common stock issuable upon exercise of outstanding warrants with an exercise price of $76.32 per share and 2,778 shares subject to exercisable options held by Mr. Ellis. This number excludes 5,555 shares subject to options held by Mr. Ellis that are not exercisable within 60 days and 27,500 shares subject to options to be awarded on the closing date of this offering. Mr. Ellis’s business address is c/o Lodgian, Inc., 3445 Peachtree Road, N.E., Suite 700, Atlanta, Georgia 30326.
(11)	This number includes 555 shares subject to exercisable options held by Mr. Grathwohl. This number excludes 1,111 shares subject to options held by Mr. Grathwohl that are not exercisable within 60 days. Mr. Grathwohl’s business address is c/o Burr Street Equities, LLC, 1178 Burr Street, Fairfield, Connecticut 06824.
(12)	This number includes 555 shares of common stock subject to exercisable options held by Mr. McTavish. This number excludes 1,111 shares of common stock subject to options held by Mr. McTavish that are not exercisable within 60 days. Mr. McTavish’s business address is c/o Summit Capital, LLC, 5400 LBJ Freeway, Suite 1470, Dallas, Texas 75240.
(13)	This number includes 22,222 shares of restricted common stock that Mr. Parrington has the right to receive, subject to certain conditions, on July 15, 2004 and 11,111 shares of common stock subject to options held by Mr. Parrington that are exercisable on July 15, 2004. This number excludes 22,222 shares subject to an option that is not exercisable within 60 days and 45,826 shares of restricted common stock that Mr. Parrington has the right to receive, subject to certain conditions, and which are not convertible within 60 days. Mr. Parrington’s business address is c/o Lodgian, Inc., 3445 Peachtree Road, N.E., Suite 700, Atlanta, Georgia 30326.
(14)	This number includes 833 shares subject to exercisable options held by Ms. Philp. This number excludes 1,666 shares subject to options held by Ms. Philp that are not exercisable within 60 days and 15,000 shares subject to options to be awarded on the closing date of this offering. Ms. Philp’s business address is c/o Lodgian, Inc., 3445 Peachtree Road, N.E., Suite 700, Atlanta, Georgia 30326.
(15)	This number includes 17 shares of common stock issuable upon exercise of outstanding warrants with an exercise price of $54.87 per share, 55 shares of common stock issuable upon exercise of outstanding warrants with an exercise price of $76.32 per share, 22,222 shares of restricted common stock issuable upon certain conditions and 25,830 shares of common stock subject to exercisable options.

RELATED PARTY TRANSACTIONS

          Richard Cartoon, who served as our executive vice president and chief financial officer from October 2001 to October 2003, is a principal in Richard Cartoon, LLC, which we retained in October 2001 to provide Mr. Cartoon’s services as chief financial officer and other restructuring support and services. In addition to Mr. Cartoon’s salary, we paid approximately $28,000 in the first quarter of 2004 and approximately $225,000 in 2003 for support and services provided by Richard Cartoon, LLC. This entity continues to provide restructuring and other support to us.

          Until May 1, 2004, we had a revolving loan agreement with OCM Fund II that allowed us to borrow up to $2 million; however, all of our borrowings under that agreement were repaid in full in December 2003. The interest rate on the loan was 10% per annum, and in 2003 we paid $42,222 in interest to OCM Fund II on our borrowings. This loan was secured by two land parcels, and expired on May 1, 2004. OCM Fund II is a greater than 10% stockholder, and Oaktree is the general partner of

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OCM Fund II. Russel S. Bernard, a principal of Oaktree, and Sean F. Armstrong, a managing director of Oaktree, are directors of Lodgian.

          Merrill Lynch, which is serving as a joint lead managing underwriter in this offering with Citigroup, is the owner of 260,611 shares of our common stock, including warrants to purchase 4,287 shares of our common stock, and 473,867 shares of Preferred Stock. A portion of the net proceeds from this offering will be used to redeem all of the outstanding shares of Preferred Stock, including those held by Merrill Lynch. In November 2002, in connection with our emergence from Chapter 11 bankruptcy, we received exit financing of $302.7 million of senior and mezzanine debt provided by Merrill Lynch Mortgage, an affiliate of Merrill Lynch. As of June 1, 2004, this financing was secured by 53 of our hotels and had an outstanding balance of $290.9 million.

          In addition, we have executed the commitment letter with Merrill Lynch Mortgage to refinance approximately (1) $291 million of our outstanding mortgage debt with Merrill Lynch Mortgage, (2) $56 million of our outstanding mortgage debt with Lehman and (3) $7 million of the outstanding mortgage debt of Macon Hotel Associates, L.L.C., an entity in which we own a 60% interest. On the date of the consummation of this offering, the funding of the $370 million of Refinancing Debt will be completed by Merrill Lynch Mortgage, which is a condition to the completion of this offering and which will result in our payment of fees and prepayment penalties to Merrill Lynch Mortgage.

          Our Policy on Business Ethics addresses any conflicts of interests on the part of any employees that might cast doubt on an employee’s ability to act objectively when representing us. In addition to setting guidelines, the Policy on Business Ethics provides that each potential conflict of interest will be reviewed and the final decision as to the existence of a conflict made by our chief executive officer. Further, all related party transactions involving our directors or executive officers are reviewed by the audit committee, in accordance with the corporate governance rules of the American Stock Exchange.

DESCRIPTION OF CAPITAL STOCK

          Our certificate of incorporation authorizes the issuance of up to 60,000,000 shares of common stock, $.01 par value per share, and 10,000,000 shares of preferred stock, $.01 par value per share, of which 7,100,000 shares have been designated Series A Preferred Stock. As of May 31, 2004, 2,304,326 shares of common stock and 5,531,741 shares of Preferred Stock are outstanding. In addition, 27,946 shares of common stock and 79,278 shares of Preferred Stock are held in the disputed claims reserve pending final resolution of Chapter 11 claims.

Common Stock

          Holders of record of common stock are entitled to one vote per share on all matters upon which stockholders have the right to vote. The rights attached to the shares of common stock do not provide for cumulative voting rights or preemptive rights. Therefore, holders of more than 50% of the shares of common stock are able to elect all our directors eligible for election each year. All issued and outstanding shares of our common stock are, and the common stock to be sold in this offering, when issued and paid for, will be, validly issued, fully paid and non-assessable. Subject to the rights of any holders of outstanding preferred stock, holders of our common stock are entitled to such dividends as may be declared from time to time by our board of directors out of funds legally available for that purpose. Upon dissolution, holders of our common stock are entitled to share pro rata in our assets remaining after payment in full of all of our liabilities and obligations, including payment of the liquidation preference, if any, on any preferred stock then outstanding. There are no redemption or sinking fund provisions applicable to the common stock.

          On April 27, 2004, our Board of Directors authorized a reverse stock split of our common stock in a ratio of one-for-three (1:3). The reverse split affected all of our issued and outstanding common shares, warrants and stock options. The record date for the reverse split was April 29, 2004 and our new common stock began trading under the split adjustment on April 30, 2004.

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          Fractional shares which resulted from the reverse stock split are payable in cash. Each holder of a fractional share of common stock after the effective date of the reverse split has been or will be paid cash equal to the product of (i) the average of the closing prices of the common stock for the last ten trading days prior to April 30, 2004, multiplied by (ii) the fraction of a share of common stock held by such holder.

Preferred Stock

          We have designated 7,100,000 shares of our authorized preferred stock, par value of $0.01 per share, as Series A Preferred Stock. This class of preferred stock accumulates dividends at the rate of 12.25% per year on the liquidation value of the Preferred Stock (initially $25.00 per share). Dividends are cumulative and compounded annually. We pay accrued and unpaid dividends on November 21 of each year. On the first dividend payment date, November 21, 2003, we were required to pay the accrued dividends in kind by the issuance of additional shares of Preferred Stock. If the Preferred Stock is then outstanding, on each of the two succeeding dividend payment dates, our board of directors may elect whether to pay the accrued and unpaid dividends in kind by the issuance of additional shares of Preferred Stock or in cash, to the extent permitted by law. If the Preferred Stock is then outstanding, following the third dividend payment date, we will pay accrued and unpaid dividends in cash, to the extent permitted by law. If we do not have sufficient funds to pay the accrued and unpaid dividends in cash on the dividend payment date, we will continue to accrue and accumulate the unpaid dividends. On November 21, 2003, our first dividend payment date, we issued 594,299 shares of Preferred Stock as dividends and cash of approximately $18,500 in lieu of fractional shares.

          At any time prior to November 21, 2012, we may, at our option upon 30 days prior written notice, redeem for cash the Preferred Stock, in whole or in part. On November 21, 2012, we are required to redeem for cash all shares of Preferred Stock then outstanding. If we redeem the Preferred Stock prior to November 21, 2004, the redemption price will be 104% of the liquidation value per share of the Preferred Stock ($25.00 per share plus accrued dividends). The redemption price is reduced by 1% for each succeeding twelve-month period through November 20, 2007, after which the Preferred Stock is redeemable for the liquidation value. We intend to use a portion of the net proceeds of this offering to redeem all of our Preferred Stock. From and after the redemption date, we intend to substitute for the shares of Preferred Stock held in the disputed claims reserve an amount of cash equal to the liquidation preference of those shares, plus accrued dividends and a 4% prepayment premium.

          The holders of the Preferred Stock are also entitled to approve, by majority vote, certain of our corporate actions, including increasing the number of authorized shares of capital stock, amendment of our certificate of incorporation or bylaws or entering into a share exchange, reorganization, recapitalization or similar transaction that affects the Preferred Stock or a consolidation, merger, sale of assets or other change of control transaction in which we are not the surviving corporation.

Warrants

          Pursuant to the Joint Plan of Reorganization, we issued Class A warrants to purchase an aggregate of 503,546 shares of our common stock, at an exercise price of $54.87 per share, and Class B warrants to purchase an aggregate of 343,122 shares of our common stock, at an exercise price of $76.32 per share, to holders of our old equity and CRESTS. The Class A warrants are exercisable through November 25, 2007, and the Class B warrants are exercisable through November 25, 2009. The number of shares of common stock for which the Class A and Class B warrants are exercisable and the exercise price are subject to adjustment upon the payment of dividends of common stock to all holders of common stock, stock splits or reverse splits, upon certain other distributions or securities issuances to all holders of common stock, or upon certain issuances of common stock, or securities convertible into or exercisable for common stock, at a price per share of less than 90% of the current market price of the common stock, as well as upon a reorganization, reclassification, merger, consolidation or disposition of assets. We entered into Warrant Agreements with Wachovia Bank, N.A., dated as of November 25, 2002, in which Wachovia

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Bank agreed to act as Warrant Agent for the issuance, transfer and exercise of Class A and Class B warrants.

Stock Options

          On November 25, 2002, we adopted a new Stock Incentive Plan which replaced the option plan previously in place. The Stock Incentive Plan was not approved, nor was it required to be approved, by our security holders, because it was approved by the Bankruptcy Court in connection with the Joint Plan of Reorganization. In accordance with the Stock Incentive Plan, awards to acquire shares of common stock may be granted to our non-employee directors, officers or other key employees or consultants. Awards may consist of stock options, stock appreciation rights, stock awards, performance share awards, section 162(m) awards or other awards determined by our compensation committee. Stock options granted pursuant to the Stock Incentive Plan cannot be granted at an exercise price which is less than 100% of the fair market value per share on the date of the grant. Vesting, exercisability, payment and other restrictions pertaining to any awards made pursuant to the Stock Incentive Plan are determined by the compensation committee. Under the Stock Incentive Plan, upon the completion of this offering, a number of shares of common stock will be reserved for issuance equal to the lesser of (1) 3,367,400 shares or (2) a number of shares that constitutes 12% of our issued and outstanding common stock immediately following the consummation of this offering, calculated on a fully-diluted basis and assuming the exercise in full of the underwriters’ over-allotment option. The number of shares to be reserved under the Stock Incentive Plan following consummation of this offering is currently estimated to be 2,842,432. As of May 31, 2004, options to purchase 153,847 shares of our common stock were outstanding under the Stock Incentive Plan. We also have approved the grant of options to purchase an additional 377,500 shares of common stock to be awarded on the closing date of this offering. In addition, pursuant to our employment agreement with Mr. Parrington, we have awarded restricted stock units representing the right to receive 68,048 shares of restricted common stock to Mr. Parrington under the Stock Incentive Plan subject to certain vesting requirements. The employment agreement further requires that, subject to the approval of our board of directors, we grant to Mr. Parrington options to purchase up to an additional 50,000 shares of common stock, or an equivalent number of shares of restricted common stock, over the next three years, the number of such shares and vesting of which will be determined based on the achievement of certain company performance objectives. After taking into account the outstanding options, previously exercised options and the options and shares of restricted common stock that we have agreed to grant in the future under the Stock Incentive Plan, as of May 31, 2004 we had 383,000 shares of common stock authorized for issuance under the Stock Incentive Plan, of which 80,664 shares of common stock remained available for issuance, and assuming 2,842,432 shares authorized for issuance upon the consummation of this offering, at that time we would have 2,162,873 shares of common stock available for grant under the Stock Incentive Plan.

Anti-Takeover Provisions of our Certificate of Incorporation and Bylaws

          Our board of directors, without stockholder approval, has the authority under our certificate of incorporation to issue preferred stock with rights superior to the rights of holders of common stock. As a result, preferred stock could be issued quickly and easily, could adversely affect the rights of holders of common stock and could be issued with terms calculated to delay or prevent a change of control of Lodgian or make removal of our management more difficult.

          Under Delaware law, all stockholder actions must be effected at a properly called annual or special meeting or by written consent; however, our bylaws provide that stockholder action may not be effected by written consent. In addition, our bylaws establish an advance notice procedure for stockholder proposals to be brought before an annual meeting of stockholders, including proposed nominations of persons for election to the board.

          These provisions of our bylaws are intended to enhance the likelihood of continuity and stability in the composition of our board of directors and in the policies formulated by the board of directors and to discourage certain types of transactions that may involve an actual or threatened change of control. Such provisions are designed to reduce vulnerability to an unsolicited acquisition proposal and, accordingly,

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could discourage potential acquisition proposals and could delay or prevent a change in control. These provisions may also have the effect of preventing changes in our management.

Limitations on Liability and Indemnification of Officers and Directors

          Our certificate of incorporation and bylaws provide that we will indemnify our directors and officers to the fullest extent permitted by Delaware law. We believe that the provisions in our certificate of incorporation and bylaws are necessary to attract and retain qualified persons as directors and officers.

Listing

          Our common stock and Preferred Stock are listed on the American Stock Exchange under the symbols “LGN” and “LGN.pr,” respectively.

Transfer Agent and Registrar

          Wachovia Corporation is the transfer agent and registrar for our common stock. Their address is 1525 West W.T. Harris Blvd., Charlotte, North Carolina 28288 and their telephone number is (800) 829-8432.

SHARES ELIGIBLE FOR FUTURE SALE

          Upon completion of this offering, we will have outstanding an aggregate of 19,804,326 shares of common stock. Subject to the lock-up agreements described below, all of the shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended, unless these shares are held by our affiliates (within the meaning of Rule 144 under the Securities Act). Shares held by affiliates may generally only be sold in compliance with the limitations of Rule 144 of the Securities Act.

Lock-Up Agreements

          We, and each of our directors, executive officers and certain of our other stockholders, who in the aggregate hold 1,229,988 shares of common stock, have agreed, subject to limited exceptions, that until the earlier of December 15, 2004 or the date that is 180 days after effectiveness of the registration statement of which this prospectus is a part, not to, without the prior written consent of Merrill Lynch and Citigroup Global Markets Inc. (“Citigroup”):

• Directly or indirectly, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of, lend or otherwise dispose of or transfer any shares of common stock or any securities exercisable or exchangeable for or convertible into shares of common stock; or

• Enter into any swap or other arrangement that transfers all or a portion of the economic consequences associated with the ownership of any common stock, whether any such swap or other arrangement is to be settled by the delivery of common stock or other securities, in cash or otherwise.

          This agreement does not extend to bona fide gifts to immediate family members of such persons who agree to be bound by such restrictions, or to limited partners or stockholders, who agree to be bound by such restrictions. During the lock-up period, we may grant options and issue common stock under our Stock Incentive Plan and issue common stock upon exercise of our outstanding warrants.

          Merrill Lynch and Citigroup will take into account various factors, including the number of shares requested to be sold, the anticipated manner and timing of sale, the potential impact of the sale on the market for the common stock, and market conditions generally, in determining whether to consent to a transaction prohibited by these restrictions.

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Registration Rights

          Four stockholders who beneficially own approximately 1,272,600 shares of our common stock are parties to a registration rights agreement with us that provides for mandatory and supplemental registration rights for such stockholders’ shares until they can be sold without restriction under Rule 144(k) under the Securities Act of 1933. We have filed a resale registration statement with respect to those shares. That registration statement is not yet effective, but may be declared effective promptly. Three of the four stockholders who are parties to the registration rights agreement, beneficially owning approximately 1,243,887 shares of common stock, are also parties to lock-up agreements in connection with this offering, as described above under “— Lock-Up Agreements.” However, upon the expiration of these lock-up agreements, the holders of shares of common stock with registration rights may, upon effectiveness of our resale registration statement, sell those shares in the public market. Sales of substantial amounts of common stock or the perception that those sales could occur may adversely affect the market price for our common stock.

Rule 144

          In general, under Rule 144 as currently in effect, a person who has beneficially owned shares of our common stock for at least one year would be entitled to sell within any three-month period a number of shares that does not exceed the greater of:

•  1% of the number of shares of our common stock then outstanding, which will equal approximately 198,000 shares immediately after this offering; or

• The average weekly trading volume of our common stock on the American Stock Exchange during the four calendar weeks preceding the filing of a notice on Form 144 concerning that sale.

          Sales under Rule 144 are also subject to manner of sale provisions and notice requirements and to the availability of current public information about our company.

Rule 144(k)

          Under Rule 144(k) as currently in effect, a person who has not been one of our affiliates at any time during the 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least two years, including the holding period of any prior owner other than an affiliate, is entitled to sell those shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. Therefore, unless otherwise restricted, Rule 144(k) shares may be sold immediately upon the completion of this offering.

Stock Options

          Shortly after this offering, we intend to file a registration statement on Form S-8 covering the shares of common stock reserved for issuance under our Stock Incentive Plan. This registration statement will become effective automatically upon filing. Shares issued under our Stock Incentive Plan, after the filing of a registration statement on Form S-8, may be sold in the open market, subject, in the case of certain holders, to the Rule 144 limitations applicable to affiliates, the above-referenced lock-up agreements and vesting restrictions imposed by us.

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UNDERWRITING

          We intend to offer the shares of common stock being sold in this offering through the underwriters. Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citigroup Global Markets Inc., Banc of America Securities LLC, Legg Mason Wood Walker, Incorporated and Raymond James & Associates, Inc. are acting as representatives of the underwriters named below. Subject to the terms and conditions described in a purchase agreement between us and the underwriters, we have agreed to sell to the underwriters, and the underwriters severally have agreed to purchase from us, the number of shares listed opposite their names below.

	Number
Underwriter	of Shares
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Citigroup Global Markets Inc.
Banc of America Securities LLC
Legg Mason Wood Walker, Incorporated
Raymond James & Associates, Inc.
Total		17,500,000

          The underwriters have agreed to purchase all of the shares sold under the purchase agreement if any of these shares are purchased. If an underwriter defaults, the purchase agreement provides that the purchase commitments of the nondefaulting underwriters may be increased or the purchase agreement may be terminated.

          We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act of 1933, or to contribute to payments the underwriters may be required to make in respect of those liabilities.

          The underwriters are offering the shares, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel, including the validity of the shares, and other conditions contained in the purchase agreement, such as the receipt by the underwriters of officer’s certificates and legal opinions. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.

Commissions and Discounts

          The representatives have advised us that the underwriters initially propose to offer the shares to the public at the offering price on the cover page of this prospectus and to dealers at that price less a concession not in excess of $          per share. The underwriters may allow, and the dealers may reallow, a discount not in excess of $          per share to other dealers. After this offering, the public offering price, concession and discount may be changed.

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          The following table shows the public offering price, underwriting discount and proceeds before expenses to us. The information assumes either no exercise or full exercise by the underwriters of their overallotment option.

	Per Share		Without Option		With Option
Public offering price		$		$		$
Underwriting discount		$		$		$
Proceeds, before expenses, to Lodgian		$		$		$

          Merrill Lynch and Citigroup, our joint lead managing underwriters, will receive financial advisory fees in an aggregate amount equal to 0.75% of the gross proceeds of our common stock offering, or approximately $      million. The expenses of this offering, not including the underwriting discount and advisory fees, are estimated at approximately $1,595,000 and are payable by us.

Overallotment Option

          We have granted an option to the underwriters to purchase up to 2,625,000 additional shares at the public offering price less the underwriting discount. The underwriters may exercise this option for 30 days from the date of this prospectus solely to cover any overallotments.

          If the underwriters exercise this option, each will be obligated, subject to conditions contained in the purchase agreement, to purchase a number of additional shares proportionate to that underwriter’s initial amount reflected in the above table.

No Sales of Similar Securities

          We, and each of our directors, executive officers and certain of our other stockholders, who in the aggregate hold 1,229,988 shares of common stock, have agreed, subject to limited exceptions, that until the earlier of December 15, 2004 or the date that is 180 days after effectiveness of the registration statement of which this prospectus is a part, not to, without the prior written consent of Merrill Lynch and Citigroup:

• Directly or indirectly, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of, lend or otherwise dispose of or transfer any shares of common stock or any securities exercisable or exchangeable for or convertible into shares of common stock; or

• Enter into any swap or other arrangement that transfers all or a portion of the economic consequences associated with the ownership of any common stock, whether any such swap or other arrangement is to be settled by the delivery of common stock or other securities, in cash or otherwise.

          This agreement does not extend to bona fide gifts to immediate family members of such persons who agree to be bound by such restrictions, or to limited partners or stockholders, who agree to be bound by such restrictions. During the lock-up period, we may grant options and issue common stock under our Stock Incentive Plan and issue common stock upon exercise of our outstanding warrants.

          Merrill Lynch and Citigroup will take into account various factors, including the number of shares requested to be sold, the anticipated manner and timing of sale, the potential impact of the sale on the market for the common stock, and market conditions generally, in determining whether to consent to a transaction prohibited by these restrictions.

          Merrill Lynch has agreed, subject to limited exceptions, that until the earlier of December 15, 2004 or the date that is 180 days after effectiveness of the registration statement of which this prospectus is a part, it will not sell any shares of common stock that it owns, on terms substantially identical to those described above for our other stockholders subject to lock-up agreements.

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American Stock Exchange Listing

          The shares are listed on the American Stock Exchange under the symbol “LGN.”

          The public offering price has been determined through negotiations between us and the representatives. In addition to prevailing market conditions and our then existing stock price, the factors considered in determining the public offering price were:

• the valuation multiples and dividend yields of publicly traded companies that the representatives believe to be comparable to us;

• our historical financial information and prospects for, and timing of, improved financial performance;

• the history of, and the prospects for, our company and the industry in which we compete;

• an assessment of our management, its past and present operations; and

• the above factors in relation to market values and various valuation measures of other companies engaged in activities similar to ours.

          An active trading market for the shares may not develop or, if one develops, may not be liquid or maintained. It is also possible that after the offering, the shares of our common stock will not trade in the public market at or above the public offering price.

          The underwriters do not expect to sell more than 5% of the shares of common stock in the aggregate to accounts over which they exercise discretionary authority.

Price Stabilization, Short Positions

          Until the distribution of the shares is completed, rules of the Securities and Exchange Commission may limit underwriters and selling group members from bidding for and purchasing our common stock. However, the representatives may engage in transactions that stabilize the price of the common stock, such as bids or purchases to peg, fix or maintain that price.

          If the underwriters create a short position in the common stock in connection with the offering, i.e., if they sell more shares than are listed on the cover of this prospectus, the representatives may reduce that short position by purchasing shares in the open market. “Covered” short sales are sales made in an amount up to the number of shares represented by the underwriters’ overallotment option. In determining the source of shares to close out the covered syndicate short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the overallotment option. Transactions to close out the covered syndicate short position involve either purchases of our common stock in the open market after the distribution has been completed or the exercise of the overallotment option. The underwriters may also make “naked” short sales of shares in excess of the overallotment option. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of shares in the open market after pricing that could adversely affect investors who purchase in our common stock offering. The representatives may also elect to reduce any short position by exercising all or part of the overallotment option described above. Purchases of the common stock to stabilize its price or to reduce a short position may cause the price of the common stock to be higher than it might be in the absence of such purchases.

          The representatives may also impose a penalty bid on underwriters and selling group members. This means that if the representatives purchase shares in the open market to reduce the underwriters’ short position or to stabilize the price of those shares, they may reclaim the amount of the selling concession from the underwriters and selling group members who sold those shares. The imposition of a penalty bid may also affect the price of the shares in that it discourages resales of those shares.

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          Neither we nor any of the underwriters makes any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the common stock. In addition, neither we nor any of the underwriters makes any representation that the representatives will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.

Electronic Prospectus

          A prospectus in electronic format may be made available on the websites maintained by one or more of the underwriters, or selling group members, if any, participating in this offering. The representatives may agree to allocate a number of shares to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the underwriters and selling group members that will make Internet distributions on the same basis as other allocations. Other than the prospectus in electronic format, the information on the web sites maintained by any of the underwriters, or selling group members, is not part of this prospectus.

          In connection with this offering, certain of the underwriters or securities dealers may distribute this prospectus electronically.

NASD Regulations

          Under the Conduct Rules of the NASD, Inc., when an NASD member that is an “affiliate” of the issuer, as defined in Rule 2720, participates as an underwriter in a public offering, Rule 2720 can require that the initial public offering price may be no higher than that recommended by a “qualified independent underwriter,” as defined by the NASD. Although this provision does not apply where a “bona fide independent market” exists for a security, as is the case of our common stock, we have nevertheless retained Citigroup to act as a qualified independent underwriter. In such role, Citigroup has performed a due diligence investigation of us and participated in the preparation of this prospectus and the registration statement. The public offering price of the shares of common stock will be no higher than the price recommended by Citigroup. We have agreed to indemnify Citigroup against liabilities incurred in connection with acting as a qualified independent underwriter, including liabilities under the Securities Act.

Other Relationships

          Some of the underwriters and their affiliates have engaged in, and may in the future engage in, investment banking and other commercial dealings in the ordinary course of business with us. They have received customary fees and commissions for these transactions. Merrill Lynch, which is serving as a joint lead managing underwriter for this offering, and its affiliates will receive benefits from this offering in addition to the underwriting discounts and advisory fee. Merrill Lynch is the owner of 260,611 shares of our common stock, including warrants to purchase 4,287 shares of our common stock, and 473,867 shares of Preferred Stock. Approximately $158.2 million (estimated as of July 30, 2004) of the net proceeds from this offering will be used to redeem all of the outstanding shares of Preferred Stock, including those held by Merrill Lynch and/or its affiliates. In addition, in November 2002, in connection with our emergence from Chapter 11 bankruptcy, we received exit financing of $309.0 million, of which $224.0 million of senior debt and $78.7 million of mezzanine debt was provided by Merrill Lynch Mortgage, an affiliate of Merrill Lynch. As of June 1, 2004, this financing is secured by 53 of our hotels and had an outstanding balance of $290.9 million. In March 2003, pursuant to the terms of the debt agreements, the senior and mezzanine debt amounts were resized to $218.1 million and $84.1 million, respectively. In addition, we have executed the commitment letter with Merrill Lynch Mortgage to refinance a substantial portion of our outstanding mortgage debt. On the date of the consummation of this offering, the funding of the Refinancing Debt by Merrill Lynch Mortgage will be completed, which is a condition to the completion of this offering and which will result in the payment of fees and prepayment penalties to Merrill Lynch Mortgage.

108

LEGAL MATTERS

          The validity of the shares of the common stock will be passed upon for us by Morris, Manning & Martin, LLP, Atlanta, Georgia. Sidley Austin Brown & Wood LLP, New York, New York, will act as counsel to the underwriters.

EXPERTS

          The consolidated financial statements for the year ended December 31, 2003 and the period from November 23, 2002 to December 31, 2002 (successor company operations), and the period from January 1, 2002 to November 22, 2002 and the year ended December 31, 2001 (predecessor company operations), included in this prospectus have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing in the registration statement of which this prospectus is a part (which expresses an unqualified opinion and includes an explanatory paragraph relating to the successor company’s change in its method of accounting for discontinued operations to conform with Statement of Financial Accounting Standards No. 144 and to the successor company’s adoption of the provisions of Statement of Financial Accounting Standards No. 150), and have been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

          We have filed with the Securities and Exchange Commission a registration statement on Form S-1 under the Securities Act of 1933, and the rules and regulations promulgated thereunder, with respect to the shares of common stock offered by this prospectus. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement and the exhibits thereto. Statements contained in this prospectus as to the contents of any contract or other document that is filed as an exhibit to the registration statement are not necessarily complete and each such statement is qualified in all respects by reference to the full text of such contract or document.

          You may read and copy all or any portion of the registration statement and the exhibits at the Securities and Exchange Commission’s public reference room at 450 Fifth Street N.W., Washington, D.C. 20549. You can request copies of these documents, upon payment of a duplication fee, by writing to the Securities and Exchange Commission. You may call the SEC at 1-800-SEC-0330 for further information on the operation of the Securities and Exchange Commission’s public reference rooms. In addition, the Securities and Exchange Commission maintains a website on the Internet at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Securities and Exchange Commission.

          We are subject to the information and periodic reporting requirements of the Securities Exchange Act of 1934 and, in accordance therewith, file periodic reports, proxy and information statements and other information with the Securities and Exchange Commission. These periodic reports, proxy, and information statements and other information are not incorporated herein by reference but are available on the company’s web site, www.lodgian.com, and are available for inspection and copying at the public reference facilities and Securities and Exchange Commission’s website referred to above.

109

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Audited Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm		F-2
Consolidated Balance Sheets as of December 31, 2003 and 2002		F-3
Consolidated Statements of Operations for the Successor year ended December 31, 2003, the Successor period November 23, 2002 to December 31, 2002, the Predecessor periods January 1, 2002 to November 22, 2002 and the year ended December 31, 2001		F-4
Consolidated Statements of Stockholders’ Equity (Deficit) for the Successor year ended December 31, 2003, the Successor period November 23, 2002 to December 31, 2002, the Predecessor periods January 1, 2002 to November 22, 2002 and the year ended December 31, 2001		F-5
Consolidated Statements of Cash Flows for the Successor year ended December 31, 2003, the Successor period November 23, 2002 to December 31, 2002, the Predecessor periods January 1, 2002 to November 22, 2002 and the year ended December 31, 2001		F-6
Notes to the Consolidated Financial Statements		F-7

Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2004 and December 31, 2003 (unaudited)	F-46
Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2004 and March 31, 2003 (unaudited)	F-47
Condensed Consolidated Statement of Stockholders’ Equity for the Three Months Ended March 31, 2004 (unaudited)	F-48
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2004 and March 31, 2003 (unaudited)	F-49
Notes to Condensed Consolidated Financial Statements (unaudited)	F-50

All schedules are inapplicable, or have been disclosed in the Notes to Consolidated Financial Statements and, therefore, have been omitted.

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

Lodgian, Inc.

We have audited the accompanying consolidated balance sheets of Lodgian, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2003 and December 31, 2002, and the related statements of operations, stockholders’ equity (deficit), and cash flows for the year ended December 31, 2003 and the periods from November 23, 2002 to December 31, 2002 (Successor Company operations), and from January 1, 2002 to November 22, 2002 and the year ended December 31, 2001 (Predecessor Company operations). These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 2 to the consolidated financial statements, on November 5, 2002, the Bankruptcy Court entered an order confirming the plan of reorganization which became effective after the close of business on November 25, 2002. Accordingly, the accompanying financial statements have been prepared in conformity with AICPA Statement of Position 90-7, “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code,” for the Successor Company as a new entity with assets, liabilities, and a capital structure having carrying values not comparable with prior periods as described in Note 4.

In our opinion, such Successor Company consolidated financial statements present fairly, in all material respects, the financial position of Lodgian, Inc. and subsidiaries as of December 31, 2003 and December 31, 2002, and the results of their operations and their cash flows for the year ended December 31, 2003, and the period from November 23, 2002 to December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. Further, in our opinion, the Predecessor Company consolidated financial statements referred to above present fairly, in all material respects, the Predecessor Company’s results of operations and cash flows for the period January 1, 2002 to November 22, 2002, and for the year ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 3 to the consolidated financial statements, in 2002, the Company changed its method of accounting for discontinued operations to conform to Statement of Financial Accounting Standards No. 144. As discussed in Note 12 to the consolidated financial statements, effective July 1, 2003, the Company adopted the provisions of Statement of Financial Accounting Standards, No. 150.

/s/ DELOITTE & TOUCHE LLP

Atlanta, Georgia

March 5, 2004

(May 10, 2004 as to Note 22)

F-2

LODGIAN, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

			December 31, 2003			December 31, 2002
			(In thousands, except per share data)
ASSETS
Current assets:
	Cash and cash equivalents		$	10,897		$	10,875
	Cash, restricted			7,084			19,384
	Accounts receivable (net of allowances: 2003 — $689; 2002 — $1,594)			8,169			10,681
	Inventories			5,609			7,197
	Prepaid expenses and other current assets			17,068			15,118
	Assets held for sale			68,567			—
		Total current assets		117,394			63,255
Property and equipment, net				563,818			664,565
Deposits for capital expenditures				15,782			22,349
Other assets				12,180			11,995
			$	709,174		$	762,164
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities not subject to compromise
	Current liabilities:
	Accounts payable		$	7,131		$	12,380
	Other accrued liabilities			31,432			41,297
	Advance deposits			1,882			1,786
	Current portion of long-term debt			16,563			14,550
	Liabilities related to assets held for sale			57,948			—
		Total current liabilities		114,956			70,013
Long-term debt:
	12.25% Cumulative preferred shares subject to mandatory redemption			142,177			—
	Long-term debt — other			409,115			389,752
		Total long-term debt		551,292			389,752
Liabilities subject to compromise				—			93,816
		Total liabilities		666,248			553,581
Minority interests				2,320			3,616
Commitments and contingencies
	12.25% Cumulative preferred shares subject to mandatory redemption			—			126,510
Stockholders’ equity:
	Common stock, $.01 par value, 30,000,000 shares authorized; 2,333,591 and 2,333,333 issued and outstanding at December 31, 2003 and December 31, 2002, respectively			23			23
	Additional paid-in capital			89,874			89,270
	Unearned stock compensation			(508	)		—
	Accumulated deficit			(50,107	)		(10,836	)
	Accumulated other comprehensive income			1,324			—
		Total stockholders’ equity		40,606			78,457
			$	709,174		$	762,164

See notes to consolidated financial statements.

F-3

LODGIAN, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

			Successor						Predecessor
						November 23, 2002 to			January 1, 2002 to
			2003			December 31, 2002			November 22, 2002			2001
			(In thousands, except per share data)
Revenues:
	Rooms		$	229,519		$	16,902		$	220,898		$	257,100
	Food and beverage			70,791			7,415			66,709			79,554
	Other			11,104			989			11,660			14,418
				311,414			25,306			299,267			351,072
Operating expenses:
	Direct:
		Rooms		65,814			6,246			59,378			69,257
		Food and beverage		48,686			5,447			46,822			55,459
		Other		7,970			880			7,836			8,540
				122,470			12,573			114,036			133,256
				188,944			12,733			185,231			217,816
	General, administrative and other			137,888			13,982			118,212			154,320
	Depreciation and amortization			29,761			3,113			40,523			46,065
	Impairment of long-lived assets			12,667			—			—			20,503
		Other operating expenses		180,316			17,095			158,735			220,888
				8,628			(4,362	)		26,496			(3,072	)
Other income (expenses):
	Interest income and other			807			14			4,940			709
	Interest expense:
		Preferred stock dividend		(8,092	)		—			—			—
		Interest expense (contractual interest: $29.8 million, $3.0 million, $53.5 million and $76.1 million for the Successor periods ended December 31, 2003 and December 31, 2002, the Predecessor periods ended November 22, 2002 and the year ended December 31, 2001, respectively)		(28,581	)		(2,512	)		(25,761	)		(71,817	)
		Gain on asset dispositions		445			—			—			23,975
(Loss) income before income taxes, reorganization items and minority interests				(26,793	)		(6,860	)		5,675			(50,205	)
Reorganization items				(1,397	)		—			11,038			(21,672	)
(Loss) income before income taxes and minority interest				(28,190	)		(6,860	)		16,713			(71,877	)
Minority interests:
	Preferred redeemable securities (contractual interest: $12.7 million and $13.2 million for the Predecessor periods ended November 22, 2002 and the year ended December 31, 2001)			—			—			—			(12,869	)
	Other			1,294			147			126			38
	(Loss) income before income taxes — continuing operations			(26,896	)		(6,713	)		16,839			(84,708	)
	(Provision) benefit for income taxes — continuing operations			(178	)		(32	)		160			(2,829	)
	(Loss) income — continuing operations			(27,074	)		(6,745	)		16,999			(87,537	)
Discontinued operations:
	Loss from discontinued operations before income taxes			(4,603	)		(2,581	)		(5,833	)		(55,227	)
	Income tax benefit			—			—			1,200			—
	Loss from discontinued operations			(4,603	)		(2,581	)		(4,633	)		(55,227	)
	Net (loss) income			(31,677	)		(9,326	)		12,366			(142,764	)
	Preferred stock dividend			(7,594	)		(1,510	)		—			—
	Net (loss) income attributable to common stock		$	(39,271	)	$	(10,836	)	$	12,366		$	(142,764	)
Basic and diluted loss per common share:
	Net (loss) income attributable to common stock		$	(16.83	)	$	(4.65	)	$	0.43		$	(5.04	)

Upon emergence from Chapter 11, the Company adopted fresh start reporting. As a result, all assets and liabilities were restated to reflect their fair values. The consolidated financial statements of the new reporting entity (the “Successor”) are not comparable to the reporting entity prior to the Company’s emergence from Chapter 11 (the “Predecessor”).

See notes to consolidated financial statements.

F-4

LODGIAN, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

For the Year Ended December 31, 2001, the period January 1, 2002 to November 22, 2002,

the period November 23, 2002 to December 31, 2002 and the year ended December 31, 2003

																	Accumulated			Total
		Common Stock						Additional			Unearned						Other			Stockholders’
								Paid-In			Stock			Accumulated			Comprehensive			Equity
		Shares			Amount			Capital			Compensation			Deficit			Loss (net of tax)			(Deficit)
		(In thousands, except share data)
Predecessor Company:
Balance at December 31, 2000			28,290,424		$	282		$	263,320		$	—		$	(125,542	)	$	(1,180	)	$	136,880
401(k) Plan contribution			189,413			2						—									2
Net loss			—			—			—			—			(142,764	)		—			(142,764	)
Currency translation adjustments, net of tax			—			—			—			—			—			(799	)		(799	)
Comprehensive loss																					(143,563	)
Balance at December 31, 2001			28,479,837			284			263,320			—			(268,306	)		(1,979	)		(6,681	)
Net income through November 22, 2002			—			—						—			12,366						12,366
Currency translation adjustments, net of tax			—						—			—						101			101
Comprehensive loss			—			—			—												12,467
Balance at November 22, 2002			28,479,837			284			263,320			—			(255,940	)		(1,878	)		5,786
Reorganization adjustments			(28,479,837	)		(284	)		(263,320	)		—			255,940			1,878			(5,786	)
Balance November 22, 2002			—			—			—			—			—			—			—
Successor Company:
Distribution of new common shares			2,333,333			23			81,233			—			—			—			81,256
Distribution of A warrants, 503,546			—			—			4,774			—									4,774
Distribution of B warrants, 343,122			—			—			3,263			—									3,263
Net loss — November 22 to December 31, 2002			—			—			—			—			(9,326	)					(9,326	)
Currency translation adjustments, net of tax			—			—			—			—			—			—			—
Comprehensive loss																					(9,326	)
Preferred dividends accrued (not declared)															(1,510	)					(1,510	)
Balance December 31, 2002			2,333,333		$	23		$	89,270		$	—		$	(10,836	)	$	—		$	78,457
Issuance of restricted stock			—			—			600			(600	)		—			—			—
Amortization of unearned stock compensation			—			—			—			92			—			—			92
Exercise of stock options			258			—			4			—			—			—			4
Comprehensive loss:
	Net loss		—			—			—			—			(31,677	)		—			(31,677	)
	Currency translation adjustments (related taxes estimated at nil)		—			—			—			—			—			1,324			1,324
Total comprehensive loss			—			—			—						—			—			(30,353	)
Preferred dividends*			—			—			—			—			(7,594	)		—			(7,594	)
Balance December 31, 2003			2,333,591		$	23		$	89,874		$	(508	)	$	(50,107	)	$	1,324		$	40,606

*Represent dividends accrued for the period January 1, 2003 to June 30, 2003. Pursuant to Statement of Financial Accounting Standard No. 150, dividends accrued for the period July 1, 2003 to December 31, 2003 are reflected in interest expense.

Upon emergence from Chapter 11, the Company adopted fresh start reporting. As a result, all assets and liabilities were restated to reflect their fair values. The consolidated financial statements of the new reporting entity (the “Successor”) are not comparable to the reporting entity prior to the Company’s emergence from Chapter 11 (the “Predecessor”).

See notes to consolidated financial statements.

F-5

LODGIAN, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

				Successor						Predecessor
							November 23, 2002 to			January 1, 2002 to
				2003			December 31, 2002			November 22, 2002			2001
				(In thousands)
Operating activities:
	Net (loss) income			$	(31,677	)	$	(9,326	)	$	12,366		$	(142,764	)
	Add: loss from discontinued operations				4,603			2,581			4,633			55,227
	(Loss) income — continuing operations				(27,074	)		(6,745	)		16,999			(87,537	)
	Adjustments to reconcile (loss) income from continuing operations to net cash provided by (used in ) operating activities:
		Depreciation and amortization			29,761			3,113			40,523			46,065
		Impairment of long-lived assets			12,667			—			193,202			20,503
		Gain on extinguishment of debt			—			—			(226,929	)		—
		Fresh start adjustments — other			—			—			(3,426	)		—
		Amortization of unearned stock compensation			92			—			—			—
		Preferred stock dividends			8,092			—			—			—
		Minority interests			(1,296	)		(147	)		(126	)		12,831
		Gain on asset dispositions			(445	)		—			—			(23,975	)
		Write-off and amortization of deferred financing costs			3,884			167			56			25,972
		Other			139			(276	)		429			542
		Changes in operating assets and liabilities:
			Accounts receivable, net of allowances		554			3,195			(1,708	)		7,029
			Inventories		(241	)		105			(187	)		497
			Prepaid expenses, other assets and restricted cash		8,908			14,236			(38,752	)		(1,607	)
			Accounts payable		(3,775	)		(1,842	)		4,718			978
			Other accrued liabilities		(1,484	)		(10,727	)		12,058			(3,170	)
			Related party balances		4,556			(1,493	)		(2,421	)		5,974
			Advance deposits		440			(187	)		191			(95	)
Net cash provided by (used in) operating activities of continuing operations					34,778			(601	)		(5,373	)		4,007
Net cash (used in) provided by operating activities of discontinued operations					(166	)		17			(259	)		(1,440	)
Investing activities:
	Capital improvements				(30,756	)		(4,329	)		(19,014	)		(23,360	)
	Proceeds from sale of assets, net of related selling costs				802			—			—			67,910
	Withdrawals (deposits) for capital expenditures				7,219			(7,651	)		1,501			(1,221	)
	Other				(192	)		(1,010	)		(90	)		—
Net cash (used in) provided by investing activities					(22,927	)		(12,990	)		(17,603	)		43,329
Financing activities:
	Proceeds from issuance of long-term debt				80,000			—			309,098			—
	Proceeds from working capital revolver				2,000			—			—			21,000
	Proceeds from issuance of common stock				114			—			—			—
	Principal payments on long-term debt				(87,059	)		(1,221	)		(266,601	)		(58,293	)
	Principal payments on working capital revolver				(2,000	)								(15,000	)
	Payments of deferred loan costs				(4,839	)		—			(7,599	)		(598	)
Net cash (used in) provided by financing activities					(11,784	)		(1,221	)		34,898			(52,891	)
Effect of exchange rate changes on cash					121			—			—			—
Net increase (decrease) in cash and cash equivalents					22			(14,795	)		11,663			(6,995	)
Cash and cash equivalents at beginning of period					10,875			25,670			14,007			21,002
				$	10,897		$	10,875		$	25,670		$	14,007
Supplemental cash flow information:
Cash paid during the period for:
	Interest, net of the amounts capitalized shown below			$	28,660		$	1,589		$	31,132		$	73,131
	Interest capitalized				1,181			149			365			861
	Income taxes, net of refunds				237						(302	)		120
Supplemental disclosure of non-cash investing and financing activities:
	Issuance of preferred stock on emergence from Chapter 11				—			—			125,000			—
	Issuance of other securities on emergence from Chapter 11				—			—			89,293			—
	Net non-cash debt increase				4,678			16			137
Operating cash receipts and payments resulting from Chapter 11 proceedings:
	Professional fees paid				(455	)		—			(11,184	)		(3,772	)
	Loan extension fee				(1,500	)		—			—			—
	Other reorganization payments			$	(90	)	$	—		$	(908	)	$	(24	)

Upon emergence from Chapter 11, the Company adopted fresh start reporting. As a result, all assets and liabilities were restated to reflect their fair values. The consolidated financial statements of the new reporting entity (the “Successor”) are not comparable to the reporting entity prior to the Company’s emergence from Chapter 11 (the “Predecessor”).

See notes to consolidated financial statements.

F-6

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2003

1. Summary of Significant Accounting Policies

     Description of Business

On December 11, 1998, Servico, Inc. (Servico) merged with Impac Hotel Group, LLC (Impac), pursuant to which Servico and Impac formed a new company, Lodgian, Inc. (“Lodgian” or the “Company”). This transaction (the “Merger”) was accounted for under the purchase method of accounting, whereby Servico was considered the acquiring company. On December 20, 2001, the Company and substantially all of its subsidiaries that owned hotel properties filed for voluntary reorganization under Chapter 11 of the Bankruptcy Code. At the time of the Chapter 11 filing, the Company’s portfolio of hotels consisted of 106 hotel properties. The Company emerged from Chapter 11 with 97 hotels since eight of the hotels were conveyed to the lender in satisfaction of outstanding debt obligations and one hotel was returned to the lessor of a capital lease. Of the portfolio of 97 hotels, 78 hotels emerged from Chapter 11 on November 25, 2002, 18 hotels emerged from Chapter 11 on May 22, 2003 and one hotel never filed under Chapter 11.

In 2003, the Company developed a strategy of owning and operating a portfolio of profitable, well-maintained and appealing hotels at superior locations in strong markets. We are implementing this strategy by:

•  renovating and repositioning certain of its existing hotels to improve performance;

•  divesting hotels that do not fit this strategy or that are unlikely to do so without significant effort or expense; and

•  acquiring selected hotels that better fit this strategy.

In accordance with this strategy and our efforts to reduce debt and interest, in 2003 we identified 19 hotels, our only office building and three land parcels for sale. One of the 19 hotels was sold in November 2003, bringing the hotel portfolio to 96 at December 31, 2003. The office building was sold in December 2003.

     Fresh Start Reporting

Effective November 22, 2002, the Company adopted fresh start reporting. As a result, all assets and liabilities were restated to reflect their fair values. The Consolidated Financial Statements after emergence are those of a new reporting entity (the “Successor”) and are not comparable to the financial statements prior to November 22, 2002 (the “Predecessor”). See Note 4.

     Principles of Consolidation

The financial statements consolidate the accounts of Lodgian, its wholly-owned subsidiaries and four joint ventures in which Lodgian has a controlling financial interest and exercises control. Lodgian believes it has control of the joint ventures when the Company manages and has control of the joint venture’s assets and operations. The four joint ventures in which the Company exercises control are as follows:

Melbourne Hospitality Associates, Limited Partnership (which owns the Holiday Inn Melbourne, Florida) — This joint venture is in the form of a limited partnership, in which a Lodgian subsidiary serves as the general partner and has a 50% voting interest.

New Orleans Airport Motel Associates, Ltd. (which owns the New Orleans Airport Plaza Hotel and Conference Center, Louisiana) — This joint venture is in the form of a limited partnership, in which a Lodgian subsidiary serves as the general partner and has an 82% voting interest.

F-7

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Servico Centre Associates, Ltd. (which owns the Crowne Plaza West Palm Beach, Florida) — This joint venture is in the form of a limited partnership, in which a Lodgian subsidiary serves as the general partner and has a 50% voting interest.

Macon Hotel Associates, L.L.C. (which owns the Crowne Plaza Macon, Georgia) — This joint venture is in the form of a limited liability company, in which a Lodgian subsidiary serves as the managing member and has a 60% voting interest.

An unconsolidated entity owning one hotel, Columbus Hospitality Associates LP, in which the Company has a 30% non-controlling equity interest, is accounted for under the equity method. When the Company accounts for an entity under the equity method, its share of the investment is recorded on the Consolidated Balance Sheet and its share of the net income or loss is recorded in the Consolidated Statement of Operations. The Company’s share of this investment is included in other assets on the Consolidated Balance Sheet. Its share of the net income or loss is shown in “interest income and other” in the Consolidated Statements of Operations. The Company’s investment in this entity at December 31, 2003 was $0.2 million and its share of the loss was $20,000.

All significant intercompany accounts and transactions have been eliminated in consolidation.

     Inventories

Inventories consist primarily of food and beverage, linens, china, tableware and glassware and are valued at the lower of cost (computed on the first-in, first-out method) or market.

     Minority Interests — Preferred Redeemable Securities

Minority interests-preferred redeemable securities, represents Convertible Redeemable Equity Structure Trust Securities (“CRESTS”). In connection with the Company’s emergence from Chapter 11, the CRESTS were exchanged for common stock (289,333 shares), Class A warrants (419,605) and Class B warrants (83,687). Previously, the CRESTS bore interest at the rate of 7% per annum and were convertible into shares of the Company’s common stock.

     Minority Interests — Other

Minority interests represent the minority interests’ proportionate share of equity of joint ventures that are accounted for by the Company on a consolidated basis. The Company generally allocates to minority interests their share of any profits or losses in accordance with the provisions of the applicable agreements. However, if the loss applicable to a minority interest exceeds its total investment and advances, such excess is charged to the Company.

     Property and Equipment

Property and equipment is stated at depreciated cost, less adjustments for impairment, where applicable. Capital improvements are capitalized when they extend the useful life of the related asset. All repair and maintenance items are expensed as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Effective November 22, 2002, the Company restated the recorded values of all property and equipment to reflect their fair values.

F-8

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company capitalizes interest costs incurred during the renovation and construction of capital assets. Interest costs capitalized, for the periods listed below, were as follows:

	Continuing		Discontinued		Total
	operations		operations		operations
	($ in thousands)
Predecessor year ended December 31, 2001	$	739	$	122	$	861
Predecessor period January 1, 2002 to November 22, 2002		317		48		365
Successor period November 23, 2002 to December 31, 2002		127		22		149
Successor year ended December 31, 2003		1,171		10		1,181

Management periodically evaluates the Company’s property and equipment to determine whether events or changes in circumstances indicate that a possible impairment in the carrying value of the assets has occurred. The carrying value of long-lived assets is considered impaired when the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. If it is determined that an impairment has occurred, the excess of the assets’ carrying value over its estimated fair value is charged to operating expenses. Impairment losses for assets held for sale are recognized when the assets’ carrying values are greater than the fair value less estimated selling costs. See Note 8 for further discussion of the Company’s charges for asset impairment.

Deferred Costs

Deferred franchise costs and deferred financing costs at December 31, 2003 and 2002, are included in other assets, net of accumulated amortization. Deferred franchise costs are amortized using the straight-line method over the terms of the related franchise agreements while deferred financing costs are amortized using the effective interest method over the related term of the debt. These deferrals are presented below for and as of the year ended December 31, 2003 along with the comparative period.

	Year Ended December 31, 2003							Year Ended December 31, 2002
			Accumulated							Accumulated
	Cost		amortization			Net		Cost		amortization			Net
	($ in thousands)
Deferred financing costs	$	13,314	$	(4,107	)	$	9,207	$	7,656	$	(223	)	$	7,433
Deferred franchise fees		3,369		(1,011	)		2,358		4,670		(389	)		4,281
	$	16,683	$	(5,118	)	$	11,565	$	12,326	$	(612	)	$	11,714

Based on the balances at December 31, 2003, the five year amortization schedule for deferred financing and deferred loan costs is as follows:

	Total		2004		2005		2006		2007		2008		After 2008
	($ in thousands)
Deferred financing costs	$	9,207	$	5,425	$	3,739	$	22	$	21	$	—	$	—
Deferred franchise fees		2,358		559		504		405		332		231		327
	$	11,565	$	5,984	$	4,243	$	427	$	353	$	231	$	327

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Restricted cash as of December 31, 2003 consisted of amounts reserved for letter of credit collateral, a deposit required by the Company’s bankers and cash reserved pursuant to loan agreements.

F-9

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Fair Values of Financial Instruments

The fair value of financial instruments is estimated using market trading information. Where published market values are not available, management estimates fair values based upon quotations received from broker/ dealers or interest rate information for similar instruments. Changes in fair value are recognized in earnings.

The fair values of current assets and current liabilities are assumed equal to their reported carrying amounts. The fair values of the Company’s fixed rate long-term debt are estimated using discounted cash flow analyses, based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements.

Concentration of Credit Risk

Concentration of credit risk associated with cash and cash equivalents is considered low due to the credit quality of the issuers of the financial instruments held by the Company and due to their short duration to maturity. Accounts receivable are primarily from major credit card companies, airlines and other travel-related companies. The Company performs ongoing evaluations of its significant customers and generally does not require collateral. The Company maintains an allowance for doubtful accounts at a level which management believes is sufficient to cover potential credit losses. At December 31, 2003 and 2002, allowances were $797,000 ($689,000 relating to assets held for use) and $1,594,000, respectively.

Income Taxes

The Company accounts for income taxes under Statement of Financial Accounting Standards (“SFAS”) 109, “Accounting for Income Taxes,” which requires the use of the liability method of accounting for deferred income taxes. See Note 15 for the components of the Company’s deferred taxes. As a result of the Company’s history of losses, the Company has provided a full valuation allowance against its deferred tax asset as it is more likely than not that the deferred tax asset will not be realized.

Earnings Per Common and Common Equivalent Share

Basic earnings per share is calculated based on the weighted average number of common shares outstanding during the periods and include common stock (if any) contributed by the Company to its employee 401(k) Plan. Dilutive earnings per common share include the Company’s outstanding stock options, restricted stock, warrants to acquire common stock (“A” and “B” class), if dilutive. See Note 17 for computation of basic and diluted earnings per share.

As more fully discussed in Note 4, upon the Company’s emergence from reorganization proceedings, the Company’s previous equity securities were cancelled and new equity securities were issued. Because the Company is assumed to be a new entity for financial reporting purposes subsequent to the application of fresh start reporting, prior periods have not been restated.

Stock Based Compensation

The Company accounts for stock option grants in accordance with Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees” and related interpretations. Under APB No. 25, if the exercise price of the Company’s employee stock options is equal to the market price of the underlying stock on the date of grant, no compensation expense is recognized. Under SFAS No. 123, “Accounting for Stock-Based Compensation,” compensation cost is measured at the grant date based on the estimated value of the award and is recognized over the service (or vesting) period.

F-10

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure.” SFAS No. 148 amends SFAS No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for an entity that voluntarily changes to the fair-value-based method of accounting for stock-based employee compensation. It also amends the disclosure provisions of SFAS No. 123 to require prominent disclosure about the effects on reported net income and earnings per share and the entity’s accounting policy decisions with respect to stock-based employee compensation. The Company continues to account for stock issued to employees, using the intrinsic value method in accordance with the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees.” The disclosures required by SFAS No. 148 are reflected in Note 2.

Revenue Recognition

Revenues are recognized when the services are rendered. Revenues are comprised of room, food and beverage and other revenues. Room revenues are derived from guest room rentals, whereas food and beverage revenues primarily include sales from hotel restaurants, room service and hotel catering and meeting rentals. Other revenues include charges for guests’ long-distance telephone service, laundry service and parking services, in-room movie services, vending machine commissions, leasing of hotel space and other miscellaneous revenues.

     Advertising Expense

The cost of advertising is expensed as incurred. Advertising costs incurred, for the periods listed below, were as follows:

	Continuing		Discontinued		Total
	operations		operations		operations
	(In thousands)
Predecessor year ended December 31, 2001	$	1,834	$	850	$	2,684
Predecessor period January 1, 2002 to November 22, 2002		1,641		390		2,031
Successor period November 23, 2002 to December 31, 2002		170		50		220
Successor year ended December 31, 2003		1,906		416		2,322

     Foreign Currency Translation

The financial statements of foreign subsidiaries have been translated into U.S. dollars in accordance with SFAS No. 52, “Foreign Currency Translation.” All balance sheet accounts have been translated using the exchange rates in effect at the balance sheet dates. Income statement amounts have been translated using the average rate for the year. The gains and losses resulting from the changes in exchange rates from year to year are reported in other comprehensive income. The effects on the statements of operations of transaction gains and losses are insignificant for all years presented.

     Operating Segments

The Company’s only operating segment is the ownership and management of hotels.

     Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and

F-11

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

     Self-insurance

The Company is self-insured up to certain limits with respect to employee medical, employee dental, property insurance, general liability insurance, personal injury claims, workers’ compensation and auto liability. Liabilities for these self-insured obligations are established annually, based on actuarial valuations and the Company’s history of claims. As of December 31, 2003 and December 31, 2002, the Company had approximately $10.0 million and $9.1 million, respectively, accrued for such liabilities.

     New Accounting Pronouncements

In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities (“FIN 46”), to address perceived weaknesses in accounting for entities commonly known as special-purpose or off-balance-sheet. In addition to numerous FASB Staff Positions written to clarify and improve the application of FIN 46, the FASB recently announced a deferral for certain entities, and an amendment to FIN 46 entitled FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities (“FIN 46R”). FIN 46 establishes consolidation criteria for entities for which “control” is not easily discernible under Accounting Research Bulletin 51, Consolidated Financial Statements, which is based on the premise that holders of the equity of an entity, control the entity by virtue of voting rights. FIN 46 provides guidance for identifying the party with a controlling financial interest resulting from arrangements or financial interests rather than from voting interests. FIN 46 defines the term “variable interest entity” (“VIE”) and is based on the premise that if a business enterprise absorbs a majority of the VIE’s expected losses and/or receives a majority of its expected residual returns (measure of risk and reward), that enterprise (the primary beneficiary) has a controlling financial interest in the VIE. The assets, liabilities, and results of the activities of the VIE should be included in the consolidated financial statements of the primary beneficiary. The Company was required to adopt the provisions of FIN 46R relating to any interests in special-purpose entities (SPEs) as of December 31, 2003. In addition, during the first quarter of 2004, the Company is required to apply the provisions of FIN 46R to any other entities falling within its scope. Adoption of FIN 46 and the counterpart revision (FIN 46R) has not had and is not expected to have a material impact on the Company’s financial position and results of operations.

On April 30, 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” which amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts and hedging activities under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” SFAS No. 149 requires that contracts with comparable characteristics be accounted for similarly. In particular, SFAS No. 149 clarifies the circumstances under which a contract with an initial net investment meets the characteristics of a derivative as discussed in SFAS No. 133. In addition, SFAS No. 149 clarifies when a derivative contains a financing component that warrants special reporting in the statement of cash flows. SFAS No. 149 amends certain other existing pronouncements, resulting in more consistent reporting of contracts that are derivatives in their entirety or that contain embedded derivatives that warrant separate accounting. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The Company adopted SFAS No. 149 on July 1, 2003. The adoption did not have a material impact on its financial position and results of operations.

On May 15, 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” which aims to eliminate diversity in practice by requiring

F-12

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

that certain types of freestanding instruments be reported as liabilities by their issuers including mandatorily redeemable instruments issued in the form of shares which unconditionally obligate the issuer to redeem the shares for cash or by transferring other assets. These instruments were previously presented in various ways, as part of liabilities, as part of equity, or between the liabilities and equity sections (sometimes referred to as “mezzanine” reporting). The provisions of SFAS No. 150, which also include a number of new disclosure requirements, were effective for instruments entered into or modified after May 31, 2003. For pre-existing instruments, SFAS No. 150 was effective as of the beginning of the first interim period which commenced after June 15, 2003 (July 1, 2003 for the Company). The Company adopted SFAS No. 150 on July 1, 2003. The adoption impacted the treatment of its Mandatorily Redeemable 12.25% Cumulative Preferred Stock (“Preferred Stock”), previously presented between total liabilities and stockholders’ equity. As a result of the adoption of SFAS No. 150, the Preferred Stock has been included as part of long-term debt in the accompanying Consolidated Financial Statements and the Preferred Stock dividends for the period July 1, 2003 to December 31, 2003 has been included in interest expense. The preferred stock dividends for the period January 1, 2003 to June 30, 2003 ($7.6 million) continues to be shown as a deduction from retained earnings. On October 29, 2003, the FASB decided to defer the effective date of SFAS No. 150 related to non-controlling interests. As a result, until the FASB establishes further guidance, the Company will not have to measure the mandatorily redeemable minority interests at fair value.

If the Company were to be required to comply with the provisions of paragraphs 9 and 10 of SFAS No. 150 as currently drafted, the Company would be required to reclassify certain amounts currently included in minority interest to the liability section of the accompanying consolidated balance sheet. In addition, the minority partners’ interests would be recorded at the estimated current liquidation amounts. If this treatment of the minority interests was effected in the current fiscal period, the Company’s earnings would have been impacted. Under the proposed standard, the liability would require quarterly review and changes to the current liquidation amounts would be recorded as interest expense.

In November 2002, the FASB issued Interpretation No. 45 “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”). FIN 45 requires that a liability be recognized at fair value at the inception of certain guarantees for the obligations undertaken by the guarantor. FIN 45 also requires additional disclosures for certain guarantee contracts. The disclosure provisions of FIN 45 were effective for financial statements ending after December 15, 2002, while the recognition and initial measurement provisions were applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The adoption of FIN 45 was not material to our financial position and results of operations.

On December 23, 2003, the FASB issued SFAS No. 132 (Revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement Benefits.” This revised standard increases existing disclosures by requiring more details about plan assets, benefit obligations, cash flows, benefit costs and related information. The revised standard also requires companies to disclose various elements of pension and postretirement benefit costs in interim period financial statements for the quarters beginning after December 15, 2003. The adoption of this revised statement is not expected to materially impact the Company’s current disclosures.

2. Stock-Based Compensation

Prior to the Company’s Chapter 11 filing, the Company had adopted the Lodgian, Inc. Stock Option Plan, as amended, (the “Option Plan”) whereby, options to acquire up to 1,083,333 shares of common stock were granted to employees, directors, independent contractors and agents as determined by a committee appointed by the Board of Directors. Options could not be granted at an exercise price which was less than the fair market value on the date of grant. These options vested over five years. In addition, in June 2001

F-13

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

and October 2000, each non-employee director was awarded an option to acquire 5,000 shares of common stock at an exercise price equal to the fair market price on the date of grant. Such options became exercisable upon the date of grant and were granted under the Company’s Non-Employee Directors’ Stock Plan. However, in connection with the Company’s emergence from Chapter 11, the previous common shares were cancelled along with the options to acquire these shares.

On November 25, 2002, the Company adopted a new Stock Incentive Plan (the “Stock Incentive Plan”) which replaced the Option Plan previously in place. In accordance with the Stock Incentive Plan, awards to acquire up to 353,333 shares of common stock could be granted to officers or other key employees or consultants of the Company as determined by a committee appointed by the Board of Directors. Awards may consist of stock options, stock appreciation rights, stock awards, performance share awards, section 162(m) awards or other awards determined by the committee. Stock options granted pursuant to the Stock Incentive Plan cannot be granted at an exercise price which is less than 100% of the fair market value per share on the date of the grant. Vesting, exercisability, payment and other restrictions pertaining to any awards made pursuant to the Stock Incentive Plan are determined by the committee. The income tax benefit, if any, associated with the exercise of stock options is credited to additional paid-in capital.

Pursuant to the Stock Incentive Plan, the committee made the following awards during the year ended December 31, 2003:

	Issued under				Available for issuance
	the Stock				under the Stock
	Incentive Plan			Type	Incentive Plan
Total, December 31, 2002		—				353,333
Issued — July 15, 2003		33,333	(1)	stock option		320,000
Issued — July 15, 2003		66,666	(1)	restricted stock		253,334
Issued — September 5, 2003		117,333	(2)	stock option		136,001
Issued — October 13, 2003		7,166	(3)	stock option		128,835
Total, December 31, 2003		224,498

(1)	July 15, 2003 — W. Thomas Parrington, the Company’s Chief Executive Officer, was awarded 66,666 shares of restricted stock. These vest equally over three years commencing on July 15, 2004. Mr. Parrington was also granted incentive stock options to acquire 33,333 shares of the Company’s common stock at an exercise price of $9.00 per share. The options also vest equally over three years commencing on July 15, 2004. In addition, pursuant to our employment agreement with Mr. Parrington, our chief executive officer, we have committed to grant him options to purchase 50,000 additional shares of common stock. After taking into account the outstanding options and shares of restricted stock granted under the Stock Incentive Plan, as well as our contractual commitment to Mr. Parrington, we have 78,833 shares of common stock available for grant under the Stock Incentive Plan.
(2)	September 5, 2003 — Other awards were made to certain of the Company’s employees and to members of the Audit Committee of the Board of Directors. The employees received incentive stock options to acquire 112,333 shares of the Company’s common stock while each of the three members of the Audit Committee received non-qualified options to acquire 1,666 shares of the Company’s common stock. The exercise price of the awards granted on September 5, 2003 was $15.21. One-third of the options granted on September 5, 2003 vested at the date of grant, one-third will vest on September 5, 2004 and the remaining one-third will vest on September 5, 2005.
(3)	October 13, 2003 — Manuel Artime, the Company’s Chief Financial Officer, was granted incentive stock options to acquire 7,166 shares of the Company’s common stock at an exercise price of $15.66.

F-14

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

One-third of the options granted on October 13, 2003 vested at the date of grant, one-third will vest on October 13, 2004 and the remaining one-third will vest on October 13, 2005.

All options expire ten years from the date of grant.

Presented below is a summary of the stock option plan and restricted stock activity for the years shown:

					Weighted Average
		Options			Exercise Price
Balance, December 31, 2001			1,504,600	(1)	$	5.44
	Cancelled		(1,504,600	)
Balance, November 22, 2002			—			—
	Granted		—			—
Balance, December 31, 2002			—
	Granted		157,785			13.92
	Exercised		(256	)		15.21
	Forfeited		—			—
Balance, December 31, 2003			157,529		$	13.92

		Restricted
		stock
Balance, December 31, 2002			—
	Granted		66,666
	Exercised		—
	Forfeited		—
Balance, December 31, 2003			66,666	(2)

(1)	At December 31, 2001, there were also 112,500 Stock Appreciation Rights exercisable at $6.13 per right.
(2)	At December 31, 2003, none of the restricted stock had vested.

The following table summarizes information for options outstanding and exercisable at December 31, 2003:

		Options outstanding						Options exercisable
				Weighted average		Weighted average				Weighted average
Range of prices		Number		remaining life (in years)		exercise prices		Number		exercise prices
	$9.00 to $10.50		33,333		9.5	$	9.00		—	$	9.00
	$10.53 to $15.21		117,030		9.7	$	15.21		39,999	$	15.21
	$15.24 to $15.66		7,166		9.8	$	15.66		2,389	$	15.66
			157,529		9.7	$	13.92		42,388	$	15.24

Options exercisable and the weighted average exercise price of the options at December 31, 2001 were 1,341,200 and $5.21, respectively.

Had the compensation cost of the Stock Option Plan been recognized under SFAS No. 123, based on the fair market value at the grant dates, the compensation cost recognized would have been $0.6 million for the year ended December 31, 2003 and nil for the periods November 22, 2002 to December 31, 2002, January 1, 2002 to November 22, 2002 and the year ended December 31, 2001.

F-15

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Also, had the compensation cost of the Stock Option Plan been recognized under SFAS No. 123, based on the fair market value at the grant dates, the Company’s pro forma net income (loss) and net earnings (loss) per share would have been as follows:

		Successor						Predecessor
		Year ended			November 23, 2002 to			January 1 to			Year ended
		December 31, 2003			December 31, 2002			November 22, 2002			December 31, 2001
Loss — continuing operations:
	As reported	$	(27,074	)	$	(6,745	)	$	16,999		$	(87,537	)
	Pro forma		(27,687	)		(6,745	)		16,999			(87,537	)
Loss from discontinued operations, net of taxes:
	As reported		(4,603	)		(2,581	)		(4,633	)		(55,227	)
	Pro forma		(4,603	)		(2,581	)		(4,633	)		(55,227	)
Net loss:
	As reported		(31,677	)		(9,326	)		12,366			(142,764	)
	Pro forma		(32,290	)		(9,326	)		12,366			(142,764	)
Net loss attributable to common stock:
	As reported		(39,271	)		(10,836	)		12,366			(142,764	)
	Pro forma		(39,884	)		(10,836	)		12,366			(142,764	)
(Loss) income from continuing operations attributable to common stock before discontinued operations:
	As reported		(34,668	)		(8,255	)		16,999			(87,537	)
	Pro forma		(35,281	)		(8,255	)		16,999			(87,537	)
Basic and diluted earnings (loss) per common share:
(Loss) income continuing operations:
	As reported	$	(11.60	)	$	(2.89	)	$	0.60		$	(3.09	)
	Pro forma		(11.88	)		(2.89	)		0.60			(3.09	)
Loss from discontinued operations, net of taxes:
	As reported		(1.98	)		(1.11	)		(0.17	)		(1.95	)
	Pro forma		(1.98	)		(1.11	)		(0.17	)		(1.95	)
Net (loss) income:
	As reported		(13.58	)		(4.00	)		0.43			(5.04	)
	Pro forma		(13.86	)		(4.00	)		0.43			(5.04	)
Net (loss) income attributable to common stock:
	As reported		(16.83	)		(4.64	)		0.43			(5.04	)
	Pro forma		(17.10	)		(4.64	)		0.43			(5.04	)

F-16

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

		Successor						Predecessor
		Year ended			November 23, 2002 to			January 1 to		Year ended
		December 31, 2003			December 31, 2002			November 22, 2002		December 31, 2001
(Loss) income from continuing operations attributable to common stock before discontinued operations:
	As reported		(14.86	)		(3.54	)		0.60		(3.09	)
	Pro forma		(15.12	)		(3.54	)		0.60		(3.09	)

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

	Successor				Predecessor
	Year Ended		November 23, 2002 to		January 1 to		Year ended
	December 31, 2003		December 31, 2002		November 22, 2002		December 31, 2001
			(1)		(1)
Expected life of option		10 years		—		—		5 years
Risk free interest rate		4.09%		—		—		4.56%
Expected volatility		55.75%		—		—		81.60%
Expected dividend yield		—		—		—		—

(1)  The Company filed for Chapter 11 on December 20, 2001. The fair value of the options was estimated to be nil while the Company was in Chapter 11. On its emergence from Chapter 11 on November 25, 2002 (November 22, 2002 for accounting) all stock options were cancelled. No options were granted between January 1, 2002 and December 31, 2002.

The fair values of options granted (net of forfeitures) were as follows:

	Successor				Predecessor
	Year Ended		November 23, 2002		January 1 to		Year Ended
	December 31,		to December 31,		November 22,		December 31,
	2003		2002		2002		2001
Weighted average fair value of options granted	$	9.66		—		—	$	0.50
Total number of options granted		157,833		—		—		55,000
Total fair value of all options granted	$	1,524,367		—		—	$	27,500

3. Discontinued Operations

Pursuant to the terms of the plan of reorganization approved by the Bankruptcy Court, the Company conveyed eight wholly-owned hotels to the lender in January 2003 in satisfaction of outstanding debt obligations and one wholly-owned hotel was returned to the lessor of a capital lease. The results of operations of these nine hotels are reported in Discontinued Operations in the Consolidated Statement of Operations. Due primarily to the application of fresh start reporting in November 2002, in which these and other assets were adjusted to their respective fair values, there was no gain or loss on these transactions.

F-17

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following combined condensed table summarizes the assets and liabilities of the nine hotels as of December 31, 2002:

				December 31, 2002
				($ in thousands)
ASSETS
Current assets:
	Cash and cash equivalents			$	177
	Accounts receivable, net				517
	Inventories				570
	Prepaid expenses and other current assets				432
			Total current assets		1,696
Property and equipment, net					15,649
Deposits for capital expenditures					904
Other assets					20
				$	18,269
LIABILITIES
Liabilities not subject to compromise
	Current liabilities:
		Accounts payable		$	330
		Other accrued liabilities			1,267
		Advance deposits			60
			Total current liabilities		1,657
Long-term debt subject to compromise					15,922
			Total liabilities	$	17,579

There were no material changes to the Combined Balance sheet of the nine hotels between December 31, 2002 and the date they were conveyed to the lender, in the case of the eight hotels, and the lessor, in the case of the leased property.

The Company’s strategy is to own and operate a portfolio of profitable, well-maintained and appealing hotels at superior locations in strong markets. In 2003, the Company developed a portfolio improvement strategy to accomplish this by:

•  renovating and repositioning certain of its existing hotels to improve performance;

•  divesting hotels that do not fit this strategy or that are unlikely to do so without significant effort or expense; and

•  acquiring selected hotels that better fit this strategy.

In accordance with this strategy and the Company’s efforts to reduce debt and interest costs, in 2003 the Company identified 19 hotels, the Company’s only office building property and three land parcels for sale.

At December 31, 2003, 18 hotels and three land parcels were held for sale. One hotel and an office building were sold during 2003 while four hotels were sold between January 1, 2004 and March 1, 2004. The net proceeds of sale of the hotel and office building sold in 2003 was approximately $12.3 million. In accordance with SFAS No. 144, all assets sold during 2003 and held for sale at December 31, 2003

F-18

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(including any related impairment charges) are included in Discontinued Operations in the Consolidated Statement of Operations. The assets held for sale at December 31, 2003 and the liabilities related to these assets are separately disclosed in the Consolidated Balance Sheet. In connection with this strategy, where the carrying values of the assets exceeded the estimated fair values, net of selling costs, the carrying values were reduced and impairment charges were recorded. Fair value is determined using quoted market prices, when available, or other accepted valuation techniques. The impairment charges recorded on assets held for sale, during the year ended December 31, 2003 were $5.4 million. Where the estimated selling prices, net of selling costs, exceeded the carrying values, no adjustments were recorded. In addition to the other criteria specified by SFAS No. 144, management classifies an asset as held for sale if it expects to dispose of it within one year. In accordance with SFAS No. 144, the results of operations of all assets identified as held for sale (including the related impairment charges) are reported in Discontinued Operations. The assets held for sale and the liabilities related to these assets are separately disclosed on the face of the Consolidated Balance Sheet as of December 31, 2003. See Note 20.

The following combined condensed table summarizes the assets and liabilities relating to the properties identified as held for sale as of December 31, 2003:

		December 31, 2003
		(In thousands)
ASSETS
Accounts receivable, net		$	1,252
Inventories			1,377
Prepaid expenses and other current assets			1,039
Property and equipment, net			61,624
Other assets			3,275
		$	68,567
LIABILITIES
Accounts payable		$	1,234
Other accrued liabilities			3,120
Advance deposits			390
Current portion of long-term debt			771
Long-term debt			52,433
	Total liabilities	$	57,948

The condensed combined results of operations included in Discontinued Operations for the Successor year ended December 31, 2003, the Successor period November 23, 2002 to December 31, 2002, the

F-19

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Predecessor period January 1, 2002 to November 22, 2002 and the Predecessor year ended December 31, 2001 were as follows:

			Successor						Predecessor
						November 23, 2002 to			January 1, 2002 to
			2003			December 31, 2002			November 22, 2002			2001
			(In thousands)
Revenues:
	Rooms		$	46,451		$	4,311		$	59,549		$	71,752
	Food and beverage			11,264			1,596			15,113			19,020
	Other			3,422			534			4,095			5,712
				61,137			6,441			78,757			96,484
Operating expenses:
	Direct:
		Rooms		14,439			1,822			18,960			22,158
		Food and beverage		8,905			1,409			12,107			15,206
		Other		2,483			280			2,795			3,662
				25,827			3,511			33,862			41,026
				35,310			2,930			44,895			55,458
General, administrative and other				29,643			4,471			36,007			40,515
Depreciation and amortization				3,367			857			12,701			16,480
Impairment of long-lived assets				5,387			—			—			46,837
	Other operating expenses			38,397			5,328			48,708			103,832
				(3,087	)		(2,398	)		(3,813	)		(48,374	)
Interest expense				(3,953	)		(183	)		(3,672	)		(3,509	)
Gain on asset dispositions				3,085			—			—			—
Loss before income taxes and reorganization items				(3,955	)		(2,581	)		(7,485	)		(51,883	)
Reorganization items				(648	)		—			1,652			(3,344	)
Loss before income taxes				(4,603	)		(2,581	)		(5,833	)		(55,227	)
Benefit for income taxes				—			—			1,200			—
Net loss			$	(4,603	)	$	(2,581	)	$	(4,633	)	$	(55,227	)

4. Bankruptcy Proceedings and Fresh Start Reporting

On December 20, 2001, the Company and substantially all of its subsidiaries which owned hotel properties filed for voluntary reorganization under Chapter 11 of the Bankruptcy Code in the Southern District of New York.

At a Confirmation Hearing held on November 5, 2002, the Bankruptcy Court confirmed the Company’s First Amended Joint Plan of Reorganization (the “Joint Plan of Reorganization”) and, on November 25, 2002, the Company and entities owning 78 hotels officially emerged from Chapter 11. Pursuant to the terms of the Joint Plan of Reorganization, eight other wholly-owned hotels were conveyed to a lender in

F-20

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

January 2003 in satisfaction of outstanding debt obligations and one hotel was returned to the lessor of a capital lease.

Of the Company’s 97 hotel portfolio, 18 hotels, previously owned by two subsidiaries (Impac Hotels II, L.L.C. and Impac Hotels III, L.L.C.), were not part of the Joint Plan of Reorganization. On April 24, 2003, the Bankruptcy Court confirmed the plan of reorganization relating to these eighteen hotels (the “Impac Plan of Reorganization”). These eighteen hotels remained in Chapter 11 until May 22, 2003, the date on which the Company, through eighteen newly-formed subsidiaries (one for each hotel), finalized an $80.0 million financing with Lehman Brothers Holdings, Inc. (the “Lehman Financing”). The Lehman Financing was primarily used to settle the remaining amount due to the secured lender of these hotels (See Note 11 of the accompanying financial statements). The Impac Plan of Reorganization also provided for a pool of funds of approximately $0.3 million to be paid to the general unsecured creditors of the eighteen hotels.

Pursuant to the Joint Plan of Reorganization, the following significant events took effect in November 2002:

•  5,000,000 shares of Preferred Stock, par value $0.01, initial liquidation value $25 per share, were issued or reserved for issuance in satisfaction of outstanding debt and other obligations;

•  2,333,333 shares of common stock, par value $0.01 per share, were issued or reserved for issuance in satisfaction of outstanding debt and other obligations;

•  Class A warrants to purchase an aggregate of 503,546 shares of common stock at $54.87 per share were made available for issuance in satisfaction of outstanding debt and other obligations;

•  Class B warrants to purchase an aggregate of 343,122 shares of common stock at $76.32 per share were made available for issuance in satisfaction of outstanding debt and other obligations;

•  Previous equity, consisting of an aggregate of 28,479,837 shares, was cancelled, and in exchange the stockholders received their pro rata share of 69,300 shares of common stock, plus class A warrants to purchase an aggregate of 83,941 shares of common stock and class B warrants to purchase an aggregate of 259,434 shares of common stock;

•  The CRESTS were cancelled and the holders received their pro rata share of 289,333 shares of the common stock, plus class A warrants to purchase 419,605 shares of common stock and class B warrants to purchase 83,687 shares of common stock;

•  The 12.25% Senior Subordinated Notes were cancelled and the holders of the notes received their pro rata share of 4,690,600 shares of Preferred Stock and 1,852,503 shares of common stock;

•  The holders of allowed general unsecured claims became entitled to 309,400 shares of Preferred Stock and 122,196 shares of common stock, referred to as the “disputed claims reserve.” Until distributed, these shares form part of the disputed claims reserve for the pre-bankruptcy petition general unsecured creditors. These shares are periodically distributed as the disputed claims are resolved;

•  The Company closed on $302.7 million of exit financing arrangements with Merrill Lynch Mortgage Lending, Inc. (“Merrill Lynch Mortgage”) which was used to repay previous debt obligations, fund payments of certain allowed claims and fund portions of certain required cash escrows. This financing was secured by 56 of its hotels;

•  The Company closed on a $6.3 million exit financing arrangement with Computershare Trust Company of Canada, secured by one of its hotels;

F-21

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

•  Loans from lenders approximating $86.0 million, secured by 21 of our hotels, were reinstated on their previous terms, except for the extension of certain maturities; and in the case of certain loans, a new interest rate; and

In accordance with AICPA, Statement of Position (“SOP”) 90-7, “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code,” the Company implemented fresh start reporting effective November 22, 2002 (the date on which the exit financing agreement was signed). As a result, assets and liabilities were recorded based on fair values. The Consolidated Financial Statements subsequent to the Company’s emergence from Chapter 11 are those of a new reporting entity (the “Successor”) and are not comparable with the financial statements of the Company prior to the effective date of the Joint Plan of Reorganization (the “Predecessor”).

As discussed above, in November 2002, the general unsecured creditors became entitled to receive 309,400 shares of Preferred Stock and 122,196 shares of common stock. These shares are being distributed as claims are resolved.

The status of the distribution to these creditors as of December 31, 2003 was as follows:

	Common
	Stock			Preferred Stock
Entitlement on emergence from Chapter 11		122,196			309,400
First distribution — March 20, 2003		(16,418	)		(41,560	)
Second distribution — September 30, 2003		(47,241	)		(119,503	)
Other distributions, net of shares surrendered from the first two distributions		(2,206	)		(5,586	)
Undistributed as of December 31, 2003		56,331			142,751

The entire entitlement of shares is considered issued and outstanding for accounting purposes. As claims of creditors are resolved, the Company will continue to make periodic distributions of Preferred Stock and common stock to these creditors.

The effects of the reorganization plan were recorded in accordance with the American Institute of Certified Public Accountant’s Statement of Position (“SOP”) 90-7, “Financial Reporting by Entities in Reorganization under the Bankruptcy Code.” Fresh start reporting was applicable because the previous stockholders received less than 50% of the new voting shares and the reorganization value of the Predecessor Company was less than the sum of the pre-petition liabilities allowed and post-petition liabilities.

Fresh start reporting principles require that the reorganization value be allocated to the entity’s assets and that liabilities be stated at the fair value of amounts to be paid.

The reorganization value in respect of the entities included in the Joint Plan of Reorganization was determined by the Company, the Official Committee of Unsecured Creditors and their respective financial advisers. The reorganization value reflects the midpoint of a range of values arrived at by applying various valuation techniques including, among others:

      a) A comparable company analysis, involving the analysis of enterprise values of public companies deemed generally comparable to the operating business of the Company and applying the earnings before interest, taxes, depreciation and amortization (“EBITDA”) provided by this analysis to the applicable Lodgian entities;

      b) A discounted cash flow analysis utilizing a weighted average cost of capital to compute the present value of free cash flows and terminal value of the applicable Lodgian entities; and

F-22

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      c) A comparable transaction analysis involving the analysis of the financial terms of certain acquisitions of companies and sales of assets which were deemed to be comparable to the operating businesses of the Company and then applying these EBITDA multiples to the applicable Lodgian entities.

The projections utilized in the determination of reorganization value were based on a variety of estimates and assumptions. These estimates and assumptions are subject to uncertainties and contingencies and may not be realized. The projections should, therefore, not be seen as guarantees of actual results.

In accordance with SOP 90-7, the effects or adjustments on reported amounts of individual assets and liabilities resulting from the adoption of fresh start reporting and the effects of the forgiveness of debt are reflected in the Predecessor’s Statement of Operations. All fresh start reporting adjustments are included in reorganization items.

The application of fresh start reporting on the Predecessor’s balance sheet is as follows (amounts in thousands):

															Successor
				Predecessor
												Fresh Start &			Reorganized
				Before Fresh Start		Extinguishment			Exchange of			Exit			Balance Sheet
				November 22, 2002		of Debt			Stock			Financing			November 22, 2002
Current assets:
	Cash and cash equivalents			$	26,211	$	(541	)(a)	$	—		$	—		$	25,670
	Cash, restricted				8,399		—			—			99			8,498
	Accounts receivable, net of allowances				14,392		—			—			110			14,502
	Inventories				7,323		—			—			—			7,323
	Prepaid expenses and other current assets				8,540		—			—			32,259			40,799
		Total current assets			64,865		(541	)		—			32,468	(d)		96,792
Property and equipment, net					884,278		—			—			(222,071	)(d)		662,207
Deposits for capital expenditures					14,665		—			—			(1,012	)(d)		13,653
Other assets					3,323		—			—			9,051	(d)		12,374
				$	967,131	$	(541	)	$	—		$	(181,564	)	$	785,026
Liabilities Not Subject to Compromise
	Current liabilities:
		Accounts payable		$	12,736	$	—		$	—		$	—		$	12,736
		Other accrued liabilities			41,989		12,466	(a)		—			695	(d)		55,150
		Advance deposits			2,089		—			—			—			2,089
		Current portion of long-term debt			266		—			—			14,284	(d)		14,550
			Total current liabilities		57,080		12,466			—			14,979			84,525
	Long-term debt				7,215		86,038	(a)		—			294,776	(d)		388,029
Deferred income taxes
Liabilities subject to compromise					926,387		(562,276	)(a)		—			(269,695	)(d)		94,416
Minority interests					5,290		—			—			(1,527	)(d)		3,763
Commitments and contingencies
Mandatory redeemable 12.25% cumulative preferred stock										125,000	(e)					125,000

F-23

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

																Successor
				Predecessor
													Fresh Start &			Reorganized
				Before Fresh Start			Extinguishment			Exchange of			Exit			Balance Sheet
				November 22, 2002			of Debt			Stock			Financing			November 22, 2002
Stockholders’ deficit:
	Common stock (new)				—			—			23	(e)		—			23
	Additional paid-in capital (new)				—			206,801	(b)		(119,237	)(e)		1,706			89,270
	Common stock (old)				284			—			(284	)(e)		—			—
	Additional paid-in capital (old)				263,320			—			(263,320	)(e)		—			—
	Accumulated deficit				(290,567	)		256,430	(c)		255,940	(e)		(221,803	)(d)		—
		Accumulated other comprehensive loss			(1,878	)		—			1,878	(e)		—			—
			Total stockholders’ equity (deficit)		(28,841	)		463,231			(125,000	)		(220,097	)		89,293
				$	967,131		$	(541	)	$	—		$	(181,564	)	$	785,026

(a) The reduction of pre-petition liabilities was achieved through:

	(In thousands)
Settlement in shares	$	206,801
Cancellation of debt		256,430
Reinstated debt		86,038
Allowed claims accrued		12,466
Claims paid in cash		541
	$	562,276

(b)	Issuance of new shares to the Senior Subordinated Note Holders, the CREST holders and the general unsecured creditors.
(c)	Gain on cancellation of debt, calculated as follows:

	(In thousands)
Liabilities subject to compromise (pre-emergence)	$	926,987
Liabilities settled and to be settled in cash and shares		(490,103	)
Reinstated debt		(86,038	)
Remaining liabilities subject to compromise (for subsidiaries in Chapter 11 at December 31, 2002)		(94,416	)
	$	256,430

(d)	Represents the recording of the exit financing of $309 million (used to repay previous obligations, fund certain allowed claims and portions of certain required cash escrows) and fair value adjustments (primarily net write-down of fixed assets of $222.1 million).
(e)	Elimination of old equity

F-24

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The approximate allocation of the Company’s reorganization value as of November 22, 2002 is shown below:

	(In thousands)
Long- term debt	$	388,000
Liabilities subject to compromise		94,400
Post-petition liabilities including current portion of long-term debt		84,500
Mandatorily redeemable 12.25% cumulative preferred stock		125,000
New equity including minority interest		93,100
	$	785,000

5. Liabilities Subject to Compromise

Liabilities subject to compromise at December 31, 2002 refer to known liabilities incurred prior to the commencement of the Chapter 11 cases, including those considered by the Bankruptcy Court to be pre-petition claims. These liabilities consisted primarily of amounts outstanding under long-term debt and also included accounts payable, accrued interest, and other accrued expenses.

The principal categories of claims classified as liabilities subject to compromise in the Chapter 11 Cases as of December 31, 2002 are identified below:

	(In thousands)
Long-term debt and capital lease obligations	$	91,422
Accounts Payable		2,394
	$	93,816

The Company recorded all transactions incurred as a result of the Chapter 11 filing and the implementation of fresh start reporting as reorganization items and classified these separately in its Statement of Operations. Though the Company continues to incur expenses related to its reorganization proceedings only those incurred while the entities were in reorganization are classified as reorganization items. Reorganization items relating to the period subsequent to Chapter 11 are included in general, administrative and other expenses.

F-25

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Reorganization items were as follows:

		($ in thousands)
		Successor					Predecessor
		Year ended			November 23 to		January 1 to			Year ended
		December 31,			November 22,		November 22,			December 31,
		2003			2002		2002			2001
		(1)			(1)
Net write-down of fixed assets (fresh start write-down)			—		$	—	$	(222,071	)	$	—
Gain on cancellation of debt			—			—		256,430			—
Fresh start adjustments — other			—			—		3,938			—
Write-off of deferred financing costs			—			—		—			(21,517	)
Other reorganization items:
	Legal and professional fees		(455	)		—		(22,315	)		(3,179	)
	Loan extension fees		(1,500	)		—		—			—
	Other		(90	)		—		(3,292	)		(320	)
		$	(2,045	)	$	—	$	12,690		$	(25,016	)
Continuing operations(2)		$	(1,397	)	$	—	$	11,038		$	(21,672	)
Discontinued operations(2)			(648	)		—		1,652			(3,344	)
		$	(2,045	)	$	—	$	12,690		$	(25,016	)

(1)	Reorganization expenses, shown in the table above, represent only those expenses relating to the Chapter 11 proceedings while the related hotels were in Chapter 11.
(2)	Reorganization expenses were allocated between Continuing Operations and Discontinued Operations, based on the values assigned to the respective entities subsequent to the consummation of the plans of reorganization.

6. Accounts Receivable

Accounts receivable, net of allowances are comprised of:

	December 31, 2003			December 31, 2002
	($ in thousands)
Trade accounts receivable	$	8,287		$	11,684
Allowance for doubtful accounts		(689	)		(1,594	)
Other receivables		571			591
	$	8,169		$	10,681

F-26

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Allowances for doubtful accounts:

		Balance at								Balance at
		Beginning of			Charged to			Write-offs and		End of
Description		Period			Expenses			Recoveries		Period
		($ in thousands)
Provision for uncollectible accounts
Year ended December 31,
	2003	$	(1,594	)	$	377		$	528	$	(689	)
	2002		(1,237	)		(1,467	)		1,110		(1,594	)
	2001		(1,400	)		(204	)		367		(1,237	)

Of the $1,467 charged to expense during 2002, $1,195 related to the Predecessor period (January 1, 2002 to November 22, 2002) and $272 related to the Successor period (November 23, 2002 to December 31, 2002).

7. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets are comprised of:

	December 31, 2003		December 31, 2002
	($ in thousands)
Deposit for property taxes	$	4,862	$	9,100
Prepaid insurance		5,718		3,107
Lender-required insurance deposits		2,774		1,184
Deposits and other prepaid expenses		3,714		1,727
	$	17,068	$	15,118

8. Property and Equipment

At December 31, 2003 and 2002, property and equipment consisted of the following:

	Useful
	Lives		December 31,			December 31,
	(Years)		2003			2002
			($ in thousands)
Land		—	$	76,624		$	100,033
Buildings and improvements		10-40		437,418			485,400
Furnishings and equipment		3-10		58,817			69,763
				572,859			655,196
Less accumulated depreciation				(31,860	)		(3,891	)
Construction in progress				22,819			13,260
			$	563,818		$	664,565

As discussed in Note 3, the Company conveyed eight wholly-owned hotels to the lender in January 2003 in satisfaction of outstanding debt obligations and one wholly-owned hotel was returned to the lessor of a capital lease. In addition, at December 31, 2003, 18 hotels and three land parcels were held for sale. One hotel and an office building were sold during 2003 while four hotels were sold between January 1, 2004 and March 1, 2004, as noted in Note 3 and Note 20 of the accompanying consolidated financial statements. During 2003, impairment charges of $5.4 million were recorded on assets held for sale while

F-27

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

$12.7 million of impairment charges were recorded on assets held for use. No depreciation is computed on assets held for sale.

In connection with the Company’s emergence from Chapter 11 on November 25, 2002, the Company implemented fresh start reporting effective November 22, 2002. As a result, the Company’s assets and liabilities were based on their respective fair values. In this regard, the Company recorded a net write-down of its fixed assets of $222.1 million at November 22, 2002. This net write-down is reflected in reorganization items.

In addition, the Company had evaluated the recoverability of its long-lived assets in accordance with SFAS No. 121 as of December 31, 2001 and had recorded impairment losses for assets held for use, where the estimated future undiscounted cash flows were insufficient to recover the carrying value of those assets.

Impairment of long-lived assets was $67.3 million in 2001 ($20.5 million relating to Continuing Operations and $46.8 million relating to Discontinued Operations). The charge for the 2001 period was comprised of $6.6 million related to revised estimates of fair value for properties held for sale, $4.0 million related to one property which was identified as held for sale and also sold in 2001 and $69.0 million relating to a charge to reduce the carrying value of certain of the Company’s hotels held for future use, offset by a recapture of $12.3 million of impairment charges related to six hotels that were previously considered held for sale that were no longer being actively marketed for sale. Of the impairment charges in the 2001 period, $69.0 million of the impairment charges and the recapture of $8.5 million of previously recognized impairment reserves were recorded in the fourth quarter of 2001. In connection with its bankruptcy petition on December 20, 2001, the Company determined that 29 of its hotels were significantly overleveraged. Therefore, with the approval of the Bankruptcy Court, the Company ceased paying interest to the secured lenders of these properties from the date of the bankruptcy petition. The Company also concluded that it no longer had the ability to hold these hotels for a period sufficient for their estimated future undiscounted cash flows to cover their carrying values. Therefore in accordance with the provisions of SFAS No. 121, the Company determined that an impairment charge of $69.0 million was necessary to reduce the carrying value of these assets. In connection with the bankruptcy petition, the Company also ceased marketing for sale, four operating properties that were previously classified as held for sale. Since these assets were not considered impaired as the estimated future cash flows from the use of these properties exceeded their carrying values, the Company recaptured $8.5 million of impairment reserves previously recorded in 1999, 2000 and 2001.

9. Other Assets

	December 31, 2003		December 31, 2002
	($ in thousands)
Deferred financing costs	$	9,207	$	7,433
Deferred franchise fees		2,358		4,281
Utility and other deposits		615		281
	$	12,180	$	11,995

F-28

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

10. Other Accrued Liabilities

At December 31, 2003 and 2002, other accrued liabilities consisted of the following:

	December 31, 2003		December 31, 2002
	($ in thousands)
Salaries and related costs	$	16,211	$	17,293
Property and sales taxes		9,427		14,606
Professional fees		570		807
Provision for state income taxes		2,361		2,219
Franchise fee accrual		1,115		1,388
Accrued interest		526		1,524
Accrual for allowed claims		186		1,749
Other		1,036		1,711
	$	31,432	$	41,297

F-29

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

11. Long-Term Debt — Other

Set forth below, by debt pool, is a summary of the Company’s long-term debt (including the current portion) along with the applicable interest rates and the related carrying values of the property, plant and equipment which collateralize the long-term debt (amounts in thousands).

				December 31, 2003
	Number			Property, Plant and			Long-Term
	of Hotels			Equipment, Net(1)			Obligations(1)			Interest Rates
				($ in thousands)
Exit Financing
Merrill Lynch Mortgage Lending, Inc. — Senior							$	216,052		LIBOR plus 2.36%
Merrill Lynch Mortgage Lending, Inc. — Mezzanine								83,281		LIBOR plus 8.79%
Merrill Lynch Mortgage Lending, Inc. — Total		56			401,793			299,333
Computershare Trust Company of Canada		1			14,106			7,521		7.88%
Lehman Financing
Lehman Brothers Holdings, Inc.		17			69,539			76,449		Higher of LIBOR plus 5.25% or 7.25%
Other Financings
Column Financial, Inc.		9			61,681			27,300		10.59%
Lehman Brothers Holdings, Inc.		5			38,125			23,409		$16,496 at 9.40%; $6,913 at 8.90%
JP Morgan Chase Bank		2			8,913			10,644		7.25%
DDL Kinser		1			3,188			2,385		8.25%
First Union Bank		1			4,297			3,359		9.38%
Column Financial, Inc.		1			6,491			8,943		9.45%
Column Financial, Inc.		1			6,120			3,206		10.74%
Robb Evans, Trustee		1			6,365			6,982		Prime plus 4.00%
Total — Other Financings		21			135,180			86,228
		95			620,618			469,531		6.33%(2)
Long-term debt — other
Deferred interest — long-term		—			—			4,337
Deferred rent on a long-term ground lease		—			—			2,506
Tax notes issued pursuant to our Joint Plan of Reorganization		—			—			1,957
Other		—			—			551
		—			—			9,351
Property, plant and equipment — other		—			4,824			—
		95			625,442			478,882
Held for sale		(18	)		(61,624	)		(53,204	)
Total December 31, 2003		77		$	563,818		$	425,678

(1)	Long-term obligations and property, plant and equipment of the hotel in which the Company has a non-controlling equity interest and does not consolidate are excluded from the table above.
(2)	Represents the annual weighted average cost at December 31, 2003.

The fair value of the fixed rate mortgage debt (book value $86.8 million) at December 31, 2003 is estimated at $86.7 million.

F-30

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

All of the Company’s property and equipment related to its hotels are pledged as collateral for long-term obligations. Certain of the mortgage notes are subject to a prepayment penalty if repaid prior to their maturity.

The maturities of these debt obligations as of December 31, 2003 are as follows:

	Long-Term			Maturities
	Obligations
	December 31, 2003			2004			2005		2006		2007		2008		After 2008
	($ in thousands)
Exit financing:
Merrill Lynch Mortgage Lending, Inc. — Senior	$	216,052		$	3,338		$	212,714	$	—	$	—	$	—	$	—
Merrill Lynch Mortgage Lending, Inc. — Mezzanine		83,281			1,287			81,994		—		—		—		—
Merrill Lynch Mortgage Lending, Inc. — Total		299,333			4,625			294,708		—		—		—		—
Computershare Trust Company of Canada		7,521			222			240		259		6,800		—		—
Lehman financing:
Lehman Brothers Holdings, Inc.		76,449			1,084			75,365		—		—		—		—
Other financing:
Column Financial, Inc.		27,300			2,242			2,491		2,768		3,076		3,418		13,305
Lehman Brothers Holdings, Inc.		23,409			482			529		580		21,818		—		—
JP Morgan Chase Bank		10,644			530			570		615		665		720		7,544
DDL Kinser		2,385			98			2,287		—		—		—		—
First Union Bank		3,359			56			63		69		3,171
Column Financial, Inc.		8,943			398			437		480		528		580		6,520
Column Financial, Inc.		3,206			137			3,069		—		—		—		—
Robb Evans, Trustee		6,982			6,982			—		—		—		—		—
		86,228			10,925			9,446		4,512		29,258		4,718		27,369
		469,531			16,856			379,759		4,771		36,058		4,718		27,369
Long-term debt — other		9,351			478			4,755		391		397		382		2,948
		478,882			17,334			384,514		5,162		36,455		5,100		30,317
Held for sale		(53,204	)		(771	)
	$	425,678		$	16,563

The Merrill Lynch Mortgage loan initially matures on November 24, 2004 and has three one-year extensions that may be exercised at the Company’s option. The first extension (to November 24, 2005) is available as long as no events of defaults occur in respect of the payment of principal, interest and other required payments. The second and third extension terms are available only if no event of default exists and are subject to a minimum debt service coverage ratio requirement and a minimum debt yield requirement. The Lehman loan initially matures in May 2005, and has a one-year extension that may be exercised at the Company’s option. At maturity, the Company plans to either exercise these extension options or refinance these loans with the existing lenders or with new lenders. The Company also plans to continue to reduce these loans through property sales and normal principal payments.

F-31

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Long-term obligations at December 31, 2003 and 2002 consisted of the following:

		December 31,
		2003			2002
		($ in thousands)
Exit financing:
Merrill Lynch Mortgage Lending, Inc. — Total		$	299,333		$	302,708
Computershare Trust Company of Canada			7,521			6,339
Lehman financing:
Lehman Brothers Holdings, Inc.			76,449			—
Other financing:
Column Financial, Inc.			27,300			29,317
Lehman Brothers Holdings, Inc.			23,409			23,849
JP Morgan Chase Bank			10,644			11,179
DDL Kinser			2,385			2,498
First Union Bank			3,359			3,410
Column Financial, Inc.			8,943			9,305
Column Financial, Inc.			3,206			3,330
Robb Evans, Trustee			6,982			7,447
Total — other financing			86,228			90,335
Liabilities subject to compromise			—			91,421
			469,531			490,803
Long-term debt — other:
	Deferred interest — long-term		4,337			—
	Deferred rent on a long-term ground lease		2,506			2,342
	Tax notes issued pursuant to our Joint Plan of Reorganization		1,957			2,061
	Other		551			518
			9,351			4,921
			478,882			495,724
Long-term debt related to assets held for sale			(53,204	)		—
Total		$	425,678		$	495,724

Exit financing:

On emergence from Chapter 11 on November 25, 2002, the Company received exit financing of $309.0 million comprised of three separate components as follows:

•  Senior debt of $224.0 million from Merrill Lynch Mortgage, accruing interest at the rate of LIBOR plus 2.24%, secured by, among other things, first mortgage liens on the fee simple or leasehold interests in 55 of the Company’s hotels;

•  Mezzanine debt of $78.7 million from Merrill Lynch Mortgage, accruing interest at the rate of LIBOR plus 9.00%, secured by the equity interest in the subsidiaries of 56 hotels (the 55 which secure the senior debt and one additional hotel); and

F-32

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

•  Debt provided through Computershare Trust Company of Canada, a Canadian lender, of $10.0 million Canadian dollars (equated to approximately $6.3 million U.S. dollars at inception) maturing in December 2007, accruing interest at the rate of 7.88% secured by a mortgage on the property located in Windsor, Canada.

In March 2003, as permitted by the terms of the senior and mezzanine debt agreements, Merrill Lynch Mortgage exercised the right to “resize” (as defined) the senior and mezzanine debt amounts, prior to the securitization of the mortgage loan. As a result, the principal amount of the senior debt was decreased from $223.7 million (initially $224.0 less $0.3 million of principal payments) to $218.1 million, and the principal amount of the mezzanine debt was increased from $78.6 (initially $78.7 million less $0.1 million of principal payments) to $84.1 million. Though the blended interest rate on the Merrill Lynch Mortgage debt remained at LIBOR plus 4.00% at the date of the resizing, the interest rate on the senior debt was modified to LIBOR plus 2.36% and the interest rate on the mezzanine debt was modified to LIBOR plus 8.25%. The interest rate on the mezzanine debt increased to 8.79% as of December 1, 2003. Therefore, the new blended rate on the Merrill Lynch Mortgage debt is LIBOR plus 4.15%. Furthermore, as a result of the securitization of the mortgage loan, Merrill Lynch Mortgage no longer has the right to amend or waive provisions thereunder.

The senior and mezzanine debt matures on November 24, 2004. There are, however, three one-year options to renew which could extend the maturity for an additional three years. The first option to extend the maturity date of the senior and mezzanine debt by up to one year (i.e. to November 2005) is available as long as no events of default occur in respect of the payment of principal, interest and other required amounts. Because the Company intends to extend the maturity date and believes it will be eligible for that extension, the Company has reported the senior and mezzanine debt as maturing in 2005. The second and third extension terms are available only if no events of default of any kind exist and are subject to a minimum debt service coverage ratio of 1.20x and a debt yield requirement of 13.25% which the Company did not satisfy as of December 31, 2003. Payments of principal and interest on all three portions of the facility are due monthly. At maturity the Company plans to either exercise the extension options or seek to refinance the loans with a new lender.

The senior and mezzanine debt agreements provide that when either (i) the debt yield for the trailing 12-month period is below 13.25% during the year ending November 2004 (and if the loan is extended, 13.50%, 13.75% and 14.00% during each of the next three years of the loan, respectively) or (ii) the debt service coverage ratio is below 1.20x, excess cash flows of the mortgaged hotels (after payment of operating expenses, management fees, required reserves, service fees, principal and interest) must be deposited in a restricted cash account. These funds can be used for the prepayment of aggregate outstanding borrowings, capital expenditures reasonably approved by the lender, and up to an aggregate of $3.0 million of scheduled principal and interest payments due under these agreements. Funds will no longer be deposited into the restricted cash account when the debt yield and the debt service coverage ratio are sustained above the minimum requirements for three consecutive months. On March 31, 2003, the debt yield, for the hotels securing this debt fell below the then applicable 12.75% minimum threshold and, therefore, the excess cash flow produced by the hotels securing the Merrill Lynch Mortgage debt was retained in the restricted cash account starting on May 1, 2003. The restricted cash balance in this account as of December 31, 2003 was $0.9 million. During 2003, $7.5 million was released from the restricted cash account for capital expenditures and scheduled interest and principal payments. As of March 1, 2004, no cash was being retained in the restricted cash account. At December 31, 2003, the debt yield and debt service coverage ratio remained below the minimum requirements. Further, the mezzanine debt agreement with Merrill Lynch Mortgage requires the Company to maintain a minimum net worth of at least $10.0 million.

F-33

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Lehman Financing

On May 22, 2003, the Company completed an $80.0 million financing underwritten by Lehman Brothers Holdings, Inc. (“Lehman”) which was primarily utilized to settle debts secured by the 18 hotels previously owned by Impac Hotels II, L.L.C. and Impac Hotels III, L.L.C. (both Lodgian subsidiaries). The Lehman Financing, provided to eighteen newly-formed subsidiaries (one for each hotel), is a two-year term loan with an optional one-year extension and bears interest at the higher of 7.25% or LIBOR plus 5.25%. The one-year extension is only available if, at the time of electing to extend and at the initial maturity date, there are no events of default. If the Company opts for the one-year extension, an extension fee of $3.0 million is payable. Pursuant to the terms of the agreement, additional interest of $4.4 million is also payable upon the maturity date (May 22, 2005 or the new maturity date, if the Company opts for the extension). Payments of principal and interest on the Lehman Facility are due monthly. If an event of default occurs, the rate increases by 325 basis points or 3.25% for the period of the default. At maturity, the Company plans to exercise the extension option or seek to refinance the loan with a new lender.

The documents governing the terms of both the Merrill Lynch Mortgage debt and the Lehman Financing contain covenants that place restrictions on the Company and certain of its subsidiaries’ activities, including acquisitions, mergers and consolidations, the sale of assets, and the incurrence of liens. Failure to comply with the covenants under our loan agreements would constitute an event of default that would permit acceleration by the lender.

Other Financings

On November 25, 2002, the effective date of the Joint Plan of Reorganization, loans approximating $83.5 million, secured by 20 hotels, were substantially reinstated on their original terms, except for the extension of certain maturities. The terms of one other loan, in the amount of $2.5 million and secured by one hotel, were amended to provide for a new interest rate and a new maturity date.

The Company through its wholly-owned subsidiaries owes approximately $10.6 million under Industrial Revenue Bonds issued on the Holiday Inn Lawrence and Holiday Inn Manhattan, both Kansas properties. The Industrial Revenue Bonds require a minimum debt service coverage ratio, calculated as of the end of each calendar year. For the year ended December 31, 2003, the cash flows of both hotels were insufficient to meet the minimum debt service coverage ratio requirements. The trustee of the Industrial Revenue Bonds may give notice of default, at which time the Company could remedy the default by depositing with the trustee an amount currently estimated at approximately $0.4 million. In the event a default is declared and not cured, the properties would be subject to foreclosure and the Company would be obligated pursuant to a partial guaranty of approximately $1.4 million. In addition, the Company could be obligated to pay our franchisor liquidated damages in the amount of $1.3 million. Total revenues for these two hotels for the years ended December 31, 2003 and the comparative periods were as follows:

	(In thousands)
Predecessor year ended December 31, 2001	$	9,148
Predecessor period January 1, 2002 to November 22, 2002		6,486
Successor period November 23, 2002 to December 31, 2002		684
Successor year ended December 31, 2003		8,003

On September 30, 2003, first mortgage debt of approximately $7.0 million of Macon Hotel Associates, L.L.C. (“MHA”) became due. MHA was not included in the entities that filed for reorganization under Chapter 11. The Company owns 60% of MHA, and MHA’s sole asset is the Crowne Plaza Hotel in Macon, Georgia. The lender agreed to extend the term of the debt to December 31, 2003 and then to June 30, 2004, while the Company explores alternative financing opportunities. The Company has escrowed foreclosure documents that will allow the lender to foreclose on the property on June 30, 2004 if

F-34

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

the mortgage debt is not repaid at that time. If the Company is not able to refinance the debt and the lender does not grant further extensions, the property would be subject to foreclosure. A foreclosure on the property would constitute a default of the franchise agreement; therefore the Company could be liable for $0.9 million in liquidation damages under the franchise agreement. Total revenues for the Crowne Plaza Hotel in Macon, Georgia for the year ended December 31, 2003 and the comparative periods were as follows:

	(In thousands)
Predecessor year ended December 31, 2001	$	5,973
Predecessor period January 1, 2002 to November 22, 2002		5,507
Successor period November 23, 2002 to December 31, 2002		437
Successor year ended December 31, 2003		5,595

The debt of approximately $7.0 million is included in the current portion of long-term debt in the accompanying consolidated balance sheet.

On May 20, 2001, promissory notes of approximately $3.9 million secured by the pledge of 100% of the equity interests of MHA were due. MHA did not make this payment on May 20, 2001. On April 19, 2002, MHA and the lenders entered into a Satisfaction and Release Agreement whereby the lenders agreed to fully discharge the indebtedness under the promissory note of $3.9 million plus related accrued interest approximating $0.7 million in exchange for payment by MHA of $0.2 million. The resulting gain on extinguishment of this indebtedness of $4.4 million was recorded in the financial statements for the year ended December 31, 2001, within interest income and other on the consolidated statement of operations.

Working Capital/ Related Party Loan

On September 18, 2003, the Company drew down the full availability of $2.0 million under a revolving loan agreement with OCM Real Estate Opportunities Fund II, L.P. (“OCM Fund II”). Borrowings under the facility bear interest at the fixed rate of 10% per annum and were repaid in full in December 2003 out of the proceeds received from the sale of an office building. During 2003, the Company paid interest to OCM Fund II of approximately $42,000. The facility is secured by two land parcels located in California and New Jersey and matures on May 1, 2004.

Oaktree Capital Management, LLC (“Oaktree”) may be deemed to be the beneficial owner of 554,917 shares of the Company’s common stock, including 526,203 shares owned by OCM Fund II. Oaktree is the general partner of the OCM Fund II; accordingly, Oaktree may be deemed to beneficially own the shares owned by OCM Fund II. Oaktree disclaims any such beneficial ownership.

Russel S. Bernard, a Principal of Oaktree, and Sean F. Armstrong, a Managing Director of Oaktree, are also directors of Lodgian.

Loan/ Franchise agreements

The Company is subject to certain property maintenance and quality standard compliance requirements under its franchise agreements. The Company periodically receives notifications from its franchisors of events of non-compliance with such agreements. In the past, management has cured most cases of non-compliance within the applicable cure periods and the events of non-compliance did not result in events of default under the respective loan agreements. However, in selected situations and based on economic evaluations, management may elect to not comply with the franchisor requirements. In such situations, the Company will either select an alternative franchisor or operate the property independent of any franchisor (see Note 18).

F-35

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

12.     12.25% Cumulative Preferred Shares Subject to Mandatory Redemption

On November 25, 2002, we issued 5,000,000 shares of Preferred Stock (“Preferred Stock”) with a par value of $0.01 at $25.00 per share. Each share of Preferred Stock has a liquidation preference over our common stock. The dividend is cumulative, compounded annually and is payable at the rate of 12.25% per annum on November 21 of each year. As provided by the terms of the Preferred Stock, the first dividend was paid on November 21, 2003 by means of the issuance of additional shares of Preferred Stock, with fractional shares paid in cash. We thus issued 594,299 shares of Preferred Stock as dividends and paid cash dividends of approximately $18,500 for fractional shares. Preferred shares outstanding as of December 31, 2003 were 5,611,760. Changes in fair value of Lodgian’s common stock do not affect the settlement costs of the Preferred Stock. We expect to issue an additional 17,461 shares of Preferred Stock as dividends to those general unsecured creditors who have not yet received their shares of Preferred Stock. If any Preferred Stock is then outstanding, the board of directors will determine whether the dividends due November 21, 2004 and 2005 will be paid in cash or in kind via the issuance of additional shares of Preferred Stock. The Preferred Stock is subject to redemption at any time, at our option and to mandatory redemption on November 21, 2012. If we redeem the Preferred Stock prior to November 21, 2004, the redemption price will be 104% of the liquidation value per share of the Preferred Stock. The liquidation value will be $25.00 per share plus accrued dividends. The redemption price is reduced by 1% for each succeeding twelve-month period through November 20, 2007, after which the Preferred Stock is redeemable for the liquidation value. See Note 4.

On July 1, 2003, in accordance with SFAS No. 150, the Company reclassified the Preferred Stock to the liability section of its consolidated balance sheet and began presenting the related dividends in interest expense which totaled $8.1 million for the period July 1, 2003 to December 31, 2003. Prior to the adoption of SFAS No. 150, the Company presented the Preferred Stock between liabilities and equity in its consolidated balance sheet (called the “mezzanine” section) and reported the Preferred Stock dividend as a deduction from retained earnings with no effect on its results of operations. In accordance with SFAS No. 150, the Preferred Stock and the dividends for the period prior to July 1, 2003, have not been reclassified.

13.     Stockholders’ Equity

Pursuant to the Joint Plan of Reorganization, in addition to the Preferred Stock, the following securities became available for issuance in November 2002:

•  Common stock, 2,333,333 shares, par value $0.01.

•  Class A and B warrants

The common stock is subject to dilution by the Class A & Class B warrants, any incentive shares and any future shares (See Note 4).

The Class A warrants initially provide for the purchase of an aggregate of 503,546 shares of the common stock at an exercise price of $54.87 per share and expire on November 25, 2007.

The Class B warrants initially provide for the purchase of an aggregate of 343,122 shares of the common stock at an exercise price of $76.32 per share and expire on November 25, 2009. See Note 2 for stock based compensation awards made during the year ended December 31, 2003.

F-36

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

14.     Derivative Transactions

In order to manage its exposure to fluctuations in interest rates on its variable rate debt, the Company entered into three interest rate cap agreements as follows:

•  Two related to the exit financing obtained from Merrill Lynch Mortgage ($299.3 million and $302.7 million at December 31, 2003 and December 31, 2002, respectively), and

•  One related to the financing obtained from Lehman ($76.4 million at December 31, 2003).

The two interest rate cap agreements related to the Merrill Lynch Mortgage financing allowed the Company to obtain exit financing at floating rates and effectively cap those rates at LIBOR of 6.44% plus 2.36%, in the case of the senior debt, and LIBOR plus 8.25%, in the case of the mezzanine debt. When LIBOR exceeds 6.44%, the contracts require settlement of net interest receivable at specified intervals, which generally coincide with the dates on which interest is payable on the underlying debt. When LIBOR is below 6.44%, there is no settlement from the interest rate caps. The Company is exposed to interest rate risks on the exit financing debt for increases in LIBOR up to 6.44%. The one-month LIBOR as of December 31, 2003 was 1.13%. The notional principal amount of the interest rate caps outstanding was $302.2 million and $302.8 million at December 31, 2003 and December 31, 2002, respectively.

The interest rate cap agreement related to the Lehman financing allowed the Company to obtain financing at a partial floating rate and effectively caps the interest rate at LIBOR of 5.00% plus 5.25%. When LIBOR exceeds 5%, the contracts require settlement of net interest receivable at specified intervals, which generally coincide with the dates on which interest is payable on the underlying debt. When LIBOR is below 5.00%, there is no settlement from the interest rate cap. The Company is exposed to interest rate risks on the Lehman Financing for LIBOR of between 2% and 5%. The notional principal amount of the interest rate cap outstanding was $80 million at December 31, 2003.

These derivative financial instruments are viewed as risk management tools and are entered into for hedging purposes only. The Company does not use derivative financial instruments for trading or speculative purposes. However, the Company has not elected to follow the hedging requirements of SFAS No. 133.

The aggregate fair value of the three interest rate caps as of December 31, 2003 and the two interest rate caps at December 31, 2002 were approximately $15,000 and $100,000, respectively. The fair values of the interest rate caps are recognized in the accompanying balance sheet in other assets. Adjustments to the carrying values of the interest rate caps are reflected in interest expense.

The notional amounts of the two interest rate caps and their termination dates match the principal amounts and maturities of the outstanding amounts on these loans.

F-37

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

15.     INCOME TAXES

Provision (benefit) for income taxes for the Company is as follows:

	Year Ended December 31,
	2003 — Successor						2002 — See below								2001 — Predecessor
	Current		Deferred		Total		Current(1)			Deferred		Total			Current		Deferred		Total
	($ in thousands)
Federal	$	—	$	—	$	—	$	(430	)	$	—	$	(430	)	$	—	$	—	$	—
State and local		178		—		178		(898	)		—		(898	)		2,829		—		2,829
		178		—		178		(1,328	)		—		(1,328	)		2,829		—		2,829
Less: Discontinued operations		—		—		—		1,200			—		1,200			—		—		—
	$	178	$	—	$	178	$	(128	)	$	—	$	(128	)	$	2,829	$	—	$	2,829

(1)  This is comprised of (amounts in thousands):

	Successor		Predecessor
	November 23, to		January 1, to
	December 31, 2002		November 22, 2002
Federal	$	—	$	(430	)
State and local		32		(930	)
		32		(1,360	)
Less:
Discontinued operations		—		1,200
	$	32	$	(160	)

The components of the cumulative effect of temporary differences in the deferred income tax (liability) and asset balances at December 31, 2003 and 2002 are as follows:

		2003									2002
		Total			Current			Non-current			Total			Current			Non-current
		($ in thousands)
Property and equipment		$	21,807		$	—		$	21,807		$	40,609		$	—		$	40,609
Net operating loss carry forwards			104,911						104,911			79,909			—			79,909
Loan costs			1,224						1,224			—			—			—
Legal and workers’ compensation reserves			2,896			2,896						2,918			2,918			—
AMT and FICA credit carry forwards			2,342						2,342			2,092			—			2,092
Other operating accruals			1,506			1,506			—			2,301			2,301			—
COD reduction in other asset basis			—			—			—			(7,362	)		(7,362	)		—
Other			5,316						5,316			7,157			7,157			—
	Total		140,002			4,402			135,600			127,624			5,014			122,610
	Less valuation allowance		(140,002	)		(4,402	)		(135,600	)		(127,624	)		(5,014	)		(122,610	)
		$	—		$	—		$	—		$	—		$	—		$	—

F-38

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The difference between income taxes using the effective income tax rate and the federal income tax statutory rate of 34% is as follows:

	Successor						Predecessor
				November 23 to			January 1 to
	2003			December 31, 2002			November 22, 2002			2001
	($ in thousands)
Federal income tax provision (benefit) at statutory federal rate	$	(13,292	)	$	(3,160	)	$	3,742		$	(47,578	)
State income tax (benefit), net		(1,876	)		(732	)		(12,929	)		(6,717	)
Effect of cancellation of debt		—			—			(40,848	)		—
Non-deductible items		2,968			(74	)		(1,932	)		177
Change in valuation allowance		12,378			3,998			50,607			56,947
		178			32			(1,360	)		2,829
Less discontinued operations		—			—			1,200			—
	$	178		$	32		$	(160	)	$	2,289

At December 31, 2003, the Company had established a valuation allowance of $140.0 million to fully offset its net deferred tax asset. As a result of the Company’s history of losses, the Company believed that it was more likely than not that its net deferred tax asset would not be realized and, therefore, provided a valuation allowance to fully reserve against these amounts. Of this $140.0 million, $12.4 million and $54.6 million was generated in 2003 and 2002, respectively.

At December 31, 2003, the Company had available net operating loss carry forwards of approximately $270 million for federal income tax purposes, which will expire in 2004 through 2023. Under the Joint Plan of Reorganization and the Impac Plan of Reorganization, substantial amounts of net operating loss carryforwards were utilized to offset income from debt cancellations in 2002. Also, the Company’s reorganization under Chapter 11, resulted in an ownership change, as defined in Section 382 of the Internal Revenue Code. Consequently, the Company’s ability to use the net operating loss carryforwards to offset future income is subject to certain limitations. Due to these and other limitations, a portion or all of these net operating loss carryforwards could expire unused.

16.     Related Party Transactions

Richard Cartoon, the Company’s Executive Vice President and Chief Financial Officer between October 4, 2001 and October 13, 2003, is a principal in a business that the Company retained in October 2001 to provide Richard Cartoon’s services as Chief Financial Officer and other restructuring support and services. In addition to amounts paid for Richard Cartoon’s services as Executive Vice President and Chief Financial Officer, the Company was billed as follows, for other support and services provided by associates of Richard Cartoon, LLC:

	(In thousands)
Predecessor year ended December 31, 2001	$	90
Predecessor period January 1, 2002 to November 22, 2002		357
Successor period November 23, 2002 to December 31, 2002		22
Successor year ended December 31, 2003		225

Richard Cartoon, LLC continues to provide restructuring and other support to the Company.

See Note 11 regarding the $2.0 million revolving loan from OCM Fund II to the Company.

F-39

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

17.     Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per common share:

		Successor						Predecessor
					November 23, 2002 to			January 1, 2002 to
		2003			December 31, 2002			November 2002			2001
		($ in thousands, except per share data)
Basic and diluted loss per share:
Numerator:
	(Loss) income — continuing operations	$	(27,074	)	$	(6,745	)	$	16,999		$	(87,537	)
	Loss from discontinued operations, net of taxes		(4,603	)		(2,581	)		(4,633	)		(55,227	)
	Net (loss) income		(31,677	)		(9,326	)		12,366			(142,764	)
	Preferred stock dividend		(7,594	)		(1,510	)		—			—
	Net (loss) income attributable to common stock		(39,271	)		(10,836	)		12,366			(142,764	)
	(Loss) income — continuing operations		(27,074	)		(6,745	)		16,999			(87,537	)
	Preferred stock dividend		(7,594	)		(1,510	)		—			—
	(Loss) income from continuing operations attributable to common stock before discontinued operations	$	(34,668	)	$	(8,255	)	$	16,999		$	(87,537	)
Denominator:
	Denominator for basic and diluted loss per share — weighted-average shares		2,333			2,333			28,480			28,350
Basic and diluted loss per common share:
	(Loss) income — continuing operations	$	(11.60	)	$	(2.89	)	$	0.60		$	(3.09	)
	Loss from discontinued operations, net of taxes		(1.98	)		(1.11	)		(0.17	)		(1.95	)
	Net (loss) income		(13.58	)		(4.00	)		0.43			(5.04	)
	Net (loss) income attributable to common stock		(16.83	)		(4.64	)		0.43			(5.04	)
	(Loss) income from continuing operations attributable to common stock before discontinued operations	$	(14.86	)	$	(3.54	)	$	0.60		$	(3.09	)

F-40

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The computation of diluted loss per share for the Successor year ended December 31, 2003, as calculated above, did not include the shares associated with the assumed conversion of the restricted stock (66,666 shares), stock options (options to acquire 157,575 shares of common stock), and Class A and Class B warrants (rights to acquire 503,546 and 343,122 shares of common stock, respectively) because their inclusion would have been antidilutive.

The computation of diluted loss per share for the Successor period November 23, 2002 to December 31, 2002, as calculated above, did not include the shares associated with the assumed conversion of the Class A and Class B warrants (rights to acquire 503,546 and 343,122 shares of common stock, respectively) because their inclusion would have been antidilutive.

The computation of diluted loss per share for the Predecessor periods January 1, 2002 to November 22, 2002, and year ended December 31, 2001, as calculated above, did not include shares associated with the assumed conversion of the CRESTS (8,169,935 shares) or stock options because their inclusion would also have been antidilutive.

18.     Commitments and Contingencies

Fourteen of the Company’s hotels are subject to long-term ground leases, parking and other leases expiring from 2004 through 2075 which provide for minimum payments as well as incentive rent payments. In addition, most of the Company’s hotels have non-cancellable operating leases, mainly for operating equipment. Lease expense for the non-cancellable ground, parking and other leases were as follows:

	Continuing		Discontinued		Total
	Operations		Operations		Operations
	(In thousands)
Predecessor year ended December 31, 2001	$	3,609	$	743	$	4,352
Predecessor period January 1, 2002 to November 22, 2002		3,079		618		3,697
Successor period November 23, 2002 to December 31, 2002		378		124		502
Successor year ended December 31, 2003		4,002		696		4,698

At December 31, 2003, the future minimum commitments for non-cancellable ground and parking leases were as follows (amounts in thousands):

2004		$	3,320
2005			3,339
2006			3,355
2007			3,361
2008			3,398
	Thereafter		98,012
		$	114,785

The Company has entered into franchise agreements with various hotel chains which require annual payments for license fees, reservation services and advertising fees. The license agreements generally have original terms of between 10 and 20 years. The franchisors may require the Company to upgrade its facilities at any time to comply with its then current standards. Upon the expiration of the term of a franchise, the Company may apply for a franchise renewal. In connection with the renewal of a franchise, the franchisor may require payment of a renewal fee, increase license, reservation and advertising fees, as

F-41

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

well as substantial renovation of the facility. Costs incurred in connection with these agreements for the year ended December 31, 2003 and the comparative periods were:

	Continuing		Discontinued		Total
	operations		operations		operations
	($ in thousands)
Predecessor year ended December 31, 2001	$	22,531	$	6,053	$	28,584
Predecessor period January 1, 2002 to November 22, 2002		19,398		4,926		24,324
Successor period November 23, 2002 to December 31, 2002		1,598		377		1,975
Successor year ended December 31, 2003		20,569		3,816		24,385

As of March 1, 2004, the Company had been notified that it was not in compliance with some of the terms of ten of its franchise agreements and had received default and termination notices from franchisors with respect to an additional five hotels.

In addition, as part of its bankruptcy reorganization proceedings, the Company entered into stipulations with each of its major franchisors setting forth a timeline for completion of capital expenditures for some of its hotels. The Company has not completed the required capital expenditures for 35 hotels in accordance with the stipulations and estimates that completing those improvements will cost $26.1 million. Under the stipulations, the applicable franchisors could therefore seek to declare certain franchise agreements in default and, in certain circumstances, seek to terminate the franchise agreement.

With the exception of one hotel held for sale, the Company believes that it will cure the noncompliance and defaults on these hotels before the applicable termination dates. If a franchise agreement is terminated, The Company generally will either select an alternative franchisor or operate the hotel independently of any franchisor. However, terminating or changing the franchise affiliation of a hotel could require the Company to incur significant expenses, including liquidated damages, and capital expenditures.

The franchise agreements are subject to termination in the event of a default, including the failure to operate the hotel in accordance with the quality standards and specification of the licensors. The Company believes that the loss of a franchise for any individual hotel would not have a material adverse effect on its financial condition and results of operations.

The Company has maintenance agreements, primarily on a one to three year basis, which resulted in the following expenses:

	Continuing		Discontinued		Total
	operations		operations		operations
	($ in thousands)
Predecessor year ended December 31, 2001	$	3,260	$	1,249	$	4,509
Predecessor period January 1, 2002 to November 22, 2002		2,130		874		3,004
Successor period November 23, 2002 to December 31, 2002		221		96		317
Successor year ended December 31, 2003		3,690		932		4,622

As of December 31, 2003, the Company had issued two irrevocable letters of credit totaling $3.6 million as guarantees to Zurich American Insurance Company and Donlen Fleet Management Services. These letters of credit will expire in November 2004 but may require renewal beyond that date. All letters of credit are backed by the Company’s cash (classified as restricted cash in the accompanying Consolidated Balance Sheet).

The Company is self-insured up to certain limits with respect to employee medical, employee dental, property insurance, general liability insurance, personal injury claims, workers’ compensation and auto liability. The Company establishes liabilities for these self-insured obligations annually, based on actuarial valuations and its history of claims. If these claims escalate beyond the Company’s expectations, this could

F-42

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

cause a negative impact on its future financial condition and results of operations. As of December 31, 2003 and December 31, 2002, the Company had accrued approximately $10.0 million and $9.1 million for these liabilities.

The Company is party to legal proceedings arising in the ordinary course of business. The outcome of these matters is uncertain. However, management believes that these matters will be resolved without a material adverse effect on the Company’s financial position or results of operations. Certain of these claims are limited to the amounts available under the Company’s disputed claims reserve.

19.     Employee Retirement Plans

The Company makes contributions to several multi-employer pension plans for employees of various subsidiaries covered by collective bargaining agreements. These plans are not administered by the Company and contributions are determined in accordance with provisions of negotiated labor contracts. Certain withdrawal penalties may exist, the amount of which are not determinable at this time. The cost of pension contributions (for unionized and one group of non-union employees) were:

	Continuing		Discontinued		Total
	Operations		Operations		Operations
	($ in thousands)
Predecessor year ended December 31, 2001	$	269	$	—	$	269
Predecessor period January 1, 2002 to November 22, 2002		185		—		185
Successor period November 23, 2002 to December 31, 2002		27		—		27
Successor year ended December 31, 2003		260		—		260

The Company adopted a 401(k) plan for the benefit of its non-union and one group of union employees under which participating employees may elect to contribute up to 10% (increased to 15% as of January 1, 2003) of their compensation. The Company matches an employee’s elective contributions to the 401(k) plan, subject to certain conditions. These employer contributions vest immediately. Contributions to the 401(K) plan made by the Company were:

	Continuing		Discontinued		Total
	Operations		Operations		Operations
	($ in thousands)
Predecessor year ended December 31, 2001	$	410	$	—	$	410
Predecessor period January 1, 2002 to November 22, 2002		254		76		330
Successor period November 23, 2002 to December 31, 2002		35		10		45
Successor year ended December 31, 2003		601		76		677

20.     Subsequent Event

Of the 18 hotels which were held for sale at December 31, 2003, four were sold between January 1, 2004 and March 1, 2004. Summarized below is certain financial data related to these four hotels:

	($ in thousands)
Aggregate sales price	$	11,525
Carrying values of property, plant & equipment as of December 31, 2003		7,325
Long-term debt as of December 31, 2003		7,187
Total revenues for the year ended December 31, 2003		9,639
Total operating expenses for the year ended December 31, 2003		9,571

F-43

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

21.     Selected Quarterly Financial Data, Unaudited

The following table summarizes unaudited quarterly financial data (amounts have been restated, as appropriate, to give effect to discontinued operations):

		Successor
		First			Second			Third			Fourth
		Quarter			Quarter			Quarter			Quarter
		($ in thousands, except per share data)
Year Ended December 31, 2003:
Revenues — continuing operations		$	73,292		$	82,738		$	81,699		$	73,685
Operating expenses — continuing operations			71,414			75,418			73,740			82,213
Loss — continuing operations			(5,521	)		(330	)		(3,597	)		(17,626	)
(Loss) income from discontinued operations, net of taxes			(3,563	)		(2,111	)		(49	)		1,120
Net loss			(9,084	)		(2,441	)		(3,646	)		(16,506	)
Net loss attributable to common stock			(12,860	)		(6,259	)		(3,646	)		(16,506	)
Basic and diluted income (loss) per common share:
	Loss — continuing operations	$	(2.37	)	$	(0.15	)	$	(1.53	)	$	(7.56	)
	(Loss) income from discontinued operations, net of taxes		(1.53	)		(0.90	)		(0.03	)		0.48
	Net loss		(3.90	)		(1.05	)		(1.56	)		(7.08	)
	Net loss attributable to common stock		(5.52	)		(2.67	)		(1.56	)		(7.08	)

		Predecessor											Successor
		First			Second			Third			October 1, to		November 23 to
		Quarter			Quarter			Quarter			November 22, 2002		December 31, 2002
		($ in thousands, except per share data)
Year Ended December 31, 2002:
Revenues — continuing operations		$	76,615		$	89,532		$	83,508		$	49,612	$	25,306
Operating expenses — continuing operations			73,416			78,394			76,720			44,241		29,668
(Loss) income — continuing operations			(10,569	)		4,008			(3,990	)		27,550		(6,745	)
(Loss) income — discontinued operations, net of taxes			(3,861	)		(545	)		(567	)		340		(2,581	)
Net (loss) income			(14,430	)		3,463			(4,557	)		27,890		(9,326	)
Net (loss) income attributable to common stock			(14,430	)		3,463			(4,557	)		27,890		(10,836	)
Basic and diluted income (loss) per common share:
	(Loss) income — continuing operations	$	(0.37	)	$	0.14		$	(0.14	)	$	0.97	$	(2.89	)
	(Loss) income from discontinued operations, net of taxes		(0.14	)		(0.02	)		(0.02	)		0.01		(1.11	)
	Net (loss) income		(0.51	)		0.12			(0.16	)		0.98		(4.00	)
	Net (loss) income attributable to common stock		(0.51	)		0.12			(0.16	)		0.98		(4.64	)

F-44

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

22.     Reverse Stock Split

On April 27, 2004, the Board of Directors authorized a reverse stock split of the common stock in a ratio of one-for-three (1:3). The par value of the common stock was not affected by the reverse split and remains at $.01 per share after the reverse stock split. Consequently, the aggregate par value of the issued common stock was reduced by reclassifying the par value amount of the reversed common shares from Common Stock to Additional Paid-In Capital for all periods presented. The record date for the reverse split was April 29, 2004 and the new common stock began trading under the split adjustment on April 30, 2004. All share amounts for common stock, warrants, stock options, and all earnings per share computations have been retroactively adjusted to reflect this change in the capital structure for the Successor Company.

F-45

LODGIAN, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

			March 31, 2004			December 31, 2003
			(Unaudited in thousands,
			except share data)
ASSETS
Current assets:
	Cash and cash equivalents		$	12,662		$	10,897
	Cash, restricted			7,447			7,084
	Accounts receivable (net of allowances: 2004 — $730; 2003 — $689)			11,483			8,169
	Inventories			5,666			5,609
	Prepaid expenses and other current assets			16,670			17,068
	Assets held for sale			55,788			68,567
		Total current assets		109,716			117,394
Property and equipment, net				561,461			563,818
Deposits for capital expenditures				13,577			15,782
Other assets, net				11,039			12,180
			$	695,793		$	709,174
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable		$	7,456		$	7,131
	Other accrued liabilities			32,401			31,432
	Advance deposits			3,133			1,882
	Current portion of long-term debt			18,971			16,563
	Liabilities related to assets held for sale			47,340			57,948
		Total current liabilities		109,301			114,956
Long-term debt:
	12.25% Cumulative preferred shares subject to mandatory redemption			146,462			142,177
	Long-term obligations			404,044			409,115
		Total long-term debt		550,506			551,292
		Total liabilities		659,807			666,248
Minority interests				2,467			2,320
Commitments and contingencies
Stockholders’ equity:
	Common stock, $.01 par value, 30,000,000 shares authorized; 2,333,832 and 2,333,591 issued and outstanding at March 31, 2004 and December 31, 2003, respectively			23			23
	Additional paid-in capital			89,878			89,874
	Unearned stock compensation			(458	)		(508	)
	Accumulated deficit			(57,193	)		(50,107	)
	Accumulated other comprehensive income			1,269			1,324
		Total stockholders’ equity		33,519			40,606
			$	695,793		$	709,174

See notes to condensed consolidated financial statements.

F-46

LODGIAN, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

			Three Months Ended
			March 31, 2004			March 31, 2003
			(Unaudited in thousands, except
			per share data)
Revenues:
	Rooms		$	57,563		$	53,914
	Food and beverage			16,488			16,607
	Other			2,754			2,858
				76,805			73,379
Operating expenses:
	Direct:
		Rooms		16,018			15,363
		Food and beverage		11,534			11,734
		Other		1,972			1,938
				29,524			29,035
				47,281			44,344
Other operating expenses:
	General, administrative and other			34,236			35,106
	Depreciation and amortization			6,805			7,422
		Other operating expenses		41,041			42,528
				6,240			1,816
Other income (expenses):
	Interest income and other			43			83
	Interest expense:
		Preferred stock dividend		(4,285	)		—
		Other interest expense (contractual interest: $8.2 million and $6.8 million for the three months ended March 31, 2004 and 2003, respectively)		(8,159	)		(6,279	)
Loss before income taxes, reorganization items and minority interests				(6,161	)		(4,380	)
Reorganization items				—			(1,237	)
Loss before income taxes and minority interest				(6,161	)		(5,617	)
Minority interests				(147	)		(148	)
Loss before income taxes — continuing operations				(6,308	)		(5,765	)
Provision for income taxes — continuing operations				(76	)		(76	)
Loss — continuing operations				(6,384	)		(5,841	)
Discontinued operations:
	Loss from discontinued operations before income taxes			(702	)		(3,243	)
	Income tax provision			—			—
	Loss from discontinued operations			(702	)		(3,243	)
Net loss				(7,086	)		(9,084	)
Preferred stock dividend				—			(3,776	)
Net loss attributable to common stock			$	(7,086	)	$	(12,860	)
Basic and diluted loss per common share:
	Net loss attributable to common stock		$	(3.04	)	$	(5.51	)

See notes to condensed consolidated financial statements.

F-47

LODGIAN, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

														Accumulated
		Common Stock				Additional		Unearned						Other			Total
						Paid-in		Stock			Accumulated			Comprehensive			Stockholders’
		Shares		Amount		Capital		Compensation			Deficit			Loss (Net of Tax)			Equity
		(In thousands, except share data)
Balance December 31, 2003			2,333,591	$	23	$	89,874	$	(508	)	$	(50,107	)	$	1,324		$	40,606
Amortization of unearned stock compensation			—		—		—		50			—			—			50
Exercise of stock options			241		—		4		—			—			—			4
Comprehensive loss:
	Net loss		—		—		—		—			(7,086	)		—			(7,086	)
	Currency translation adjustments (related taxes estimated at nil)		—		—		—		—			—			(55	)		(55	)
Total comprehensive loss					—		—		—			—			—			(7,141	)
Balance March 31, 2004			2,333,832	$	23	$	89,878	$	(458	)	$	(57,193	)	$	1,269		$	33,519

The comprehensive loss for the three months ended March 31, 2003 was $8.7 million.

See notes to condensed consolidated financial statements.

F-48

LODGIAN, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

				Three Months Ended
				March 31,			March 31,
				2004			2003
				(Unaudited in
				thousands)
Operating activities:
	Net loss			$	(7,086	)	$	(9,084	)
	Less: loss from discontinued operations				702			3,243
	Loss — continuing operations				(6,384	)		(5,841	)
	Adjustments to reconcile loss from continuing operations to net cash provided by operating activities:
		Depreciation and amortization			6,805			7,422
		Amortization of unearned stock compensation			50			—
		Preferred stock dividends			4,285			—
		Minority interests			147			148
		Write-off and amortization of deferred financing costs			1,457			594
		Other			209			184
		Changes in operating assets and liabilities:
			Accounts receivable, net of allowances		(3,314	)		(2,275	)
			Inventories		(57	)		20
			Prepaid expenses, other assets and restricted cash		422			10,833
			Accounts payable		594			(55	)
			Other accrued liabilities		2,894			(3,508	)
			Advance deposits		1,251			1,062
Net cash provided by operating activities from continuing operations					8,359			8,584
Net cash used in operating activities from discontinued operations					(2,246	)		(2,269	)
Net cash provided by operating activities					6,113			6,315
Investing activities:
	Capital improvements				(5,001	)		(10,309	)
	Net proceeds from disposition of discontinued operations				13,983			—
	Withdrawals of deposits for capital expenditures				2,205			6,176
	Other				(42	)		(357	)
Net cash provided by (used in) investing activities					11,145			(4,490	)
Financing activities:
	Proceeds from exercise of stock options				4			—
	Principal payments on long-term debt				(14,936	)		(2,396	)
	Payments of deferred financing costs				(561	)		(352	)
Net cash used in financing activities					(15,493	)		(2,748	)
Effect of exchange rate changes on cash					—			—
Net increase in cash and cash equivalents					1,765			(923	)
Cash and cash equivalents at beginning of period					10,897			10,875
				$	12,662		$	9,952
Supplemental cash flow information:
Cash paid during the period for:
	Interest, net of the amounts capitalized shown below			$	7,561		$	6,432
	Interest capitalized				75			216
	Income taxes, net of refunds				234			—
Supplemental disclosure of non-cash investing and financing activities:
	Net non-cash debt increase (decrease)				44			(15,922	)
	Issuance of promissory notes as consideration for taxation liabilities				2,369			—

See notes to consolidated financial statements.

F-49

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Throughout these unaudited condensed consolidated financial statements, we will use the terms Lodgian, “we”, “our”, and “us”, to refer to Lodgian, Inc. and unless the context otherwise requires or expressly states, our subsidiaries).

1. Business Summary

We are one of the largest independent owners and operators of full-service hotels in the United States in terms of our number of guest rooms and gross annual revenues, as reported by Hotel & Motel Management Magazine in September 2003. We are considered an independent owner and operator because we do not operate our hotels under our own name. We operate substantially all of our hotels under nationally recognized brands, such as “Crowne Plaza,” “Holiday Inn” and “Marriott.” As of May 10, 2004, we operated 88 hotels with an aggregate of 16,627 rooms, located in 30 states and Canada. Of the 88 hotels, 78 hotels, with an aggregate of 14,348 rooms, are part of our continuing operations, while 10 hotels, with an aggregate of 2,279 rooms, are held for sale. Our portfolio of 88 hotels consists of:

•  83 hotels that we wholly own and operate through subsidiaries;

•  four hotels that we operate in joint ventures in which we have a 50% or greater voting equity interest and exercise control; and

•  one hotel that we operate in a joint venture in which we have a 30% non-controlling equity interest.

We consolidate all of these hotels in our financial statements, other than the one hotel in which we hold a non-controlling equity interest and which we account for under the equity method.

Our hotels are primarily full-service properties that offer food and beverage services, meeting space and banquet facilities and compete in the midscale and upscale market segments of the lodging industry. As of May 10, 2004, we operated all but three of our hotels under franchises obtained from nationally recognized hospitality franchisors. We operated 60 of our hotels under franchises obtained from InterContinental Hotels Group as franchisor of the Crowne Plaza, Holiday Inn, Holiday Inn Select and Holiday Inn Express brands. We operated 15 of our hotels under franchises from Marriott International as franchisor of the Marriott, Courtyard by Marriott, Fairfield Inn by Marriott and Residence Inn by Marriott brands. We operate another 10 hotels under other nationally recognized brands. We believe that these strong national brands afford us many benefits such as guest loyalty and market share premiums.

2. General

Our condensed consolidated financial statements include the accounts of Lodgian, Inc., its wholly-owned subsidiaries and four joint ventures in which Lodgian, Inc. has a controlling financial interest (owns a 50% or greater voting equity interest and exercises control). We believe we have control of the joint ventures when we manage and have control of the joint ventures’ assets and operations. We report the third party partners’ share of the net income or loss of these joint ventures and their share of the joint ventures’ equity as minority interest. We include in other assets our investment in the hotel in which we hold a minority interest and which we account for under the equity method. We report our share of the income or loss of this minority-owned hotel as part of interest income and other. All significant intercompany accounts and transactions have been eliminated in consolidation.

The accounting policies which we follow for quarterly financial reporting are the same as those which we disclosed in Note 1 of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K (“Form 10-K”) for the year ended December 31, 2003.

During 2003, we developed a portfolio improvement strategy which was consistent with our goals of operating a portfolio of profitable, well-maintained and appealing hotels at superior locations in strong

F-50

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

markets. In accordance with this strategy and our efforts to reduce debt and interest costs, we identified 19 hotels, one office building and three land parcels for sale. Between November 1, 2003 and May 10, 2004, we sold the office building and nine of the nineteen hotels. As of May 10, 2004, our portfolio consisted of 88 hotels, 78 of which represent our continuing portfolio (including one hotel in which we have a non-controlling equity interest which we do not consolidate).

In our opinion, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting primarily of normal recurring adjustments, necessary to present fairly our financial position as of March 31, 2004, the results of our operations for the three months ended March 31, 2004 and 2003 and our cash flows for the three months ended March 31, 2004 and 2003. Our results for interim periods are not necessarily indicative of our results for the entire year. You should read these financial statements in conjunction with our consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2003.

As we prepare our financial statements in accordance with accounting principles generally accepted in the United States of America (GAAP), we reclassify certain prior period amounts to conform to the current period’s presentation. We also make estimates and assumptions which affect:

•  the reported amounts of assets and liabilities;

•  the reported amounts of revenues and expenses during the reporting period; and

•  the disclosures of contingent assets and liabilities at the date of our financial statements.

Our actual results could differ from our estimates.

Reverse Stock Split

On April 27, 2004, our Board of Directors authorized a reverse stock split of our common stock in a ratio of one-for-three (1:3). The reverse split affected all of our issued and outstanding common shares, warrants and stock options. The record date for the reverse split was April 29, 2004 and our new common stock began trading under the split adjustment on April 30, 2004.

Fractional shares which resulted from the reverse stock split are payable in cash. Each holder of a fractional share of common stock after the effective date of the reverse split has been or will be paid cash equal to the product of (i) the average of the closing prices of the common stock for the last ten trading days prior to April 30, 2004, multiplied by (ii) the fraction of a share of common stock held by such holder.

All amounts for common stock, warrants, stock options, and all earnings per share computations have been retroactively adjusted to reflect this change in our capital structure.

3. Stock-based Compensation

As disclosed in Note 2 above, on April 27, 2004, our Board of Directors authorized a reverse stock split of our common stock in a ratio of one-for-three (1:3). All stock option disclosures below have been retroactively adjusted to reflect the reverse stock split.

As we previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2003, on November 25, 2002, we adopted a new stock incentive plan which replaced the Option Plan previously in place. In accordance with the Stock Incentive Plan, we can grant awards to acquire up to 353,333 shares of common stock to our directors, officers, or other key employees or consultants as determined by a committee appointed by our Board of Directors. Awards may consist of stock options, stock appreciation rights, stock awards, performance share awards, section 162(m) awards or other awards determined by the committee. We cannot grant stock options pursuant to the Stock Incentive Plan at an exercise price which

F-51

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

is less than 100% of the fair market value per share on the date of the grant. Vesting, exercisability, payment and other restrictions pertaining to any awards made pursuant to the Stock Incentive Plan are determined by the Committee. At our 2004 annual meeting, stockholders approved an amendment and restatement of the Stock Incentive Plan to, among other things, increase the number of shares of common stock available for issuance thereunder by 29,667 immediately and, in the event we consummate a firm commitment, underwritten public offering of our common stock, by an additional amount to be determined pursuant to a formula.

We present below a summary of our stock option plan and the restricted stock units activity under the plan for the three months ended March 31, 2004:

					Weighted Average
		Options			Exercise Price
Balance, December 31, 2003			157,529		$	13.92
	Exercised		(241	)		15.21
	Forfeited		(3,164	)		15.21
Balance, March 31, 2004			154,124		$	13.89

		Restricted
		Stock Units
Balance, December 31, 2003			66,666
	Issued		—
	Forfeited		—
Balance, March 31, 2004			66,666	(1)

(1)  At March 31, 2004, none of the restricted stock had vested.

In the following table, we summarize information for options outstanding and exercisable at March 31, 2004:

	Options Outstanding						Options Exercisable
			Weighted Average		Weighted Average				Weighted Average
Range of Prices	Number		Remaining Life (in Years)		Exercise Prices		Number		Exercise Prices
$9.00 to $10.50		33,333		9.3	$	9.00		—	$	9.00
$10.53 to $15.21		113,625		9.4	$	15.21		37,924	$	15.21
$15.24 to $15.66		7,166		9.5	$	15.66		2,389	$	15.66
		154,124		9.4	$	13.89		40,313	$	15.24

We account for stock option grants in accordance with Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees” and related interpretations. Under APB No. 25, if the exercise price of our employee stock options is equal to the market price of the underlying stock on the date of grant, no compensation expense is recognized. Under Statement of Financial Accounting Standard (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” (as amended by SFAS No. 148) compensation cost is measured at the grant date based on the estimated value of the award and is recognized over the service (or vesting) period. The income tax benefit, if any, associated with the exercise of stock options is credited to additional paid-in capital.

F-52

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Had the compensation cost of our Stock Option Plan been recognized under SFAS No. 123, based on the fair market value at the grant dates, our pro forma net loss and net loss per share would have been as follows:

		Three Months Ended
		March 31, 2004			March 31, 2003(1)
Loss — continuing operations
	As reported	$	(6,384	)	$	(5,841	)
	Pro forma		(6,509	)		(5,841	)
Loss from discontinued operations, net of taxes
	As reported		(702	)		(3,243	)
	Pro forma		(702	)		(3,243	)
Net loss:
	As reported		(7,086	)		(9,084	)
	Pro forma		(7,211	)		(9,084	)
Net loss attributable to common stock
	As reported		(7,086	)		(12,860	)
	Pro forma		(7,211	)		(12,860	)
Loss from continuing operations attributable to common stock before discontinued operations
	As reported		(6,384	)		(9,617	)
	Pro forma		(6,509	)		(9,617	)
Basic and diluted loss per common share:
Loss — continuing operations
	As reported	$	(2.74	)	$	(2.50	)
	Pro forma		(2.78	)		(2.50	)
Loss from discontinued operations, net of taxes
	As reported		(0.30	)		(1.39	)
	Pro forma		(0.30	)		(1.39	)
Net loss
	As reported		(3.04	)		(3.89	)
	Pro forma		(3.08	)		(3.89	)
Net loss attributable to common stock
	As reported		(3.04	)		(5.51	)
	Pro forma		(3.08	)		(5.51	)
Loss from continuing operations attributable to common stock before discontinued operations
	As reported		(2.74	)		(4.12	)
	Pro forma		(2.78	)		(4.12	)

(1)  There were no options outstanding between January 1, 2003 and March 31, 2003.

F-53

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

4. Discontinued Operations

As discussed above, during 2003, we identified 19 hotels, one office building and three land parcels for sale as part of our portfolio improvement strategy, and in our efforts to reduce debt and interest costs. Between November 1, 2003 and May 10, 2004, we sold nine of the nineteen hotels and the office building for an aggregate sales price of $48.3 million. From the sale of these assets, we paid down debt of approximately $35.5 million.

In accordance with SFAS No. 144, we have included the assets sold during 2003 and 2004 as well as the assets held for sale at March 31, 2004 (including any related impairment charges) in Discontinued Operations in the Consolidated Statements of Operations. The assets held for sale at March 31, 2004 and December 31, 2003 and the liabilities related to these assets are separately disclosed in the Condensed Consolidated Balance Sheets. Where the carrying values of the assets held for sale exceeded the estimated fair values, net of selling costs, we reduced the carrying values and recorded impairment charges. We determine fair values using quoted market prices, when available, or other accepted valuation techniques. During the three months ended March 31, 2004, we recorded impairment charges of $2.2 million on assets held for sale. Where the estimated selling prices, net of selling costs, of assets held for sale exceeded the carrying values, we did not increase the carrying values of the assets. Among other criteria, we classify an asset as held for sale if we expect to dispose of it within one year.

At March 31, 2004, 13 hotels and three land parcels were held for sale. At December 31, 2003, 18 hotels and three land parcels were held for sale. The following condensed combined table summarizes the assets and liabilities relating to the properties identified as held for sale as of March 31, 2004 and December 31, 2003:

		March 31,		December 31,
		2004		2003
		(Unaudited in thousands)
ASSETS
Accounts receivable, net of allowances		$	1,066	$	1,252
Inventories			1,076		1,377
Prepaid expenses and other current assets			1,733		1,039
Property and equipment, net			49,582		61,624
Other assets			2,331		3,275
		$	55,788	$	68,567
LIABILITIES
Accounts payable		$	1,199	$	1,234
Other accrued liabilities			2,276		3,120
Advance deposits			571		390
Current portion of long-term debt			567		771
Long-term debt			42,727		52,433
	Total liabilities	$	47,340	$	57,948

F-54

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The condensed combined results of operations of the properties classified as Discontinued Operations as of March 31, 2004 were as follows:

			Three Months Ended
			March 31,			March 31,
			2004			2003
			(Unaudited in
			thousands)
Revenues:
		Rooms	$	7,944		$	9,134
		Food and beverage		2,318			2,359
		Other		478			793
				10,740			12,286
Operating expenses:
	Direct:
		Rooms		2,696			3,196
		Food and beverage		1,834			2,028
		Other		385			598
				4,915			5,822
				5,825			6,464
Other operating expenses:
	General, administrative and other			6,063			7,750
	Depreciation and amortization			133			1,447
	Impairment of long-lived assets			2,153			—
		Other operating expenses		8,349			9,197
				(2,524	)		(2,733	)
Interest expense				(1,185	)		(510	)
Gain on asset dispositions				3,007			—
Loss before income taxes				(702	)		(3,243	)
Provision for income taxes				—			—
Net loss			$	(702	)	$	(3,243	)

5. Cash, Restricted

Our restricted cash as of March 31, 2004 consists of amounts reserved for letter of credit collateral, a deposit required by our bankers and cash reserved pursuant to certain loan agreements.

F-55

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

6. Loss Per Share

The following table sets forth the computation of basic and diluted loss per share:

			Three Months Ended
			March 31,			March 31,
			2004			2003
			(Unaudited in
			thousands, except per
			share data)
Basic and diluted loss per share:
	Numerator:
		Loss — continuing operations	$	(6,384	)	$	(5,841	)
		Loss from discontinued operations, net of taxes		(702	)		(3,243	)
		Net loss		(7,086	)		(9,084	)
		Preferred stock dividend		—			(3,776	)
		Net loss attributable to common stock		(7,086	)		(12,860	)
		Loss — continuing operations		(6,384	)		(5,841	)
		Preferred stock dividend		—			(3,776	)
		Loss from continuing operations attributable to common stock before discontinued operations	$	(6,384	)	$	(9,617	)
	Denominator:
		Denominator for basic and diluted loss per share — weighted-average shares		2,334			2,333
	Basic and diluted loss per common share:
		Loss — continuing operations	$	(2.74	)	$	(2.50	)
		Loss from discontinued operations, net of taxes		(0.30	)		(1.39	)
		Net loss		(3.04	)		(3.89	)
		Net loss attributable to common stock		(3.04	)		(5.51	)
		Loss from continuing operations attributable to common stock before discontinued operations	$	(2.74	)	$	(4.12	)

We did not include the shares associated with the assumed conversion of the restricted stock units (66,666 shares) or the exercise of stock options (options to acquire 154,124 shares of common stock) and A and B warrants (rights to acquire 503,546 and 343,122 shares of common stock, respectively) in the computation of diluted loss per share for the period ended March 31, 2004 because their inclusion would have been antidilutive. We did not include the shares associated with the exercise of the A and B warrants (rights to acquire 503,546 and 343,122 shares of common stock, respectively) in the computation of diluted loss per share for the period ended March 31, 2003 because their inclusion would have been antidilutive.

F-56

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

7. Other Accrued Liabilities

At March 31, 2004 and December 31, 2003, other accrued liabilities consisted of the following:

	March 31, 2004		December 31, 2003
	(Unaudited in thousands)
Salaries and related costs	$	17,760	$	16,211
Property and sales taxes		10,950		9,427
Professional fees		420		570
Provision for state income taxes		320		2,361
Franchise fee accrual		1,667		1,115
Accrued interest		491		526
Accrual for allowed claims		179		186
Other		614		1,036
	$	32,401	$	31,432

8. Debt

Substantially all of our property and equipment are pledged as collateral for long-term obligations. Certain of our mortgage notes are subject to a prepayment or yield maintenance penalty if we repay them prior to their maturity. Set forth below, by debt pool, is a summary of our debt at March 31, 2004 along with the applicable interest rates and the related carrying values of the property, plant and equipment which collateralize these debts:

				March 31, 2004
		Number		Property, Plant		Debt		Interest
		of Hotels		and Equipment, net		Obligations		Rates
				(1)		(1)
				(Unaudited in thousands)
Exit financing
	Merrill Lynch Mortgage Lending, Inc. — Senior					$	210,160	LIBOR plus 2.36%
	Merrill Lynch Mortgage Lending, Inc. — Mezzanine						81,010	LIBOR plus 8.79%
	Merrill Lynch Mortgage Lending, Inc. — Total		53	$	391,249		291,170
	Computershare Trust Company of Canada		1		13,874		7,391	7.88%
Lehman financing
	Lehman Brothers Holdings, Inc.		15		65,141		71,071	Higher of LIBOR plus 5.25% or 7.25%
Other financing
	Column Financial, Inc.		9		61,505		26,761	10.59%
	Lehman Brothers Holdings, Inc.		5		37,976		23,292	$16,414 at 9.40%; $6,878 at 8.90%
	JP Morgan Chase Bank		2		8,806		10,516	7.25%
	DDL Kinser		1		3,166		2,360	8.25%
	First Union Bank		1		4,353		3,345	9.38%
	Column Financial, Inc.		1		7,762		8,847	9.45%

F-57

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

					March 31, 2004
		Number			Property, Plant			Debt			Interest
		of Hotels			and Equipment, net			Obligations			Rates
					(1)			(1)
					(Unaudited in thousands)
	Column Financial, Inc.		1			6,082			3,173		10.74%
	Robb Evans, Trustee		1			6,661			6,958		Prime plus 4.00%
	Total — other financing		21			136,311			85,252
			90			606,575			454,884		6.4%(2)
Long-term debt — other
	Deferred interest — long-term		—			—			4,288
	Deferred rent on a long-term ground lease		—			—			2,549
	Tax notes issued pursuant to our Joint Plan of Reorganization		—			—			4,014
	Other		—			—			574
			—			—			11,425
Property, plant and equipment — other			—			4,468			—
			90			611,043			466,309
Held for sale			(13	)		(49,582	)		(43,294	)
Total March 31, 2004			77		$	561,461		$	423,015

(1)	Debt obligations and property, plant and equipment of one hotel in which we have a non-controlling equity interest that we do not consolidate are excluded from the table above.
(2)	The 6.4% in the table above represents our annual weighted average cost of debt at March 31, 2004.

Exit Financing

The Merrill Lynch Mortgage senior and mezzanine debt agreements provide that when either (i) the debt yield for the trailing 12-month period is below 13.25% during year ending November 2004 (and if the loan is extended, 13.50%, 13.75% and 14.00% during each of the next three years of the loan, respectively) or (ii) the debt service coverage ratio is below 1.20x, excess cash flows produced by the mortgaged hotels (after payment of operating expenses, management fees, required reserves, loan service fees, principal and interest) must be deposited in a restricted cash account. These funds can be used for the prepayment of aggregate outstanding borrowings, capital expenditures reasonably approved by the lender, and up to an aggregate of $3.0 million of scheduled principal and interest payments due under these agreements. Funds would no longer be deposited into the restricted cash account if the debt yield and the debt service coverage ratio are sustained above the minimum requirements for three consecutive months. On March 31, 2003, the debt yield for the hotels securing the debt fell below the then applicable 12.75% minimum threshold and, therefore, the excess cash flow produced by the hotels securing the debt was retained in the restricted cash account starting on May 1, 2003. Between the inception date of the loan and May 10, 2004, $9.1 million was released from the restricted cash account for capital expenditures and scheduled interest and principal payments. As of May 10, 2004, $3.4 million was being retained in the restricted cash account. At March 31, 2004, the debt yield and debt service coverage ratios remained below the minimum requirements. Further, the mezzanine debt agreement with Merrill Lynch Mortgage requires that we maintain a minimum net worth of at least $10.0 million which we currently meet.

F-58

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Other Financings

On September 30, 2003, first mortgage debt of approximately $7.0 million of MHA became due. We own 60% of MHA, and MHA’s sole asset is the Crowne Plaza Hotel in Macon, Georgia. The lender initially agreed to extend the term of the debt to December 31, 2003, and then to June 30, 2004, while we explore alternative financing opportunities. We have escrowed foreclosure documents that will allow the lender to foreclose on the property on June 30, 2004 if we have not repaid the mortgage debt by that date. There can be no assurance that we will complete a refinancing on or before the due date or that the lender will grant further extensions. If we are not able to refinance the debt and the lender does not grant further extensions, the property would be subject to foreclosure. A foreclosure on the property would constitute a default of the franchise agreement; therefore, we may be liable for $0.9 million in liquidated damages under the franchise agreement. Total revenues for this hotel were $1.4 million for the three months ended March 31, 2004 and also for the three months ended March 31, 2003. The debt of approximately $7.0 million is included in the current portion of long-term debt in our consolidated balance sheet as of March 31, 2004.

9. Commitments and Contingencies

Franchise Agreement and Capital Expenditures

We benefit from the superior brand qualities of the Crowne Plaza, Holiday Inn, Marriott, Hilton and other brands, including the reputation of these brands, reservation bookings through their central reservation systems, global distribution systems, guest loyalty program and brand Internet booking sites. Reservations made by means of these franchisor facilities generally account for approximately 30% of our total reservations.

To obtain these franchise affiliations, we enter into franchise agreements with hotel franchisors that generally have terms of between 10 and 20 years. The franchise agreements typically authorize us to operate the hotel under the franchise name, at a specific location or within a specified area, and require that we operate a hotel in accordance with the standards specified by the franchisor. As part of our franchise agreements, we are generally required to pay a royalty fee, an advertising/marketing fee, a fee for the use of the franchisor’s nationwide reservation system and certain ancillary charges. Royalty fees generally range from 3.0% to 6.0% of gross room revenues, advertising/marketing fees generally range from 1.0% to 4.0% of gross room revenues and reservation system fees generally range from 1.0% to 2.0% of gross room revenues. In the aggregate, royalty fees, advertising/marketing fees and reservation fees for the various brands under which we operate our hotels range from 5.0% to 12.0% of gross room revenues.

These costs vary with revenues and are not fixed commitments. Franchise fees incurred for the three months ended March 31, 2004 and 2003 were as follows:

	Three Months Ended
	March 31, 2004		March 31, 2003
	(Unaudited in thousands)
Continuing operations	$	5,250	$	4,780
Discontinued operations		588		725
	$	5,838	$	5,505

During the term of the franchise agreements, the franchisors may require us to upgrade facilities to comply with their current standards. Our current franchise agreements terminate at various times and have differing remaining terms, for example, the terms of 5, 13 and 9 of our franchise agreements are scheduled to expire in 2004, 2005, and 2006, respectively. As franchise agreements expire, we may apply for a franchise renewal. In connection with renewals, the franchisor may require payment of a renewal fee,

F-59

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

increased royalty and other recurring fees and substantial renovation of the facilities, or the franchisor may elect not to renew the franchise. The costs incurred in connection with these agreements are primarily monthly payments due to the franchisors based on a percentage of room revenues.

If we do not comply with the terms of a franchise agreement, following notice and an opportunity to cure, the franchisor has the right to terminate the agreement, which could lead to a default under one or more of our loan agreements which could materially and adversely affect us. Prior to terminating a franchise agreement, franchisors are required to notify us of the areas of non-compliance and give us the opportunity to cure the non-compliance. In the past, we have been able to cure most cases of non-compliance and most defaults within the cure periods, and those events of non-compliance and defaults did not cause termination of our franchises or defaults on our loan agreements. If we perform an economic analysis of the hotel and determine that it is not economically feasible to comply with a franchisor’s requirements, we will either select an alternative franchisor or operate the hotel without a franchise affiliation.

As of May 10, 2004, we have been notified that we were not in compliance with some of the terms of eight of our franchise agreements and have received default and termination notices from franchisors with respect to an additional three hotels. We cannot assure you that we will be able to complete our action plans (which we estimate will cost approximately $3.8 million) to cure the alleged defaults prior to the specified termination dates or be granted additional time in which to cure any defaults. We are not aware of any other instances of non-compliance with our franchise agreements.

In addition, as part of our bankruptcy reorganization proceedings, we entered into stipulations with each of our major franchisors setting forth a timeline for completion of capital expenditures for some of our hotels. However, as of May 10, 2004, we have not completed the required capital expenditures for 32 hotels in accordance with the stipulations and estimate that completing those improvements will cost $24.6 million. Under the stipulations, the applicable franchisors could therefore seek to declare certain franchise agreements in default and, in certain circumstances, seek to terminate the franchise agreement.

We believe that we will cure the non-compliance and defaults on these hotels before the applicable termination dates, but we cannot provide assurance that we will be able to do so or that we will be able to obtain additional time in which to do so. If a franchise agreement is terminated, we will either select an alternative franchisor or operate the hotel independently of any franchisor. However, terminating or changing the franchise affiliation of a hotel could require us to incur significant expenses, including liquidated damages, and capital expenditures.

To comply with the requirements of our franchisors and to improve our competitive position in the individual markets, we plan to enhance our capital improvement program in 2004.

Letters of Credit

As of March 31, 2004, we had issued two irrevocable letters of credit totaling $3.6 million as guarantees to Zurich American Insurance Company and Donlen Fleet Management Services. These letters of credit will expire in November 2004 but may require renewal beyond that date. All letters of credit are fully collateralized by our cash (classified as restricted cash in the accompanying Condensed Consolidated Balance Sheets).

Self-insurance

We are self-insured up to certain limits with respect to employee medical, employee dental, property insurance, general liability insurance, personal injury claims, workers’ compensation and auto liability. We establish liabilities for these self-insured obligations annually, based on actuarial valuations and our history of claims. Should unanticipated events cause these claims to escalate beyond normal expectations, our financial condition and results of operations would be negatively impacted. As of March 31, 2004, and

F-60

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

December 31, 2003, we had approximately $10.3 million and $10.0 million accrued for these liabilities, respectively.

There are other types of losses for which we cannot obtain insurance at all or at a reasonable cost, including losses caused by acts of war. If an uninsured loss or a loss that exceeds our insurance limits were to occur, we could lose both the revenues generated from the affected hotel and the capital that we have invested. We also could be liable for any outstanding mortgage indebtedness or other obligations related to the hotel. Any such loss could materially and adversely affect our financial condition and results of operations.

We believe that we maintain sufficient insurance coverage for the operation of our business.

Litigation

From time to time, as we conduct our business, legal actions and claims are brought against us. The outcome of these matters is uncertain. However, we believe that all currently pending matters will be resolved without a material adverse effect on our results of operations or financial condition. Claims relating to the period before we filed for Chapter 11 protection are limited to the amounts approved by the Bankruptcy Court for settlement of such claims and are payable out of the disputed claims reserves provided for in our plans of reorganization, which in the case of the Joint Plan of Reorganization, consists of our securities, and in the case of the Impac Plan of Reorganization, consists of $0.1 million of cash as of March 31, 2004. We have reserved for all claims approved by the Bankruptcy Court which have not yet been paid.

10. New Accounting Pronouncements

On July 1, 2003, in accordance with SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”, we reclassified the Preferred Stock to the liability section of the consolidated balance sheet and began presenting the related dividends in interest expense. Prior to the adoption of SFAS No. 150, we presented the Preferred Stock between liabilities and equity in our consolidated balance sheet (called the “mezzanine” section) and reported the Preferred Stock dividend as a deduction from retained earnings with no effect on our results of operations. In accordance with SFAS No. 150, the Preferred Stock and the dividends for the period prior to July 1, 2003, have not been reclassified. Thus the Preferred Stock dividend for the three months ended March 31, 2004 of $4.3 million is presented as part of interest expense while the Preferred Stock dividend for the three months ended March 31, 2003 of $3.8 million is presented as a deduction from retained earnings.

In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities (“FIN 46”), to address perceived weaknesses in accounting for entities commonly known as special-purpose or off-balance-sheet. In addition to numerous FASB Staff Positions written to clarify and improve the application of FIN 46, the FASB recently announced a deferral for certain entities, and an amendment to FIN 46 entitled FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities (“FIN 46R”). FIN 46 establishes consolidation criteria for entities for which “control” is not easily discernible under Accounting Research Bulletin 51, Consolidated Financial Statements, which is based on the premise that holders of the equity of an entity, control the entity by virtue of voting rights. FIN 46 provides guidance for identifying the party with a controlling financial interest resulting from arrangements or financial interests rather than from voting interests. FIN 46 defines the term “variable interest entity” (“VIE”) and is based on the premise that if a business enterprise absorbs a majority of the VIE’s expected losses and/or receives a majority of its expected residual returns (measure of risk and reward), that enterprise (the primary beneficiary) has a controlling financial interest in the VIE. The assets, liabilities, and results of the activities of the VIE should be included in the consolidated financial statements of the primary beneficiary. We were required to adopt the provisions of

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LODGIAN, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FIN 46R relating to any interests in special-purpose entities (SPEs) as of December 31, 2003. In addition, during the first quarter of 2004, we were required to apply the provisions of FIN 46R to any other entities falling within its scope. The adoption of FIN 46 and the counterpart revision (FIN 46R) has not had and is not expected to have a material impact on our financial position and results of operations.

11. Related Party Transactions

Richard Cartoon, our Executive Vice President and Chief Financial Officer between October 4, 2001 and October 13, 2003, is a principal in a business which we retained in October 2001 to provide Richard Cartoon’s services as Chief Financial Officer and other restructuring support and services. In addition to amounts paid for Richard Cartoon’s services as Chief Financial Officer, we were billed $28,000 and $52,000, including expenses, for other support and services provided by associates of Richard Cartoon, LLC for the three months ended March 31, 2004 and 2003, respectively. Richard Cartoon, LLC may continue to provide restructuring support and services in the short-term.

12. Subsequent Events

As previously discussed, between November 1, 2003 and May 10, 2004, we sold an office building and nine of the hotels identified for sale. One of these hotels was sold in 2003, five were sold in the first quarter of 2004 and three were sold subsequent to the first quarter 2004. Summarized below is certain financial data relating to the three hotels sold between April 1, 2004 and May 10, 2004:

	(Unaudited in thousands)
Aggregate sales price	$	20,678
Carrying value of property, plant and equipment at March 31, 2004		14,553
Debt paid down from sales proceeds		18,141
Total revenues for the three months ended March 31, 2004 ($2.6 million for the three months ended March 31, 2003)		2,793
Direct operating expenses for the three months ended March 31, 2004 ($1.2 million for the three months ended March 31, 2003)		1,153

F-62

17,500,000 Shares

LODGIAN, INC.

Common Stock

PROSPECTUS

Merrill Lynch & Co.

Citigroup

Banc of America Securities LLC

Legg Mason Wood Walker

Incorporated

Raymond James

                                             , 2004

PART II

Item 13. Other Expenses of Issuance and Distribution

Securities and Exchange Commission registration fee	$	37,636
NASD, Inc. fee	$	25,500
American Stock Exchange listing fee	$	45,000
Accountants’ fees and expenses	$	300,000
Legal fees and expenses	$	625,000
Blue Sky fees and expenses	$	5,000
Transfer Agent’s fees and expenses	$	15,000
Printing and engraving expenses	$	350,000
Board advisory fee	$	150,000
Miscellaneous	$	41,864
Total Expenses	$	1,595,000

Item 14. Indemnification of Directors and Officers

          As permitted by Section 102 of the Delaware General Corporation Law, the amended and restated certificate of incorporation of Lodgian, eliminates its directors’ personal liability to Lodgian or its stockholders for monetary damages for a breach of fiduciary duty as a director of Lodgian, except:

• For any breach of the director’s duty of loyalty to Lodgian or its stockholders;

• For acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;

• For payment of dividends or stock purchases or redemptions by the corporation in violation of Section 174 of the Delaware General Corporation Law; or

• For any transaction from which the director derived an improper personal benefit.

          As a result of this provision, Lodgian and its stockholders may be unable to obtain monetary damages from a director for certain breaches of his or her fiduciary duty to Lodgian. This provision does not, however, eliminate the directors’ fiduciary responsibilities and, in appropriate circumstances, equitable remedies such as injunctive or other forms of non-monetary relief will remain available under Delaware law. The provision also does not affect a director’s responsibilities under any other laws, such as the federal securities laws or state or federal environmental laws.

          The amended and restated certificate further provides that Lodgian must indemnify its directors, officers, employees and agents to the fullest extent permitted by the Delaware General Corporation Law. Under Section 145 of the Delaware General Corporation Law, a Delaware corporation has the power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that the person is or was a director, officer, employee or agent of the corporation. The corporation may indemnify such a person against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with the action, suit or proceeding if the person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful, except that, in the case of an action by or in the right of the corporation, judicial approval is required for indemnification in respect of any claim, issue or matter as to which the person was adjudged to be liable to the corporation. To the extent that a present or former director or officer of a corporation is successful on the merits or otherwise in the defense of any such action, suit or proceeding, the corporation must indemnify him or her against the expenses (including attorney’s fees) he or she actually and reasonably incurred. Under Delaware law, the expenses

II-1

of an officer or director in defending any civil, criminal, administrative or investigative action, suit or proceeding may be paid by a Delaware corporation in advance of the final disposition of the action, suit or proceeding after delivery to the corporation of an undertaking by or on behalf of the director or officer to repay such amounts if it is ultimately determined that the director or officer is not entitled to be indemnified. Expenses incurred by former directors and officers or other employees and agents may be so paid on such terms and conditions, if any, as the corporation deems appropriate.

          The form of Purchase Agreement (to be filed as Exhibit 1.1 to this registration statement) provides for indemnification by the underwriters of Lodgian and its officers and directors for certain liabilities arising under the Securities Act of 1933, as amended, or otherwise.

          The indemnification provision in Lodgian’s amended and restated certificate of incorporation and the Purchase Agreement may be sufficiently broad to permit indemnification of Lodgian’s directors and executive officers for liabilities arising under the Securities Act of 1933, as amended.

          Lodgian may purchase and maintain an insurance policy insuring its directors, officers, employees and agents against liability for certain acts and omissions while acting in their official capacity.

Item 15. Recent Sales of Unregistered Securities

          During the past three years, we have issued the securities set forth below that were not registered under Section 5 of the Securities Act of 1933, as amended:

          Pursuant to the Joint Plan of Reorganization, upon our emergence from reorganization proceedings on November 25, 2002:

• 5,000,000 shares of Preferred Stock, par value $0.01, with an initial liquidation value $25 per share, were issued or reserved for issuance in satisfaction of outstanding debt and other obligations;

•  2,333,333 shares of common stock, par value $0.01 per share, were issued or reserved for issuance in satisfaction of outstanding debt and other obligations;

•  Class A warrants to purchase an aggregate of 503,546 shares of common stock at $54.87 per share were made available for issuance in satisfaction of outstanding debt and other obligations;

•  Class B warrants to purchase an aggregate of 343,122 shares of common stock at $76.32 per share were made available for issuance in satisfaction of outstanding debt and other obligations;

•  Our previous equity, consisting of an aggregate of 28,479,837 shares, was cancelled, and in exchange our stockholders received their pro rata share of 69,300 shares of common stock, plus class A warrants to purchase an aggregate of 83,941 shares of common stock and class B warrants to purchase an aggregate of 259,434 shares of common stock;

•  Our CRESTS were cancelled and the holders received their pro rata share of 289,333 shares of the common stock, plus class A warrants to purchase 419,605 shares of common stock and class B warrants to purchase 83,687 shares of common stock;

•  Our 12.25% Senior Subordinated Notes were cancelled and the holders of the notes received their pro rata share of 4,690,600 shares of Preferred Stock and 1,852,503 shares of common stock; and

•  The holders of allowed general unsecured claims became entitled to 309,400 shares of Preferred Stock and 122,196 shares of common stock, referred to as the “disputed claims reserve.” Until distributed, these shares are part of the disputed claims reserve for the pre-bankruptcy petition general unsecured creditors. These shares are periodically distributed as the disputed claims are resolved.

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          On November 21, 2003, our first dividend payment date, we issued 594,299 shares of Preferred Stock as dividends, fractional shares which were paid in cash of approximately $18,500.

          As set forth in Section 7.11 of the Joint Plan of Reorganization, all issuances of our common stock, Preferred Stock, Class A warrants and Class B warrants pursuant to the Joint Plan of Reorganization were exempt from any securities laws registration requirements to the fullest extent permitted by section 1145 of the Bankruptcy Code.

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Item 16. Exhibits

Exhibit
Number			Description
	1	.1	Form of Purchase Agreement.
	3	.1	Second Amended and Restated Certificate of Incorporation of Lodgian, Inc.
	3	.2†	Amended Restated Bylaws of Lodgian, Inc. (incorporated by reference to Exhibit 3.4 to the Company’s Registration Statement on Form S-1, filed with the Commission on March 9, 2004).
	4	.1	Specimen Common Stock Certificate.
	5	.1†	Form of Legal Opinion of Morris, Manning & Martin, LLP, Counsel to the Registrant, as to the legality of the shares being registered.
	10	.1.1†	Loan Agreement, dated as of January 31, 1995, by and among Column Financial, Inc., Servico Fort Wayne, Inc., Washington Motel Enterprises, Inc., Servico Hotels I, Inc., Servico Hotels II, Inc., Servico Hotels III, Inc., Servico Hotels IV, Inc., New Orleans Airport Motels Associates, Ltd., Wilpen, Inc., Hilton Head Motels Enterprises, Inc. and Moon Airport Hotel Inc.
	10	.1.2†	Promissory Note, in original amount of $60.5 million, dated as of January 31, 1995, by Servico Fort Wayne, Inc., Washington Motel Enterprises, Inc., Servico Hotels I, Inc., Servico Hotels II, Inc., Servico Hotels III, Inc., Servico Hotels IV, Inc., New Orleans Airport Motels Associates, Ltd., Wilpen, Inc., Hilton Head Motels Enterprises, Inc. and Moon Airport Hotel Inc., in favor of Column Financial, Inc.
	10	.2.1†	Loan and Security Agreement, dated as of November 25, 2002, by and between certain Lodgian subsidiaries and Merrill Lynch Mortgage Lending, Inc.
	10	.2.2†	Promissory Note in original amount of $224,036,325, dated as of November 25, 2002, between certain Lodgian subsidiaries and Merrill Lynch Mortgage Lending, Inc.
	10	.2.3†	Modification of Loan Agreement and Other Loan Documents, dated as of March 31, 2003, by and between certain Lodgian subsidiaries and Merrill Lynch Mortgage Lending, Inc.
	10	.2.4†	Note Severance Agreement, dated as of March 31, 2003, between Merrill Lynch Mortgage Lending, Inc. and certain Lodgian, Inc. subsidiaries.
	10	.2.5†	$218,217,000 Amended and Restated Promissory Note A, dated as of March 31, 2003, between Merrill Lynch Mortgage Lending, Inc. and certain Lodgian, Inc. subsidiaries.
	10	.2.6†	$5,539,275 Promissory Note B, dated as of March 31, 2003, between Merrill Lynch Mortgage Lending, Inc. and certain Lodgian, Inc. subsidiaries.
	10	.3.1†	Mezzanine Loan Agreement, dated as of November 25, 2002, by and between Impac Hotel Group Mezzanine, LLC, Servico Operations Mezzanine, LLC, Lodgian Financing Mezzanine, LLC, Island Motel Enterprises, Inc. and Penmoco, Inc. and Merrill Lynch Mortgage Lending, Inc.
	10	.3.2†	Promissory Note, in original amount of $78,671,201, dated as of November 25, 2002, between Impac Hotel Group Mezzanine, LLC, Servico Operations Mezzanine, LLC, Lodgian Financing Mezzanine, LLC, Island Motel Enterprises, Inc., Penmoco, Inc. and Merrill Lynch Mortgage Lending, Inc.
	10	.3.3†	Guaranty of Resource Obligations, dated as of November 25, 2002, by Lodgian, Inc. and Merrill Lynch Mortgage Lending, Inc.
	10	.3.4†	Modification of Loan Agreement and Other Loan Documents, dated as of March 31, 2003, by and between Impac Hotel Group Mezzanine, LLC, Servico Operations Mezzanine, LLC, Lodgian Financing Mezzanine, LLC, Island Motel Enterprises, Inc., Penmoco, Inc. and Merrill Lynch Mortgage Lending, Inc.
	10	.3.5†	$84,080,526 Amended, Restated and Consolidated Mezzanine Note, dated as of March 31, 2003, by certain Lodgian, Inc. subsidiaries and Merrill Lynch Mortgage Lending, Inc.
	10	.3.6†	Assignment and Assumption Agreement, dated as of March 31, 2003, by and among the Assignors thereto and certain Lodgian, Inc. subsidiaries.
	10	.4.1†	Loan Agreement, dated as of May 22, 2003, between Lehman Brothers Holdings Inc. and certain Lodgian subsidiaries.

II-4

Exhibit
Number			Description
	10	.4.2†	$80,000,000 Consolidated, Amended and Restated Mortgage Note, dated as of May 22, 2003, made by certain Lodgian subsidiaries and Lehman Brothers Holdings Inc.
	10	.4.3†	$5,000,000 GAP Mortgage Note, dated as of May 22, 2003, made by certain Lodgian subsidiaries and Lehman Brothers Holdings Inc.
	10	.4.4†	Principal’s Agreement, dated as of May 22, 2003, by Lodgian, Inc. to and for the benefit of Lehman Brothers Holdings Inc.
	10	.4.5†	Security Agreement and LockBox Agreement, dated as of May 22, 2003, by Lodgian, Inc., Lehman Brothers Holdings Inc. and Trimont Real Estate Advisor’s, Inc.
	10	.4.6†	First Amendment to Loan Documents, dated as of November 11, 2003, among certain Lodgian, Inc. subsidiaries, Lodgian, Inc., as Guarantor, and Lehman Brothers Holdings Inc.
	10	.5	Amended and Restated 2002 Stock Incentive Plan of Lodgian, Inc.
	10	.6†	Disclosure Statement for Joint Plan of Reorganization of Lodgian, Inc., et al (other than the CCA Debtors), Together with the Official Committee of Unsecured Creditors under Chapter 11 of the Bankruptcy Code, dated September 26, 2002.
	10	.7†	First Amended Joint Plan of Reorganization of Lodgian, Inc., et al (other than the CCA Debtors), Together with the Official Committee of Unsecured Creditors under Chapter 11 of the Bankruptcy Code, dated November 5, 2002.
	10	.8†	Order Confirming the First Amended Joint Plan of Reorganization of Lodgian, Inc., et al., issued on November 5, 2002 by the United States Bankruptcy Court for the Southern District of New York.
	10	.9†	Class A Warrant Agreement, dated as of November 25, 2002, between Lodgian, Inc. and Wachovia Bank, N.A.
	10	.10†	Class B Warrant Agreement, dated as of November 25, 2002, between Lodgian, Inc. and Wachovia Bank, N.A.
	10	.11†	Registration Rights Agreement, dated as of November 25, 2002, between Lodgian, Inc. and the other signatories thereto.
	10	.12†	Employment Agreement with W. Thomas Parrington, dated as of December 18, 2003.
	10	.13.1†	Disclosure Statement for Joint Plan of Reorganization of Impac Hotels II, L.L.C. and Impac Hotels III, LLC together with the Official Committee of Unsecured Creditors Under Chapter 11 of the Bankruptcy Code.
	10	.13.2†	Joint Plan of Reorganization of Impac Hotels II, L.L.C. and Impac Hotels III, L.L.C. together with the Official Committee of Unsecured Creditors Under Chapter 11 of the Bankruptcy Code.
	10	.13.3†	Order Confirming Joint Plan of Reorganization of Impac Hotels II, L.L.C. and Impac Hotels III, L.L.C. together with the Official Committee of Unsecured Creditors Under Chapter 11 of the Bankruptcy Code.
	10	.13.4†	Post Confirmation Order and Notice for Joint Plan of Reorganization of Impac Hotels III, L.L.C. together with the Official Committee of Unsecured Creditors Under Chapter 11 of the Bankruptcy Code.
	10	.14.1†	Lease Agreement, dated as of April 7, 1997, by and between CSB-Georgia Limited Partnership and Impac Hotel Group, L.L.C.
	10	.14.2†	First Amendment to Lease Agreement, dated as of May 8, 1998, by and between Cousins LORET Venture, L.L.C. and Impac Hotel Group, L.L.C.
	10	.14.3†	Second Amendment to Lease Agreement, dated as of June 7, 2000, by and between Cousins LORET Venture, L.L.C. and Lodgian, Inc.
	10	.14.4†	Third Amendment to Lease Agreement, dated as of April 1, 2002, by and between Cousins LORET Venture, L.L.C. and Lodgian, Inc.
	10	.14.5†	Fourth Amendment to Lease Agreement, dated as of April 28, 2003, by and between Cousins LORET Venture, L.L.C. and Lodgian, Inc.

II-5

Exhibit
Number			Description
	10	.14.6†	Fifth Amendment to Lease Agreement, dated as of December 23, 2003, by and between Cousins LORET Venture, L.L.C. and Lodgian, Inc.
	10	.15.1†	Restricted Unit Award Agreement with W. Thomas Parrington, dated as of July 15, 2003.
	10	.15.2†	Restricted Unit Award Agreement with W. Thomas Parrington, dated as of April 9, 2004.
	10	.16	Employment Agreement between Lodgian, Inc. and Daniel E. Ellis dated May 2, 2004 (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 14, 2004).
	10	.17	Employment Agreement between Lodgian, Inc. and Manuel E. Artime dated May 10, 2004 (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 14, 2004).
	10	.18	Employment Agreement between Lodgian, Inc. and Michael W. Amaral dated May 4, 2004 (incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 14, 2004).
	10	.19	Employment Agreement between Lodgian, Inc. and Samuel J. Davis dated May 14, 2004.
	10	.20.1	Lodgian, Inc. 401(k) Plan, As Amended and Restated Effective as of September 1, 2003.
	10	.20.2	Amendment No. 1 to the Lodgian, Inc. 401(k) Plan (As Amended and Restated Effective as of September 1, 2003) (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 14, 2004).
	21	.1†	Subsidiaries of Lodgian, Inc.
	23	.1	Consent of Deloitte & Touche LLP.
	23	.2†	Consent of Morris, Manning & Martin, LLP (included in Exhibit 5.1).
	24	.1†	Powers of Attorney (included on signature page).

† Previously filed

II-6

Item 17.     Undertakings

          (a) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

          (b) The Registrant hereby undertakes that:

          (i) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of the Registration Statement as of the time it was declared effective.

          (ii) For purposes of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

II-7

SIGNATURES

          Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized on the 4th day of June, 2004.

LODGIAN, INC.

By:  /s/ W. THOMAS PARRINGTON

W. Thomas Parrington

President and Chief Executive Officer

          Pursuant to the requirements of the Securities Act, the following persons in the capacities and on the dates indicated have signed this Registration Statement.

Signature		Title	Date
/s/ W. THOMAS PARRINGTON W. Thomas Parrington		Director, President and Chief Executive Officer	June 4, 2004
* Manuel E. Artime		Executive Vice President and Chief Financial Officer	June 4, 2004
* Linda Borchert Philp		Vice President and Chief Accounting Officer	June 4, 2004
* Russel S. Bernard		Chairman of the Board of Directors	June 4, 2004
* Sean F. Armstrong		Director	June 4, 2004
* Stewart Brown		Director	June 4, 2004
* Kenneth A. Caplan		Director	June 4, 2004
* Stephen P. Grathwohl		Director	June 4, 2004
* Jonathan D. Gray		Director	June 4, 2004
* Kevin C. McTavish		Director	June 4, 2004
*By:	/s/ DANIEL E. ELLIS Daniel E. Ellis Attorney-in-fact

II-8

INDEX TO EXHIBIT PAGE

Exhibit
Number			Description
	1	.1	Form of Purchase Agreement.
	3	.1	Second Amended and Restated Certificate of Incorporation of Lodgian, Inc.
	3	.2†	Amended Restated Bylaws of Lodgian, Inc. (incorporated by reference to Exhibit 3.4 to the Company’s Registration Statement on Form S-1, filed with the Commission on March 9, 2004).
	4	.1	Specimen Common Stock Certificate.
	5	.1†	Form of Legal Opinion of Morris, Manning & Martin, LLP, Counsel to the Registrant, as to the legality of the shares being registered.
	10	.1.1†	Loan Agreement, dated as of January 31, 1995, by and among Column Financial, Inc., Servico Fort Wayne, Inc., Washington Motel Enterprises, Inc., Servico Hotels I, Inc., Servico Hotels II, Inc., Servico Hotels III, Inc., Servico Hotels IV, Inc., New Orleans Airport Motels Associates, Ltd., Wilpen, Inc., Hilton Head Motels Enterprises, Inc. and Moon Airport Hotel Inc.
	10	.1.2†	Promissory Note, in original amount of $60.5 million, dated as of January 31, 1995, by Servico Fort Wayne, Inc., Washington Motel Enterprises, Inc., Servico Hotels I, Inc., Servico Hotels II, Inc., Servico Hotels III, Inc., Servico Hotels IV, Inc., New Orleans Airport Motels Associates, Ltd., Wilpen, Inc., Hilton Head Motels Enterprises, Inc. and Moon Airport Hotel Inc., in favor of Column Financial, Inc.
	10	.2.1†	Loan and Security Agreement, dated as of November 25, 2002, by and between certain Lodgian subsidiaries and Merrill Lynch Mortgage Lending, Inc.
	10	.2.2†	Promissory Note in original amount of $224,036,325, dated as of November 25, 2002, between certain Lodgian subsidiaries and Merrill Lynch Mortgage Lending, Inc.
	10	.2.3†	Modification of Loan Agreement and Other Loan Documents, dated as of March 31, 2003, by and between certain Lodgian subsidiaries and Merrill Lynch Mortgage Lending, Inc.
	10	.2.4†	Note Severance Agreement, dated as of March 31, 2003, between Merrill Lynch Mortgage Lending, Inc. and certain Lodgian, Inc. subsidiaries.
	10	.2.5†	$218,217,000 Amended and Restated Promissory Note A, dated as of March 31, 2003, between Merrill Lynch Mortgage Lending, Inc. and certain Lodgian, Inc. subsidiaries.
	10	.2.6†	$5,539,275 Promissory Note B, dated as of March 31, 2003, between Merrill Lynch Mortgage Lending, Inc. and certain Lodgian, Inc. subsidiaries.
	10	.3.1†	Mezzanine Loan Agreement, dated as of November 25, 2002, by and between Impac Hotel Group Mezzanine, LLC, Servico Operations Mezzanine, LLC, Lodgian Financing Mezzanine, LLC, Island Motel Enterprises, Inc. and Penmoco, Inc. and Merrill Lynch Mortgage Lending, Inc.
	10	.3.2†	Promissory Note, in original amount of $78,671,201, dated as of November 25, 2002, between Impac Hotel Group Mezzanine, LLC, Servico Operations Mezzanine, LLC, Lodgian Financing Mezzanine, LLC, Island Motel Enterprises, Inc., Penmoco, Inc. and Merrill Lynch Mortgage Lending, Inc.
	10	.3.3†	Guaranty of Resource Obligations, dated as of November 25, 2002, by Lodgian, Inc. and Merrill Lynch Mortgage Lending, Inc.
	10	.3.4†	Modification of Loan Agreement and Other Loan Documents, dated as of March 31, 2003, by and between Impac Hotel Group Mezzanine, LLC, Servico Operations Mezzanine, LLC, Lodgian Financing Mezzanine, LLC, Island Motel Enterprises, Inc., Penmoco, Inc. and Merrill Lynch Mortgage Lending, Inc.
	10	.3.5†	$84,080,526 Amended, Restated and Consolidated Mezzanine Note, dated as of March 31, 2003, by certain Lodgian, Inc. subsidiaries and Merrill Lynch Mortgage Lending, Inc.
	10	.3.6†	Assignment and Assumption Agreement, dated as of March 31, 2003, by and among the Assignors thereto and certain Lodgian, Inc. subsidiaries.
	10	.4.1†	Loan Agreement, dated as of May 22, 2003, between Lehman Brothers Holdings Inc. and certain Lodgian subsidiaries.
	10	.4.2†	$80,000,000 Consolidated, Amended and Restated Mortgage Note, dated as of May 22, 2003, made by certain Lodgian subsidiaries and Lehman Brothers Holdings Inc.

Exhibit
Number			Description
	10	.4.3†	$5,000,000 GAP Mortgage Note, dated as of May 22, 2003, made by certain Lodgian subsidiaries and Lehman Brothers Holdings Inc.
	10	.4.4†	Principal’s Agreement, dated as of May 22, 2003, by Lodgian, Inc. to and for the benefit of Lehman Brothers Holdings Inc.
	10	.4.5†	Security Agreement and LockBox Agreement, dated as of May 22, 2003, by Lodgian, Inc., Lehman Brothers Holdings Inc. and Trimont Real Estate Advisor’s, Inc.
	10	.4.6†	First Amendment to Loan Documents, dated as of November 11, 2003, among certain Lodgian, Inc. subsidiaries, Lodgian, Inc., as Guarantor, and Lehman Brothers Holdings Inc.
	10	.5	Amended and Restated 2002 Stock Incentive Plan of Lodgian, Inc.
	10	.6†	Disclosure Statement for Joint Plan of Reorganization of Lodgian, Inc., et al (other than the CCA Debtors), Together with the Official Committee of Unsecured Creditors under Chapter 11 of the Bankruptcy Code, dated September 26, 2002.
	10	.7†	First Amended Joint Plan of Reorganization of Lodgian, Inc., et al (other than the CCA Debtors), Together with the Official Committee of Unsecured Creditors under Chapter 11 of the Bankruptcy Code, dated November 5, 2002.
	10	.8†	Order Confirming the First Amended Joint Plan of Reorganization of Lodgian, Inc., et al., issued on November 5, 2002 by the United States Bankruptcy Court for the Southern District of New York.
	10	.9†	Class A Warrant Agreement, dated as of November 25, 2002, between Lodgian, Inc. and Wachovia Bank, N.A.
	10	.10†	Class B Warrant Agreement, dated as of November 25, 2002, between Lodgian, Inc. and Wachovia Bank, N.A.
	10	.11†	Registration Rights Agreement, dated as of November 25, 2002, between Lodgian, Inc. and the other signatories thereto.
	10	.12†	Employment Agreement with W. Thomas Parrington, dated as of December 18, 2003.
	10	.13.1†	Disclosure Statement for Joint Plan of Reorganization of Impac Hotels II, L.L.C. and Impac Hotels III, LLC together with the Official Committee of Unsecured Creditors Under Chapter 11 of the Bankruptcy Code.
	10	.13.2†	Joint Plan of Reorganization of Impac Hotels II, L.L.C. and Impac Hotels III, L.L.C. together with the Official Committee of Unsecured Creditors Under Chapter 11 of the Bankruptcy Code.
	10	.13.3†	Order Confirming Joint Plan of Reorganization of Impac Hotels II, L.L.C. and Impac Hotels III, L.L.C. together with the Official Committee of Unsecured Creditors Under Chapter 11 of the Bankruptcy Code.
	10	.13.4†	Post Confirmation Order and Notice for Joint Plan of Reorganization of Impac Hotels III, L.L.C. together with the Official Committee of Unsecured Creditors Under Chapter 11 of the Bankruptcy Code.
	10	.14.1†	Lease Agreement, dated as of April 7, 1997, by and between CSB-Georgia Limited Partnership and Impac Hotel Group, L.L.C.
	10	.14.2†	First Amendment to Lease Agreement, dated as of May 8, 1998, by and between Cousins LORET Venture, L.L.C. and Impac Hotel Group, L.L.C.
	10	.14.3†	Second Amendment to Lease Agreement, dated as of June 7, 2000, by and between Cousins LORET Venture, L.L.C. and Lodgian, Inc.
	10	.14.4†	Third Amendment to Lease Agreement, dated as of April 1, 2002, by and between Cousins LORET Venture, L.L.C. and Lodgian, Inc.
	10	.14.5†	Fourth Amendment to Lease Agreement, dated as of April 28, 2003, by and between Cousins LORET Venture, L.L.C. and Lodgian, Inc.
	10	.14.6†	Fifth Amendment to Lease Agreement, dated as of December 23, 2003, by and between Cousins LORET Venture, L.L.C., and Lodgian, Inc.
	10	.15.1†	Restricted Unit Award Agreement with W. Thomas Parrington, dated as of July 15, 2003.
	10	.15.2†	Restricted Unit Award Agreement with W. Thomas Parrington, dated as of April 9, 2004.

Exhibit
Number			Description
	10	.16	Employment Agreement between Lodgian, Inc. and Daniel E. Ellis dated May 2, 2004 (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 14, 2004).
	10	.17	Employment Agreement between Lodgian, Inc. and Manuel E. Artime dated May 10, 2004 (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 14, 2004).
	10	.18	Employment Agreement between Lodgian, Inc. and Michael W. Amaral dated May 4, 2004 (incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 14, 2004).
	10	.19	Employment Agreement between Lodgian, Inc. and Samuel J. Davis dated May 14, 2004.
	10	.20.1	Lodgian, Inc. 401(k) Plan, As Amended and Restated Effective as of September 1, 2003.
	10	.20.2	Amendment No. 1 to the Lodgian, Inc. 401(k) Plan (As Amended and Restated Effective as of September 1, 2003) (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 14, 2004).
	21	.1†	Subsidiaries of Lodgian, Inc.
	23	.1	Consent of Deloitte & Touche LLP.
	23	.2†	Consent of Morris, Manning & Martin, LLP (included in Exhibit 5.1).
	24	.1†	Powers of Attorney (included on signature page).

† Previously filed

EX-1.1

                                                                     EXHIBIT 1.1

===============================================================================


















                                  LODGIAN, INC.
                            (a Delaware corporation)
                         ________ Shares of Common Stock






                               PURCHASE AGREEMENT



















Dated:  ______, 2004




===============================================================================




                                  LODGIAN, INC.
                            (a Delaware corporation)
                         ________ Shares of Common Stock
                           (Par Value $.01 Per Share)
                               PURCHASE AGREEMENT

                                                                    ______, 2004

MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
            Incorporated
CITIGROUP GLOBAL MARKETS INC.
BANC OF AMERICA SECURITIES LLC
LEGG MASON WOOD WALKER INCORPORATED
RAYMOND JAMES & ASSOCIATES, INC.

as Representatives of the several Underwriters
c/o    Merrill Lynch & Co.
       Merrill Lynch, Pierce, Fenner & Smith
                   Incorporated
4 World Financial Center
New York, New York  10080


Ladies and Gentlemen:


         Lodgian, Inc., a Delaware corporation (the "Company"), confirms its
agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") and each of the other Underwriters named in
Schedule A hereto (collectively, the "Underwriters," which term shall also
include any underwriter substituted as hereinafter provided in Section 10
hereof), for whom Merrill Lynch, Citigroup Global Markets Inc. ("Citigroup"),
Banc of America Securities LLC, Legg Mason Wood Walker, Incorporated and Raymond
James & Associates, Inc. are acting as representatives (in such capacity, the
"Representatives"), with respect to the issue and sale by the Company and the
purchase by the Underwriters, acting severally and not jointly, of the
respective numbers of shares of Common Stock, par value $.01 per share, of the
Company ("Common Stock") set forth in said Schedule A, and with respect to the
grant by the Company to the Underwriters, acting severally and not jointly, of
the option described in Section 2(b) hereof to purchase all or any part of
______ additional shares of Common Stock to cover overallotments, if any. The
aforesaid ______ shares of Common Stock (the "Initial Securities") to be
purchased by the Underwriters and all or any part of the ______ shares of Common
Stock subject to the option described in Section 2(b) hereof (the "Option
Securities") are hereinafter called, collectively, the "Securities."

         The Company understands that the Underwriters propose to make a public
offering of the Securities as soon as the Representatives deem advisable after
this Agreement has been executed and delivered.

         The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (No. 333-113410), as amended,
including the related preliminary prospectus or prospectuses, covering the
registration of the Securities under the Securities Act of 1933, as amended (the
"1933 Act"). Promptly after execution and delivery of this Agreement, the
Company will




prepare and file a prospectus in accordance with the provisions of Rule 430A
("Rule 430A") of the rules and regulations of the Commission under the 1933 Act
(the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of
the 1933 Act Regulations. The information included in such prospectus that was
omitted from such registration statement at the time it became effective but
that is deemed to be part of such registration statement at the time it became
effective pursuant to paragraph (b) of Rule 430A is referred to as "Rule 430A
Information." Each prospectus used before such registration statement became
effective, and any prospectus that omitted the Rule 430A Information, that was
used after such effectiveness and prior to the execution and delivery of this
Agreement, is herein called a "preliminary prospectus." Such registration
statement, including the exhibits and any schedules thereto, at the time it
became effective, and including the Rule 430A Information, is herein called the
"Registration Statement." Any registration statement filed pursuant to Rule
462(b) of the 1933 Act Regulations is herein referred to as the "Rule 462(b)
Registration Statement," and after such filing the term "Registration Statement"
shall include the Rule 462(b) Registration Statement. The final prospectus in
the form first furnished to the Underwriters for use in connection with the
offering of the Securities is herein called the "Prospectus." For purposes of
this Agreement, all references to the Registration Statement, any preliminary
prospectus, the Prospectus or any amendment or supplement to any of the
foregoing shall be deemed to include the copy filed with the Commission pursuant
to its Electronic Data Gathering, Analysis and Retrieval system ("EDGAR").

         SECTION 1. Representations and Warranties.

         (a)      Representations and Warranties by the Company. The Company
represents and warrants to each Underwriter as of the date hereof, as of the
Closing Time referred to in Section 2(c) hereof, and as of each Date of Delivery
(if any) referred to in Section 2(b) hereof, and agrees with each Underwriter,
as follows:

                  (i)      Compliance with Registration Requirements. Each of
         the Registration Statement, any Rule 462(b) Registration Statement and
         any post-effective amendment thereto has become effective under the
         1933 Act and no stop order suspending the effectiveness of the
         Registration Statement, any Rule 462(b) Registration Statement or any
         post-effective amendment thereto has been issued under the 1933 Act and
         no proceedings for that purpose have been instituted or are pending or,
         to the knowledge of the Company, are contemplated by the Commission,
         and any request on the part of the Commission for additional
         information has been complied with.

                  At the respective times the Registration Statement, any Rule
         462(b) Registration Statement and any post-effective amendments thereto
         became effective and at the Closing Time (and, if any Option Securities
         are purchased, at the Date of Delivery), the Registration Statement,
         the Rule 462(b) Registration Statement and any amendments and
         supplements thereto complied and will comply in all material respects
         with the requirements of the 1933 Act and the 1933 Act Regulations and
         did not and will not contain an untrue statement of a material fact or
         omit to state a material fact required to be stated therein or
         necessary to make the statements therein not misleading. Neither the
         Prospectus nor any amendments or supplements thereto, at the time the
         Prospectus or any such amendment or supplement was issued and at the
         Closing Time (and, if any Option Securities are purchased, at the Date
         of Delivery), included or will include an untrue statement of a
         material fact or omitted or will omit to state a material fact
         necessary in order to make the statements therein, in the light of the
         circumstances under which they were made, not misleading. The
         representations and warranties in this subsection shall not apply to
         statements in or omissions from the Registration Statement or
         Prospectus made in reliance upon and in conformity with written
         information furnished to the Company by any Underwriter through


                                       2


         Merrill Lynch expressly for use in the Registration Statement (or any
         amendment thereto) or the Prospectus (or any amendment or supplement
         thereto).

                  Each preliminary prospectus and the prospectus filed as part
         of the Registration Statement as originally filed or as part of any
         amendment thereto complied when so filed in all material respects with
         the 1933 Act Regulations and each preliminary prospectus and the
         Prospectus delivered to the Underwriters for use in connection with
         this offering was identical to the electronically transmitted copies
         thereof filed with the Commission pursuant to EDGAR, except to the
         extent permitted by Regulation S-T.

                  (ii)     Independent Accountants. To the Company's knowledge,
         the accountants who certified the financial statements and supporting
         schedules included in the Registration Statement are independent public
         accountants as required by the 1933 Act and the 1933 Act Regulations.

                  (iii)    Financial Statements. The financial statements
         included in the Registration Statement and the Prospectus, together
         with the related schedules and notes, present fairly, in all material
         respects, the financial position of the Company and its consolidated
         subsidiaries at the dates indicated and the statement of operations,
         stockholders' equity and cash flows of the Company and its consolidated
         subsidiaries for the periods specified; and said financial statements
         have been prepared in conformity with generally accepted accounting
         principles ("GAAP") applied on a consistent basis throughout the
         periods involved, except as otherwise noted therein and in the
         Registration Statement and Prospectus. The supporting schedules
         included in the Registration Statement present fairly in accordance
         with GAAP the information required to be stated therein. The selected
         financial data and the summary financial information included in the
         Prospectus present fairly, in all material respects, the information
         shown therein and have been compiled on a basis consistent with that of
         the audited financial statements included in the Registration
         Statement. All historical financial statements and information and all
         pro forma financial statements and information relating to the Company
         or any entity acquired or to be acquired by the Company required by the
         1933 Act and the 1933 Act Regulations to be included in the
         Registration Statement and Prospectus. The statistical and
         market-related data included in the Registration Statement and the
         Prospectus are based on or derived from sources which the Company
         reasonably and in good faith believes are reliable and accurate, and
         such data agrees with the sources from which they are derived.

                  (iv)     Related-Party Transactions. No relationship, direct
         or indirect, exists between or among any of the Company or any
         affiliate of the Company, on the one hand, and any director, officer,
         stockholder, customer or supplier of the Company or any affiliate of
         the Company, on the other hand, which is required by the 1933 Act or
         the 1933 Act Regulations to be described in the Registration Statement
         or the Prospectus which is not so described or is not described as
         required. There are no outstanding loans, advances (except normal
         advances for business expenses in the ordinary course of business) or
         guarantees of indebtedness by the Company to or for the benefit of any
         of the officers or directors of the Company or any of their respective
         family members, except as disclosed in the Registration Statement and
         the Prospectus.

                  (v)      Internal Controls. The Company and its subsidiaries
         maintain a system of internal accounting and other controls sufficient
         to provide reasonable assurances that (A) transactions are executed in
         accordance with management's general or specific authorizations, (B)
         transactions are recorded as necessary to permit preparation of
         financial statements in conformity with generally accepted accounting
         principles and to maintain accountability for assets, (C) access to
         assets is permitted only in accordance with management's general or
         specific


                                       3


         authorization and (D) the recorded accounting for assets is compared
         with existing assets at reasonable intervals and appropriate action is
         taken with respect to any differences.

                  (vi)     No Material Adverse Change in Business. Since the
         respective dates as of which information is given in the Registration
         Statement and the Prospectus, except as otherwise stated therein, (A)
         there has been no material adverse change in the condition, financial
         or otherwise, or in the earnings, business affairs or business
         prospects of the Company and its subsidiaries considered as one
         enterprise, whether or not arising in the ordinary course of business
         (a "Material Adverse Effect"), (B) no casualty loss or condemnation or
         other adverse event with respect to any of the interests held directly
         or indirectly in any of the real properties or real property interests,
         including, without limitation, any interest or participation, direct or
         indirect, in any mortgage obligation owned, directly or indirectly, by
         the Company, any of its subsidiaries or any Joint Venture (as defined
         below) (the "Properties") has occurred which would be material with
         respect to the Company and its subsidiaries considered as one
         enterprise, (C) there have been no transactions entered into by the
         Company or any of its subsidiaries, other than those in the ordinary
         course of business, which are material with respect to the Company and
         its subsidiaries considered as one enterprise and (D) there has been no
         dividend or distribution of any kind declared, paid or made by the
         Company on any class of its capital stock since November 21, 2003, and
         there has been no increase in long-term debt or decrease in the capital
         of the Company or any of its subsidiaries.

                  (vii)    Good Standing of the Company. The Company has been
         duly organized and is validly existing as a corporation in good
         standing under the laws of the State of Delaware and has corporate
         power and authority to own, lease and operate its properties and to
         conduct its business as described in the Prospectus and to enter into
         and perform its obligations under this Agreement; and the Company is
         duly qualified as a foreign corporation to transact business and is in
         good standing in each other jurisdiction in which such qualification is
         required, whether by reason of the ownership or leasing of property or
         the conduct of business, except where the failure so to qualify or to
         be in good standing would not result in a Material Adverse Effect.

                  (viii)   Good Standing of Subsidiaries. Each "significant
         subsidiary" of the Company (as such term is defined in Rule 1-02 of
         Regulation S-X) (each a "Subsidiary" and, collectively, the
         "Subsidiaries") has been duly organized and is validly existing as a
         corporation, partnership or limited liability company in good standing
         under the laws of its respective jurisdiction of organization, has
         power and authority to own, lease and operate its properties and to
         conduct its business as described in the Prospectus and is duly
         qualified as a foreign corporation, partnership or limited liability
         company to transact business and is in good standing in each
         jurisdiction in which such qualification is required, whether by reason
         of the ownership or leasing of property or the conduct of business,
         except where the failure so to qualify or to be in good standing would
         not result in a Material Adverse Effect; except as otherwise disclosed
         in the Registration Statement, all of the issued and outstanding
         capital stock of each such Subsidiary has been duly authorized and
         validly issued, is fully paid and non-assessable and is owned by the
         Company, directly or through subsidiaries, free and clear of any
         security interest, mortgage, pledge, lien, encumbrance, claim or
         equity; none of the outstanding shares of capital stock of any
         Subsidiary was issued in violation of the preemptive or similar rights
         of any securityholder of such Subsidiary. The only subsidiaries of the
         Company are (a) the subsidiaries listed on Exhibit 21.1 to the
         Registration Statement and (b) certain other subsidiaries which,
         considered in the aggregate as a single Subsidiary, do not constitute a
         "significant subsidiary" as defined in Rule 1-02 of Regulation S-X.

                  (ix)     Joint Ventures. All of the joint ventures in which
         the Company or any subsidiary owns an interest of greater than five
         percent and that are currently conducting business (the "Joint


                                       4


         Ventures") are listed on Schedule D hereto. The Company's (or
         subsidiary's, as the case may be) ownership interest in such Joint
         Venture is as set forth on Schedule D. To the knowledge of the Company,
         each of the Joint Ventures possesses such certificates, authorizations
         or permits issued by the appropriate state, federal or foreign
         regulatory agencies or bodies necessary to conduct the business now
         being conducted by it, as described in the Prospectus, and none of the
         Joint Ventures has received notice of any proceedings relating to the
         revocation or modification of any such certificate, authority or permit
         which singly or in the aggregate, if the subject of an unfavorable
         ruling or decision, would have a Material Adverse Effect.

                  (x)      Capitalization. The authorized, issued and
         outstanding capital stock of the Company is as set forth in the
         Prospectus in the column entitled "Actual" under the caption
         "Capitalization" (except for subsequent issuances, if any, pursuant to
         this Agreement, pursuant to reservations, agreements or employee
         benefit plans referred to in the Prospectus or pursuant to the exercise
         of convertible securities or options referred to in the Prospectus).
         The shares of issued and outstanding capital stock of the Company have
         been duly authorized and validly issued and are fully paid and
         non-assessable; none of the outstanding shares of capital stock of the
         Company was issued in violation of the preemptive or other similar
         rights of any securityholder of the Company.

                  (xi)     Authorization of Agreement. This Agreement has been
         duly authorized, executed and delivered by the Company.

                  (xii)    Authorization and Description of Securities. The
         Securities have been duly authorized for issuance and sale to the
         Underwriters pursuant to this Agreement and, when issued and delivered
         by the Company pursuant to this Agreement against payment of the
         consideration set forth herein, will be validly issued and fully paid
         and non-assessable; the Common Stock conforms to all statements
         relating thereto contained in the Prospectus and such description
         conforms to the rights set forth in the instruments defining the same;
         the certificate evidencing the Securities will be in substantially the
         form filed as an exhibit to the Registration Statement and the form of
         stock certificate evidencing the Securities will comply with all
         applicable legal requirements, with all applicable requirements of the
         Company's charter and by-laws and with the requirements of the American
         Stock Exchange, Inc.; no holder of the Securities will be subject to
         personal liability by reason of being such a holder; and the issuance
         of the Securities is not subject to the preemptive or other similar
         rights of any securityholder of the Company.

                  (xiii)   Execution of Definitive Agreements with Merrill Lynch
         Mortgage. The Company has executed definitive loan agreements (the
         "Loan Agreements"), a copy of which is attached hereto as Schedule E,
         that have been placed in escrow with Merrill Lynch Mortgage Lending,
         Inc. ("Merrill Lynch Mortgage"), together with all related
         documentation necessary to effect the closing of such agreements (the
         "Refinancing Debt").

                  (xiv)    Absence of Defaults and Conflicts. Neither the
         Company nor any of its subsidiaries is in violation of its charter,
         by-laws or operating agreement or in default in the performance or
         observance of any obligation, agreement, covenant or condition
         contained in any contract, indenture, mortgage, deed of trust, loan or
         credit agreement, franchise agreement, management agreement, note,
         lease or other agreement or instrument to which the Company or any of
         its subsidiaries is a party or by which it or any of them may be bound,
         or to which any of the property or assets of the Company or any
         subsidiary is subject (collectively, "Agreements and Instruments")
         except for such violations or defaults as are described in the
         Registration Statement and the Prospectus or that would not result in a
         Material Adverse Effect; and the execution, delivery and performance of
         this Agreement and the consummation of the transactions


                                       5


         contemplated herein and in the Registration Statement (including the
         issuance and sale of the Securities and the use of the proceeds from
         the sale of the Securities as described in the Prospectus under the
         caption "Use of Proceeds") and compliance by the Company with its
         obligations hereunder have been duly authorized by all necessary
         corporate action and do not and will not, whether with or without the
         giving of notice or passage of time or both, conflict with or
         constitute a breach of, or default or Repayment Event (as defined
         below) under, or result in the creation or imposition of any lien,
         charge or encumbrance upon any property or assets of the Company or any
         subsidiary pursuant to, the Agreements and Instruments (except for such
         conflicts, breaches, defaults or Repayment Events or liens, charges or
         encumbrances that would not result in a Material Adverse Effect), nor
         will such action result in any violation of the provisions of the
         charter, by-laws or operating agreement of the Company or any
         subsidiary or any applicable law, statute, rule, regulation, judgment,
         order, writ or decree of any government, government instrumentality or
         court, domestic or foreign, having jurisdiction over the Company or any
         subsidiary or any of their assets, properties or operations. As used
         herein, a "Repayment Event" means any event or condition which gives
         the holder of any note, debenture or other evidence of indebtedness (or
         any person acting on such holder's behalf) the right to require the
         repurchase, redemption or repayment of all or a portion of such
         indebtedness by the Company or any subsidiary.

                  (xv)     Absence of Labor Dispute. No labor dispute with the
         employees of the Company or any subsidiary exists or, to the knowledge
         of the Company, is imminent, and the Company is not aware of any
         existing or imminent labor disturbance by the employees of any of its
         or any subsidiary's principal suppliers, manufacturers, customers or
         contractors, which, in either case, would result in a Material Adverse
         Effect.

                  (xvi)    Absence of Proceedings. There is no action, suit,
         proceeding, inquiry or investigation before or brought by any court or
         governmental agency or body, domestic or foreign, now pending, or, to
         the knowledge of the Company, threatened, against or affecting the
         Company or any subsidiary, which is required to be disclosed in the
         Registration Statement (other than as disclosed therein), or which
         might result in a Material Adverse Effect, or which might materially
         and adversely affect the properties or assets thereof or the
         consummation of the transactions contemplated in this Agreement or the
         performance by the Company of its obligations hereunder; the aggregate
         of all pending legal or governmental proceedings to which the Company
         or any subsidiary is a party or of which any of their respective
         property or assets is the subject which are not described in the
         Registration Statement, including ordinary routine litigation
         incidental to the business, could not result in a Material Adverse
         Effect.

                  (xvii)   Accuracy of Exhibits. There are no contracts or
         documents which are required to be described in the Registration
         Statement or the Prospectus or to be filed as exhibits thereto which
         have not been so described and filed as required.

                  (xviii)  Possession of Intellectual Property. The Company and
         its subsidiaries own or possess, or can acquire on reasonable terms,
         adequate patents, patent rights, licenses, franchises, inventions,
         copyrights, know-how (including trade secrets and other unpatented
         and/or unpatentable proprietary or confidential information, systems or
         procedures), trademarks, service marks, trade names or other
         intellectual property (collectively, "Intellectual Property") necessary
         to carry on the business now operated by them, and neither the Company
         nor any of its subsidiaries has received any notice or is otherwise
         aware of any infringement of or conflict with asserted rights of others
         with respect to any Intellectual Property or of any facts or
         circumstances which would render any Intellectual Property invalid or
         inadequate to protect the interest of the Company or any of its
         subsidiaries therein, and which infringement or conflict (if the
         subject of


                                       6


         any unfavorable decision, ruling or finding) or invalidity or
         inadequacy, singly or in the aggregate, would result in a Material
         Adverse Effect.

                  (xix)    Absence of Further Requirements. No filing with, or
         authorization, approval, consent, license, order, registration,
         qualification or decree of, any court or governmental authority or
         agency is necessary or required for the performance by the Company of
         its obligations hereunder, in connection with the offering, issuance or
         sale of the Securities hereunder or the consummation of the
         transactions contemplated by this Agreement, except such as have been
         already obtained or as may be required under the 1933 Act or the 1933
         Act Regulations or state securities laws.

                  (xx)     Other Fees. Except as disclosed in the Registration
         Statement and the Prospectus, there are no contracts, agreements or
         understandings between the Company and any person that would give rise
         to a valid claim against the Company or any Underwriter for a brokerage
         commission, finder's fee or other like payment in connection with the
         transactions contemplated by this Agreement, the Registration Statement
         and the Prospectus or, to the knowledge of the Company, any
         arrangements, agreements, understandings, payments or issuance with
         respect to the Company or any of its officers, directors, shareholders,
         partners, employees, Subsidiaries or affiliates that may affect the
         Underwriters' compensation as determined by the NASD, Inc. (the
         "NASD").

                  (xxi)    Absence of Manipulation. Neither the Company nor any
         affiliate of the Company has taken, nor will the Company or any
         affiliate take, directly or indirectly, any action which is designed to
         or which has constituted or which would be expected to cause or result
         in stabilization or manipulation of the price of any security of the
         Company to facilitate the sale or resale of the Securities.

                  (xxii)   Possession of Licenses and Permits. The Company and
         its subsidiaries possess such permits, licenses, approvals, consents
         and other authorizations (collectively, "Governmental Licenses") issued
         by the appropriate federal, state, local or foreign regulatory agencies
         or bodies necessary to conduct the business now operated by them,
         except where the failure so to possess would not, singly or in the
         aggregate, result in a Material Adverse Effect; the Company and its
         subsidiaries are in compliance with the terms and conditions of all
         such Governmental Licenses, except where the failure so to comply would
         not, singly or in the aggregate, result in a Material Adverse Effect;
         all of the Governmental Licenses are valid and in full force and
         effect, except when the invalidity of such Governmental Licenses or the
         failure of such Governmental Licenses to be in full force and effect
         would not, singly or in the aggregate, result in a Material Adverse
         Effect; and neither the Company nor any of its subsidiaries has
         received any notice of proceedings relating to the revocation or
         modification of any such Governmental Licenses which, singly or in the
         aggregate, if the subject of an unfavorable decision, ruling or
         finding, would result in a Material Adverse Effect.

                  (xxiii)  Title to Property. (A) The Company, each of its
         subsidiaries and, to the knowledge of the Company, any joint ventures
         in which the Company or any subsidiary owns an interest, as the case
         may be, have good and marketable fee simple title or leasehold title,
         as the case may be, to all real property owned or leased, as
         applicable, by the Company or its subsidiaries or the applicable joint
         venture, respectively, and good title to all other properties owned by
         them, and any improvements thereon and all other assets that are
         required for the operation of such operations in the manner in which
         they currently are operated, free and clear of all liens, encumbrances,
         claims, security interests and defects, except such as are Permitted
         Encumbrances (as defined below); (B) all material liens, charges,
         encumbrances, claims or


                                       7


         restrictions on or affecting any of the Properties and the assets of
         any of the Company or its subsidiaries or any joint venture in which
         Company or any of its subsidiaries owns an interest that are required
         to be disclosed in the Prospectus are disclosed therein; (C) each of
         the Properties complies with all applicable codes, laws and regulations
         (including, without limitation, building and zoning codes, laws and
         regulations and laws relating to access to the Properties), except if
         and to the extent disclosed in the Prospectus and except for such
         failures to comply that would not in the aggregate have a Material
         Adverse Effect; (D) there are in effect for the assets of the Company
         and its subsidiaries or, to the knowledge of the Company, any joint
         venture in which the Company or any of its subsidiaries owns an
         interest, insurance policies covering the risks and in amounts that are
         commercially reasonable for the types of assets owned by them and that
         are consistent with the types and amounts of insurance typically
         maintained by prudent owners of properties similar to such assets in
         the markets in which such assets are located, and neither the Company
         nor any subsidiary or, to the knowledge of the Company, any joint
         venture in which the Company or any subsidiary owns an interest has
         received from any insurance company notice of any material defects or
         deficiencies affecting the insurability of any such assets or any
         notices of cancellation or intent to cancel any such policies; and (E)
         the Company does not have any knowledge of any pending or threatened,
         litigation, moratorium, condemnation proceedings, zoning change, or
         other similar proceeding or action that could in any manner affect the
         size of, use of, improvements on, construction on, access to or
         availability of utilities or other necessary services to the
         Properties, except such proceedings or actions that would not have a
         Material Adverse Effect. All of the leases and subleases material to
         the business of the Company and its subsidiaries considered as one
         enterprise, and under which the Company or any subsidiary holds
         Properties described in the Prospectus, are in full force and effect,
         and neither the Company nor any subsidiary has received any notice of
         any material claim of any sort that has been asserted by anyone adverse
         to the rights of the Company or any subsidiary under any of the leases
         or subleases mentioned above, or affecting or questioning the rights of
         the Company or any subsidiary of the continued possession of the leased
         or subleased premises under any such lease or sublease. The Company and
         each of its subsidiaries, as the case may be, have obtained title
         insurance on the fee interests and leasehold interests in each of the
         Properties in an amount at least equal to the greater of (A) the
         mortgage indebtedness on each such Property or (B) the purchase price
         paid for each such Property. "Permitted Encumbrance" shall mean (a)
         liens on Properties securing any of the Company, any subsidiary or
         joint venture obligations, (b) other liens which are expressly
         described in the Prospectus and (c) customary easements and
         encumbrances and other exceptions to title which do not materially
         impair the operation, development or use of the Properties for the
         purposes intended therefor as contemplated in the Prospectus.

                  (xxiv)   Investment Company Act. The Company is not required
         to, and upon the issuance and sale of the Securities as herein
         contemplated and the application of the net proceeds therefrom as
         described in the Prospectus will not be required to, register as an
         "investment company" under the Investment Company Act of 1940, as
         amended (the "1940 Act").

                  (xxv)    Environmental Laws. Except as described in the
         Registration Statement and except as would not, singly or in the
         aggregate, result in a Material Adverse Effect, (A) neither the Company
         nor any of its subsidiaries is in violation of any federal, state,
         local or foreign statute, law, rule, regulation, ordinance, code,
         policy or rule of common law or any judicial or administrative
         interpretation thereof, including any judicial or administrative order,
         consent, decree or judgment, relating to pollution or protection of
         human health, the environment (including, without limitation, ambient
         air, surface water, groundwater, land surface or subsurface strata) or
         wildlife, including, without limitation, laws and regulations relating
         to the release or threatened release of chemicals, pollutants,
         contaminants, wastes, toxic substances, hazardous


                                       8


         substances, petroleum or petroleum products, asbestos-containing
         materials or mold (collectively, "Hazardous Materials") or to the
         manufacture, processing, distribution, use, treatment, storage,
         disposal, transport or handling of Hazardous Materials (collectively,
         "Environmental Laws"), (B) the Company and its subsidiaries have all
         permits, authorizations and approvals required under any applicable
         Environmental Laws and are each in compliance with their requirements,
         (C) there are no pending or threatened administrative, regulatory or
         judicial actions, suits, demands, demand letters, claims, liens,
         notices of noncompliance or violation, investigation or proceedings
         relating to any Environmental Law against the Company or any of its
         subsidiaries and (D) there are no events or circumstances that would
         reasonably be expected to form the basis of an order for clean-up or
         remediation, or an action, suit or proceeding by any private party or
         governmental body or agency, against or affecting the Company or any of
         its subsidiaries relating to Hazardous Materials or any Environmental
         Laws. None of the environmental consultants which prepared
         environmental and asbestos inspection reports with respect to the
         Properties was employed for such purpose on a contingent basis or has
         any substantial interest in the Company or any subsidiary and none of
         them nor any of their directors, officers or employees is connected
         with the Company or any subsidiary as a promoter, selling agent,
         trustee, director, officer or employee.

                  (xxvi)   Tax Returns. Except to the extent that a failure to
         do so would not result in a Material Adverse Effect, the Company and
         each of its subsidiaries, as the case may be, have filed all federal,
         state, local and foreign income and franchise tax returns which have
         been required to be filed (except in any case in which an extension has
         been granted) and have paid all taxes required to be paid and any other
         assessment, fine or penalty levied against it, to the extent that any
         of the foregoing is due and payable, except, in all cases, for any such
         tax, assessment, fine or penalty that is being contested in good faith.

                  (xxvii)  Absence of Regulation M Violation. Neither the
         Company nor any subsidiary, nor any of their respective trustees,
         directors, officers, affiliates, members or controlling persons, has
         taken or will take, directly or indirectly, any action resulting in a
         violation of Regulation M under the Securities Exchange Act of 1934
         Act, as amended (the "1934 Act") or designed to cause or result in, or
         that has constituted or that reasonably might be expected to
         constitute, the stabilization or manipulation of the price of any
         security of the Company to facilitate the sale or resale of the
         Securities.

                  (xxviii) Registration Rights. There are no persons with
         registration rights or other similar rights to have any securities
         registered pursuant to the Registration Statement or otherwise
         registered by the Company under the 1933 Act, except as disclosed in
         the Prospectus under "Risk Factors -- Risks Related to this Offering
         and Our Common Stock" and "Shares Eligible for Future Sale --
         Registration Rights."

                  (xxix)   Bankruptcy. With regard to the Joint Plan of
         Reorganization of Impac Hotels II, L.L.C. and Impac Hotels III, L.L.C.
         together with the Official Committee of Unsecured Creditors dated March
         3, 2003 Under Chapter 11 of the United States Bankruptcy Code confirmed
         on April 24, 2003 (the "Impac Plan") and the Company's First Amended
         Joint Reorganization Plan, dated as of November 1, 2002 under Chapter
         11 of the United States Bankruptcy Code confirmed on November 5, 2002
         (the "Lodgian Plan" and collectively, the "Reorganization Plans"), (A)
         the effective date of the Impac Plan and the Lodgian Plan occurred on
         May 22, 2003 and November 25, 2002, respectively, and each
         Reorganization Plan has been consummated; (B) neither the Company nor
         any of its Subsidiaries is currently, or has in the past, been in
         default in any respect, and no event has occurred which, with notice or
         lapse of time or both, would constitute such a default, in the due
         performance or observance of any term, covenant or condition contained
         in the Reorganization Plans; (C) there is no legal or governmental
         proceeding relating to the


                                       9


         Reorganization Plans to which the Company or any of its Subsidiaries is
         a party or of which any property or assets of the Company or any of its
         Subsidiaries is the subject; and to the best of the Company's
         knowledge, no such proceedings are threatened or contemplated by any
         governmental authorities or threatened by others; and (D) except for
         the Claims (as defined in Section 101(5) of the United States
         Bankruptcy Code) described in the Reorganization Plans, to the
         knowledge of the Company, there are no Claims that exist relating to
         the Reorganization Plans, including without limitation, any Claims
         relating to state or federal securities laws.

                  (xxx)    Franchise Agreements. Except as disclosed in or
         contemplated by the Registration Statement and the Prospectus, neither
         the Company nor any subsidiary that manages any Properties has received
         any notice from any franchisor concerning any property any of them own
         or manage in which such franchisor has : (A) threatened any action
         adverse to the Company or any subsidiary; (B) notified the Company or
         any subsidiary of their failure to perform under any franchise
         agreement; or (C) notified the Company or any subsidiary of its
         intention to terminate or modify the franchise agreement; nor, to the
         knowledge of the Company, do there exist any events, conditions or
         circumstances which are reasonably likely to result in any such
         termination, except where any such action, failure to perform,
         termination or modification would not, individually or in the
         aggregate, reasonably be expected to have a Material Adverse Effect.
         All franchise agreements are in full force and effect and are
         enforceable in accordance with their terms, except as may be limited by
         bankruptcy, insolvency, reorganization, moratorium or other similar
         laws relating to or affecting the enforcement of creditors' rights
         generally and general equitable principles and except where the failure
         to be enforceable or to be in full force or effect would not,
         individually or in the aggregate, reasonably be expected to have a
         Material Adverse Effect. Except as described in the Registration
         Statement and Prospectus, any prior notice received by the Company or
         any subsidiary from any franchisor terminating, or threatening to
         terminate, the current franchise agreement for any of the Properties
         has been cured, is no longer effective or has been waived by the party
         issuing such notice, except where any such termination would not,
         individually or in the aggregate, reasonably be expected to have a
         Material Adverse Effect.

                  (xxxi)   Compliance with Sarbanes-Oxley Act of 2002. The
         Company, its officers and directors are in compliance with the
         provisions of the Sarbanes-Oxley Act of 2002 and the rules and
         regulations promulgated in connection therewith.

         (b)      Officer's Certificates. Any certificate signed by any officer
of the Company or any of its subsidiaries delivered to the Representatives or to
counsel for the Underwriters shall be deemed a representation and warranty by
the Company to each Underwriter as to the matters covered thereby.

         SECTION 2. Sale and Delivery to Underwriters; Closing.

         (a)      Initial Securities. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company agrees to sell to each Underwriter, severally and not
jointly, and each Underwriter, severally and not jointly, agrees to purchase
from the Company, at the price per share set forth in Schedule B hereto, the
number of Initial Securities set forth in Schedule A opposite the name of such
Underwriter, plus any additional number of Initial Securities which such
Underwriter may become obligated to purchase pursuant to the provisions of
Section 10 hereof.

         (b)      Option Securities. In addition, on the basis of the
representations and warranties herein contained and subject to the terms and
conditions herein set forth, the Company hereby grants an option to the
Underwriters, severally and not jointly, to purchase up to an additional ______
shares of Common Stock at the price per share set forth in Schedule B hereto,
less an amount per share equal to any


                                       10


dividends or distributions declared by the Company and payable on the Initial
Securities but not payable on the Option Securities. The option hereby granted
will expire 30 days after the date hereof and may be exercised in whole or in
part from time to time only for the purpose of covering overallotments which may
be made in connection with the offering and distribution of the Initial
Securities upon notice by Merrill Lynch to the Company setting forth the number
of Option Securities as to which the several Underwriters are then exercising
the option and the time and date of payment and delivery for such Option
Securities. Any such time and date of delivery (a "Date of Delivery") shall be
determined by Merrill Lynch, but shall not be later than seven full business
days after the exercise of said option, nor in any event prior to the Closing
Time, as hereinafter defined. If the option is exercised as to all or any
portion of the Option Securities, each of the Underwriters, acting severally and
not jointly, will purchase that proportion of the total number of Option
Securities then being purchased which the number of Initial Securities set forth
in Schedule A opposite the name of such Underwriter bears to the total number of
Initial Securities, subject in each case to such adjustments as Merrill Lynch in
its discretion shall make to eliminate any sales or purchases of fractional
shares.

         (c)      Payment. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of Sidley
Austin Brown & Wood LLP, or at such other place as shall be agreed upon by the
Representatives and the Company, at 9:00 A.M. (Eastern time) on the third
business day after the date hereof (unless postponed in accordance with the
provisions of Section 10), or such other time not later than ten business days
after such date as shall be agreed upon by the Representatives and the Company
(such time and date of payment and delivery being herein called "Closing Time").

         In addition, in the event that any or all of the Option Securities are
purchased by the Underwriters, payment of the purchase price for, and delivery
of certificates for, such Option Securities shall be made at the above-mentioned
offices, or at such other place as shall be agreed upon by the Representatives
and the Company, on each Date of Delivery as specified in the notice from the
Representatives to the Company.

         Payment shall be made to the Company by wire transfer of immediately
available funds to a bank account designated by the Company, against delivery to
the Representatives for the respective accounts of the Underwriters of
certificates for the Securities to be purchased by them. It is understood that
each Underwriter has authorized the Representatives, for its account, to accept
delivery of, receipt for, and make payment of the purchase price for, the
Initial Securities and the Option Securities, if any, which it has agreed to
purchase. Merrill Lynch, individually and not as representative of the
Underwriters, may (but shall not be obligated to) make payment of the purchase
price for the Initial Securities or the Option Securities, if any, to be
purchased by any Underwriter whose funds have not been received by the Closing
Time or the relevant Date of Delivery, as the case may be, but such payment
shall not relieve such Underwriter from its obligations hereunder.

         (d)      Denominations; Registration. Certificates for the Initial
Securities and the Option Securities, if any, shall be in such denominations and
registered in such names as the Representatives may request in writing at least
one full business day before the Closing Time or the relevant Date of Delivery,
as the case may be. The certificates for the Initial Securities and the Option
Securities, if any, will be made available for examination and packaging by the
Representatives in The City of New York not later than 10:00 A.M. (Eastern time)
on the business day prior to the Closing Time or the relevant Date of Delivery,
as the case may be.

         (e)      Appointment of Qualified Independent Underwriter. The Company
hereby confirms its engagement of Citigroup as, and Citigroup hereby confirms
its agreement with the Company to render services as, a "qualified independent
underwriter" within the meaning of Rule 2720 of the Conduct Rules


                                       11


of the NASD with respect to the offering and sale of the Securities. Citigroup,
solely in its capacity as qualified independent underwriter and not otherwise,
is referred to herein as the "Independent Underwriter."

         SECTION 3. Covenants of the Company. The Company covenants with each
Underwriter as follows:

         (a)      Compliance with Securities Regulations and Commission
Requests. The Company, subject to Section 3(b), will comply with the
requirements of Rule 430A and will notify the Representatives immediately, and
confirm the notice in writing, (i) when any post-effective amendment to the
Registration Statement shall become effective, or any supplement to the
Prospectus or any amended Prospectus shall have been filed, (ii) of the receipt
of any comments from the Commission, (iii) of any request by the Commission for
any amendment to the Registration Statement or any amendment or supplement to
the Prospectus or for additional information, and (iv) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or of any order preventing or suspending the use of any preliminary
prospectus, or of the suspension of the qualification of the Securities for
offering or sale in any jurisdiction, or of the initiation or threatening of any
proceedings for any of such purposes. The Company will promptly effect the
filings necessary pursuant to Rule 424(b) and will take such steps as it deems
necessary to ascertain promptly whether the form of prospectus transmitted for
filing under Rule 424(b) was received for filing by the Commission and, in the
event that it was not, it will promptly file such prospectus. The Company will
make every reasonable effort to prevent the issuance of any stop order and, if
any stop order is issued, to obtain the lifting thereof at the earliest possible
moment.

         (b)      Filing of Amendments. The Company will give the
Representatives notice of its intention to file or prepare any amendment to the
Registration Statement (including any filing under Rule 462(b)) or any
amendment, supplement or revision to either the prospectus included in the
Registration Statement at the time it became effective or to the Prospectus,
will furnish the Representatives with copies of any such documents a reasonable
amount of time prior to such proposed filing or use, as the case may be, and
will not file or use any such document to which the Representatives or counsel
for the Underwriters shall object.

         (c)      Delivery of Registration Statements. The Company has furnished
or will deliver to the Representatives and counsel for the Underwriters, without
charge, signed copies of the Registration Statement as originally filed and of
each amendment thereto (including exhibits filed therewith or incorporated by
reference therein) and signed copies of all consents and certificates of
experts, and will also deliver to the Representatives, without charge, a
conformed copy of the Registration Statement as originally filed and of each
amendment thereto (without exhibits) for each of the Underwriters. The copies of
the Registration Statement and each amendment thereto furnished to the
Underwriters will be identical to the electronically transmitted copies thereof
filed with the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.

         (d)      Delivery of Prospectuses. The Company has delivered to each
Underwriter, without charge, as many copies of each preliminary prospectus as
such Underwriter reasonably requested, and the Company hereby consents to the
use of such copies for purposes permitted by the 1933 Act. The Company will
furnish to each Underwriter, without charge, during the period when the
Prospectus is required to be delivered under the 1933 Act, such number of copies
of the Prospectus (as amended or supplemented) as such Underwriter may
reasonably request. The Prospectus and any amendments or supplements thereto
furnished to the Underwriters will be identical to the electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR, except
to the extent permitted by Regulation S-T.


                                       12


         (e)      Continued Compliance with Securities Laws. The Company will
comply with the 1933 Act and the 1933 Act Regulations so as to permit the
completion of the distribution of the Securities as contemplated in this
Agreement and in the Prospectus. If at any time when a prospectus is required by
the 1933 Act to be delivered in connection with sales of the Securities, any
event shall occur or condition shall exist as a result of which it is necessary,
in the opinion of counsel for the Underwriters or for the Company, to amend the
Registration Statement or amend or supplement the Prospectus in order that the
Prospectus will not include any untrue statements of a material fact or omit to
state a material fact necessary in order to make the statements therein not
misleading in the light of the circumstances existing at the time it is
delivered to a purchaser, or if it shall be necessary, in the opinion of such
counsel, at any such time to amend the Registration Statement or amend or
supplement the Prospectus in order to comply with the requirements of the 1933
Act or the 1933 Act Regulations, the Company will promptly prepare and file with
the Commission, subject to Section 3(b), such amendment or supplement as may be
necessary to correct such statement or omission or to make the Registration
Statement or the Prospectus comply with such requirements, and the Company will
furnish to the Underwriters such number of copies of such amendment or
supplement as the Underwriters may reasonably request.

         (f)      Blue Sky Qualifications. The Company will use its best
efforts, in cooperation with the Underwriters, to qualify the Securities for
offering and sale under the applicable securities laws of such states and other
jurisdictions as the Representatives may designate and to maintain such
qualifications in effect for a period of not less than one year from the later
of the effective date of the Registration Statement and any Rule 462(b)
Registration Statement; provided, however, that the Company shall not be
obligated to file any general consent to service of process or to qualify as a
foreign corporation or as a dealer in securities in any jurisdiction in which it
is not so qualified or to subject itself to taxation in respect of doing
business in any jurisdiction in which it is not otherwise so subject.

         (g)      Rule 158. The Company will timely file such reports pursuant
to the 1934 Act as are necessary in order to make generally available to its
securityholders as soon as practicable an earnings statement for the purposes
of, and to provide the benefits contemplated by, the last paragraph of Section
11(a) of the 1933 Act.

         (h)      Use of Proceeds. The Company will use the net proceeds
received by it from the sale of the Securities in the manner specified in the
Prospectus under "Use of Proceeds."

         (i)      Listing. The Company will use its best efforts to effect the
listing of the Securities on the American Stock Exchange.

         (j)      Restriction on Sale of Securities. During a period of 180 days
from the date of the Prospectus, the Company will not, without the prior written
consent of Merrill Lynch, (i) directly or indirectly, offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase or otherwise
transfer or dispose of any share of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock or file any registration
statement under the 1933 Act with respect to any of the foregoing or (ii) enter
into any swap or any other agreement or any transaction that transfers, in whole
or in part, directly or indirectly, the economic consequence of ownership of the
Common Stock, whether any such swap or transaction described in clause (i) or
(ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise. The foregoing sentence shall not apply to (A)
the Securities to be sold hereunder, (B) any shares of Common Stock issued by
the Company upon the exercise of an option or warrant or the conversion of a
security outstanding on the date hereof and referred to in the Prospectus or (C)
any shares of Common Stock issued or options to purchase Common Stock granted
pursuant to existing employee benefit plans of the Company referred to in the
Prospectus.


                                       13


         (k)      Reporting Requirements. The Company, during the period when
the Prospectus is required to be delivered under the 1933 Act, will file all
documents required to be filed with the Commission pursuant to the 1934 Act
within the time periods required by the 1934 Act and the rules and regulations
of the Commission thereunder.

         (l)      Refinancing Debt. The Company shall use its best efforts to
facilitate the consummation of the Refinancing Debt on or prior to the Closing
Time and, upon consummation, shall utilize the funds received therefrom to
retire the indebtedness specified in the Registration Statement and the
Prospectus.

         SECTION 4. Payment of Expenses. Expenses. The Company will pay all
expenses incident to the performance of its obligations under this Agreement,
including (i) the preparation, printing and filing of the Registration Statement
(including financial statements and exhibits) as originally filed and of each
amendment thereto, (ii) the preparation, printing and delivery to the
Underwriters of this Agreement, any Agreement among Underwriters and such other
documents as may be required in connection with the offering, purchase, sale,
issuance or delivery of the Securities, (iii) the preparation, issuance and
delivery of the certificates for the Securities to the Underwriters, including
any stock or other transfer taxes and any stamp or other duties payable upon the
sale, issuance or delivery of the Securities to the Underwriters, (iv) the fees
and disbursements of the Company's counsel, accountants and other advisors, (v)
the qualification of the Securities under securities laws in accordance with the
provisions of Section 3(f) hereof, including filing fees and the reasonable fees
and disbursements of counsel for the Underwriters in connection therewith and in
connection with the preparation of the blue sky survey and any supplement
thereto, (vi) the printing and delivery to the Underwriters of copies of each
preliminary prospectus and of the Prospectus and any amendments or supplements
thereto, (vii) the preparation, printing and delivery to the Underwriters of
copies of the blue sky survey and any supplement thereto, (viii) the fees and
expenses of any transfer agent or registrar for the Securities, (ix) the costs
and expenses of the Company relating to investor presentations on any "road
show" undertaken in connection with the marketing of the Securities, including
without limitation, expenses associated with the production of road show slides
and graphics, fees and expenses of any consultants engaged in connection with
the road show presentations with the prior approval of the Company, travel and
lodging expenses of the representatives and officers of the Company and any such
consultants, and the cost of aircraft and other transportation chartered in
connection with the road show and (x) the filing fees incident to, and the
reasonable fees and disbursements of counsel to the Underwriters in connection
with, the review by the NASD of the terms of the sale of the Securities, (xi)
the fees and expenses incurred in connection with the listing of the Securities
on the American Stock Exchange and (xii) the fees and expenses of the
Independent Underwriter.

         SECTION 5. Conditions of Underwriters' Obligations. The obligations of
the several Underwriters hereunder are subject to the accuracy of the
representations and warranties of the Company contained in Section 1 hereof or
in certificates of any officer of the Company or any subsidiary of the Company
delivered pursuant to the provisions hereof, to the performance by the Company
of its covenants and other obligations hereunder, and to the following further
conditions:

         (a)      Effectiveness of Registration Statement. The Registration
Statement, including any Rule 462(b) Registration Statement, has become
effective and at Closing Time no stop order suspending the effectiveness of the
Registration Statement shall have been issued under the 1933 Act or proceedings
therefor initiated or threatened by the Commission, and any request on the part
of the Commission for additional information shall have been complied with to
the reasonable satisfaction of counsel to the Underwriters. A prospectus
containing the Rule 430A Information shall have been filed with the Commission
in accordance with Rule 424(b) (or a post-effective amendment providing such
information shall have been filed and declared effective in accordance with the
requirements of Rule 430A).


                                       14


         (b)      Opinion of Counsel for Company. At Closing Time, the
Representatives shall have received the favorable opinion, dated as of Closing
Time, of Morris, Manning & Martin LLP, counsel for the Company, in form and
substance reasonably satisfactory to counsel for the Underwriters, together with
signed or reproduced copies of such letter for each of the other Underwriters to
the effect set forth in Exhibit A hereto and to such further effect as counsel
to the Underwriters may reasonably request.

         (c)      Opinion of Counsel for Underwriters. At Closing Time, the
Representatives shall have received the favorable opinion, dated as of Closing
Time, of Sidley Austin Brown & Wood LLP, counsel for the Underwriters, together
with signed or reproduced copies of such letter for each of the other
Underwriters with respect to the matters set forth in clauses (i), (ii), (v),
(vi) (solely as to preemptive or other similar rights arising by operation of
law or under the charter or by-laws of the Company), (viii) through (xi), (xiii)
(solely as to the information in the Prospectus under "Description of Capital
Stock--Common Stock") and the penultimate paragraph of Exhibit A hereto. In
giving such opinion such counsel may rely, as to all matters governed by the
laws of jurisdictions other than the law of the State of New York and the
federal law of the United States and the General Corporation Law of the State of
Delaware, upon the opinions of counsel satisfactory to the Representatives. Such
counsel may also state that, insofar as such opinion involves factual matters,
they have relied, to the extent they deem proper, upon certificates of officers
of the Company and its subsidiaries and certificates of public officials.

         (d)      Officers' Certificate. At Closing Time, there shall not have
been, since the date hereof or since the respective dates as of which
information is given in the Prospectus, any material adverse change in the
condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and its subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business, and the
Representatives shall have received a certificate of the President or an
Executive Vice President of the Company and of the chief financial or chief
accounting officer of the Company, dated as of Closing Time, to the effect that
(i) there has been no such material adverse change, (ii) the representations and
warranties in Section 1(a) hereof are true and correct with the same force and
effect as though expressly made at and as of Closing Time, (iii) the Company has
complied with all agreements and satisfied all conditions on its part to be
performed or satisfied at or prior to Closing Time, and (iv) no stop order
suspending the effectiveness of the Registration Statement has been issued and
no proceedings for that purpose have been instituted or are pending or, to their
knowledge, contemplated by the Commission.

         (e)      Accountant's Comfort Letter. At the time of the execution of
this Agreement, the Representatives shall have received from Deloitte & Touche
LLP a letter dated such date, in form and substance satisfactory to the
Representatives, together with signed or reproduced copies of such letter for
each of the other Underwriters containing statements and information of the type
ordinarily included in accountants' "comfort letters" to underwriters with
respect to the financial statements and certain financial information contained
in the Registration Statement and the Prospectus.

         (f)      Bring-down Comfort Letter. At Closing Time, the
Representatives shall have received from Deloitte & Touche LLP a letter, dated
as of Closing Time, to the effect that they reaffirm the statements made in the
letter furnished pursuant to subsection (e) of this Section, except that the
specified date referred to shall be a date not more than three business days
prior to Closing Time.

         (g)      Approval of Listing. At Closing Time, the Securities shall
have been approved for listing on the American Stock Exchange, subject only to
official notice of issuance.

         (h)      No Objection. The NASD shall have confirmed that it has not
raised any objection with respect to the fairness and reasonableness of the
underwriting terms and arrangements.


                                       15


         (i)      Lock-up Agreements. At the date of this Agreement, the
Representatives shall have received (i) an agreement substantially in the form
of Exhibit B hereto signed by each director or officer of the Company listed on
Schedule C hereto; and (ii) an agreement from each of OCM Real Estate
Opportunities Fund II, L.P., Third Avenue Value Fund and BRE HY Funding LLC,
substantially in the forms attached hereto as Exhibit C, Exhibit D and Exhibit
E, respectively.

         (j)      Refinancing Debt. At the Closing Time, Merrill Lynch Mortgage
shall have funded to the Company $370 million of Refinancing Debt pursuant to
the Loan Agreements.

         (k)      Conditions to Purchase of Option Securities. In the event that
the Underwriters exercise their option provided in Section 2(b) hereof to
purchase all or any portion of the Option Securities, the representations and
warranties of the Company contained herein and the statements in any
certificates furnished by the Company or any subsidiary of the Company hereunder
shall be true and correct as of each Date of Delivery and, at the relevant Date
of Delivery, the Representatives shall have received:

                  (i)      Officers' Certificate. A certificate, dated such Date
         of Delivery, of the President or an Executive Vice President of the
         Company and of the chief financial or chief accounting officer of the
         Company confirming that the certificate delivered at the Closing Time
         pursuant to Section 5(d) hereof remains true and correct as of such
         Date of Delivery.

                  (ii)     Opinion of Counsel for Company. The favorable opinion
         of Morris, Manning & Martin LLP, counsel for the Company, in form and
         substance reasonably satisfactory to counsel for the Underwriters,
         dated such Date of Delivery, relating to the Option Securities to be
         purchased on such Date of Delivery and otherwise to the same effect as
         the opinion required by Section 5(b) hereof.

                  (iii)    Opinion of Counsel for Underwriters. The favorable
         opinion of Sidley Austin Brown & Wood LLP, counsel for the
         Underwriters, dated such Date of Delivery, relating to the Option
         Securities to be purchased on such Date of Delivery and otherwise to
         the same effect as the opinion required by Section 5(c) hereof.

                  (iv)     Bring-down Comfort Letter. A letter from Deloitte &
         Touche LLP, in form and substance satisfactory to the Representatives
         and dated such Date of Delivery, substantially in the same form and
         substance as the letter furnished to the Representatives pursuant to
         Section 5(f) hereof, except that the "specified date" in the letter
         furnished pursuant to this paragraph shall be a date not more than five
         days prior to such Date of Delivery.

         (l)      Additional Documents. At Closing Time and at each Date of
Delivery, counsel for the Underwriters shall have been furnished with such
documents and opinions as they may require for the purpose of enabling them to
pass upon the issuance and sale of the Securities as herein contemplated, or in
order to evidence the accuracy of any of the representations or warranties, or
the fulfillment of any of the conditions, herein contained; and all proceedings
taken by the Company in connection with the issuance and sale of the Securities
as herein contemplated shall be satisfactory in form and substance to the
Representatives and counsel for the Underwriters.

         (m)      Termination of Agreement. If any condition specified in this
Section shall not have been fulfilled when and as required to be fulfilled, this
Agreement, or, in the case of any condition to the purchase of Option
Securities, on a Date of Delivery which is after the Closing Time, the
obligations of the several Underwriters to purchase the relevant Option
Securities, may be terminated by the Representatives by notice to the Company at
any time at or prior to Closing Time or such Date of Delivery, as the case may
be, and such termination shall be without liability of any party to any other


                                       16


party except as provided in Section 4 and except that Sections 1, 6, 7, 8 and 14
shall survive any such termination and remain in full force and effect.

         SECTION 6. Indemnification.

         (a)      Indemnification of Underwriters. (1) The Company agrees to
indemnify and hold harmless each Underwriter, its affiliates, as such term is
defined in Rule 501(b) under the 1933 Act (each, an "Affiliate"), its selling
agents and each person, if any, who controls any Underwriter within the meaning
of Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows:

                  (i)      against any and all loss, liability, claim, damage
         and expense whatsoever, as incurred, arising out of any untrue
         statement or alleged untrue statement of a material fact contained in
         the Registration Statement (or any amendment thereto), including the
         Rule 430A Information or the omission or alleged omission therefrom of
         a material fact required to be stated therein or necessary to make the
         statements therein not misleading or arising out of any untrue
         statement or alleged untrue statement of a material fact included in
         any preliminary prospectus or the Prospectus (or any amendment or
         supplement thereto), or the omission or alleged omission therefrom of a
         material fact necessary in order to make the statements therein, in the
         light of the circumstances under which they were made, not misleading;

                  (ii)     against any and all loss, liability, claim, damage
         and expense whatsoever, as incurred, to the extent of the aggregate
         amount paid in settlement of any litigation, or any investigation or
         proceeding by any governmental agency or body, commenced or threatened,
         or of any claim whatsoever based upon any such untrue statement or
         omission, or any such alleged untrue statement or omission; provided
         that (subject to Section 6(d) below) any such settlement is effected
         with the written consent of the Company;

                  (iii)    against any and all expense whatsoever, as incurred
         (including the fees and disbursements of counsel chosen by Merrill
         Lynch), reasonably incurred in investigating, preparing or defending
         against any litigation, or any investigation or proceeding by any
         governmental agency or body, commenced or threatened, or any claim
         whatsoever based upon any such untrue statement or omission, or any
         such alleged untrue statement or omission, to the extent that any such
         expense is not paid under (i) or (ii) above;

provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
Underwriter through Merrill Lynch expressly for use in the Registration
Statement (or any amendment thereto), including the Rule 430A Information or any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto).

         (2) In addition to, and without limitation of the Company's obligation
to indemnify Citigroup as an Underwriter under the other paragraphs of this
Section 6, the Company also agrees to indemnify and hold harmless the
Independent Underwriter, its Affiliates and selling agents and each person, if
any, who controls the Independent Underwriter within the meaning of Section 15
of the 1933 Act or Section 20 of the 1934 Act, from and against any and all
loss, liability, claim, damage, joint or several, to which they or any of them
may become subject, insofar as such loss, liability, claim or damage (or action
in respect thereof) arise out of or are based upon Independent Underwriter's
acting as a "qualified independent underwriter" (within the meaning of NASD
Conduct Rule 2720) in connection with the offering contemplated by this
Agreement, and agrees to reimburse each such indemnified party, as incurred, for
any legal or other expenses reasonably incurred by them in connection with
investigating or defending


                                       17


any such loss, claim, damage, liability or action; provided, however, that the
Company will not be liable in any such case to the extent that any such loss,
claim, damage or liability results from the gross negligence or willful
misconduct of the Independent Underwriter.

         (b)      Indemnification of Company, Directors and Officers. Each
Underwriter severally agrees to indemnify and hold harmless the Company, its
directors, each of its officers who signed the Registration Statement, and each
person, if any, who controls the Company within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act against any and all loss, liability,
claim, damage and expense described in the indemnity contained in subsection
(a)(1) of this Section, as incurred, but only with respect to untrue statements
or omissions, or alleged untrue statements or omissions, made in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information or any preliminary prospectus or the Prospectus (or any amendment or
supplement thereto) in reliance upon and in conformity with written information
furnished to the Company by such Underwriter through Merrill Lynch expressly for
use in the Registration Statement (or any amendment thereto) or such preliminary
prospectus or the Prospectus (or any amendment or supplement thereto).

         (c)      Actions against Parties; Notification. Each indemnified party
shall give notice as promptly as reasonably practicable to each indemnifying
party of any action commenced against it in respect of which indemnity may be
sought hereunder, but failure to so notify an indemnifying party shall not
relieve such indemnifying party from any liability hereunder to the extent it is
not materially prejudiced as a result thereof and in any event shall not relieve
it from any liability which it may have otherwise than on account of this
indemnity agreement. In the case of parties indemnified pursuant to Section
6(a)(1) above, counsel to the indemnified parties shall be selected by Merrill
Lynch, and, in the case of parties indemnified pursuant to Section 6(b) above,
counsel to the indemnified parties shall be selected by the Company. An
indemnifying party may participate at its own expense in the defense of any such
action; provided, however, that counsel to the indemnifying party shall not
(except with the consent of the indemnified party) also be counsel to the
indemnified party. In no event shall the indemnifying parties be liable for fees
and expenses of more than one counsel (in addition to any local counsel)
separate from their own counsel for all indemnified parties in connection with
any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances;
provided, that, if indemnity is sought pursuant to Section 6(a)(2), then, in
addition to the fees and expenses of such counsel for the indemnified parties,
the indemnifying party shall be liable for the reasonable fees and expenses of
not more than one counsel (in addition to any local counsel) separate from its
own counsel and that of the other indemnified parties for the Independent
Underwriter in its capacity as a "qualified independent underwriter" and all
persons, if any, who control the Independent Underwriter within the meaning of
Section 15 of the 1933 Act or Section 20 of 1934 Act in connection with any one
action or separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances if, in the
reasonable judgment of the Independent Underwriter, based upon advice of its
counsel, there may exist a conflict of interest between the Independent
Underwriter and the other indemnified parties. Any such separate counsel for the
Independent Underwriter and such control persons of the Independent Underwriter
shall be designated in writing by the Independent Underwriter. No indemnifying
party shall, without the prior written consent of the indemnified parties,
settle or compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 6 or Section
7 hereof (whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.


                                       18


         (d)      Settlement without Consent if Failure to Reimburse. If at any
time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel, such
indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 6(a)(1)(ii) effected without its written consent
if (i) such settlement is entered into more than 45 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party shall
have received notice of the terms of such settlement at least 30 days prior to
such settlement being entered into and (iii) such indemnifying party shall not
have reimbursed such indemnified party in accordance with such request prior to
the date of such settlement.

         SECTION 7. Contribution. If the indemnification provided for in Section
6 hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the Underwriters on the other hand from the offering of the Securities
pursuant to this Agreement, (ii) if the allocation provided by clause (i) is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company on the one hand and of the Underwriters on the other hand
in connection with the statements or omissions which resulted in such losses,
liabilities, claims, damages or expenses, as well as any other relevant
equitable considerations or (iii) the Independent Underwriter in its capacity as
"qualified independent underwriter" (within the meaning of NASD Conduct Rule
2720) be responsible for any amount in excess of the compensation received by
the Independent Underwriter for acting in such capacity.

         The relative benefits received by the Company on the one hand and the
Underwriters on the other hand in connection with the offering of the Securities
pursuant to this Agreement shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the Securities
pursuant to this Agreement (before deducting expenses) received by the Company
and the total underwriting discount received by the Underwriters, in each case
as set forth on the cover of the Prospectus, bear to the aggregate initial
public offering price of the Securities as set forth on the cover of the
Prospectus. Benefits received by the Independent Underwriter in its capacity as
"qualified independent underwriter" shall be deemed to be equal to the
compensation received by the Independent Underwriter for acting in such
capacity.

         The relative fault of the Company on the one hand and the Underwriters
on the other hand shall be determined by reference to, among other things,
whether any such untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.

         The Company and the Underwriters agree that Citigroup will not receive
any additional benefits hereunder for serving as the Independent Underwriter in
connection with the offering and sale of the Securities.

         The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 7. The aggregate
amount of losses, liabilities, claims, damages and expenses incurred by an
indemnified party and referred to above in this Section 7 shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any


                                       19


governmental agency or body, commenced or threatened, or any claim whatsoever
based upon any such untrue or alleged untrue statement or omission or alleged
omission.

         Notwithstanding the provisions of this Section 7, no Underwriter shall
be required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of any such untrue or
alleged untrue statement or omission or alleged omission.

         No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.

         For purposes of this Section 7, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act and each Underwriter's Affiliates and selling agents shall have the
same rights to contribution as such Underwriter, and each director of the
Company, each officer of the Company who signed the Registration Statement, and
each person, if any, who controls the Company within the meaning of Section 15
of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to
contribution as the Company. The Underwriters' respective obligations to
contribute pursuant to this Section 7 are several in proportion to the number of
Initial Securities set forth opposite their respective names in Schedule A
hereto and not joint.

         SECTION 8. Representations, Warranties and Agreements to Survive. All
representations, warranties and agreements contained in this Agreement or in
certificates of officers of the Company or any of its subsidiaries submitted
pursuant hereto, shall remain operative and in full force and effect regardless
of (i) any investigation made by or on behalf of any Underwriter or its
Affiliates or selling agents, any person controlling any Underwriter, its
officers or directors or any person controlling the Company and (ii) delivery of
and payment for the Securities.

         SECTION 9. Termination of Agreement.

         (a)      Termination; General. The Representatives may terminate this
Agreement, by notice to the Company, at any time at or prior to Closing Time (i)
if there has been, since the time of execution of this Agreement or since the
respective dates as of which information is given in the Prospectus, any
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business, or (ii) if there has occurred any material adverse
change in the financial markets in the United States or the international
financial markets, any outbreak of hostilities or escalation thereof or other
calamity or crisis or any change or development involving a prospective change
in national or international political, financial or economic conditions, in
each case the effect of which is such as to make it, in the judgment of the
Representatives, impracticable or inadvisable to market the Securities or to
enforce contracts for the sale of the Securities, or (iii) if trading in any
securities of the Company has been suspended or materially limited by the
Commission or the American Stock Exchange, or if trading generally on the
American Stock Exchange, the New York Stock Exchange or in the Nasdaq National
Market has been suspended or materially limited, or minimum or maximum prices
for trading have been fixed, or maximum ranges for prices have been required, by
any of said exchanges or by such system or by order of the Commission, the NASD
or any other governmental authority, or (iv) a material disruption has occurred
in commercial banking or securities settlement or clearance services in the
United States, or (v) if a banking moratorium has been declared by either
Federal or New York authorities.


                                       20


         (b)      Liabilities. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party, provided further that Sections 1, 6, 7, 8 and 14 shall survive such
termination and remain in full force and effect. If this Agreement is terminated
by the Representatives in accordance with the provisions of Section 5 or Section
9(a)(i) or (iii) (with respect to the first clause only) hereof, the Company
shall reimburse the Underwriters for all of their out-of-pocket expenses,
including the reasonable fees and disbursements of counsel for the Underwriters.

         SECTION 10. Default by One or More of the Underwriters. If one or more
of the Underwriters shall fail at Closing Time or a Date of Delivery to purchase
the Securities which it or they are obligated to purchase under this Agreement
(the "Defaulted Securities"), the Representatives shall have the right, within
24 hours thereafter, to make arrangements for one or more of the non-defaulting
Underwriters, or any other underwriters, to purchase all, but not less than all,
of the Defaulted Securities in such amounts as may be agreed upon and upon the
terms herein set forth; if, however, the Representatives shall not have
completed such arrangements within such 24-hour period, then:

                  (i)      if the number of Defaulted Securities does not exceed
         10% of the number of Securities to be purchased on such date, each of
         the non-defaulting Underwriters shall be obligated, severally and not
         jointly, to purchase the full amount thereof in the proportions that
         their respective underwriting obligations hereunder bear to the
         underwriting obligations of all non-defaulting Underwriters, or

                  (ii)     if the number of Defaulted Securities exceeds 10% of
         the number of Securities to be purchased on such date, this Agreement
         or, with respect to any Date of Delivery which occurs after the Closing
         Time, the obligation of the Underwriters to purchase and of the Company
         to sell the Option Securities to be purchased and sold on such Date of
         Delivery shall terminate without liability on the part of any
         non-defaulting Underwriter.

         No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default.

         In the event of any such default which does not result in a termination
of this Agreement or, in the case of a Date of Delivery which is after the
Closing Time, which does not result in a termination of the obligation of the
Underwriters to purchase and the Company to sell the relevant Option Securities,
as the case may be, either the Representatives or the Company shall have the
right to postpone Closing Time or the relevant Date of Delivery, as the case may
be, for a period not exceeding seven days in order to effect any required
changes in the Registration Statement or Prospectus or in any other documents or
arrangements. As used herein, the term "Underwriter" includes any person
substituted for an Underwriter under this Section 10.

         SECTION 11. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be directed to the Representatives at c/o Merrill Lynch &
Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, 4 World Financial
Center, New York, New York 10080, attention of Jack J. Vissicchio; and notices
to the Company shall be directed to it at 3445 Peachtree Road, N.E., Suite 700,
Atlanta, Georgia 30326, attention of W. Thomas Parrington, President and Chief
Executive Officer.

         SECTION 12. Parties. This Agreement shall each inure to the benefit of
and be binding upon the Underwriters and the Company and their respective
successors. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, firm or corporation, other than the
Underwriters and the Company and their respective successors and the controlling
persons and officers


                                       21


and directors referred to in Sections 6 and 7 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein contained. This Agreement and
all conditions and provisions hereof are intended to be for the sole and
exclusive benefit of the Underwriters and the Company and their respective
successors, and said controlling persons and officers and directors and their
heirs and legal representatives, and for the benefit of no other person, firm or
corporation. No purchaser of Securities from any Underwriter shall be deemed to
be a successor by reason merely of such purchase.

         SECTION 13. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

         SECTION 14. TIME. TIME SHALL BE OF THE ESSENCE OF THIS AGREEMENT.
EXCEPT AS OTHERWISE SET FORTH HEREIN, SPECIFIED TIMES OF DAY REFER TO NEW YORK
CITY TIME.

         SECTION 15. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.

         SECTION 16. Effect of Headings. The Section headings herein are for
convenience only and shall not affect the construction hereof.


                                       22


         If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the Underwriters and the Company in accordance with its terms.


                                    Very truly yours,


                                    LODGIAN, INC.



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


CONFIRMED AND ACCEPTED,
as of the date first above written:


MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
               INCORPORATED
CITIGROUP GLOBAL MARKETS INC.
BANC OF AMERICA SECURITIES LLC
LEGG MASON WOOD WALKER, INCORPORATED
RAYMOND JAMES & ASSOCIATES, INC.


By: MERRILL LYNCH, PIERCE, FENNER & SMITH
               INCORPORATED



By
  ---------------------------------------------
      Authorized Signatory


For itself and as Representatives of the other Underwriters named in Schedule A
hereto.


                                       23


                                   SCHEDULE A



                                                                                                   Number of
                                    Name of Underwriter                                        Initial Securities
                                    -------------------                                        ------------------
                                                                                            
Merrill Lynch, Pierce, Fenner & Smith
            Incorporated................................................................
Citigroup Global Markets Inc............................................................
Banc of America Securities LLC..........................................................
Legg Mason Wood Walker, Incorporated....................................................
Raymond James & Associates, Inc. .......................................................
                                                                                                     ----------
Total...................................................................................
                                                                                                     ==========



                                     Sch A-1


                                   SCHEDULE B
                                  LODGIAN, INC.
                          ______ Shares of Common Stock
                           (Par Value $.01 Per Share)

         1.       The initial public offering price per share for the
Securities, determined as provided in said Section 2, shall be $_____.

         2.       The purchase price per share for the Securities to be paid by
the several Underwriters shall be $_____, being an amount equal to the initial
public offering price set forth above less $_____ per share; provided that the
purchase price per share for any Option Securities purchased upon the exercise
of the overallotment option described in Section 2(b) shall be reduced by an
amount per share equal to any dividends or distributions declared by the Company
and payable on the Initial Securities but not payable on the Option Securities.


                                     Sch B-1


                                   SCHEDULE C

                             Directors and Officers

W. Thomas Parrington

Sean F. Armstrong

Russel S. Bernard

Stewart J. Brown

Kenneth A. Caplan

Stephen P. Grathwohl

Jonathan D. Gray

Kevin C. McTavish

Michael W. Amaral

Manuel E. Artime

Samuel J. Davis

Daniel E. Ellis

Linda Borchert Philp

Daniel K. Abernethy

Deborah N. Ethridge

Mark T. DiPiazza

Paul J. Hitselberger

David T. Robinson


                                     Sch C-1


                                   SCHEDULE D

                                 Joint Ventures






                                     Sch D-1




                                   SCHEDULE E

                                 Loan Agreements



                                     Sch E-1


                                                                       Exhibit A

                      FORM OF OPINION OF COMPANY'S COUNSEL
                           TO BE DELIVERED PURSUANT TO
                                  SECTION 5(b)

         (i)      The Company has been duly organized and is validly existing as
a corporation in good standing under the laws of the State of Delaware.

         (ii)     The Company has corporate power and authority to own, lease
and operate its properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under the Purchase
Agreement.

         (iii)    The Company is duly qualified as a foreign corporation to
transact business and is in good standing in the State of Georgia and in each
other jurisdiction in which such qualification is required, whether by reason of
the ownership or leasing of property or the conduct of business, except where
the failure so to qualify or to be in good standing would not result in a
Material Adverse Effect.

         (iv)     The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus in the column entitled "Actual" under
the caption "Capitalization" (except for subsequent issuances, if any, pursuant
to the Purchase Agreement or pursuant to reservations, agreements or employee
benefit plans referred to in the Prospectus or pursuant to the exercise of
convertible securities, warrants or options referred to in the Prospectus); the
shares of issued and outstanding capital stock of the Company have been duly
authorized and validly issued and are fully paid and non-assessable; and none of
the outstanding shares of capital stock of the Company was issued in violation
of the preemptive or other similar rights of any securityholder of the Company.

         (v)      The Securities have been duly authorized for issuance and sale
to the Underwriters pursuant to the Purchase Agreement and, when issued and
delivered by the Company pursuant to the Purchase Agreement against payment of
the consideration set forth in the Purchase Agreement, will be validly issued
and fully paid and non-assessable and no holder of the Securities is or will be
subject to personal liability by reason of being such a holder.

         (vi)     The issuance of the Securities is not subject to preemptive or
other similar rights of any securityholder of the Company.

         (vii)    Each Subsidiary has been duly organized and is validly
existing as a corporation, limited partnership or limited liability company, as
the case may be, in good standing under the laws of its respective jurisdiction
of organization, has corporate, limited partnership or limited liability
company, as the case may be, power and authority to own, lease and operate its
properties and to conduct its business as described in the Prospectus and is
duly qualified as a foreign corporation, limited partnership or limited
liability company, as the case may be, to transact business and is in good
standing in each jurisdiction in which such qualification is required, whether
by reason of the ownership or leasing of property or the conduct of business,
except where the failure so to qualify or to be in good standing would not
result in a Material Adverse Effect; except as otherwise disclosed in the
Registration Statement, all of the issued and outstanding capital stock of each
Subsidiary has been duly authorized and validly issued, is fully


                                       A-1


paid and non-assessable and, to the best of our knowledge, is owned by the
Company, directly or through subsidiaries, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity; none of the
outstanding shares of capital stock of any Subsidiary was issued in violation of
the preemptive or similar rights of any securityholder of such Subsidiary.

         (viii)   The Purchase Agreement has been duly authorized, executed and
delivered by the Company.

         (ix)     The Registration Statement, including any Rule 462(b)
Registration Statement, has been declared effective under the 1933 Act; any
required filing of the Prospectus pursuant to Rule 424(b) has been made in the
manner and within the time period required by Rule 424(b); and, to the best of
our knowledge, no stop order suspending the effectiveness of the Registration
Statement or any Rule 462(b) Registration Statement has been issued under the
1933 Act and no proceedings for that purpose have been instituted or are pending
or threatened by the Commission.

         (x)      The Registration Statement, including any Rule 462(b)
Registration Statement and the Rule 430A Information, the Prospectus and each
amendment or supplement to the Registration Statement and Prospectus as of their
respective effective or issue dates (other than the financial statements and
supporting schedules included therein or omitted therefrom, as to which we need
express no opinion) complied as to form in all material respects with the
requirements of the 1933 Act and the 1933 Act Regulations.

         (xi)     The form of certificate used to evidence the Common Stock
complies in all material respects with all applicable statutory requirements,
with any applicable requirements of the charter and by-laws of the Company and
the requirements of the American Stock Exchange.

         (xii)    To the best of our knowledge, there is not pending or
threatened any action, suit, proceeding, inquiry or investigation, to which the
Company or any subsidiary is a party, or to which the property of the Company or
any subsidiary is subject, before or brought by any court or governmental agency
or body, domestic or foreign, which would reasonably be expected to result in a
Material Adverse Effect, or which would reasonably be expected to materially and
adversely affect the properties or assets thereof or the consummation of the
transactions contemplated in the Purchase Agreement or the performance by the
Company of its obligations thereunder.

         (xiii)   The information in the Prospectus under "Description of
Capital Stock", "Shares Eligible for Future Sale -- Rule 144" and in the
Registration Statement under Item 14, to the extent that it constitutes matters
of law, summaries of legal matters, the Company's charter and bylaws or legal
proceedings, or legal conclusions, has been reviewed by us and is correct in all
material respects.

         (xiv)    All descriptions in the Registration Statement of contracts
and other documents to which the Company or its subsidiaries are a party are
accurate in all material respects; to the best of our knowledge, there are no
franchises, contracts, indentures, mortgages, loan agreements, notes, leases or
other instruments required to be described or referred to in the Registration
Statement or to be filed as exhibits to the Registration Statement other than
those described or referred to therein or filed as exhibits thereto. To our
knowledge, (i) neither the Company nor any Subsidiary is in violation of its
charter, by-laws or operating agreement, as applicable and (ii) no default by
the Company or any Subsidiary exists in the due performance or observance of any
material obligation, agreement, covenant or condition contained in any agreement
filed as an


                                       A-2


exhibit to the Registration Statement, except for such defaults that would not
result in a Material Adverse Effect.

         (xv)     No filing with, or authorization, approval, consent, license,
order, registration, qualification or decree of, any court or governmental
authority or agency, domestic or foreign (other than under the 1933 Act and the
1933 Act Regulations, which have been obtained, or as may be required under the
securities or blue sky laws of the various states, as to which we need express
no opinion) is necessary or required in connection with the due authorization,
execution and delivery of the Purchase Agreement or for the offering, issuance,
sale or delivery of the Securities.

         (xvi)    The execution, delivery and performance of the Purchase
Agreement and the consummation of the transactions contemplated in the Purchase
Agreement and in the Registration Statement (including the issuance and sale of
the Securities and the use of the proceeds from the sale of the Securities as
described in the Prospectus under the caption "Use Of Proceeds") and compliance
by the Company with its obligations under the Purchase Agreement do not and will
not, whether with or without the giving of notice or lapse of time or both,
conflict with or constitute a breach of, or default or Repayment Event (as
defined in Section 1(a)(xiii) of the Purchase Agreement) under or result in the
creation or imposition of any lien, charge or encumbrance upon any property or
assets of the Company or any subsidiary pursuant to any contract, indenture,
mortgage, deed of trust, loan or credit agreement, franchise agreement,
management agreement, note, lease or any other agreement or instrument, known to
us, to which the Company or any subsidiary is a party or by which it or any of
them may be bound, or to which any of the property or assets of the Company or
any subsidiary is subject (except for such conflicts, breaches, defaults or
Repayment Events or liens, charges or encumbrances that would not have a
Material Adverse Effect), nor will such action result in any violation of the
provisions of the charter or by-laws of the Company or any subsidiary, or any
applicable law, statute, rule, regulation, judgment, order, writ or decree,
known to us, of any government, government instrumentality or court, domestic or
foreign, having jurisdiction over the Company or any subsidiary or any of their
respective properties, assets or operations.

         (xvii)   To the best of our knowledge, there are no persons with
registration rights or other similar rights to have any securities registered
pursuant to the Registration Statement or otherwise registered by the Company
under the 1933 Act, except as disclosed in the Prospectus under "Risks Related
to this Offering and Our Common Stock" and "Shares Eligible for Future Sale --
Registration Rights."

         (xviii)  The Company is not required, and upon the issuance and sale of
the Securities as herein contemplated and the application of the net proceeds
therefrom as described in the Prospectus will not be required, to register as an
"investment company" under the 1940 Act.

         Nothing has come to our attention that would lead us to believe that
the Registration Statement or any amendment thereto, including the Rule 430A
Information, (except for financial statements and schedules and other financial
data included therein or omitted therefrom, as to which we need make no
statement), at the time such Registration Statement or any such amendment became
effective, contained an untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus or any amendment or
supplement thereto (except for financial statements and schedules and other
financial data included therein or omitted therefrom, as to which we need make
no statement), at the time the Prospectus was issued, at the time any such
amended or supplemented prospectus was issued or at the Closing Time, included
or includes an


                                       A-3


untrue statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.

         In rendering such opinion, such counsel may rely as to matters of fact
(but not as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Company and public officials. Such
opinion shall not state that it is to be governed or qualified by, or that it is
otherwise subject to, any treatise, written policy or other document relating to
legal opinions, including, without limitation, the Legal Opinion Accord of the
ABA Section of Business Law (1991).


                                      A-4


                   FORM OF LOCK-UP FROM DIRECTORS AND OFFICERS


                                                                       Exhibit B


                                   ____, 2004


MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
            Incorporated
4 World Financial Center
New York, New York  10080

         Re:      Proposed Public Offering by Lodgian, Inc.

Dear Sirs:

         The undersigned, a director and/or officer and a stockholder and/or
optionholder of Lodgian, Inc., a Delaware corporation (the "Company"),
understands that Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") as representative of the underwriters (the
"Underwriters") proposes to enter into a Purchase Agreement (the "Purchase
Agreement") with the Company providing for the public offering (the "Offering")
of shares (the "Securities") of the Company's common stock, par value $0.01 per
share (the "Common Stock"). In recognition of the benefit the Offering will
confer upon the undersigned as a director and/or officer and a stockholder
and/or optionholder of the Company, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
undersigned agrees with each underwriter to be named in the Purchase Agreement
(i) to maintain the confidentiality of the proposed Offering prior to the filing
of the related registration statement with the Securities and Exchange
Commission (the "Commission"), (ii) that from the date hereof until the earlier
of (1) 180 days after the date of effectiveness of the registration statement on
Form S-1 filed by the Company with the Commission for the purpose of
effectuating the Offering and (2) December 15, 2004 (the "Lock-up Period"), the
undersigned will not, without the prior written consent of Merrill Lynch,
directly or indirectly, (a) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant for the sale of, or otherwise dispose of or
transfer any shares of the Common Stock or any securities convertible into or
exchangeable or exercisable for Common Stock, whether now owned or hereafter
acquired by the undersigned or with respect to which the undersigned has or
hereafter acquires the power of disposition, or file, or cause to be filed, any
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to any of the foregoing (collectively, the
"Lock-Up Securities") or (b) enter into any swap or any other agreement or any
transaction that transfers, in whole or in part, directly or indirectly, the
economic consequence of ownership of the Lock-Up Securities, whether any such
swap or transaction is to be settled by delivery of Common Stock or other
securities, in cash or otherwise.


                                    Very truly yours,



                                    Signature:
                                              -------------------------------


                                    Print Name:
                                               ------------------------------


                                       B-1


                                                                       Exhibit C


    FORM OF LOCK-UP AGREEMENT FOR OCM REAL ESTATE OPPORTUNITIES FUND II, L.P.


                                February, 27 2004


MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
            Incorporated
4 World Financial Center
New York, New York 10080

         Re:      Proposed Public Offering by Lodgian, Inc.

Dear Sirs:

         The undersigned, a stockholder of Lodgian, Inc., a Delaware corporation
(the "Company"), understands that Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch"), as representative of the
underwriters (the "Underwriters"), proposes to enter into a Purchase Agreement
(the "Purchase Agreement") with the Company providing for the public offering
(the "Offering") of shares (the "Securities") of the Company's common stock, par
value $0.01 per share (the "Common Stock"). In recognition of the benefit that
the Offering will confer upon the undersigned as a stockholder of the Company;
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the undersigned agrees with each Underwriter to
be named in the Purchase Agreement (i) to maintain the confidentiality of the
proposed Offering prior to the filing of the related registration statement with
the Securities and Exchange Commission (the "Commission"), (ii) that,
notwithstanding any provision contained in the registration rights agreement
among the Company, the undersigned and certain other shareholders of the
Company, dated as of November 25, 2002 (the "Registration Rights Agreement"), or
otherwise, from the date hereof until the earlier of (l) 180 days after the date
of effectiveness of the registration statement on Form S-1 filed by the Company
with the United States Securities and Exchange Commission for the purpose of
effectuating the Offering and (2) December 15, 2004 (the "Lock-up Period"), the
undersigned will not, without the prior written consent of Merrill Lynch,
directly or indirectly, (a) offer, pledge, sell, contract to sell, sell any
option or contract to purchase any option or contract to sell, grant any option,
right or warrant for the sale of, lend or otherwise dispose of or transfer any
shares of Common Stock or any securities convertible into or exchangeable or
exercisable for Common Stock, whether now owned or hereafter acquired by the
undersigned or with respect to which the undersigned has or hereafter acquires
the power of disposition, or file, or cause, to be filed, any registration
statement under the Securities Act of 1933, as amended (the "Securities Act")
with respect to any of the foregoing (collectively, the "Lock-Up Securities") or
(b) enter into any swap or any other agreement or any transaction that
transfers, in whole or in part, directly or indirectly, the economic consequence
of ownership of the Lock-Up Securities, whether any such swap or transaction is
to be settled by delivery of Common Stock or other securities, in cash or
otherwise, (iii) that the Company will not be required, under the Registration
Rights Agreement or otherwise, to use its reasonable best efforts to have
declared effective as promptly as practicable after filing with the Commission a
registration statement covering the resale of shares of Common Stock as
contemplated, by Section 2.1 of the Registration Rights Agreement until the
expiration of the Lock-Up Period, and (iv) to waive any and all rights, under
the Registration Rights Agreement or otherwise, that the undersigned may have to
cause shares of Common Stock to be registered for resale with the Commission
along with shares of Common Stock offered publicly by the Company in connection
with the Offering, including rights under Section 3.1 of the Registration Rights
Agreement.


                                       C-1


                                    Very truly yours,


                                    OCM Real Estate Opportunities Fund II, L.P.


                                    By: Oaktree Capital Management, LLC, its
                                    General Partner



                                    By:
                                       ---------------------------------------



                                    By:
                                       ---------------------------------------


                                      C-2


                                                                       Exhibit D


              FORM OF LOCK-UP AGREEMENT FOR THIRD AVENUE VALUE FUND


                                  March 4, 2004


MERRILL LYNCH & CO.
Merrill Lynch, Pierce Fenner & Smith
            Incorporated
4 World Financial Center
New York, New York 10080

         Re:      Proposed Public Offering by Lodgian, Inc.

         The undersigned, a stockholder of Lodgian, Inc., a Delaware corporation
(the "Company"), understands that Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch"), as representative of the
underwriters (the "Underwriters"), proposes to enter into a Purchase Agreement
(the "Purchase Agreement") with the Company providing for the public offering
(the "Offering") of shares (the "Securities") of the Company's common stock, par
value $0.01 per share (the "Common Stock"). In recognition of the benefit that
the Offering will confer upon the undersigned as a stockholder of the Company,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the undersigned agrees with each Underwriter to
be named in the Purchase Agreement (i) to maintain the confidentiality of the
proposed Offering prior to the filing of the related registration statement with
the Securities and Exchange Commission (the "Commission"), (ii) that,
notwithstanding any provision contained in the registration rights agreement
among the Company, the undersigned and certain other shareholders of the
Company, dated as of November 25, 2002 (the "Registration Rights Agreement"), or
otherwise, from the date hereof until this earlier of (1) 180 days after the
date of effectiveness of the registration statement on Form S-1 filed by the
Company with the United States Securities and Exchange Commission for the
purpose of effectuating the Offering and (2) December 15, 2004 (the "Lock-up
Period"), the undersigned will not, without the prior written consent of Merrill
Lynch, directly or indirectly, (a) offer, pledge, sell, contract to sell, sell
any option or contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant for the sale of, lend otherwise dispose of or
transfer any shares of Common Stock or any securities convertible into or
exchangeable or exercisable for Common Stock, whether now owned or hereafter
acquired by the undersigned or with respect to which the undersigned has or
hereafter acquires the power of disposition, or file, or cause to be filed, any
registration statement under the Securities Act of 1933, as amended (the
"Securities Act") with respect to any of the foregoing (collectively, the
"Lock-Up Securities") or (b) enter into any swap or any other agreement or any
transaction that transfers, in whole or in part, directly or indirectly, the
economic consequence of ownership of the Lock-Up Securities, whether any such
swap or transaction is to be settled by delivery of Common Stock or other
securities, in cash or otherwise, (iii) that the Company will not be required,
under the Registration Rights Agreement or otherwise, to use its reasonable best
efforts to have declared effective as promptly as practicable after filing with
the Commission a registration statement covering the resale of shares of Common
Stock as contemplated by Section 2.1 of the Registration Rights Agreement until
the expiration of the Lock-Up Period, and (iv) to waive any and all rights,
under the Registration Rights Agreement or otherwise, that the undersigned may
have to cause shares of Common Stock to be registered for resale with the
Commission along with shares of Common Stock offered publicly by the Company in
connection with the Offering, including rights under Section 3.1 of the
Registration Rights Agreement.


                                       D-1


                                    Very truly yours,


                                    Third Avenue Trust, on behalf of Third
                                    Avenue Value Fund



                                    By:
                                       ----------------------------------------


                                    Print Name:
                                               --------------------------------


                                    Title:
                                          -------------------------------------


                                      D-2


                                                                       Exhibit E


                FORM OF LOCK-UP AGREEMENT FOR BRE HY FUNDING LLC


                                  March 2, 2004


MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
            Incorporated
4 World Financial Center
New York, New York 10080

         Re:      Proposed Public Offering by Lodgian, Inc.

Dear Sirs:

         The undersigned, a stockholder of Lodgian, Inc., a Delaware corporation
(the "Company"), understands that Merrill Lynch & Co., Merrill Lynch, Pierce,
Fencer & Smith Incorporated ("Merrill Lynch"), as representative of the
underwriters (the "Underwriters") proposes to enter into a Purchase Agreement
(the "Purchase Agreement") with the Company providing for the public offering
(the "Offering") of shares (the "Securities") of the Company's common stock, par
value $0.01 per share (the "Common Stock"). In recognition of the benefit that
the Offering will confer upon the undersigned as a stockholder of the Company,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the undersigned agrees with. each Underwriter to
be named in the Purchase Agreement (i) that, notwithstanding any provision
contained in the registration rights agreement among the Company, the
undersigned and certain other shareholders of the Company, dated as of November
25, 2002 (the "Registration Rights Agreement"), or otherwise, from the date
hereof until the earliest of (1) 180 days after the date of effectiveness of the
registration statement on Form S-1 filed by the Company with the United States
Securities and Exchange Commission for the purpose of effectuating the Offering,
(2) December 15, 2004, and (3) the termination of the Purchase Agreement (the
"Lock-up Period"), the undersigned will not, without the prior written consent
of Merrill Lynch, directly or indirectly, (a) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant for the sale of, lend or otherwise
dispose of or transfer any shares of Common Stock or any securities convertible
into or exchangeable or exercisable for Common Stock, whether now owned or
hereafter acquired by the undersigned or with respect to which the undersigned
has or hereafter acquires the power of disposition, or file, or cause to be
filed, any registration statement under the Securities Act of 1933, as amended
(the "Securities Act") with respect to any of the foregoing (collectively, the
"Lock-Up Securities") or (b) enter into any swap or any other agreement or any
transaction that transfers, in whole or in part, directly or indirectly, the
economic consequence of ownership of the Lock-Up Securities, whether any such
swap or transaction is to be settled by delivery of Common Stock or other
securities, in cash or otherwise, (ii) that, prior to the expiration of the
Lock-Up Period, the Company will not be required, under the Registration Rights
Agreement or otherwise, to use its reasonable best efforts to have declared
effective as promptly as practicable after filing with the Commission a
registration statement covering the resale of shares of Common Stock as
contemplated by Section 2.1 of the Registration Rights Agreement, and (iii) to
waive any and all rights, under the Registration Rights Agreement or otherwise,
that the undersigned may have to cause shares of Common Stock to be registered
for resale with the Commission along with shares of Common Stock offered
publicly by the Company in connection with the Offering, including rights under
Section 3.1 of the Registration Rights Agreement, until the expiration of the
Lock-up Period. Any Company Common Stock acquired by the undersigned in the open
market after the date hereof shall not be subject to the terms of paragraph (i)
of this Agreement.


                                      E-1


                                    Very truly yours,


                                    BRE HY Funding LLC



                                    By:


                                    Signature:
                                              ---------------------------------


                                    Print Name:
                                               --------------------------------


                                    Title:
                                          -------------------------------------


                                      E-2

EX-3.1

                                                                     EXHIBIT 3.1

                            CERTIFICATE OF CORRECTION
                     FILED TO CORRECT A CERTAIN ERROR IN THE
            SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
                                       OF
                                  LODGIAN, INC.
                             FILED IN THE OFFICE OF
                       THE SECRETARY OF STATE OF DELAWARE
                                ON APRIL 28, 2004

         LODGIAN, INC., a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:

         1.       The name of the corporation is "LODGIAN, INC."

         2.       That a Second Amended and Restated Certificate of
Incorporation (the "Certificate") was filed by the Secretary of State of
Delaware on April 28, 2004, and that said Certificate requires correction as
permitted by Section 103 of the General Corporation Law of the State of
Delaware.

         3.       Section 4.1 of the Certificate inaccurately stated that the
total number of shares of all classes of stock that the Corporation shall have
authority to issue is Sixty Million (60,000,000), of which Fifty Million
(50,000,000) shares shall be shares of Common Stock, par value $0.01 per share
("Common Stock"), and Ten Million (10,000,000) shares shall be shares of
Preferred Stock, par value $0.01 per share ("Preferred Stock").

         4.       The inaccuracy or defect of said Certificate to be corrected
is as follows:

                  FIRST:   That Section 4.1 of the Second Amended and Restated
         Certificate of Incorporation of the Corporation be and it hereby is
         amended by deleting Section 4.1 in its entirety and substituting the
         following in lieu thereof:

                  "SECTION 4.1 Authorized Capital; Shares. The total number of
         shares of all classes of stock that the Corporation shall have
         authority to issue is Seventy Million (70,000,000), of which Sixty
         Million (60,000,000) shares shall be shares of Common Stock, par value
         $0.01 per share ("Common Stock"), and Ten Million (10,000,000) shares
         shall be shares of Preferred Stock, par value $0.01 per share
         ("Preferred Stock")."

                  IN WITNESS WHEREOF, Lodgian, Inc. has caused this certificate
         to be signed by its President and Chief Executive Officer on June 3,
         2004.


                                          LODGIAN, INC.


                                          By: /S/ W. Thomas Parrington
                                             ----------------------------------
                                              W. Thomas Parrington, President
                                              and Chief Executive Officer



                           SECOND AMENDED AND RESTATED
                          CERTIFICATE OF INCORPORATION
                                       OF
                                  LODGIAN, INC.
        -----------------------------------------------------------------

                    Pursuant to the provisions of Section 102
                     of the Delaware General Corporation Law
        -----------------------------------------------------------------

                  Lodgian, Inc. (the "Corporation"), a corporation organized and
validly existing under the General Corporation Law of the State of Delaware,
does hereby certify as follows:

         (1)      The name of the Corporation is Lodgian, Inc. The Corporation
was originally incorporated under the name Servico Hotel Group, Inc. The
original Certificate of Incorporation of the Corporation was filed with the
office of the Secretary of State of the State of Delaware on February 11, 1998,
and restated most recently on April 13, 1998; amended by the Certificate of
Designations of Participating Preferred Stock filed on April 15, 1998; amended
by the Court Ordered Certificate of Amendment filed on November 22, 2002; and
further amended by the Certificate of Designation of the Series A Preferred
Stock filed on November 22, 2002.

         (2)      The provisions of the certificate of incorporation as
heretofore amended and/or supplemented, and as herein amended, are hereby
restated and integrated into the single instrument which is hereinafter set
forth, including APPENDIX A, and which is entitled the Second Amended and
Restated Certificate of Incorporation of Lodgian, Inc., without any further
amendment other than the amendment certified herein and without any discrepancy
between the provisions of the certificate of incorporation as heretofore amended
and supplemented and the provisions of the said single instrument hereinafter
set forth.

         (3)      The amendment and restatement of the certificate of
incorporation herein certified has been duly adopted by the stockholders in
accordance with the provisions of Sections 203(b)(3), 242 and 245 of the General
Corporation Law of the State of Delaware.

         (4)      The Restated Certificate of Incorporation, dated April 13,
1998 ("First Restated Certificate"), authorizes a class of stock designated as
preferred stock (the "Preferred Stock"), comprising 10,000,000 shares, par value
$0.01 per share, provides that such Preferred Stock may be issued from time to
time in one or more series, and vests authority in the Board of Directors of the
Corporation, within the limitations and restrictions stated in Section 4.2 of
Article IV of the First Restated Certificate, to fix or alter the voting powers,
designation, preferences and relative participating, optional or other special
rights, rights and terms of redemption, the redemption price or prices and the
liquidation preferences of any series of Preferred Stock within the limitations
set forth in the Delaware General Corporation Law. The Certificate of
Designation of Participating Preferred Stock designated 350,000 shares of the
Preferred Stock as Participating Preferred Stock (the "Participating
Preferred"). As of the date hereof, there are no issued and outstanding shares
of Participating Preferred. It is the desire of the Board of Directors of the
Corporation to cancel any previous rights, preferences or designations for the
Participating Preferred, and as a result, such shares of Participating Preferred
shall hereafter be considered authorized but unissued Preferred Stock subject to
the provisions of Section 4.2 of Article IV of the First Restated Certificate.



         (5)      The First Restated Certificate authorizes a class of stock
designated as common stock (the "Common Stock"), comprising 30,000,000 shares,
par value $0.01 per share. Each three (3) shares of the Common Stock issued as
of the date and time immediately preceding April 30, 2004, the effective date of
a reverse stock split (the "Split Effective Date"), shall be automatically
changed and reclassified, as of the Split Effective Date and without further
action, into one (1) fully paid and nonassessable share of the Common Stock;
provided, however, that there shall be no fractional interest resulting from
such change and reclassification. In the case of any holder of fewer than three
(3) shares of Common Stock or any number of shares of Common Stock which, when
divided by three (3), does not result in a whole number (a "Fractional
Stockholder"), the fractional share interest of Common Stock held by such
Fractional Stockholder as a result of such change and reclassification shall be
redeemed for a cash payment by the Corporation in lieu of issuance. Each holder
of record of a certificate or certificates which immediately prior to the Split
Effective Date represents outstanding shares of Common Stock (the "Old
Certificates," whether one or more) shall be entitled to receive upon surrender
of such Old Certificates to the Corporation's transfer agent for cancellation, a
certificate or certificates (the "New Certificates," whether one or more)
representing the number of whole shares of Common Stock into and for which the
shares of the Common Stock formerly represented by such Old Certificates so
surrendered plus a cash payment in place of the fractional shares at a price
equal to the fraction to which the holder would otherwise be entitled multiplied
by the average of the closing prices of the Common Stock for the last ten (10)
trading days immediately prior to the Split Effective Date (or if such price is
not available, the average of the last bid and ask prices of the Common Stock on
such days or other price determined by the Board of Directors).  From and after
the Split Effective Date, Old Certificates shall represent only the right to
receive New Certificates, plus cash in lieu of fractional shares, pursuant to
the provisions hereof.

         (6)      This filing shall be made effective as of midnight, April 29,
2004.

         (7)      The certificate of incorporation of the Corporation, as
amended and restated herein, shall at the effective time of this Second Restated
Certificate of Incorporation (the "Second Restated Certificate"), read as
follows:

                                   "ARTICLE I
                                      NAME

                  SECTION 1.1 Name. The name of the Corporation is Lodgian, Inc.

                                   ARTICLE II
                     REGISTERED OFFICE AND REGISTERED AGENT

                  SECTION 2.1 Office and Agent. The address of the registered
office of the Corporation in the State of Delaware is Corporation Trust Center,
1209 Orange Street, in the City of Wilmington, County of New Castle. The name of
the registered agent of the Corporation at such address is The Corporation Trust
Company.

                                   ARTICLE III
                                CORPORATE PURPOSE

                  SECTION 3.1 Purpose. The purpose of the Corporation is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware (the "DGCL").


                                      -2-



                                   ARTICLE IV
                                 CAPITALIZATION

                  SECTION 4.1 Authorized Capital; Shares. The total number of
shares of all classes of stock that the Corporation shall have authority to
issue is Sixty Million (60,000,000), of which Fifty Million (50,000,000) shares
shall be shares of Common Stock, par value $0.01 per share ("Common Stock"), and
Ten Million (10,000,000) shares shall be shares of Preferred Stock, par value
$0.01 per share ("Preferred Stock").

                  SECTION 4.2 Preferred Stock. Shares of Preferred Stock of the
Corporation may be issued from time to time in one or more classes or series,
each of which class or series shall have such distinctive designation or title
as shall be fixed by the affirmative vote of a majority of the Board of
Directors of the Corporation prior to the issuance of any shares thereof. Each
such class or series of Preferred Stock shall have such voting powers, full or
limited, or no voting powers, and such designations, preferences and relative,
participating, optional or other special rights and qualifications, limitations
or restrictions, including the dividend rate, redemption price and liquidation
preference, and may be convertible into, or exchangeable for, at the option of
either the holder or the Corporation or upon the happening of a specified event,
shares of any other class or classes or any other series of the same or any
other class or classes of capital stock, or any debt securities, of the
Corporation at such price or prices or at such rate or rates of exchange and
with such adjustments as shall be stated and expressed in this Second Restated
Certificate of Incorporation or in any amendment hereto or in such resolution or
resolutions providing for the issuance of such class or series of Preferred
Stock as may be adopted from time to time by the affirmative vote of the number
of directors constituting the majority of the Board of Directors prior to the
issuance of any shares thereof pursuant to the authority hereby expressly vested
in it, all in accordance with the DGCL. The authority of the Board of Directors
with respect to each series shall also include, but not be limited to, the
determination of restrictions, if any, on the issue or reissue of any additional
shares of Preferred Stock.

                  SECTION 4.3 Series A Preferred Stock. Of the 10,000,000 shares
of Preferred Stock, a total of 7,100,000 shares shall be designated as Series A
Preferred Stock, with such powers, preferences and relative rights as set forth
on "APPENDIX A" attached hereto and made a part hereof.

                  SECTION 4.4 No Preemptive Rights. The holders of shares of
Common Stock shall have no preemptive or preferential rights of subscription to
any shares of any class of capital stock of the Corporation or any securities
convertible into or exchangeable for shares of any class of capital stock of the
Corporation.

                  SECTION 4.5 Prohibition of Non-Voting Equity Securities.
Notwithstanding anything herein to the contrary, the Corporation shall not be
authorized to issue non-voting equity securities of any class, series or other
designation to the extent prohibited by Section 1123(a)(6) of Title 11 of the
United States Code (the "Bankruptcy Code"); provided, however, that the
foregoing restriction shall (i) have no further force and effect beyond that
required under Section 1123(a)(6) of the Bankruptcy Code, (ii) only have such
force and effect for so long as such Section 1123(a)(6) is in effect and applies
to the Corporation, and (iii) be deemed void or eliminated if required by
applicable law.

                                      -3-


                                    ARTICLE V
                                 INDEMNIFICATION


                  SECTION 5.1 Indemnification. (a) General. The Corporation
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the Corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise, to
the full extent authorized or permitted by law, as now or hereafter in effect,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement or conviction, or upon
a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person seeking indemnification did not act in good faith
and in a manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.

                  (b)      Derivative Actions. The Corporation shall indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, to the full extent authorized or permitted by law, as now or
hereafter in effect, against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Corporation; provided,
however, that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the Court of Chancery of the
State of Delaware or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.

                  (c)      Successful Defense. To the extent that a present or
former director or officer of the Corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in
subsections (a) and (b) above, or in defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.

                  (d)      Proceedings Initiated by any Person. Notwithstanding
anything to the contrary contained in subsections (a) or (b) above, except for
proceedings to enforce rights to indemnification, the Corporation shall not be
obligated to indemnify any person in connection with a proceeding (or part
thereof) initiated by such person unless such proceeding (or part thereof) was
authorized in advance, or unanimously consented to, by the Board of Directors.

                  (e)      Procedure. Any indemnification under subsections (a)
and (b) above (unless ordered by a court) shall be made by the Corporation only
as authorized in the specific case upon a determination that indemnification of
the present or former director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
subsections (a) and (b) above. Such determination shall be made with respect to
a person who is a director or officer at


                                      -4-


the time of such determination, (i) by a majority vote of a quorum of the
directors who are not parties to such action, suit or proceeding, (ii) by a
committee of such nonparty directors designated by a majority vote of such
directors, even though less than a quorum, (iii) if there are no such directors,
or if such directors so direct, by independent legal counsel in a written
opinion, or (iv) by the stockholders of the Corporation.

                  (f)      Advancement of Expenses. Expenses (including
attorneys' fees) incurred by a director or an officer in defending any civil,
criminal, administrative or investigative action, suit or proceeding shall be
paid by the Corporation in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking in form and substance satisfactory
to the Corporation by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by the Corporation pursuant to this Article V. Such expenses
(including attorneys' fees) incurred by former directors or officers or other
employees and agents may be so paid upon such terms and conditions, if any, as
the Corporation deems appropriate.

                  (g)      Rights Not Exclusive. The indemnification and
advancement of expenses provided by, or granted pursuant to, the other
subsections of this Article V shall not be deemed exclusive of any other rights
to which those seeking indemnification or advancement of expenses may be
entitled under any law, bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office.

                  (h)      Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power to indemnify him
against such liability under the provisions of the DGCL.

                  (i)      Definition of "Corporation". For purposes of this
Article V, references to "the Corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees or agents so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the provisions
of this Article V with respect to the resulting or surviving corporation as he
would have with respect to such constituent corporation if its separate
existence had continued.

                  (j)      Certain Other Definitions. For purposes of this
Article V, references to "other enterprises" shall include employee benefit
plans; references to "fines" shall include any excise taxes assessed on a person
with respect to any employee benefit plan; and references to "serving at the
request of the Corporation" shall include any service as a director, officer,
employee or agent of the Corporation which imposes duties on, or involves
service by, such director, officer, employee or agent with respect to an
employee benefit plan, its participants or beneficiaries; and a person who acted
in good faith and in a manner he reasonably believed to be in the interest of
the participants and beneficiaries of an employee benefit plan shall be deemed
to have acted in a manner "not opposed to the best interests of the
Corporation," as referred to in this Article V.


                                      -5-


                  (k)      Continuation of Rights. The indemnification and
advancement of expenses provided by, or granted pursuant to, this Article V
shall, unless otherwise provided when authorized or ratified, continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.

                  (l)      Repeal or Modification. Any repeal or modification of
this Article V by the stockholders of the Corporation shall not adversely affect
any rights to indemnification and to advancement of expenses that any person may
have at the time of such repeal or modification with respect to any acts or
omissions occurring prior to such repeal or modification.

                  (m)      Action Against Corporation. Notwithstanding any
provisions of this Article V to the contrary, no person shall be entitled to
indemnification or advancement of expenses under this Article V with respect to
any action, suit or proceeding, or any claim therein, brought or made by him
against the Corporation.

                                   ARTICLE VI
                                    DIRECTORS

                  SECTION 6.1 Director Liability. (a) A director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL or (iv) for any transaction from which the director
derived any improper personal benefit.

                  (b)      If the DGCL is amended hereafter to authorize the
further elimination or limitation of the liability of directors, then the
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent authorized by the DGCL, as so amended, without further action by
either the Board of Directors or the stockholders of the Corporation.

                  (c)      Any repeal or modification of this Article VI shall
not adversely affect any right or protection of a director of the Corporation
existing hereunder with respect to any act or omission occurring prior to or at
the time of such repeal or modification.

                  SECTION 6.2 Removal. Subject to the rights, if any, of the
holders of shares of Preferred Stock then outstanding, any or all of the
directors of the Corporation may be removed from office at any time, with or
without cause, by the affirmative vote of the record holders of a majority of
the outstanding shares of the Corporation entitled to vote generally in the
election of directors.

                                   ARTICLE VII
                  MANAGEMENT OF THE AFFAIRS OF THE CORPORATION

                  SECTION 7.1 Management of the Affairs of the Corporation. (a)
The business and affairs of the Corporation shall be managed by the Board of
Directors, which may exercise all the powers of the Corporation and do all such
lawful acts and things that are not conferred upon or reserved to the
stockholders by law, by this Second Restated Certificate of Incorporation or by
the bylaws of the Corporation (the "Bylaws").

                  (b)      Election of directors of the Corporation need not be
by written ballot, unless required by the Bylaws.


                                      -6-


                  (c)      The following provisions are inserted for the
limitation and regulation of the powers of the Corporation and of its directors
and stockholders:

                           (i)      The Bylaws, or any of them, may be altered,
         amended or repealed, or new bylaws may be made, but only to the extent
         any such alteration, amendment, repeal or new bylaw is not inconsistent
         with any provision of this Second Restated Certificate of Incorporation
         as it may be amended from time to time, either by the number of
         directors constituting the majority of the Board of Directors or by the
         stockholders of the Corporation upon the affirmative vote of the
         holders of at least 80% of the outstanding capital stock entitled to
         vote thereon.

                           (ii)     The Board of Directors shall be elected each
         year at the annual meeting of stockholders. Each director shall hold
         office until the annual meeting of stockholders for the year following
         the year of his or her election until his or her successor is elected
         and has qualified or until his or her earlier resignation, retirement,
         disqualification or removal from office.

                           Notwithstanding the foregoing, whenever the holders
         of any one or more classes or series of Preferred Stock issued by the
         Corporation shall have the right, voting separately by class or series,
         to elect directors at an annual or special meeting of stockholders, the
         election, term of office, filling of vacancies and other features of
         such directorships shall be governed by the terms of this Second
         Restated Certificate of Incorporation or the resolution or resolutions
         adopted by the Board of Directors pursuant to Section 4.2 of Article IV
         hereof applicable thereto.

                           (iii)    Subject to the rights, if any, of the
         holders of shares of Preferred Stock then outstanding and the notice
         provisions set forth in Section 6.2 of Article VI, any or all of the
         directors of the Corporation may be removed from office at any time
         only for cause by the affirmative vote of holders of a majority of the
         outstanding shares of the Corporation entitled to vote generally in the
         election of directors, considered for purposes of this paragraph as one
         class.

                           (iv)     Special meetings of the stockholders of the
         Corporation for any purpose or purposes may be called at any time by a
         majority of the members of the Board of Directors or Chief Executive
         Officer of the Corporation. A special meeting of the stockholders of
         the Corporation may not be called by any other person or persons.

                  SECTION 7.2 Business Combinations with Interested
Stockholders. To the fullest extent permitted by the DGCL, the Corporation
hereby elects not to be governed by Section 203 of the DGCL; provided, however,
this Section 7.2 shall not apply to any business combination between the
Corporation and any person who became an interested stockholder on or prior to
the filing date of this Second Restated Certificate of Incorporation.

                                  ARTICLE VIII
                                PRIVATE PROPERTY

                  SECTION 8.1 Private Property. The private property of the
stockholders of the Corporation shall not be subject to the payment of corporate
debts to any extent whatsoever.


                                      -7-


                                   ARTICLE IX
                               SHAREHOLDER CONSENT

                  SECTION 9.1 No Stockholders' Consent in Lieu of Meeting. Any
action required or permitted to be taken by the stockholders of the Corporation
must be effected at a duly called annual meeting or special meeting of such
stockholders and may not be effected by any consent in writing by any such
stockholders.

                                    ARTICLE X
                                    AMENDMENT

                  SECTION 10.1 Amendments. Notwithstanding anything contained in
this Second Restated Certificate of Incorporation to the contrary, the
affirmative vote of the holders of at least 80% of the outstanding shares of
capital stock of the Corporation entitled to vote thereon shall be required to
amend, repeal, or adopt any provision inconsistent with, Section 6.2 of Article
VI, Section 7.1(c) of Article VII or this Article X of this Second Restated
Certificate of Incorporation."




                    Balance of Page Intentionally Left Blank
                           - Signature Page Follows -



                                      -8-




         IN WITNESS WHEREOF, the undersigned, a duly authorized officer of the
Corporation, has executed this Second Amended and Restated Certificate of
Incorporation this 28th day of April, 2004.

                                     LODGIAN, INC.



                                     By:/s/ W. Thomas Parrington
                                        ----------------------------------------
                                         W. Thomas Parrington
                                         President and Chief Executive Officer



                                      -9-



APPENDIX A

                           CERTIFICATE OF DESIGNATION
                                       FOR
                            SERIES A PREFERRED STOCK
                                       OF
                                  LODGIAN, INC.
         --------------------------------------------------------------

                    Pursuant to the provisions of Section 303
                     of the Delaware General Corporation Law
         --------------------------------------------------------------

                  Lodgian, Inc., a Delaware corporation (the "Corporation"),
HEREBY CERTIFIES that pursuant to the provisions of Section 303 of the Delaware
General Corporation Law (the "DGCL"), the Corporation, pursuant to the Order
dated November 5, 2002 of the United States Bankruptcy Court for the Southern
District of New York (the "Order") adopted the following resolution effective as
of November 21, 2002 (the "Effective Time"), which resolution remains in full
force and effect as of the date hereof:

                  WHEREAS, the Corporation is authorized, pursuant to Section
303 of the DGCL, without further action by its directors or stockholders to put
into effect and carry out the Order including making any change in its capital
or capital stock;

                  WHEREAS, it is the desire of the Corporation, pursuant to such
authority, to authorize and fix the terms of the series of Preferred Stock
designated as Series A Preferred Stock; and

                  WHEREAS, capitalized terms used herein and not otherwise
defined shall have the meanings set forth in Section 10 hereof;

                  NOW THEREFORE, be it resolved, that the terms and provisions
of such series and all other rights or preferences granted to or imposed upon
such series or the holders thereof are as herein set forth:

                  SECTION 1. Designation; Rank. This series of preferred stock
shall be designated "Series A Preferred Stock," par value $0.01 per share (the
"Series A Preferred Stock"). The initial liquidation preference of each share (a
"Share") of Series A Preferred Stock, including shares of Series A Preferred
Stock issued as Payment-In-Kind, shall be $25 (the "Initial Liquidation Value").
The Series A Preferred Stock shall rank, with respect to dividend rights and
rights on liquidation, dissolution and winding-up, senior to all Junior
Securities.

                  SECTION 2. Authorized Number. The number of authorized Shares
constituting the Series A Preferred Stock shall be 7,100,000. The initial number
of Shares issued shall be 5,000,000 with an aggregate Initial Liquidation Value
of $125,000,000. The additional authorized Shares allow for the payment of the
Pay-In-Kind dividends pursuant to Section 3 hereof.

                  SECTION 3.        Dividends.

         (a)    General Obligation. To the extent permitted under applicable
law, dividends on each Share shall accrue annually in arrears at a rate of
12.25% per annum of the Liquidation Value thereof


                                      -10-


(the "Dividend Rate"), from November 21, 2002 (the "Date of Issuance") to the
date on which the Liquidation Value of each such Share has been paid in full.
Such dividends shall accrue whether or not they have been earned or declared and
whether or not there are profits, surplus or other funds of the Corporation
legally available for the payment of dividends.

         (b)      Dividend Payment Date. The accrued dividends shall be payable,
in accordance with the terms of subsection (c), on November 21 of each year,
starting with November 21, 2003 (each a "Dividend Payment Date") to the holders
of record of Series A Preferred Stock, as they appear on the stock records of
the Corporation at the close of business on such record date as shall be fixed
by the Board of Directors not more than 60 or less than 10 days preceding such
Dividend Payment Date.

         (c)      Payment Method. The Corporation shall make dividend payments
on each Dividend Payment Date in accordance with the following provisions:

                  (i)      On the first Dividend Payment Date following the Date
of Issuance the Corporation shall Pay-In-Kind all dividends;

                  (ii)     On each of the two consecutive Dividend Payment Dates
following the first Dividend Payment Date, the Corporation, at the sole
discretion of its Board of Directors, shall pay all accrued and unpaid dividends
either as Payment-In-Kind or, to the extent permitted under applicable law, out
of funds legally available therefor, in cash. The Corporation shall give written
notice to the record holders of Series A Preferred Stock of its intention to
Pay-In-Kind, pursuant to this clause (ii), at least 5 business days prior to the
applicable Dividend Payment Date.

                  (iii)    On each Dividend Payment Date following the third
Dividend Payment Date, the Corporation shall pay, to the extent permitted under
applicable law, out of funds legally available therefor, all accrued and unpaid
dividends in cash, and to the extent not paid in cash, such dividends shall
accrue and accumulate on each such Dividend Payment Date and shall remain
accumulated and unpaid dividends until paid.

         (d)      Distribution of Partial Dividend Payments. With regards to
cash dividends, to the extent the Corporation, in accordance with the foregoing
provisions of this Section 3, is limited to paying less than the total amount of
dividends then accrued and unpaid with respect to the Series A Preferred Stock,
such payment will be distributed among the holders of the Series A Preferred
Stock pro rata based upon the aggregate accrued but unpaid dividends on the
Share(s) held by each such holder, and any amounts of such dividends remaining
thereafter shall be accumulated and shall remain accumulated and unpaid
dividends with respect to such Share(s) until paid.

         (e)      Dividend Preference. No dividend, distribution, repurchase,
redemption, or payment of cash or property (other than solely in shares of
common stock or a partial cash dividend on Parity Securities that is paid pro
rata on the Series A Preferred Stock) shall be declared, paid, set aside for
payment or made on or with respect to any Junior Securities or Parity
Securities, either directly or indirectly, unless and until (i) all accrued and
unpaid dividends (including all accumulated and unpaid dividends) on each Share
that the holder of such Share is entitled to receive pursuant to this Section 3,
including pro rata dividends for the period from last Dividend Payment Date to
the date of such dividend, distribution, repurchase, redemption or payment, have
been paid in full and (ii) the conditions to such dividend, distribution,
repurchase, redemption or payment set forth in Section 6 hereof have been
satisfied.


                                      -11-


                  SECTION 4. Liquidation. Upon any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, holders of the Series
A Preferred Stock shall be entitled to be paid, before any distribution or
payment is made upon any of the Junior Securities, an amount in cash equal to
the aggregate Liquidation Value of all such Series A Preferred Stock outstanding
on the date of such liquidation, dissolution or winding up, and the holders of
Series A Preferred Stock shall not be entitled to any further payment. If upon
any such liquidation, dissolution or winding up of the Corporation, the
Corporation's assets (or proceeds thereof) to be distributed among the holders
of the Series A Preferred Stock and any Parity Securities are insufficient to
permit payment in full to such holders of the aggregate amount which they are
entitled to be paid, then the entire assets to be distributed shall be
distributed ratably among such holders based upon, in the case of holders of the
Series A Preferred Stock, the aggregate Liquidation Value of the Series A
Preferred Stock held by each such holder on the date of such liquidation,
dissolution or winding up and, in the case of holders of any Parity Securities,
the liquidation preference and accumulated and unpaid dividends which they are
entitled to pursuant to such Parity Securities. The Corporation shall mail
written notice of such liquidation, dissolution or winding up, not less than 10
days prior to the payment date statement therein, to each record holder of
Series A Preferred Stock. Neither the consolidation or merger of the Corporation
into or with any other Person or Persons, nor the reduction of the capital stock
of the Corporation, shall be deemed to be a liquidation, dissolution or winding
up of the Corporation within the meaning of this Section 4.

         SECTION 5.        Redemption.

         (a)      Optional Redemption. Prior to November 21, 2012, the Series A
Preferred Stock shall be redeemable at the option of the Corporation for cash,
in whole or in part out of funds legally available therefor, at any time and
from time to time, at the redemption prices per share (expressed as a percentage
of the Liquidation Value thereof as of the date of such redemption) set forth
below (the "Redemption Price"), if redeemed during the twelve-month period
beginning November 21 of each of the calendar years indicated below:



YEAR                                              PERCENTAGE
                                               

2002...........................................      105%

2003...........................................      104%

2004...........................................      103%

2005...........................................      102%

2006...........................................      101%

2007 and thereafter............................      100%


         (b)      Mandatory Redemption. On November 21, 2012 (the "Scheduled
Redemption Date") the Corporation shall redeem all remaining outstanding Shares
out of funds legally available therefor, at a price per Share equal to the
Liquidation Value thereof as of the date of such redemption.

         (c)      Payment of Redemption Price. For each Share which is to be
redeemed, the Corporation shall be obligated on the Redemption Date to pay to
the holder thereof (upon surrender by such holder at the Corporation's principal
office of the certificate representing such Share) the Redemption Price in
immediately available funds. If the Corporation's funds which are legally
available for redemption of Shares on any date of such redemption are
insufficient to redeem the total number of Shares to be redeemed on such date,
those funds which are legally available shall be used to redeem the maximum
possible number of Shares ratably among the holders of the Shares to be redeemed
based upon the


                                      -12-


aggregate Liquidation Value of such Shares held by each such holder on the date
of such redemption. At each Dividend Payment Date thereafter, all funds of the
Corporation that are legally available for the redemption of Shares shall
immediately be used to redeem the balance of the Shares which the Corporation
did not redeem on the date of such redemption. Without limiting any rights of
the holders of Series A Preferred Stock which are set forth in the Certificate
of Incorporation of the Corporation or are otherwise available under law, the
balance of the Shares which the Corporation has become obligated to redeem on
the date of any such redemption but which it has not redeemed shall continue to
have all of the powers, designations, preferences and relative participating,
optional, and other special rights (including without limitation, rights to
accrue dividends) which such Shares had prior to such date, until the Redemption
Price has been paid in full with respect to such Shares.

         (d)      Notice of Redemption. Except as otherwise provided herein, the
Corporation shall mail written notice of each redemption of Series A Preferred
Stock to each record holder not more than 60 nor less than 30 days prior to the
date on which such redemption is to be made. In case fewer than the total number
of Shares represented by any certificate are redeemed, a new certificate
representing the number of unredeemed Shares shall be issued to the holder
thereof without cost to such holder within 3 business days after surrender by
such holder of the certificate representing the redeemed Shares.

         (e)      Dividends After Redemption Date; Rights of Stockholder. No
Share is entitled to any dividends accruing after the Redemption Date of such
Share. On such Redemption Date all rights of the holder of such Share as a
holder shall cease, and such Share shall not be deemed to be outstanding.

         (f)      Redeemed or Otherwise Acquired Shares. Any Shares which are
redeemed or otherwise acquired by the Corporation shall be canceled and shall
not be reissued, sold or transferred thereafter.

                  SECTION 6. Priority of Series A Preferred Stock on Dividends
and Redemptions. So long as any Shares remain outstanding, without the prior
written consent of the holders of a majority of the outstanding Shares, the
Corporation shall not, nor shall it permit any Subsidiary to, redeem, retire,
purchase or otherwise acquire for value directly or indirectly any Junior
Securities or Parity Securities (other than upon conversion of convertible
preferred stock into common stock), nor shall any moneys or property be paid
into or set apart, or made available for the purchase, redemption or other
retirement of any Junior Securities or Parity Securities, nor shall the
Corporation directly or indirectly pay or declare any dividend or make any
distribution (either in cash or property) with respect to any Junior Securities
or Parity Securities (other than dividends payable in compliance with Section
3(e)).

                  SECTION 7. Voting Rights.

         (a)      General. The holders of Series A Preferred Stock shall have no
voting rights other than those voting rights prescribed by law or set forth in
this Certificate of Designation.

         (b)      Corporate Action Requiring Affirmative Vote of Holders of
Shares of Series A Preferred Stock. So long as any Shares are outstanding, the
Corporation shall not:

                  (i)      Without first obtaining the consent, given in person
or by proxy, either in writing or at any meeting called for that purpose, of the
record holders of at least a majority of the Shares then outstanding,

                           (1)      increase the authorized number of Shares;


                                      -13-


                           (2)      amend, alter, change, or repeal (by merger
or otherwise) any provision of the Certificate of Incorporation or Bylaws of the
Corporation or any terms or provisions of this Certificate of Designation so as
to affect the relative rights, preferences, qualifications, limitations or
restrictions of the Series A Preferred Stock; or

                           (3)      enter into a share exchange, reorganization,
recapitalization or other similar transaction that affects the Series A
Preferred Stock, or consolidate, merge with or into, or enter into a business
combination with, or sell, assign, transfer, lease, convey or otherwise dispose
of all or substantially all of its properties or assets to, another Person,
unless (A) the entity formed by such consolidation, merger or business
combination (if other than the Corporation) or to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been made (in any
such case, the "resulting entity") is a corporation organized and existing under
the laws of the United States, any State thereof or the District of Columbia,
and (B) if the Corporation is not the resulting entity, the Shares are converted
into or exchanged for and become shares of such resulting entity, having in
respect of such resulting entity the same (or more favorable) powers,
preferences and relative rights, qualifications, limitations and restrictions
that Shares of the Series A Preferred Stock had immediately prior to such
transaction (it being understood that the resulting entity shall thereafter be
deemed to be the "Corporation" for all purposes of this Certificate and the
predecessor shall be relieved of all obligations with respect to the Series A
Preferred Stock).

                  (ii)     For the purpose of this Section 7, except as
otherwise specifically provided, the holders of Series A Preferred Stock shall
vote as one class, and each holder of Series A Preferred Stock shall be entitled
to one vote for each Share held. The consent or votes under this Section 7 shall
be in addition to any approval of stockholders of the Corporation that may be
required by law or pursuant to any provision of the Corporation's Certificate of
Incorporation or Bylaws.

                  SECTION 8. Registration of Transfer. The Corporation shall
keep at its principal office a register for the registration of Series A
Preferred Stock. Upon the surrender of any certificate representing Series A
Preferred Stock at such place, the Corporation shall, at the request of the
record holder of such certificate, execute and deliver (at the Corporation's
expense) a new certificate or certificates in exchange therefor representing in
the aggregate the number of Shares represented by the surrendered certificate.
Each such new certificate shall be registered in such name and shall represent
such number of Shares as is requested by the holder of the surrendered
certificate and shall be substantially identical in form to the surrendered
certificate.

                  SECTION 9. Replacement. Upon receipt of evidence reasonably
satisfactory to the Corporation (an affidavit of the registered holder shall be
satisfactory) of the ownership and the loss, theft, extraction or mutilation of
any certificate evidencing any Shares, and in the case of any such loss, theft
or destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation, or, in the case of any such mutilation upon surrender of such
certificate, the Corporation shall (at its expense) execute and deliver in lieu
of such certificate a new certificate of like kind representing the number of
Shares represented by such lost, stolen, destroyed or mutilated certificate and
dated the date of such lost, stolen, destroyed or mutilated certificate.

                  SECTION 10. Definitions. Unless defined elsewhere herein, each
capitalized term shall have the meaning assigned to such term below:

                  "Date of Issuance" shall have the meaning set forth in Section
3.

                  "Dividend Rate" shall have the meaning set forth in Section 3.


                                      -14-


                  "Dividend Payment Date" shall have the meaning set forth in
Section 3.

                  "Initial Liquidation Value" shall have the meaning set forth
in Section 1.

                  "Junior Securities" means any of the Corporation's securities
(except for the Series A Preferred Stock), whether presently issued and
outstanding or hereafter authorized and issued, the terms of which do not
expressly provide that such securities rank senior to or on a parity with the
Series A Preferred Stock as to dividend distributions and distributions upon the
Corporation's liquidation, dissolution and winding-up.

                  "Liquidation Value" as to any Share as of any date of
determination, means an amount equal to the sum of (x) the Initial Liquidation
Value of such Share, (y) all accumulated and unpaid dividends with respect to
such Share as of the date of determination and (z) in the case of liquidation
pursuant to Section 4 or redemption pursuant to Section 5, all accrued and
unpaid dividends with respect to such Share as of the date of such
determination, including pro rata dividends for the period from the last
Dividend Payment Date to the date of determination, whether or not declared to
the date of such determination.

                  "Order" shall have the meaning set forth in the preamble.

                  "Parity Securities" means any class or series of the
Corporation's securities, whether presently issued and outstanding or hereafter
authorized and issued, the terms of which expressly provide that such class or
series will rank on a parity with the Series A Preferred Stock as to dividend
distributions and distributions upon the Corporation's liquidation, dissolution
and winding-up.

                  "Pay-In-Kind" or "Payment-In-Kind" with respect to any
Dividend Payment Date, means the issuance by the Corporation to each holder of
record of one or more outstanding Shares a number of additional Shares (or
fractional portion thereof) that have an aggregate Liquidation Value equal to
the amount of accrued dividends on such outstanding Share(s) as of such Dividend
Payment Date.

                  "Person" means any individual, sole proprietorship,
partnership (including a limited partnership), joint venture, trust,
unincorporated organization, association, corporation, institution, public
benefit corporation, limited liability company, joint stock company, entity or
government (whether federal, state, county, city, municipal or otherwise,
including, without limitation, any instrumentality, division, agency, body or
department thereof) or any other business entity.

                  "Redemption Date" as to any Share means the Scheduled
Redemption Date or the applicable date specified herein in the case of any other
redemption; provided, that no such date shall be a Redemption Date unless the
applicable Redemption Price is actually paid in full in cash, and if not so
paid, the Redemption Date shall be the date on which such Redemption Price is
fully paid in cash.

                  "Redemption Price" shall have the meaning set forth in Section
5.

                  "Scheduled Redemption Date" shall have the meaning set forth
in Section 5.

                  "Series A Preferred Stock" shall have the meaning set forth in
Section 1.

                  "Share" shall have the meaning set forth in Section 1.


                                      -15-


                  "Stock" means all shares, options, warrants, general or
limited partnership interests, participation or other equivalents (regardless of
how designated) of or in a Person, whether voting or nonvoting, including,
without limitation, common stock, preferred stock, or any other "equity
security" (as such term is defined in Rule 3a11-1 of the General Rules and
Regulations promulgated by the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended), including without limitation, any
securities with profit participation features, and any rights, warrants, options
or other securities convertible into or exercisable or exchangeable for any such
shares, equity or profits interests, participations or other equivalents, or
such other securities, directly or indirectly (or any equivalent ownership
interests, in the case of a Person which is not a corporation).

                  "Subsidiary" shall mean, with respect to any Person, (i) any
corporation of which an aggregate of 50% or more of the outstanding Stock having
ordinary voting power to elect a majority of the board of directors, managers or
trustees of such corporation (irrespective of whether, at the time, Stock of any
class or classes of such corporation shall have or might have voting power by
reason of the happening of any contingency) is at the time, directly or
indirectly, owned legally or beneficially or controlled, directly or indirectly,
by such Person and/or one or more Subsidiaries of such Person, or any
combination thereof, or with respect to which any such Person has the right to
vote or designate the vote of 50% or more of such Stock whether by proxy,
agreement, operation of law or otherwise, (ii) any partnership, limited
liability company, association or other business entity, in which such Person
and/or one or more Subsidiaries of such Person shall have 50% or more of the
partnership or other similar ownership interests thereof (whether in the form of
voting or participation in profits or capital contribution), and (iii) all other
Persons from time to time included in the consolidated financial statements of
such Person. For purposes hereof, a Person or Persons shall be deemed to have
50% or more ownership interest in a limited liability company, partnership,
association or other business entity if such Person or Persons shall be
allocated 50% or more of limited liability company, partnership, association or
other business entity gains or losses or shall be or control any managing
director or general partner of such limited liability company, partnership,
association or other business entity.

                  SECTION 11. Amendment and Waiver. No amendment, modification
or waiver shall be binding or effective with respect to any of the provisions
stating the number, designation, relative rights, preferences, qualifications,
limitations or restrictions of the Series A Preferred Stock, without the prior
written consent of the holders of at least a majority of Shares then
outstanding.

                  SECTION 12. Notices. Except as otherwise expressly provided
herein, all notices referred to herein shall be in writing and shall be
delivered by registered or certified mail, return receipt requested, postage
prepaid and shall be deemed to have been given four business days after being
deposited in the mail (i) to the Corporation, at its principal executive offices
and (ii) to any stockholder, at such holder's address as it appears in the stock
records of the Corporation (unless otherwise indicated by any such holder).


                                      -16-

EX-4.1

                                                                     EXHIBIT 4.1


[BLUE BORDER DESIGN -LEFT AND RIGHT OF CERTIFICATE]


                             [FRONT OF CERTIFICATE]


COMMON STOCK                                                       COMMON STOCK
  NUMBER                          [LODGIAN LOGO]                      SHARES
LC_________                        LODGIAN, INC.


THIS CERTIFICATE IS TRANSFERABLE           SEE REVERSE FOR CERTAIN DEFINITIONS
IN CHARLOTTE, NORTH CAROLINA OR                        CUSIP 54021P 40 3
IN NEW YORK, NEW YORK


              INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE


THIS CERTIFIES THAT                          [SPECIMEN]
                    ------------------------------------------------------------

IS THE OWNER OF
                ----------------------------------------------------------------

         FULLY PAID AND NON-ASSESSABLE SHARES OF THE $.01 PAR VALUE COMMON STOCK
OF LODGIAN, INC., transferable on the books of the corporation by the holder
hereof in person or by duly authorized attorney upon the surrender of this
certificate properly endorsed. This certificate is not valid unless
countersigned by the Transfer Agent and registered by the Registrar.

         IN WITNESS WHEREOF, the corporation has caused this Certificate to be
signed by the facsimile signatures of its duly authorized officers and to be
sealed with the facsimile seal of the corporation.

                              CERTIFICATE OF STOCK

Dated:

[BOTTOM LEFT OF STOCK CERTIFICATE]

COUNTERSIGNED AND REGISTERED:

WACHOVIA BANK, N.A.
(CHARLOTTE, NC)
TRANSFER AGENT AND REGISTRAR

BY
  ------------------------------------
         AUTHORIZED SIGNATURE


                  [LODGIAN, INC. CORPORATE 1998 SEAL DELAWARE]


[BOTTOM RIGHT OF STOCK CERTIFICATE]

/s/ Daniel E. Ellis
- --------------------------------------------
Secretary

/s/ W. Thomas Parrington
- --------------------------------------------
President and CEO





                              [BACK OF CERTIFICATE]


                                  LODGIAN, INC.

         THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS, A STATEMENT OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES
THEREOF AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES
AND/OR RIGHTS.

         The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

                                                         
    TEN COM -  as tenants in common            UNIF GIFT MIN ACT -    Custodian
                                                                  --------------------------
    TEN ENT -  as tenants by the entireties                       (Cust)    (Minor)
    JT TEN  -  as joint tenants with the right                     under the Uniform Gifts to
               of survivorship and not as                          Minors Act _______________
               tenants in common                                                 (State)



     Additional abbreviations may also be used though not in the above list.


For value received, ______________________________________________ hereby sell,
assign and transfer unto _______________________ [please insert social security
or  other identifying number of assignee]

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

  (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
 -------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
Shares of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint

- --------------------------------------------------------------------------------
Attorney to transfer the said stock on the books of the within named Corporation
with the full power of substitution in the premises.

Dated
      -------------------------


                                             ----------------------------------
                                    NOTICE:  THE SIGNATURE(S) TO THIS ASSIGNMENT
                                             MUST CORRESPOND WITH THE NAME AS
                                             WRITTEN UPON THE FACE OF THE
                                             CERTIFICATE IN EVERY PARTICULAR,
                                             WITHOUT ALTERATION OR ENLARGEMENT
                                             OR ANY CHANGE WHATSOEVER.




                    Signature(S) Guaranteed: ----------------------------------
                                             THE SIGNATURE(S) SHOULD BE
                                             GUARANTEED BY AN ELIGIBLE
                                             GUARANTOR INSTITUTION SUCH AS A
                                             SECURITIES BROKER/DEALER,
                                             COMMERCIAL BANK, TRUST COMPANY,
                                             SAVINGS ASSOCIATION OR A CREDIT
                                             UNION PARTICIPATING IN A MEDALLION
                                             PROGRAM.


KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, MUTILATED OR
DESTROYED, THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO
THE ISSUANCE OF A REPLACEMENT CERTIFICATE.

                                      -2-

EX-10.5

                                                                    EXHIBIT 10.5


                 AMENDED AND RESTATED 2002 STOCK INCENTIVE PLAN
                                       OF
                                  LODGIAN, INC.







                                                                               .
                                                                               .
                                                                               .


                                  LODGIAN, INC.

                 AMENDED AND RESTATED 2002 STOCK INCENTIVE PLAN



                                TABLE OF CONTENTS



                                                                     Page
                                                                     ----
                                                               
SECTION 1   Purpose.....................................................1
SECTION 2.  Definitions.................................................1
SECTION 3.  Administration of the Plan..................................3
SECTION 4.  Duration of Plan............................................4
SECTION 5.  Shares of Stock Subject to the Plan.........................4
SECTION 6.  Eligible Individuals........................................5
SECTION 7.  Awards Generally............................................5
SECTION 8.  Stock Options...............................................6
SECTION 9.  Stock Appreciation Rights...................................7
SECTION 10. Stock Awards................................................7
SECTION 11. Performance Share Awards....................................7
SECTION 12. Other Awards................................................7
SECTION 13. Section 162(m) Awards.......................................7
SECTION 14. Non-Transferability.........................................8
SECTION 15. Recapitalization or Reorganization..........................8
SECTION 16. Change in Control...........................................9
SECTION 17. Amendment of the Plan......................................10
SECTION 18. Miscellaneous..............................................10


                                       i



                                  LODGIAN, INC.

                 AMENDED AND RESTATED 2002 STOCK INCENTIVE PLAN

                  SECTION 1. Purpose. The purposes of the Lodgian, Inc. 2002
Amended and Restated Stock Incentive Plan (the "Plan") are to attract, retain
and motivate officers and other key employees and consultants of LODGIAN, INC.,
a Delaware corporation (the "Company"), and its Subsidiaries (as hereinafter
defined), to compensate them for their contributions to the growth and profits
of the Company and to encourage ownership by them of stock of the Company.

                  SECTION 2. Definitions. For purposes of the Plan, the
following terms shall be defined as follows:

                  "Administrator" means the individual or individuals to whom
the Committee delegates authority under the Plan in accordance with Section
3(d).

                  "Affiliate" and "Associate" have the respective meanings
ascribed to such terms in Rule 12b-2 promulgated under the Exchange Act.

                  "Award" means an award made pursuant to the terms of the Plan
to an Eligible Individual in the form of Stock Options, Stock Appreciation
Rights, Stock Awards, Performance Share Awards, Section 162(m) Awards or other
awards determined by the Committee.

                  "Award Agreement" means a written agreement or certificate
granting an Award. An Award Agreement shall be executed by an officer on behalf
of the Company and shall contain such terms and conditions as the Committee
deems appropriate and that are not inconsistent with the terms of the Plan. The
Committee may in its discretion require that an Award Agreement be executed by
the Participant to whom the relevant Award is made.

                  "Beneficial Owner" has the meaning ascribed to such term in
Rule 13d-3 promulgated under the Exchange Act.

                  "Board" means the Board of Directors of the Company.

                  A "Change in Control" of the Company shall be deemed to have
occurred when:

                  (a)      any Person (other than the Company, any Subsidiary of
         the Company, any employee benefit plan of the Company or of any
         Subsidiary of the Company, or any person or entity organized, appointed
         or established by the Company or any Subsidiary of the Company for or
         pursuant to the terms of any such plan), alone or together with its
         Affiliates and Associates (collectively, an "Acquiring Person"), shall
         become the Beneficial Owner of 40 percent or more of the then
         outstanding shares of Common Stock or the Combined Voting Power of the
         Company,

                  (b)      during any period of two consecutive years,
         individuals who at the beginning of such period constitute the Board,
         and any new director (other than a director who is a representative or
         nominee of an Acquiring Person) whose election by the Board or
         nomination for election by the Company's shareholders was approved by a
         vote of at least a majority of the directors then still in office who
         either were directors at the beginning of the period or whose election
         or nomination for election was previously so approved (collectively,
         the "Continuing Directors"), cease for any reason to constitute a
         majority of the Board,

                  (c)      the consummation of a merger or consolidation of the
         Company with any other corporation, other than a merger or
         consolidation which would result in the voting securities of the
         Company outstanding immediately prior thereto continuing to represent
         (either by remaining outstanding or by being converted into voting
         securities of the Surviving Entity (as defined in Section 16 hereof) or
         any Parent of such Surviving Entity) at least a majority of the
         Combined Voting Power of the Company, such



         Surviving Entity or the Parent of such Surviving Entity outstanding
         immediately after such merger or consolidation; or

                  (d)      the consummation of a plan of reorganization (other
         than a reorganization under the United States Bankruptcy Code) or
         complete liquidation of the Company or an agreement for the sale or
         disposition by the Company of all or substantially all of the Company's
         assets, other than a sale of all or substantially all of the Company's
         assets to a transferee, the majority of whose voting securities are
         held by the Company;

provided, however, that a Change in Control shall not be deemed to have occurred
in the event of

                           (i)      a sale or conveyance in which the Company
                  continues as a holding company of an entity or entities that
                  conduct all or substantially all of the business or businesses
                  formerly conducted by the Company, or

                           (ii)     any transaction undertaken for the purpose
                  of incorporating the Company under the laws of another
                  jurisdiction, if such transaction does not materially affect
                  the beneficial ownership of the Company's capital stock.

                  "Code" means the Internal Revenue Code of 1986, as amended,
and the applicable rulings and regulations thereunder.

                  "Combined Voting Power" means the combined voting power of the
Company's or other relevant entity's then outstanding voting securities.

                  "Committee" means the Compensation Committee of the Board, any
successor committee thereto or if no such committee has yet been established,
the Board. The Committee shall consist of at least two people as the Board may
appoint to administer the Plan. Unless the Board is acting as the Committee or
the Board specifically determines otherwise, each member of the Committee shall,
at the time he takes any action with respect to an Option under the Plan, be an
Eligible Director; provided that the mere fact a Committee member shall fail to
qualify as an Eligible Director shall not invalidate any Option granted by the
Committee which Option is otherwise validly made under the Plan.

                  "Common Stock" means the Common Stock, par value $.01 per
share, of the Company.

                  "Eligible Individuals" means the individuals described in
Section 6 who are eligible for Awards under the Plan.

                  "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the applicable rulings and regulations thereunder.

                  "Eligible Director" means a person who is (i) a "non-employee
director" within the meaning of Rule 16b-3 under the Exchange Act, or a person
meeting any similar requirement under any successor rule or regulation and (ii)
an "outside director" within the meaning of Section 162(m) of the Code, and the
Treasury Regulations promulgated thereunder.

                  "Fair Market Value" means, in the event the Common Stock is
traded on a recognized securities exchange or quoted by the National Association
of Securities Dealers Automated Quotations on National Market Issues, an amount
equal to the average of the high and low prices of the Common Stock on such
exchange or such quotation on the date set for valuation or, if no sales of
Common Stock were made on said exchange or so quoted on that date, the average
of the high and low prices of the Common Stock on the next preceding day on
which sales were made on such exchange or quotations; or, if the Common Stock is
not so traded or quoted, that value determined, in its sole discretion, by the
Committee.


                                       2


                  "Incentive Stock Option" means a Stock Option which is an
"incentive stock option" within the meaning of Section 422 of the Code and
designated by the Committee as an Incentive Stock Option in an Award Agreement.

                  "Nonqualified Stock Option" means a Stock Option which is not
an Incentive Stock Option.

                  "Parent" means any corporation which is a "parent corporation"
within the meaning of Section 424(e) of the Code with respect to the relevant
entity.

                  "Participant" means an Eligible Individual to whom an Award
has been granted under the Plan.

                  "Performance Period" means a fiscal year of the Company or
such other period that may be specified by the Committee in connection with the
grant of a Section 162(m) Award.

                  "Performance Share Award" means a conditional Award of shares
of Common Stock granted to an Eligible Individual pursuant to Section 11 hereof.

                  "Person" means any person, entity or "group" within the
meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act.

                  "Section 162(m) Participant" means, for a given fiscal year of
the Company, any Participant designated by the Committee by not later than 90
days following the start of such year as a Participant (or such other time as
may be required or permitted by Section 162(m) of the Code) whose compensation
for such fiscal year may be subject to the limit on deductible compensation
imposed by Section 162(m) of the Code.

                  "Stock Appreciation Right" means an Award to receive all or
some portion of the appreciation on shares of Common Stock granted to an
Eligible Individual pursuant to Section 9 hereof.

                  "Stock Award" means an Award of shares of Common Stock granted
to an Eligible Individual pursuant to Section 10 hereof.

                  "Stock Option" means an Award to purchase shares of Common
Stock granted to an Eligible Individual pursuant to Section 8 hereof.

                  "Subsidiary" means (i) any corporation which is a "subsidiary
corporation" within the meaning of Section 424(f) of the Code with respect to
the Company or (ii) any other corporation or other entity in which the Company,
directly or indirectly, has an equity or similar interest and which the
Committee designates as a Subsidiary for the purposes of the Plan.

                  "Substitute Award" means an Award granted upon assumption of,
or in substitution for, outstanding awards previously granted by a company or
other entity in connection with a corporate transaction, such as a merger,
combination, consolidation or acquisition of property or stock.

                  SECTION 3.  Administration of the Plan.

                  (a)      Power and Authority of the Committee. The Plan shall
be administered by the Committee, which shall have full power and authority,
subject to the express provisions hereof, (i) to select Participants from the
Eligible Individuals, (ii) to make Awards in accordance with the Plan, (iii) to
determine the number of Shares subject to each Award or the cash amount payable
in connection with an Award, (iv) to determine the terms and conditions of each
Award, including, without limitation, those related to vesting, forfeiture,
payment and exercisability, and the effect, if any, of a Participant's
termination of employment with the Company or, subject to Section 16 hereof, of
a Change in Control on the outstanding Awards granted to such Participant, and
including the authority to amend the terms and conditions of an Award after the
granting thereof to a Participant in a manner that is not prejudicial to the
rights of such Participant in such Award, (v) to specify and approve the
provisions of the Award Agreements delivered to Participants in connection with
their Awards, (vi) to construe and interpret any


                                       3


Award Agreement delivered under the Plan, (vii) to prescribe, amend and rescind
rules and procedures relating to the Plan, (viii) to vary the terms of Awards to
take account of tax, securities law and other regulatory requirements of foreign
jurisdictions, (ix) subject to the provisions of the Plan and subject to such
additional limitations and restrictions as the Committee may impose, to delegate
to one or more officers of the Company some or all of its authority under the
Plan, and (x) to make all other determinations and to formulate such procedures
as may be necessary or advisable for the administration of the Plan.

                  (b)      Plan Construction and Interpretation. The Committee
shall have full power and authority, subject to the express provisions hereof,
to construe and interpret the Plan.

                  (c)      Determinations of Committee Final and Binding. All
determinations by the Committee in carrying out and administering the Plan and
in construing and interpreting the Plan shall be final, binding and conclusive
for all purposes and upon all persons interested herein.

                  (d)      Delegation of Authority. The Committee may, but need
not, from time to time delegate some or all of its authority under the Plan to
an Administrator consisting of one or more members of the Committee or of one or
more officers of the Company; provided, however, that the Committee may not
delegate its authority (i) to make Awards to Eligible Individuals (A) who are
Section 162(m) Participants or (B) who are officers of the Company who are
delegated authority by the Committee hereunder, or (ii) under Sections 3(b) and
17 of the Plan. Any delegation hereunder shall be subject to the restrictions
and limits that the Committee specifies at the time of such delegation or
thereafter. Nothing in the Plan shall be construed as obligating the Committee
to delegate authority to an Administrator, and the Committee may at any time
rescind the authority delegated to an Administrator appointed hereunder or
appoint a new Administrator. At all times, the Administrator appointed under
this Section 3(d) shall serve in such capacity at the pleasure of the Committee.
Any action undertaken by the Administrator in accordance with the Committee's
delegation of authority shall have the same force and effect as if undertaken
directly by the Committee, and any reference in the Plan to the Committee shall,
to the extent consistent with the terms and limitations of such delegation, be
deemed to include a reference to the Administrator.

                  (e)      Liability of Committee. No member of the Committee
shall be liable for such person's own willful misconduct. Under no circumstances
shall any member of the Committee be liable for any act or omission of any other
member of the Committee. In the performance of its functions with respect to the
Plan, the Committee shall be entitled to rely upon information and advice
furnished by the Company's officers, the Company's accountants, the Company's
counsel and any other party the Committee deems necessary, and no member of the
Committee shall be liable for any action taken or not taken in reliance upon any
such advice.

                  SECTION 4. Duration of Plan. The Plan shall remain in effect
until terminated by the Board of Directors and thereafter until all Awards
granted under the Plan are satisfied by the issuance of shares of Common Stock
or the payment of cash or are terminated under the terms of the Plan or under
the Award Agreement entered into in connection with the grant thereof.
Notwithstanding the foregoing, no Awards may be granted under the Plan after the
tenth anniversary of the Effective Date (as defined in Section 18(k)).

                  SECTION 5. Shares of Stock Subject to the Plan. Subject to
adjustment as provided in Section 15(b) hereof, effective as of April 8, 2004,
the number of shares of Common Stock that may be issued under the Plan pursuant
to Awards shall not exceed, in the aggregate, 1,149,000 shares (the "Section 5
Limit"), of which the number of shares of Common Stock that may be issued under
the Plan pursuant to Incentive Stock Options may not exceed, in the aggregate,
1,100,000 shares (the "Incentive Stock Option Limit"); provided, however, that
immediately upon the completion of a Qualified Public Offering (as defined
below) (i) the Section 5 Limit shall equal the lesser of (A) 3,367,400 shares
(such number would not be adjusted for the Reverse Stock Split (as defined in
the Company's proxy statement for its 2004 Annual Meeting of Stockholders)) or
(B) a number of shares that constitutes 12% of the issued and outstanding Common
Stock of Company immediately following the consummation of the Qualified Public
Offering, calculated on a fully diluted basis and assuming the exercise in full
of the underwriters' over-allotment option in the offering and (ii) the
Incentive Stock Option Limit shall equal the lesser of (A) 3,318,400 shares
(such number would not be adjusted for the Reverse Stock Split (as defined in
the Company's proxy statement for its 2004 Annual Meeting of Stockholders)) or
(B) a number of shares that constitutes 12% of the issued and outstanding Common
Stock of Company immediately following the consummation of the Qualified Public
Offering, calculated on a fully diluted basis and assuming the exercise in full


                                       4

of the underwriters' over-allotment option in the offering, reduced by 49,000.
The Section 5 Limit and the Incentive Stock Option Limit would be increased
pursuant to the foregoing proviso only after the first Qualified Public Offering
of the Company consummated after the Company's 2004 Annual Meeting of
Stockholders. For purposes of calculating the fully diluted shares of Common
Stock outstanding, the number of shares outstanding would include all issued and
outstanding shares of Common Stock, all shares of Common Stock reserved for
issuance in connection with the reserve established to resolve claims remaining
in dispute following the Company's emergence from Chapter 11 bankruptcy, all
shares of Common Stock issuable upon exercise of outstanding warrants and all
shares reserved for issuance under the Plan, including shares issuable upon
exercise of outstanding options previously granted under the Plan and shares
reserved which are not subject to any outstanding award under the Plan. The term
"Qualified Public Offering" means a firm commitment, underwritten public
offering of Common Stock by the Company. For purposes of determining the number
of shares that remain available for issuance under the Plan, the following rules
shall apply:

                  (a)      the number of Shares subject to outstanding Awards
shall be charged against the Section 5 Limit; and

                  (b)      the Section 5 Limit shall be increased by:

                           (i)      the number of shares subject to an Award (or
         portion thereof) which lapses, expires or is otherwise terminated
         without the issuance of such shares or is settled by, the delivery of
         consideration other than shares,

                           (ii)     the number of shares tendered to pay the
         exercise price of a Stock Option or other Award, and

                           (iii)    the number of shares withheld from any Award
         to satisfy a Participant's tax withholding obligations or, if
         applicable, to pay the exercise price of a Stock Option or other Award.

In addition, any shares underlying Substitute Awards shall not be counted
against the Section 5 Limit set forth in the first sentence of this Section 5.

                  SECTION 6. Eligible Individuals.

                  (a)      Eligibility Criteria. Awards may be granted by the
Committee to individuals ("Eligible Individuals") who are officers or other key
employees or consultants (including non-employee directors) of the Company or a
Subsidiary with the potential to contribute to the future success of the Company
or its Subsidiaries; provided, however, that no Incentive Stock Options shall be
granted to any Eligible Individual who is not an employee of the Company or a
"parent" or "subsidiary" of the Company, as such terms are used in Section
422(a)(s) of the Code. An individual's status as an Administrator or a member of
the Committee will not affect his or her eligibility to participate in the Plan.

                  (b)      Maximum Number of Shares Per Eligible Individual. In
accordance with the requirements under Section 162(m) of the Code, no Eligible
Individual shall receive grants of Awards with respect to an aggregate of more
than 500,000 shares of Common Stock in respect of any fiscal year of the
Company. For purposes of the preceding sentence, any Award that is made as bonus
compensation, or is made in lieu of compensation that otherwise would be payable
to an Eligible Individual, shall be considered made in respect of the fiscal
year to which such bonus or other compensation relates or otherwise was earned.

                  SECTION 7. Awards Generally. Awards under the Plan may consist
of Stock Options, Stock Appreciation Rights, Stock Awards, Performance Share
Awards, Section 162(m) Awards or other awards determined by the Committee. The
terms and provisions of an Award shall be set forth in a written Award Agreement
approved by the Committee and delivered or made available to the Participant as
soon as practicable following the date of the award. The vesting,
exercisability, payment and other restrictions applicable to an Award (which may
include, without limitation, restrictions on transferability or provision for
mandatory resale to the Company) shall be determined by the Committee and set
forth in the applicable Award Agreement. Notwithstanding


                                       5


the foregoing, the Committee may accelerate (i) the vesting or payment of any
Award, (ii) the lapse of restrictions on any Award or (iii) the date on which
any Stock Option or Stock Appreciation Right first becomes exercisable. The date
of a Participant's termination of employment for any reason shall be determined
in the sole discretion of the Committee. The Committee shall also have full
authority to determine and specify in the applicable Award Agreement the effect,
if any, that a Participant's termination of employment for any reason will have
on the vesting, exercisability, payment or lapse of restrictions applicable to
an outstanding Award.

                  SECTION 8.  Stock Options.

                  (a)      Terms of Stock Options Generally. Subject to the
terms of the Plan and the applicable Award Agreement, each Stock Option shall
entitle the Participant to whom such Stock Option was granted to purchase the
number of shares of Common Stock specified in the applicable Award Agreement and
shall be subject to the terms and conditions established by the Committee in
connection with the Award and specified in the applicable Award Agreement. Upon
satisfaction of the conditions to exercisability specified in the applicable
Award Agreement, a Participant shall be entitled to exercise the Stock Option in
whole or in part and to receive, upon satisfaction or payment of the exercise
price or an irrevocable notice of exercise in the manner contemplated by Section
8(d) below, the number of shares of Common Stock in respect of which the Stock
Option shall have been exercised. Stock Options may be either Nonqualified Stock
Options or Incentive Stock Options.

                  (b)      Exercise Price. The exercise price per share of
Common Stock purchasable under a Stock Option shall be determined by the
Committee at the time of grant and set forth in the Award Agreement, provided,
that the exercise price per share shall be no less than 100% of the Fair Market
Value per share on the date of grant. Notwithstanding the foregoing, the
exercise price per share of a Stock Option that is a Substitute Award may be
less than the Fair Market Value per share on the date of award, provided that
the excess of:

                  (i)      the aggregate Fair Market Value (as of the date such
         Substitute Award is granted) of the shares subject to the Substitute
         Award, over

                  (ii)     the aggregate exercise price thereof, does not exceed
         the excess of:

                  (iii)    the aggregate fair market value (as of the time
         immediately preceding the transaction giving rise to the Substitute
         Award, such fair market value to be determined by the Committee) of the
         shares of the predecessor entity that were subject to the award assumed
         or substituted for by the Company, over

                  (iv)     the aggregate exercise price of such shares.

                  (c)      Option Term. The term of each Stock Option shall be
fixed by the Committee and set forth in the Award Agreement; provided, however,
that a Stock Option shall not be exercisable after the expiration of ten (10)
years after the date the Stock Option is granted.

                  (d)      Method of Exercise. Subject to the provisions of the
applicable Award Agreement, the exercise price of a Stock Option may be paid in
cash or previously owned shares or a combination thereof. In accordance with the
rules and procedures established by the Committee for this purpose and only to
the extent permitted by applicable law, the Stock Option may also be exercised
through a "cashless exercise" procedure approved by the Committee involving a
broker or dealer approved by the Committee, that affords Participants the
opportunity to sell immediately some or all of the shares underlying the
exercised portion of the Stock Option in order to generate sufficient cash to
pay the Stock Option exercise price and/or to satisfy withholding tax
obligations related to the Stock Option. When payment of the exercise price for
a Stock Option consists of shares of the Company's capital stock, such shares
will not be accepted as payment unless the Participant has held such shares for
the requisite period necessary to avoid a charge to the Company's earnings for
financial reporting purposes.

                  (e)      (i) Incentive Stock Option. Notwithstanding anything
to the contrary in this Plan, if an Incentive Stock Option is granted to a
Participant who owns stock representing more than ten percent of the voting
power of all classes of stock of the Company, the Option Period shall not exceed
five years from the Date of Grant


                                       6


of such Option and the Option Price shall be at least 110 percent of the Fair
Market Value (on the Date of Grant) of the Stock subject to the Option.

                  (ii) $100,000 Per Year Limitation for Incentive Stock Options.
To the extent the aggregate Fair Market Value (determined as of the time of
grant) of Stock for which Incentive Stock Options are exercisable for the first
time by a Participant during any calendar year (under all plans of the Company)
exceeds $100,000, such excess Incentive Stock Options shall be treated as
Nonqualified Stock Options.

                  SECTION 9. Stock Appreciation Rights. Stock Appreciation
Rights shall be subject to the terms and conditions established by the Committee
in connection with the Award thereof and specified in the applicable Award
Agreement. Upon satisfaction of the conditions to the payment specified in the
applicable Award Agreement, each Stock Appreciation Right shall entitle a
Participant to an amount, if any, equal to the Fair Market Value of a share of
Common Stock on the date of exercise over the Stock Appreciation Right exercise
price specified in the applicable Award Agreement. At the discretion of the
Committee, payments to a Participant upon exercise of a Stock Appreciation Right
may be made in Shares, cash or a combination thereof. A Stock Appreciation Right
may be granted alone or in addition to other Awards, or in tandem with a Stock
Option. If granted in tandem with a Stock Option, a Stock Appreciation Right
shall cover the same number of shares of Common Stock as covered by the Stock
Option (or such lesser number of shares as the Committee may determine) and
shall be exercisable only at such time or times and to the extent the related
Stock Option shall be exercisable, and shall have the same term and exercise
price as the related Stock Option. Upon exercise of a Stock Appreciation Right
granted in tandem with a Stock Option, the related Stock Option shall be
cancelled automatically to the extent of the number of shares covered by such
exercise; conversely, if the related Stock Option is exercised as to some or all
of the shares covered by the tandem grant, the tandem Stock Appreciation Right
shall be cancelled automatically to the extent of the number of shares covered
by the Stock Option exercised.

                  SECTION 10. Stock Awards. Stock Awards shall consist of one or
more shares of Common Stock granted or offered for sale to an Eligible
Individual, and shall be subject to the terms and conditions established by the
Committee in connection with the Award and specified in the applicable Award
Agreement. The shares of Common Stock subject to a Stock Award may, among other
things, be subject to vesting requirements or restrictions on transferability.

                  SECTION 11. Performance Share Awards. Performance Share Awards
shall be evidenced by an Award Agreement in such form and containing such terms
and conditions as the Committee deems appropriate and which are not inconsistent
with the terms of the Plan. Each Award Agreement shall set forth the number of
shares of Common Stock to be earned by a Participant upon satisfaction of
certain specified performance criteria and subject to such other terms and
conditions as the Committee deems appropriate. Payment in settlement of a
Performance Share Award shall be made as soon as practicable following the
conclusion of the applicable performance period, or at such other time as the
Committee shall determine, in shares of Common Stock, in an equivalent amount of
cash or in a combination of Common Stock and cash, as the Committee shall
determine.

                  SECTION 12. Other Awards. The Committee shall have the
authority to specify the terms and provisions of other forms of equity-based or
equity-related Awards not described above which the Committee determines to be
consistent with the purpose of the Plan and the interests of the Company, which
Awards may provide for cash payments based in whole or in part on the value or
future value of Common Stock, for the acquisition or future acquisition of
Common Stock, or any combination thereof. Other Awards shall also include cash
payments (including the cash payment of dividend equivalents) under the Plan
which may be based on one or more criteria determined by the Committee which are
unrelated to the value of Common Stock and which may be granted in tandem with,
or independent of, other Awards under the Plan.

                  SECTION 13.  Section 162(m) Awards.

                  (a)      Terms of Section 162(m) Awards Generally. In addition
to any other Awards under the Plan, the Company may make Awards that are
intended to qualify as "qualified performance-based compensation" for purposes
of Section 162(m) of the Code ("Section 162(m) Awards"). Section 162(m) Awards
may consist of Stock Options, Stock Appreciation Rights, Stock Awards,
Performance Share Awards or Other Awards the vesting, exercisability and/or
payment of which is conditioned upon the attainment for the applicable
Performance Period of


                                       7


specified performance targets related to designated performance goals for such
period selected by the Committee from among the performance goals specified in
Section 13(b) below. Section 162(m) Awards will be made in accordance with the
procedures specified in applicable treasury regulations for compensation
intended to be "qualified performance-based compensation."

                  (b)      Performance Goals. For purposes of this Section 13,
performance goals shall be limited to one or more of the following: (i) net
revenue, (ii) net earnings, (iii) operating earnings or income, (iv) absolute
and/or relative return on equity or assets, (v) earnings per share, (vi) cash
flow, (vii) pretax profits, (viii) earnings growth, (ix) revenue growth, (x)
book value per share, (xi) stock price and (xii) performance relative to peer
companies, each of which may be established on a corporate-wide basis or
established with respect to one or more operating units, divisions, acquired
businesses, minority investments, partnerships or joint ventures.

                  (c)      Other Performance-Based Compensation. The Committee's
decision to make, or not to make, Section 162(m) Awards within the meaning of
this Section 13 shall not in any way prejudice the qualification of any other
Awards as performance based compensation under Section 162(m). In particular,
Awards of Stock Options may, pursuant to applicable regulations promulgated
under Section 162(m), be qualified as performance-based compensation for Section
162(m) purposes without regard to this Section 13.

                  SECTION 14. Non-Transferability. No Award granted under the
Plan or any rights or interests therein shall be sold, transferred, assigned,
pledged or otherwise encumbered or disposed of except by will or by the laws of
descent and distribution or pursuant to a "qualified domestic relations order"
("QDRO") as defined in the Code or Title I of the Employee Retirement Income
Security Act of 1974, as amended, and the rules and regulations thereunder;
provided, however, that the Committee may, subject to such terms and conditions
as the Committee shall specify, permit the transfer of an Award to a
Participant's family members or to one or more trusts established in whole or in
part for the benefit of one or more of such family members; provided, however,
that the restrictions in this sentence shall not apply to the shares received in
connection with an Award after the date that the restrictions on transferability
of such shares set forth in the applicable Award Agreement have lapsed. During
the lifetime of a Participant, a Stock Option or Stock Appreciation Right shall
be exercisable only by, and payments in settlement of Awards shall be payable
only to, the Participant or, if applicable, the "alternate payee" under a QDRO
or the family member or trust to whom such Stock Option, Stock Appreciation
Right or other Award has been transferred in accordance with the previous
sentence.

                  SECTION 15.  Recapitalization or Reorganization.

                  (a)      Authority of the Company and Shareholders. The
existence of the Plan, the Award Agreements and the Awards granted hereunder
shall not affect or restrict in any way the right or power of the Company or the
shareholders of the Company to make or authorize any adjustment,
recapitalization, reorganization or other change in the Company's capital
structure or its business, any merger or consolidation of the Company, any issue
of stock or of options, warrants or rights to purchase stock or of bonds,
debentures, preferred or prior preference stocks whose rights are superior to or
affect the Common Stock or the rights thereof or which are convertible into or
exchangeable for Common Stock, or the dissolution or liquidation of the Company,
or any sale or transfer of all or any part of its assets or business, or any
other corporate act or proceeding, whether of a similar character or otherwise.

                  (b)      Change in Capitalization. Notwithstanding any
provision of the Plan or any Award Agreement, in the event of any change in the
outstanding Common Stock by reason of a stock dividend, recapitalization,
reorganization, merger, consolidation, stock split, combination or exchange of
shares or any other significant corporate event affecting the Common Stock, the
Committee, in its discretion, may make (i) such proportionate adjustments it
considers appropriate (in the form determined by the Committee in its sole
discretion) to prevent diminution or enlargement of the rights of Participants
under the Plan with respect to the aggregate number of shares of Common Stock
for which Awards in respect thereof may be granted under the Plan, the number of
shares of Common Stock covered by each outstanding Award, and the exercise or
Award prices in respect thereof and/or (ii) such other adjustments as it deems
appropriate. The Committee's determination as to what, if any, adjustments shall
be made shall be final and binding on the Company and all Participants.


                                       8


                  SECTION 16. Change in Control. (a) The following provisions of
this Section 16(a) shall apply to Awards granted prior to April 8, 2004, and
shall not apply to any Awards granted after such date unless the holder of such
an Award has agreed that the Award shall be governed by the provisions of
Section 16(b): In the event of a Change in Control, (i) all Stock Options or
Stock Appreciation Rights then outstanding shall become fully exercisable as of
the date of the Change in Control, whether or not then exercisable, (ii) all
restrictions and conditions of all Stock Awards then outstanding shall lapse as
of the date of the Change in Control, (iii) all Performance Share Awards shall
be deemed to have been fully earned as of the date of the Change in Control, and
(iv) in the case of a Change in Control involving a merger of, or consolidation
involving, the Company in which the Company is (A) not the surviving corporation
(the "Surviving Entity") or (B) becomes a wholly owned subsidiary of the
Surviving Entity or any Parent thereof, each outstanding Stock Option granted
under the Plan and not exercised (a "Predecessor Option") will be converted into
an option (a "Substitute Option") to acquire common stock of the Surviving
Entity or its Parent, which Substitute Option will have substantially the same
terms and conditions as the Predecessor Option, with appropriate adjustments as
to the number and kind of shares and exercise prices.

                  (c)      The following provisions of this Section 16(b) shall
apply to Awards granted on or after April 8, 2004, and shall not apply to any
Awards granted prior to such date unless the holder of such Award granted prior
to such date has agreed that the Award will be governed by this Section 16(b):
Except as otherwise provided in an Award Agreement, in the event of a Change in
Control, (i) all Stock Options or Stock Appreciation Rights then outstanding
shall become fully exercisable as of the date of the Change in Control, whether
or not then exercisable, (ii) all restrictions and conditions of all Stock
Awards then outstanding shall lapse as of the date of the Change in Control, and
(iii) all Performance Share Awards shall be deemed to have been fully earned as
of the date of the Change in Control. Except as otherwise provided in an Award
Agreement with respect to an Award, in the case of a Change of Control involving
a merger of, or consolidation involving, the Company in which the Company is (A)
not the Surviving Entity or (B) becomes a wholly owned subsidiary of the
Surviving Entity or any Parent thereof, each outstanding Award granted under the
Plan and not exercised (a "Predecessor Award") may, if the definitive agreement
governing the terms of the Change of Control transaction so provides, be
converted into, or otherwise assumed or substituted for, an Award (a "Substitute
Award") issued by the Surviving Entity or its Parent, which Substitute Award
will have substantially the same terms and conditions as the Predecessor Award,
with appropriate adjustments as to the number and kind of shares and exercise
prices and to reflect the accelerated vesting. Except as otherwise provided in
an Award Agreement with respect to an Award, in the case of a Change of Control
involving a merger of, or consolidation involving, the Company in which the
Company is (A) not the Surviving Entity or (B) becomes a wholly owned subsidiary
of the Surviving Entity or any Parent thereof and in which a Predecessor Award
is not converted into a Substitute Award or otherwise assumed or substituted by
the Surviving Entity or any Parent of the Surviving Entity in the Change of
Control transaction pursuant to the definitive agreement governing the Change of
Control transaction (a "Non-Assumed Award"), the Committee, in its sole and
absolute discretion, may, with respect to any or all of such Non-Assumed Awards,
take any or all of the following actions to be effective as of the date of the
Change of Control (or as of any other date fixed by the Committee occurring
within the thirty (30) day period immediately preceding the date of the Change
of Control, but only if such action remains contingent upon the effectuation of
the Change of Control) (such date is referred to as the "Action Effective
Date"), unilaterally cancel such Non-Assumed Award in exchange for:

                           (i)      whole and/or fractional shares of Common
                                    Stock (or for whole shares of Common Stock
                                    and cash in lieu of any fractional share) or
                                    whole and/or fractional shares of capital
                                    stock of a successor (or for whole shares of
                                    capital stock of a successor and cash in
                                    lieu of any fractional share) that, in the
                                    aggregate, are equal in value to the excess
                                    of the Fair Market Value of the shares of
                                    Common Stock then subject to such
                                    Non-Assumed Award determined as of the
                                    Action Effective Date (taking into account
                                    the accelerated vesting), less the value of
                                    any consideration payable on exercise of
                                    such Non-Assumed Award; or

                           (ii)     cash or other property equal in value to the
                                    excess of the Fair Market Value of the
                                    shares of Common Stock then subject to such
                                    Non-Assumed Award determined as of the
                                    Action Effective Date (taking into account
                                    the accelerated vesting), less the value of
                                    any consideration payable on exercise of
                                    such Non-Assumed Awards.


                                       9


         If a Change of Control occurs, then, except to the extent otherwise
provided in the Award Agreement pertaining to a particular Award or as otherwise
provided in this Plan, each Award shall be governed by applicable law and the
documents effectuating the Change of Control.


                  SECTION 17. Amendment of the Plan. The Board or Committee may
at any time and from time to time terminate, modify, suspend or amend the Plan
in whole or in part; provided, however, that no such termination, modification,
suspension or amendment shall be effective without shareholder approval if such
approval is required to comply with any applicable law or stock exchange rule;
and provided, however, that the Board or Committee may not, without shareholder
approval, increase the maximum number of shares issuable under the Plan. No
termination, modification, suspension or amendment of the Plan shall, without
the consent of a Participant to whom any Awards shall previously have been
granted, adversely affect his or her rights under such Awards. Notwithstanding
any provision herein to the contrary, the Board or Committee shall have broad
authority to amend the Plan or any Stock Option to take into account changes in
applicable tax laws, securities laws, accounting rules and other applicable
state and federal laws.

                  SECTION 18.  Miscellaneous.

                  (a)      Tax Withholding. No later than the date as of which
an amount first becomes includable in the gross income of the Participant for
applicable income tax purposes with respect to any award under the Plan, the
Participant shall pay to the Company or make arrangements satisfactory to the
Committee regarding the payment of any federal, state or local taxes of any kind
required by law to be withheld with respect to such amount. Unless otherwise
determined by the Committee, in accordance with rules and procedures established
by the Committee, the minimum required withholding obligations may be settled
with Common Stock, including Common Stock that is part of the award that gives
rise to the withholding requirement. The obligation of the Company under the
Plan shall be conditioned upon such payment or arrangements and the Company
shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment of any kind otherwise due to the Participant.

                  (b)      No Right to Grants or Employment. No Eligible
Individual or Participant shall have any claim or right to receive grants of
Awards under the Plan. Nothing in the Plan or in any Award or Award Agreement
shall confer upon any employee of the Company or any Subsidiary any right to
continued employment with the Company or any Subsidiary, as the case may be, or
interfere in any way with the right of the Company or a Subsidiary to terminate
the employment of any of its employees at any time, with or without cause.

                  (c)      Unfunded Plan. The Plan is intended to constitute an
unfunded plan for incentive compensation. With respect to any payments not yet
made to a Participant by the Company, nothing contained herein shall give any
such Participant any rights that are greater than those of a general creditor of
the Company. In its sole discretion, the Committee may authorize the creation of
trusts or other arrangements to meet the obligations created under the Plan to
deliver Common Stock or payments in lieu thereof with respect to awards
hereunder.

                  (d)      Other Employee Benefit Plans. Payments received by a
Participant under any Award made pursuant to the provisions of the Plan shall
not be included in, nor have any effect on, the determination of benefits under
any other employee benefit plan or similar arrangement provided by the Company.

                  (e)      Securities Law Restrictions. The Committee may
require each Eligible Individual purchasing or acquiring shares of Common Stock
pursuant to a Stock Option or other Award under the Plan to represent to and
agree with the Company in writing that such Eligible Individual is acquiring the
shares for investment and not with a view to the distribution thereof. All
certificates for shares of Common Stock delivered under the Plan shall be
subject to such stock-transfer orders and other restrictions as the Committee
may deem advisable under the rules, regulations, and other requirements of the
Securities and Exchange Commission, the American Stock Exchange or any other
exchange upon which the Common Stock is then listed, and any applicable federal
or state securities law, and the Committee may cause a legend or legends to be
put on any such certificates to make appropriate reference to such restrictions.
No shares of Common Stock shall be issued hereunder unless the Company shall
have determined that such issuance is in compliance with, or pursuant to an
exemption from, all applicable federal and state securities laws.


                                       10


                  (f)      Compliance With Applicable Law.

                  (i)      The Plan is intended to comply with applicable law,
         including, without limitation, Rule 16b-3 under the Exchange Act or its
         successors under the Exchange Act, and the Committee shall interpret
         and administer the provisions of the Plan or any Award Agreement in a
         manner consistent therewith. To the extent any provision of the Plan or
         Award Agreement or any action by the Committee fails to so comply, it
         shall be deemed null and void, to the extent permitted by law and
         deemed advisable by the Committee. Moreover, in the event the Plan or
         an Award Agreement does not include a provision required by applicable
         law, including, without limitation, Rule 16b-3 to be stated therein,
         such provision (other than one relating to eligibility requirements, or
         the price and amount of Awards) shall be deemed automatically to be
         incorporated by reference into the Plan or such Award Agreement.

                  (ii)     Notwithstanding anything contained in the Plan or any
         Award Agreement to the contrary, if the consummation of any transaction
         under the Plan would result in the possible imposition of liability on
         a Participant pursuant to Section 16(b) of the Exchange Act, the
         Committee shall have the right, in its sole discretion, but shall not
         be obligated, to defer such transaction to the extent necessary to
         avoid such liability.

                  (g)      Award Agreement. In the event of any conflict or
inconsistency between the Plan and any Award Agreement, the Plan shall govern,
and the Award Agreement shall be interpreted to minimize or eliminate any such
conflict or inconsistency.

                  (h)      Expenses. The costs and expenses of administering the
Plan shall be borne by the Company.

                  (i)      Applicable Law. Except as to matters of federal law,
the Plan and all actions taken thereunder shall be governed by and construed in
accordance with the laws of the State of Delaware without giving effect to
conflicts of law principles.

                  (j)      Reserved.

                  (k)      Effective Date. The Plan shall be effective as of
November 25, 2002 (the "Effective Date").



                                       11

EX-10.19

                                                                   EXHIBIT 10.19




                         EXECUTIVE EMPLOYMENT AGREEMENT


                                     BETWEEN


                                  LODGIAN, INC.


                                       AND


                                 SAMUEL J. DAVIS


                                  MAY 14, 2004







                              EMPLOYMENT AGREEMENT


         THIS EMPLOYMENT AGREEMENT (the "Agreement") by and between Lodgian,
Inc. (the "Company"), and Samuel J. Davis ("You" or "Your")(collectively, the
"Parties"), is entered into and effective as of the 14th day of May, 2004 (the
"Effective Date").(1)

         WHEREAS, You are currently employed as Senior Vice President of
Construction and Development of the Company;

         WHEREAS, the Company desires that You continue to serve as Senior Vice
President of Construction and Development of the Company, and You desire to
continue said employment;

         WHEREAS, Your position is a position of trust and responsibility with
access to Confidential Information, Trade Secrets, and information concerning
employees and customers of the Company;

         WHEREAS, the Trade Secrets and Confidential Information, and the
relationship between the Company and each of its employees and customers are
valuable assets of the Company and may not be used for any purpose other than
the Company's Business;

         WHEREAS, the Company has agreed to continue to employ You in exchange
for Your compliance with the terms of this Agreement;

         WHEREAS, the Company and You desire to express the terms and conditions
of Your continued employment in this Agreement.

         NOW, THEREFORE, the Parties agree:

         1.       Employment and Duties

                  A.       Position. The Company shall employ You as Senior Vice
President of Construction and Development.

                  B.       Duties. You agree to perform all duties that are
consistent with Your position and that may otherwise be assigned to You by the
Company from time to time. The Company may increase or decrease Your duties in
its discretion.

                  C.       Reporting. You shall report directly to the President
and Chief Executive Officer of the Company or any other executive designated by
the Chief Executive Officer from time to time.

                  D.       Devotion of Time. You agree to (i) devote all
necessary working time required of Your position, (ii) devote Your best efforts,
skill, and energies to promote and


- --------
(1) Unless otherwise indicated, all capitalized terms used in this Agreement are
defined in the "Definitions" section attached as Exhibit A. Exhibit A is
incorporated by reference and is included in the Definition of "Agreement."



advance the business and/or interests of the Company, and (iii) fully perform
Your obligations under this Agreement. During Your employment, You shall not
render services to any other entity, regardless of whether You receive
compensation, if such services shall impede Your ability to perform Your duties
for the Company. You may, however, (A) engage in community, charitable, and
educational activities, (B) manage Your personal investments, and (C) with the
prior written consent of the Company, serve on corporate boards or committees,
provided that such activities do not conflict or interfere with the performance
of Your obligations under this Agreement or conflict with the interests of the
Company.

                  E.       Company Policies. You agree to comply with the
policies and procedures of the Company as may be adopted and changed from time
to time, including those described in the Company's employee handbook. If this
Agreement conflicts with such policies or procedures, this Agreement will
control.

         2.       Term. The term of this Agreement shall be for a period of two
(2) years, beginning on the Effective Date and ending on May 14, 2006 (the
"Employment Period"). Upon expiration of the Employment Period, this Agreement
will automatically renew for a one-year period (each a "Renewal Period"), unless
either Party notifies the other Party in writing at least one hundred eighty
(180) days prior to the end of the Employment Period or the Renewal Period that
the Agreement will not be renewed (the "180-Day Notice Period"). If this
Agreement is renewed in accordance with this Section, each Renewal Period shall
be included in the definition of "Employment Period" for purposes of this
Agreement. If this Agreement is not renewed in accordance with this Section,
then (i) Your employment will terminate upon expiration of the Employment
Period, and (ii) this Agreement will no longer be in effect; provided, however,
that the restrictive covenants and all post-termination obligations contained in
this Agreement shall survive termination of this Agreement.

         3.       Compensation.

                  A.       Base Salary. During the Employment Period, the
Company will pay You an annual minimum base salary ("Base Salary") of
$134,241.12, minus applicable withholdings, in accordance with the Company's
normal payroll practices. Your Base Salary may be increased at the Company's
discretion based upon Your performance and the Company's performance. Your Base
Salary will be reviewed on an annual basis.

                  B.       Bonus. During the Employment Period, You will be
eligible to receive an annual bonus if Your performance and the Company's
performance meets certain criteria established from year to year by the
Company's Compensation Committee (the "Bonus"). The Bonus will be subject to all
applicable withholdings and will be paid within 90 days after the end of the
calendar year. Upon termination of Your employment, Your entitlement to any
Bonus payment will be governed by Section 5 below.

                  C.       Benefits Plans. During the Employment Period, You
will be eligible to participate in all benefit plans in effect for executives
and employees of the Company, subject to the terms and conditions of such plans.


                                      -3-


                  D.       Vacation. During the Employment Period, You are
entitled to paid vacation and personal and/or sick days in accordance with the
Company policies.

         4.       Termination. This Agreement may be terminated by any of the
following events:

                  A.       The Company's non-renewal of the Employment Period;

                  B.       Mutual written agreement between You and the Company
at any time;

                  C.       Your death;

                  D.       Your disability which renders You unable to perform
the essential functions of Your job even with reasonable accommodation, as
determined by the Company in its sole discretion;

                  E.       For Cause. For Cause shall mean a termination by the
Company because of any one of the following events:

                           1.       Your willful refusal to follow the lawful
                                    direction of the CEO and/or the person to
                                    whom You report or Your material failure to
                                    perform Your duties (other than by reason of
                                    disability, as defined in Section 4D above),
                                    in either case, only after You have been
                                    given written notice by the CEO and/or the
                                    person to whom You report detailing the
                                    directives You have refused to follow or the
                                    duties You have failed to perform and at
                                    least 30 days to cure;

                           2.       Your material and willful failure to comply
                                    with Company policies as applied to Company
                                    employees, only after You have been given
                                    written notice by the CEO and/or the person
                                    to whom You report detailing the policies
                                    with which You have failed to comply and at
                                    least 30 days to cure;

                           3.       Your engaging in any of the following
                                    conduct:

                                    (i)      an act of fraud or dishonesty that
                                             materially harms the Company or its
                                             affiliates,

                                    (ii)     a felony or any violation of any
                                             federal or state securities law or
                                             Your being enjoined from violating
                                             any federal or state securities law
                                             or being determined to have
                                             violated any such law;

                                    (iii)    willful or reckless misconduct or
                                             gross negligence in connection with
                                             any property or activity of the
                                             Company and its subsidiaries and
                                             affiliates, and successors;


                                      -4-


                                    (iv)     repeated and intemperate use of
                                             alcohol or illegal drugs after
                                             written notice from the CEO and/or
                                             the person to whom You report;

                                    (v)      material breach of any of Your
                                             obligations under this Agreement
                                             (other than by reason of physical
                                             or mental illness, injury, or
                                             condition), but only after You have
                                             been given written notice of the
                                             breach by the CEO and/or the person
                                             to whom You report and at least
                                             thirty (30) days to cure;

                                    (vi)     becoming barred or prohibited by
                                             the SEC from holding Your position
                                             with the Company;

                           4.       Your resignation for other than Good Reason;
                                    or

                           5.       Your non-renewal of the Employment Period.

                  F.       Your resignation for Good Reason; or

                  G.       Without Cause. Without Cause shall mean any
termination of Your employment by the Company which is not defined in
sub-sections A-F above.

         5.       Company's Post-Termination Obligations

                  A.       If this Agreement terminates for the reasons set
forth in Sections 4B or E above, then the Company will pay You all accrued but
unpaid wages, based on Your then current Base Salary, through the termination
date. The Company shall have no other obligations to You, including under this
Agreement, any Company policy, or otherwise; however, You shall continue to be
bound by Sections 7D and all other post-termination obligations to which You are
subject, including, but not limited to, the obligations contained in this
Agreement. You shall also not be entitled to any accelerated vesting of any
stock based compensation granted pursuant to the 2002 Lodgian, Inc. Stock
Incentive Plan or any other similar plan.

                  B.       If this Agreement terminates for any reason set forth
in Sections 4C, D, F, or G above, and Section 6 below does not apply, then the
Company shall (i) pay You (or Your estate if applicable) a lump sum payment
equal to the greater of: (a) Your then current Base Salary for the remainder of
the initial Employment Period or Renewal Period during which Your employment
terminates, whichever is applicable, or (b) Your then current Base Salary for a
period of twelve (12) months (the time period in the immediately preceding
sub-clause (a) or (b) to be referred to as the "Separation Pay Period"); (ii)
reimburse Your COBRA premiums under the Company's major medical group health
plan on a monthly basis for a period equal to the Separation Pay Period; (iii)
pay You a pro-rata portion of any Bonus to which You may be entitled under
Section 3B above based upon the number of days You are employed during the
calendar year in which Your employment terminates and based upon the criteria
set forth in Section 3B; and (iv) notwithstanding anything to the contrary in
any applicable stock option documents, accelerate the vesting of any stock
option(s) granted to You by the Company (the "Option(s)") so that the Option(s)
shall be immediately exercisable in full in accordance with the


                                      -5-


terms and conditions of all applicable stock option documents (collectively, the
payments and benefits set forth in the preceding sub-clauses (i) - (iv) to be
referred to as the "Separation Benefits"). The Company shall have no other
obligations to You, including under this Agreement, any Company policy, or
otherwise. The Separation Benefits shall constitute full satisfaction of the
Company's obligations under this Agreement. The Company's obligation to provide
the Separation Benefits shall be conditioned upon Your satisfaction of the
following conditions (the "Separation Benefits Conditions"):

                           (i)      Execution and non-revocation of a Separation
                                    & Release Agreement in a form prepared by
                                    the Company by which You release the Company
                                    from any and all liability and claims of any
                                    kind; and

                           (ii)     Compliance with the restrictive covenants
                                    (Section 7D) and all post-termination
                                    obligations, including, but not limited, the
                                    obligations contained in this Agreement.

                  If You do not execute an effective Separation & Release
Agreement as set forth above, the Company will not provide any Separation
Benefits to You under this Section 5B. The Company's obligation to provide the
Separation Benefits set forth in this Section 5B shall terminate immediately
upon any breach by You of any post-termination obligations to which You are
subject.

                  C.       If this Agreement terminates for the reason set forth
in Section 4A above and Section 6 below does not apply, then, upon expiration of
the Employment Period or Renewal Period, as applicable, the Company shall
provide to You the Separation Benefits set forth in Section 5B above; provided,
however, that (i) the Separation Pay Period shall equal six (6) months, and (ii)
Your right to receive the Separation Benefits under this Section 5C shall be
subject to the Separation Benefits Conditions set forth in Section 5B above. The
Separation Benefits to be provided under this Section 5C shall constitute full
satisfaction of the Company's obligations under this Agreement, any Company
policy, or otherwise.

         6.       Change of Control. If, within one hundred eighty (180) days
after a Change of Control, the Company or the successor entity to the Company
notifies You pursuant to Section 2 of this Agreement that the Agreement will not
be renewed, then, at the expiration of the Employment Period or Renewal Period,
as applicable, You shall receive the Separation Benefits set forth in Section 5B
above; provided, however, that Your right to receive the Separation Benefits
shall be subject to the Separation Benefits Conditions set forth in Section 5B
above. The Separation Benefits to be provided under this Section 6 shall
constitute full satisfaction of the Company's obligations under this Agreement,
any Company policy, or otherwise.

         7.       Your Post-Termination Obligations.

                  A.       Return of Materials. Upon the termination of Your
employment for any reason or upon the Company's request at any time, You will
return to the Company all of the Company's property, including, but not limited
to, keys, passcards, credit cards, customer lists, rolodexes, tapes, laptop
computer, software, computer files, marketing and sales materials, and


                                      -6-


any other property, record, document or piece of equipment belonging to the
Company. You will not (i) retain any copies of the Company's property, including
any copies existing in electronic form, which are in Your possession or control,
or (ii) destroy, delete, or alter any Company property, including, but not
limited to, any laptop computer, without the Company's consent.

                  B.       Set-Off. If You have any outstanding obligations to
the Company upon the termination of Your employment for any reason, You hereby
authorize the Company to deduct any amounts owed to the Company from Your final
paycheck and/or any amounts that would otherwise be due to You, including, but
not limited to, under Section 5B or 6 above.

                  C.       Non-Disparagement. During Your employment and upon
the termination of Your employment with the Company for any reason, You will not
make any disparaging or defamatory statements, whether written or oral,
regarding the Company.

                  D.       Restrictive Covenants. You acknowledge that the
restrictions contained in this Section 7D are reasonable and necessary to
protect the legitimate business interests of the Company, and will not impair or
infringe upon Your right to work or earn a living after Your employment with the
Company ends.

                           1.       Trade Secrets and Confidential Information.
You represent and warrant that: (i) You are not subject to any legal or
contractual duty or agreement that would prevent or prohibit You from performing
the duties contemplated by this Agreement or otherwise complying with this
Agreement, and (ii) You are not in breach of any legal or contractual duty or
agreement, including any agreement concerning trade secrets or confidential
information owned by any other party.

                           You agree that You will not: (i) use, disclose, or
reverse engineer the Trade Secrets or the Confidential Information for any
purpose other than the Company's Business, except as authorized in writing by
the Company; (ii) during Your employment with the Company, use, disclose, or
reverse engineer (a) any confidential information or trade secrets of any former
employer or third party, or (b) any works of authorship developed in whole or in
part by You during any former employment or for any other party, unless
authorized in writing by the former employer or third party; or (iii) upon Your
resignation or termination (a) retain Trade Secrets or Confidential Information,
including any copies existing in any form (including electronic form), which are
in Your possession or control, or (b) destroy, delete, or alter the Trade
Secrets or Confidential Information without the Company's written consent.

                           The obligations under this Section 7D(1) shall: (i)
with regard to the Trade Secrets, remain in effect as long as the information
constitutes a trade secret under applicable law, and (ii) with regard to the
Confidential Information, remain in effect during the Restricted Period. The
confidentiality, property, and proprietary rights protections available in this
Agreement are in addition to, and not exclusive of, any and all other rights to
which the Company is entitled under federal and state law, including, but not
limited to, rights provided under copyright laws, trade secret and confidential
information laws, and laws concerning fiduciary duties.


                                      -7-


                           2.       Non-Solicitation of Customers. During the
Restricted Period, You will not, directly or indirectly, solicit any Customer of
the Company for the purpose of providing any goods or services competitive with
the Business. The restrictions set forth in this Section 7D(2) apply only to the
Customers with whom You had Contact.

                           3.       Non-Recruit of Employees. During the
Restricted Period, You will not, directly or indirectly, solicit, recruit or
induce any Employee to (a) terminate his or her employment relationship with the
Company or (b) work for any other person or entity engaged in the Business.

                           4.       Non-Competition. During the Non-Competition
Restricted Period, You will not, on Your own behalf or on behalf of any person
or entity engaged in the Business, engage in or perform within the Territory any
of the activities which You performed, or which are substantially similar to
those which You performed, as Senior Vice President of Construction and
Development of the Company. Nothing in this Agreement shall be construed to
prohibit You from performing activities which You did not perform for the
Company. The Parties acknowledge and agree that the covenant set forth in this
Section 7D(4) shall not apply if Your employment terminates for the reason set
forth in Section 4A above.

                  E.       Post-Employment Disclosure. During the Restricted
Period, You shall provide a copy of this Agreement to persons and/or entities
for whom You work or consult as an owner, partner, joint venturer, employee or
independent contractor.

         8.       Injunctive Relief. You agree that if You breach Section 7 of
this Agreement: (i) the Company would suffer irreparable harm; (ii) it would be
difficult to determine damages, and money damages alone would be an inadequate
remedy for the injuries suffered by the Company, and (iii) if the Company seeks
injunctive relief to enforce this Agreement, You will waive and will not (a)
assert any defense that the Company has an adequate remedy at law with respect
to the breach, (b) require that the Company submit proof of the economic value
of any Trade Secret or Confidential Information, or (c) require the Company to
post a bond or any other security. Nothing contained in this Agreement shall
limit the Company's right to any other remedies at law or in equity.

         9.       Severability. The provisions of this Agreement are severable.
If any provision is determined to be invalid, illegal, or unenforceable, in
whole or in part, the remaining provisions and any partially enforceable
provisions shall remain in full force and effect.

         10.      Attorneys' Fees. In the event of litigation relating to this
Agreement, the prevailing party shall be entitled to recover attorneys' fees and
costs of litigation in addition to all other remedies available at law or in
equity.

         11.      Waiver. The Company's failure to enforce any provision of this
Agreement shall not act as a waiver of that or any other provision. The
Company's waiver of any breach of this Agreement shall not act as a waiver of
any other breach.

         12.      Entire Agreement. This Agreement, including Exhibit A which is
incorporated by reference, constitutes the entire agreement between the Parties
concerning the subject matter of this Agreement. This Agreement supersedes any
prior communications, agreements or


                                      -8-


understandings, whether oral or written, between the Parties relating to the
subject matter of this Agreement. Other than terms of this Agreement, no other
representation, promise or agreement has been made with You to cause You to sign
this Agreement.

         13.      Amendments. This Agreement may not be amended or modified
except in writing signed by both Parties.

         14.      Successors and Assigns. This Agreement shall be assignable to,
and shall inure to the benefit of, the Company's successors and assigns,
including, without limitation, successors through merger, name change,
consolidation, or sale of a majority of the Company's stock or assets, and shall
be binding upon You. You shall not have the right to assign Your rights or
obligations under this Agreement. The covenants contained in Section 7D of this
Agreement shall survive cessation of Your employment with the Company,
regardless of who causes the cessation or the reason for cessation.

         15.      Governing Law. Except as set forth in Section 20 below, the
laws of the State of Georgia shall govern this Agreement. If Georgia's conflict
of law rules would apply another state's laws, the Parties agree that Georgia
law shall still govern.

         16.      No Strict Construction. If there is a dispute about the
language of this Agreement, the fact that one Party drafted the Agreement shall
not be used in its interpretation.

         17.      Notice. Whenever any notice is required, it shall be given in
writing addressed as follows:

         To Company:      Lodgian, Inc.
                          3445 Peachtree Rd., Suite 700
                          Atlanta, Georgia 30326
                          Attention: General Counsel


         To Executive:    Samuel J. Davis
                          5285 Johns View Street
                          Alpharetta, Georgia 30005

         Notice shall be deemed given and effective three (3) days after the
deposit in the U.S. mail of a writing addressed as above and sent first class
mail, certified, return receipt requested, or when actually received. Either
Party may change the address to which notices shall be delivered or mailed by
notifying the other party of such change in accordance with this Section.

         18.      Consent to Jurisdiction and Venue. Except as set forth in
Section 20 below, You agree that any claim arising out of or relating to this
Agreement shall be (i) brought in the Superior Court of Fulton County, Georgia,
or (ii) brought in or removed to the United States District Court for the
Northern District of Georgia, Atlanta Division. You consent to the personal
jurisdiction of the courts identified above. You waive (i) any objection to
jurisdiction or venue, or (ii) any defense claiming lack of jurisdiction or
improper venue, in any action brought in such courts.


                                      -9-


         19.      Arbitration. Except as provided below in this Section 20, all
disputes arising out of Your employment or the cessation of Your employment,
including, but not limited to, claims arising under or relating to this
Agreement, claims for breach of contract, tort, employment discrimination,
retaliation, or harassment, as well as any other statutory or common law claims,
at law or in equity, recognized under any federal, state, or local law shall be
exclusively resolved by final and binding arbitration under the Federal
Arbitration Act, 9 U.S.C. Section 1. Such claims shall be settled by final and
binding arbitration administered by the American Arbitration Association in
accordance with its National Rules for the Resolution of Employment Disputes,
and judgment on the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. The Company will pay all filing fees and arbitrator
costs associated with such arbitration.

                  This arbitration provision shall not apply to any disputes or
claims relating to or arising out of unemployment, workers compensation, and/or
the restrictive covenants set forth in Section 7D of this Agreement, including,
but not limited to, any claims for equitable relief relating to such restrictive
covenants. Any claims relating to or arising out of Section 7D of this Agreement
shall be governed by the laws of the State of Georgia and shall be brought in a
state or federal court of competent jurisdiction in Georgia. You consent to the
personal jurisdiction of the state and/or federal courts located in Georgia. You
waive (i) any objection to jurisdiction or venue, or (ii) any defense claiming
lack of jurisdiction or improper venue, in any action brought in such courts.

         20.      AFFIRMATION. YOU ACKNOWLEDGE THAT YOU HAVE CAREFULLY READ THIS
AGREEMENT, YOU KNOW AND UNDERSTAND ITS TERMS AND CONDITIONS, AND YOU HAVE HAD
THE OPPORTUNITY TO ASK THE COMPANY ANY QUESTIONS YOU MAY HAVE HAD PRIOR TO
SIGNING THIS AGREEMENT.


                                      -10-



         IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the day and year first above written.


                                   LODGIAN, INC.

                                   By: /s/ W. Thomas Parrington
                                       ------------------------


                                   Date: May 14, 2004



                                   SAMUEL J. DAVIS

                                   /s/ Samuel J. Davis
                                   -------------------

                                   Date: May 14, 2004


                                      -11-



                                    EXHIBIT A

                                   DEFINITIONS

A.       "Business" shall mean the business of owning and operating hotels
         including, but not limited to, full-service hotels which have food and
         beverage operations and meeting spaces.

B.       "Change of Control" means (i) the sale, transfer, or other disposition
         of eighty percent (80%) or more of the Company's assets, or (ii) a sale
         of fifty percent (50%) or more of the then outstanding voting stock of
         the Company in a single transaction or a series of related
         transactions.

C.       "Confidential Information" means (a) information of the Company, to the
         extent not considered a Trade Secret under applicable law, that (i)
         relates to the business of the Company, (ii) possesses an element of
         value to the Company, (iii) is not generally known to the Company's
         competitors, and (iv) would damage the Company if disclosed, and (b)
         information of any third party provided to the Company which the
         Company is obligated to treat as confidential. Confidential Information
         includes, but is not limited to, (i) future business plans, (ii) the
         composition, description, schematic or design of products, future
         products or equipment of the Company, (iii) communication systems,
         audio systems, system designs and related documentation, (iv)
         advertising or marketing plans, (v) information regarding independent
         contractors, employees, clients and customers of the Company, and (vi)
         information concerning the Company's financial structure and methods
         and procedures of operation. Confidential Information shall not include
         any information that (i) is or becomes generally available to the
         public other than as a result of an unauthorized disclosure, (ii) has
         been independently developed and disclosed by others without violating
         this Agreement or the legal rights of any party, or (iii) otherwise
         enters the public domain through lawful means.

D.       "Contact" means any interaction between You and a Customer which (i)
         takes place in an effort to establish, maintain, and/or further a
         business relationship on behalf of the Company and (ii) occurs during
         the last year of Your employment with the Company (or during Your
         employment if employed less than a year).

E.       "Customer" means any person or entity to whom the Company has sold its
         products or services, or solicited to sell its products or services.

F.       "Employee" means any person who (i) is employed by the Company at the
         time Your employment with the Company ends, or (ii) is employed by the
         Company during the Restricted Period.

G.       "Good Reason" shall exist if (i) the Company, without Your written
         consent, (A) takes any action which results in the material reduction
         of Your then current duties or responsibilities, (B) reduces the
         benefits to which You are entitled on the Effective Date, unless a
         similar reduction is made for other executive employees, (C) commits a
         material breach of this Agreement, or (D) requires You to relocate more
         than fifty (50) miles from the location of the Company's offices on the
         Effective Date; (ii) You provide written


                                      -12-


         notice to the Company of such action and provide the Company with
         thirty (30) days to remedy such action (the "Cure Period"), (iii) the
         Company fails to remedy such action within the Cure Period, and (iv)
         You resign within ten (10) days of the expiration of the Cure Period.
         Good Reason shall not include any isolated, insubstantial or
         inadvertent action that (i) is not taken in bad faith, and (ii) is
         remedied by the Company within the Cure Period.

H.       "Non-Competition Restricted Period" means the time period during Your
         employment with the Company, and for six (6) months after Your
         employment with the Company ends.

I.       "Restricted Period" means the time period during Your employment with
         the Company, and for two (2) years after Your employment with the
         Company ends.

J.       "Territory" means the fifteen (15) mile radius surrounding the
         Company's corporate office at 3445 Peachtree Rd., Suite 700, Atlanta,
         Georgia 30326.

K.       "Trade Secrets" means information of the Company, and its licensors,
         suppliers, clients and customers, without regard to form, including,
         but not limited to, technical or nontechnical data, a formula, a
         pattern, a compilation, a program, a device, a method, a technique, a
         drawing, a process, financial data, financial plans, product plans, or
         a list of actual or potential customers or suppliers which is not
         commonly known by or available to the public and which information (i)
         derives economic value, actual or potential, from not being generally
         known to, and not being readily ascertainable by proper means by, other
         persons who can obtain economic value from its disclosure or use, and
         (ii) is the subject of efforts that are reasonable under the
         circumstances to maintain its secrecy.


                                      -13-

EX-10.20.1

                                                                 EXHIBIT 10.20.1












                            LODGIAN, INC. 401(k) PLAN
                             AS AMENDED AND RESTATED
                        EFFECTIVE AS OF SEPTEMBER 1, 2003
                         (EXCEPT AS OTHERWISE PROVIDED)











                                TABLE OF CONTENTS



                                                                                                                PAGE
                                                                                                       

ss. 1. DEFINITIONS................................................................................................1

         1.1.     Account.........................................................................................1
         1.2.     Affiliate.......................................................................................1
         1.3.     Beneficiary.....................................................................................1
         1.4.     Board...........................................................................................1
         1.5.     Break in Service................................................................................1
         1.6.     Code............................................................................................1
         1.7.     Compensation....................................................................................1
         1.8.     Election........................................................................................2
         1.9.     Eligible Employee...............................................................................2
         1.10.    Eligible Participant............................................................................3
         1.11.    Employee........................................................................................3
         1.12.    ERISA...........................................................................................3
         1.13.    Forfeiture......................................................................................3
         1.14.    401(k) Account..................................................................................3
         1.15.    401(k) Contributions............................................................................3
         1.16.    Highly Compensated Employee.....................................................................3
         1.17.    Hour of Service.................................................................................4
         1.18.    Leased Employee.................................................................................5
         1.19.    Lodgian Stock...................................................................................5
         1.20.    Matching Account................................................................................5
         1.21.    Matching Contribution...........................................................................5
         1.22.    Nonhighly Compensated Employee..................................................................5
         1.23.    Participant.....................................................................................5
         1.24.    Participating Employer..........................................................................5
         1.25.    Plan............................................................................................5
         1.26.    Plan Administrator..............................................................................5
         1.27.    Plan Sponsor....................................................................................5
         1.28.    Plan Year.......................................................................................5
         1.29.    Rollover Account................................................................................5
         1.30.    Rollover Contribution...........................................................................6
         1.31.    Safe Harbor Matching Contribution...............................................................6
         1.32.    Safe Harbor Matching Contribution Account.......................................................6
         1.33.    Trust Agreement.................................................................................6
         1.34.    Trustee.........................................................................................6
         1.35.    Trust Fund......................................................................................6
         1.36.    Valuation Date..................................................................................6





                                                                                                     
         1.37.    Vested Benefit..................................................................................6
         1.38.    Year of Service.................................................................................6

ss. 2. PARTICIPATION..............................................................................................7

         2.1.     General Participation for 2002 Plan Year and Prior Years........................................7
         2.2.     General Participation After December 31, 2002...................................................7
         2.3.     Reemployment....................................................................................7
         2.4.     Change in Status................................................................................8
         2.5.     Not a Contract of Employment....................................................................8
         2.6.     USERRA..........................................................................................8

ss. 3. EMPLOYEE CONTRIBUTIONS.....................................................................................8

         3.1.     401(k) Contributions............................................................................8
                  (a)      General................................................................................8
                  (b)      Amount of 401(k) Contributions.........................................................8
                  (c)      401(k) Accounts........................................................................9
         3.2.     Rate Changes....................................................................................9
                  (a)      General................................................................................9
                  (b)      Change in Eligibility Status...........................................................9
                  (c)      Hardship Withdrawal....................................................................9
                  (d)      Leave of Absence.......................................................................9
         3.3.     Payment of 401(k) Contributions to Trustee......................................................9
         3.4.     Rollover Contributions..........................................................................9
                  (a)      General................................................................................9
                  (b)      Rollover Accounts......................................................................9

ss. 4. EMPLOYER CONTRIBUTIONS....................................................................................10

         4.1.     Employer Matching Contributions................................................................10
                  (a)      Matching Contributions for the 2002 Plan Year.........................................10
                  (b)      Safe Harbor Matching Contributions after December 31, 2002............................10
                  (c)      Application of Forfeitures............................................................10
                  (d)      No Matching Contributions or Safe Harbor Matching Contributions on Refunds............10
                  (e)      Allocation............................................................................11
         4.2.     Application of Suspense Account................................................................11
         4.3.     Top Heavy Contributions........................................................................11
         4.4.     Payment of Employer Contributions..............................................................11

ss. 5. ACCOUNT INVESTMENTS AND ALLOCATIONS.......................................................................11

         5.1.     General........................................................................................11
         5.2.     Investment Elections...........................................................................12
         5.3.     Amounts Available for Investment...............................................................12
         5.4.     Allocations to Accounts........................................................................12
         5.5.     Allocation Corrections.........................................................................12
         5.6.     Transition Period to Implement Plan Changes....................................................12




                                      -ii-


                                                                                                     
         5.7.     Special Rules Concerning Investment in Lodgian Stock Fund......................................13
                  (a)      Dividends.............................................................................13
                  (b)      Voting of Lodgian Stock and Other Similar Rights......................................13
                  (c)      Restrictions..........................................................................13

ss. 6. LIMITATIONS ON CONTRIBUTIONS AND ALLOCATIONS..............................................................14

         6.1.     Ordering Rule..................................................................................14
         6.2.     Code Section 415 Limitations...................................................................14
                  (a)      General...............................................................................14
                  (b)      Annual Additions......................................................................14
                  (c)      Coordination Rules....................................................................14
                  (d)      Corrections...........................................................................15
         6.3.     Code Section 402(g) Limitations................................................................15
                  (a)      This Plan and Other Affiliate Plans...................................................15
                  (b)      Other Plans or Arrangements...........................................................15
                  (c)      Action to Satisfy 402(g) Limitation...................................................16

ss. 7. PLAN BENEFITS.............................................................................................17

         7.1.     Participant....................................................................................17
                  (a)      Distribution Events...................................................................17
                  (b)      Vested Benefit........................................................................17
                  (c)      Vesting Schedule for Participants without an Hour of Service after March 31, 2002.....17
                  (d)      Vesting Schedule for Participants with an Hour of Service on or after April 1, 2002...18
                  (e)      Forfeiture............................................................................18
                  (f)      Reemployment..........................................................................18
         7.2.     Death of Participant...........................................................................19
         7.3.     In-Service Withdrawals.........................................................................19
                  (a)      Hardship Withdrawals..................................................................19
                  (b)      Age 59 1/2 Withdrawals................................................................21
                  (c)      Rollover Account Withdrawals..........................................................21
                  (d)      Limitations...........................................................................21

ss. 8. BENEFIT PAYMENT...........................................................................................22

         8.1.     Methods........................................................................................22
                  (a)      General...............................................................................22
                  (b)      Automatic Single Sum in Certain Cases.................................................22
                  (c)      Installment Rules.....................................................................23
                  (d)      Limitations...........................................................................23
                  (e)      Minimum Distribution Rule.............................................................23
         8.2.     Timing.........................................................................................28
                  (a)      General...............................................................................28
                  (b)      Deferral of Payment...................................................................28
                  (c)      Participant's Required Beginning Date.................................................29
                  (d)      Beneficiary...........................................................................29




                                     -iii-


                                                                                                     
         8.3.     Direct Rollover................................................................................29
                  (a)      Eligible Rollover Distribution........................................................29
                  (b)      Eligible Retirement Plan..............................................................30
                  (c)      Distributee...........................................................................30
                  (d)      Direct Rollover.......................................................................30
         8.4.     Claim for Benefit..............................................................................30
         8.5.     No Estoppel of Plan............................................................................30
         8.6.     Legally Incompetent............................................................................31
         8.7.     Missing Person.................................................................................31
         8.8.     Other Payment Rules............................................................................31
                  (a)      Withholding Obligations...............................................................31
                  (b)      Waiver of Notices.....................................................................31
                  (c)      Account Balance.......................................................................32
                  (d)      Order of Withdrawal...................................................................32
                  (e)      Reemployment..........................................................................32

ss. 9. NAMED FIDUCIARIES AND ADMINISTRATION......................................................................32

         9.1.     Named Fiduciaries..............................................................................32
         9.2.     Plan Administrator Appointment and Term of Office..............................................32
         9.3.     Organization of Plan Administrator.............................................................32
         9.4.     Plan Administrator Powers and Duties...........................................................33
                  (a)      General...............................................................................33
                  (b)      Liquidity Requirements................................................................33
                  (c)      Records...............................................................................33
                  (d)      Information from Others...............................................................33
         9.5.     Indemnification................................................................................33
         9.6.     Reporting and Disclosure.......................................................................34

ss. 10. DUTIES AND AUTHORITY OF TRUSTEE..........................................................................34

ss. 11. LOANS....................................................................................................34

         11.1.    Administration.................................................................................34
         11.2.    Statutory Requirements.........................................................................34
                  (a)      General...............................................................................34
                  (b)      Repayments............................................................................34
                  (c)      Limitations on Amounts................................................................34
         11.3.    Distribution and Default.......................................................................35
         11.4.    USERRA.........................................................................................35

ss. 12. AMENDMENT AND TERMINATION................................................................................35

         12.1.    Amendment......................................................................................35
         12.2.    Termination....................................................................................36

ss. 13. MISCELLANEOUS............................................................................................36

         13.1.    Headings and Construction......................................................................36




                                      -iv-


                                                                                                     
         13.2.    Nontransferability.............................................................................36
         13.3.    Benefits Supported Only by Trust Fund..........................................................36
         13.4.    Nondiscrimination..............................................................................37
         13.5.    Nonreversion...................................................................................37
         13.6.    Merger, Consolidation or Similar Transaction...................................................37
                  (a)      General...............................................................................37
                  (b)      Authorization.........................................................................37
                  (c)      No Annuities..........................................................................37
         13.7.    Qualified Domestic Relations Order.............................................................37
         13.8.    Top Heavy Plan.................................................................................38
                  (a)      Determination of Top-Heavy Status.....................................................38
                  (b)      Special Top Heavy Plan Rules..........................................................39

Appendix A.......................................................................................................42

Appendix B.......................................................................................................46




                                      -v-


                            LODGIAN, INC. 401(K) PLAN
                             AS AMENDED AND RESTATED
                        EFFECTIVE AS OF SEPTEMBER 1, 2003
                         (EXCEPT AS OTHERWISE PROVIDED)

         The Servico, Inc. 401(k) Plan (the "Plan") was adopted by Servico, Inc.
("Servico") effective July 1, 1984 and previously amended several times. Servico
and Impac Hotel Group, LLC ("Impac") combined their respective businesses
through a series of corporate mergers the result of which is that Servico and
Impac became wholly-owned subsidiaries of Lodgian, Inc. ("Lodgian") effective on
December 11, 1998. Effective January 1, 1999, Lodgian assumed sponsorship of the
Plan and changed the name to the Lodgian, Inc. 401(k) Plan. The Plan was amended
and restated effective as of January 1, 1997, subsequently amended, and again
amended and restated effective as of January 1, 2002.

         This amendment and restatement of the Plan deletes the trust provisions
in the Plan effective as of September 1, 2003, as such provisions are now in a
separate trust agreement which is effective as of September 1, 2003.

                               ss. 1. DEFINITIONS

The following terms have the following meanings for purposes of this Plan.

1.1.     Account -- means the bookkeeping account maintained for each
Participant and, where appropriate, Beneficiary or alternate payee, to show his
or her interest in this Plan.

1.2.     Affiliate -- means the Plan Sponsor and any trade or business, whether
or not incorporated, that is considered to be a single employer with the Plan
Sponsor under Code Section 414(b), (c), (m) or (o). Solely for purposes of the
Code Section 415 limitations in Section 6.2, the term Affiliate means each
entity that would be an Affiliate if the phrase "more than 50%" is substituted
for the phrase "at least 80%" each place it appears in Code Section 1563(a)(1).

1.3.     Beneficiary -- means the person or persons so designated in accordance
with Section 7.2 by a Participant or by operation of this Plan to receive any
Plan benefits payable on account of the Participant's death.

1.4.     Board -- means the Board of Directors of the Plan Sponsor.

1.5.     Break in Service -- means for an Employee any Plan Year during which he
or she fails to complete more than 500 Hours of Service.

1.6.     Code -- means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.

1.7.     Compensation -- means the sum of the Participant's "taxable wages" and
"pre-tax contributions" received by the Participant for the portion of the Plan
Year during which he or she




was a Participant. Taxable wages are the wages and other compensation paid by
the Affiliates to the Employee that are reportable as wages, tips and other
compensation on Form W-2 or any other form that the Affiliate is required to
provide the Employee under Code Sections 3401(a), 6041(d), 6051(a)(3) and 6052
excluding any severance payments. Pre-tax contributions are the Employee's
401(k) Contributions, and any other contributions or deferrals made on the
Employee's behalf by an Affiliate to a Code Section 401(k) plan, Code Section
125 cafeteria plan or any other Affiliate plan or program that are excludible
from the Participant's taxable income for the Plan Year under Code Sections 125,
132(f), 401(k), 402(h), 403(b), 414(v) or 457(b).

The annual Compensation of each Employee taken into account under the Plan will
not exceed $200,000 as adjusted for cost-of-living increases in accordance with
Code Section 401(a)(17). The cost-of-living adjustment in effect for a calendar
year applies to any Plan Year beginning in that calendar year. If a Plan Year
consists of fewer than 12 months, this annual Compensation limit will be
multiplied by a fraction, the numerator of which is the number of months in the
Plan Year and the denominator of which is 12.

1.8.     Election -- means an election or designation made on a form or by any
other method authorized by the Plan Administrator, properly completed and timely
delivered in accordance with rules adopted by the Plan Administrator from time
to time.

1.9.     Eligible Employee -- means each individual who is classified on the
payroll of a Participating Employer as an Employee of that Participating
Employer, other than:

         (a)      an Employee who is included in unit of employees covered by a
         collective bargaining agreement, unless the agreement by specific
         reference to this Plan permits participation in this Plan;

         (b)      a Leased Employee;

         (c)      an Employee who is a nonresident alien receiving no earned
         income from a Participating Employer from sources within the United
         States (as described more fully in Code Section 410(b)(3)(C)): or

         (d)      an Employee who performs intermittent services for a
         Participating Employer and is classified in the job of "on-call"
         employee as reflected on the payroll of a Participating Employer.

Under no circumstances will an individual who performs services for a
Participating Employer, but who is not classified on the payroll as an employee
of the Participating Employer, for example, an individual performing services
for a Participating Employer under a leasing arrangement or an independent
contractor, be treated as an Eligible Employee, even if that individual is
treated as an "employee" of a Participating Employer as a result of common law
principals, the leased employee rules under Code Sections 414(n) or (o).
Further, if an individual performing services for a Participating Employer is
retroactively reclassified as an "employee" of a Participating Employer for any
reason, the reclassified individual will not be treated as an Eligible Employee
for any period prior to the actual date (and not the effective date) of the


                                      -2-


reclassification unless the Participating Employer determines the
reclassification is necessary to correct an inadvertent payroll classification
error.

1.10.    Eligible Participant -- means for any Plan Year:

         (a)      a Participant who is an Eligible Employee (or on an authorized
         leave of absence as an Eligible Employee) on the last day of that Plan
         Year; and

         (b)      a Participant who has completed a Year of Service during such
         Plan Year.

For purposes of this Section 1.10, a Participant who terminated employment
during the Plan Year due to death or after attaining age 65 shall be considered
an Eligible Participant for such Plan Year. Further, if the Participating
Employer elects to apply the provisions in Section 4.1(b) hereof for a Plan
Year, Eligible Participant shall include for purposes of the Safe Harbor
Matching Contribution any Participant who has made 401(k) Contributions during
such Plan Year.

1.11.    Employee -- means a person who is treated as an employee of an
Affiliate either as a result of common law principles or under the leased
employee rules of Code Section 414(n).

1.12.    ERISA -- means the Employee Retirement Income Security Act of 1974, as
amended, and the regulations thereunder.

1.13.    Forfeiture -- means the dollar amount forfeited from an Account in
accordance with this Plan.

1.14.    401(k) Account -- means the subaccount of a Participant's Account
attributable to his or her 401(k) Contributions.

1.15.    401(k) Contributions -- means that part of a Participant's Compensation
that is contributed to his or her 401(k) Account pursuant to his or her Election
under Section 3.1.

1.16.    Highly Compensated Employee -- means each Participant who performs
services for an Affiliate during the Plan Year and who:

         (a)      is a 5% owner of an Affiliate (as defined in Code Section
         416(i)(1)(B)(i)) at any time during the Plan Year or the preceding
         12-month period; or

         (b)      receives Compensation in excess of $85,000 (adjusted for
         cost-of-living increases in accordance with Code Section 414(q)) for
         the preceding 12-month period.

The determination of which Participants are Highly Compensated Employees is
subject to Code Section 414(q) and any regulations, rulings, notices or
procedures under that section. In determining whether an Employee is a Highly
Compensated Employee for any Plan Year, the Plan Administrator may use any
alternatives and elections authorized under the applicable regulations, rulings
or revenue procedures.


                                      -3-


1.17.    Hour of Service --

         (a)      General. The term Hour of Service means each hour for which an
         Employee:

                  (1)      is paid, or entitled to payment, by an Affiliate for
                  the performance of duties as an Employee;

                  (2)      is directly or indirectly paid, or entitled to
                  payment, by an Affiliate for a period of time when he or she
                  performs no duties as an Employee due to vacation, holiday,
                  illness, incapacity (including disability), layoff, jury duty,
                  military duty or leave of absence; and

                  (3)      is paid for any reason an amount as back pay by an
                  Affiliate, irrespective of mitigation of damages;

         (b)      Additional Rules.

                  (1)      An Employee will not receive an Hour of Service
                  credit for service performed for which he or she is paid, or
                  entitled to payment, on account of a period during which he or
                  she performs no duties as an Employee if the payment is made
                  or is due under a plan maintained solely to comply with
                  applicable worker's compensation laws, unemployment
                  compensation laws or disability insurance laws.

                  (2)      No more than 501 Hours of Service will be credited to
                  an Employee for any single continuous period during which he
                  or she performs no duties as an Employee.

                  (3)      An Hour of Service will not be credited to an
                  Employee on account of a payment that solely reimburses the
                  Employee for medical, or medically related, expenses incurred
                  by or on behalf of the Employee.

                  (4)      Hour of Service credit, if any, for periods when no
                  duties are performed as an Employee will be calculated in
                  accordance with Section 2530.200b-2(b) and (c) of the
                  Department of Labor Regulations, which are incorporated as
                  part of this Plan by this reference.

                  (5)      In lieu of actually recording each Hour of Service
                  that is completed by an Employee that is exempt from the
                  minimum wage and overtime requirements of the Federal Fair
                  Labor Standards Act, that Employee will receive credit for 45
                  Hours of Service for each week in which he or she completes at
                  least one Hour of Service. For each Employee who is not exempt
                  from those requirements, Hours of Service credited for the
                  performance of duties will be the actual number of Hours of
                  Service completed by that Employee.


                                      -4-


1.18.    Leased Employee -- means an Employee (other than a common-law employee)
who has performed services for an Affiliate on a substantially full-time basis
for a period of at least one year under the primary direction and control of the
Affiliate pursuant to an agreement between the Affiliate and any other person,
as determined under Code Section 414(n)(6).

1.19.    Lodgian Stock -- means Lodgian, Inc. common stock, including any common
stock substituted for a previously issued class of common stock, provided such
stock is a "qualifying employer security" as defined in ERISA Section 407(d)(5).
Such term shall not include any warrants to purchase or otherwise acquire
Lodgian Stock, which rights shall be referred to herein as "Lodgian Warrants".

1.20.    Matching Account -- means the subaccount of a Participant's Account
attributable to Matching Contributions made prior to January 1, 2003.

1.21.    Matching Contribution -- means the matching contribution made by a
Participating Employer or the Plan Sponsor on behalf of the Participating
Employer in accordance with Section 4.1(a) for Plans Years ending on or before
December 31, 2002.

1.22.    Nonhighly Compensated Employee -- means each Participant who performs
services for an Affiliate during the Plan Year and who is not a Highly
Compensated Employee.

1.23.    Participant -- means (a) each Eligible Employee who has met the
eligibility requirements to participate in this Plan pursuant to Section 2.1 and
(b) each other person (other than an alternate payee as defined in Code Section
414(p)(8) or a Beneficiary) for whom an Account is being maintained as a result
of contributions made under this Plan or another plan that are transferred to
this Plan pursuant to Section 13.6.

1.24.    Participating Employer -- means the Plan Sponsor and any other
Affiliate that, with approval of the Board, has adopted this Plan during such
period that the adoption of the Plan is in effect.

1.25.    Plan -- means this Lodgian, Inc. 401(k) Plan and Trust Agreement as set
forth in this document and all subsequent amendments to this document.

1.26.    Plan Administrator -- means the person, committee or entity appointed
by the Board to administer this Plan on behalf of the Plan Sponsor as provided
in Section 9. If no person, committee or entity is appointed, the Plan Sponsor
shall be the Plan Administrator.

1.27.    Plan Sponsor -- means Lodgian, Inc. or any successor organization to
that company.

1.28.    Plan Year -- means the calendar year.

1.29.    Rollover Account -- means the subaccount of a Participant's Account
attributable to Rollover Contributions.


                                      -5-


1.30.    Rollover Contribution -- means an amount (or more than one amount) that
qualifies as an eligible rollover distribution under Code Section 402(c)(4) that
is transferred to this Plan under Section 3.5 other than after-tax
contributions.

1.31.    Safe Harbor Matching Contribution - means the contribution made by a
Participating Employer in accordance with Section 4.1(b).

1.32.    Safe Harbor Matching Contribution Account - means the subaccount of a
Participant's Account attributable to Safe Harbor Matching Contributions.

1.33.    Trust Agreement -- means the separate trust agreement adopted to govern
the Trust Fund established as part of the Plan, as such agreement may be amended
from time to time.

1.34.    Trustee -- means the person or persons acting as trustee under the
Trust Agreement.

1.35.    Trust Fund -- means the assets held by the Trustee under the Trust
Agreement.

1.36.    Valuation Date -- means the last day of each Plan Year and any other
date chosen by the Plan Administrator.

1.37.    Vested Benefit -- means the sum of (a) the 401(k) Account, (b) the
Rollover Account, (c) the Safe Harbor Matching Account, and (d) the vested
portion of the Matching Account, as determined in accordance with Section 7.1.

1.38.    Year of Service --

         (a)      Vesting. For purposes of determining vesting service under
         Section 7.1 of this Plan, a Year of Service means each Plan Year during
         which an Employee is credited with at least 1,000 Hours of Service as
         an Employee. Any Year of Service completed before a period of 5 or more
         consecutive Break in Service shall be excluded for purposes of
         determining a Participant's vested percentage if the Employee's vested
         percentage in his or her Matching Account was zero at all times before
         such Breaks in Service.

         (b)      Eligibility. For purposes of determining eligibility service
         under Sections 2.1 and 2.2 of this Plan, a Year of Service means a
         twelve-consecutive-month period during which an Employee completes no
         less than 1,000 Hours of Service beginning on the date on which the
         Employee first performs an Hour of Service upon his employment or
         reemployment with a Participating Employer or, in the event the
         Employee fails to complete 1,000 Hours of Service in that
         twelve-consecutive-month period, any Plan Year thereafter during which
         the Employee completes not less than 1,000 Hours of Service, including
         the Plan Year which includes the first anniversary of the date the
         Employee first performed an Hour of Service upon his employment or
         reemployment.

         (c)      Service With All Related Employers. An Employee will be
         credited with service under this Plan for his or her service with all
         Affiliates.


                                      -6-


         (d)      Service With Predecessor Employers. An Employee will be
         credited with service under this Plan for his or her service with the
         employers identified in Appendix B on the same basis as is used to
         determine service with Affiliates.

                              ss. 2. PARTICIPATION

2.1.     General Participation for 2002 Plan Year and Prior Years.

         (a)      Each Eligible Employee hired during the 2002 Plan Year will
         become a Participant on the January 1 or July 1 coinciding with or next
         following the date he or she:

                  (1)      attains age 21;
                  (2)      completes at least six months of service; and
                  (3)      completes at least 500 Hours of Service in: i) the 6
                           month period immediately preceding July 1st or ii)
                           the 12 month period immediately preceding January
                           1st.

         (b)      An Eligible Employee who does not satisfy the criteria in
         Section 2.1(a) in his or her first 12 months of employment shall become
         a Participant as of the first payroll period beginning on or after the
         first January 1 or July 1 coinciding with or next following the date he
         or she completes a Year of Service and attains age 21.

         (c)      If an Employee is not an Eligible Employee on a January 1st or
         July 1st but has otherwise satisfied either Section 2.1(a) or (b), he
         or she will become a Participant as of the first day of the month
         thereafter on which he or she becomes an Eligible Employee.

         (d)      Effective January 1, 2002, each Eligible Employee may make a
         Rollover Contribution to the Plan pursuant to Section 3.5 prior to
         becoming a Participant. An Eligible Employee may not make any 401(k)
         Contributions to the Plan prior to satisfying the requirements of this
         Section 2.1 or Section 2.2, notwithstanding any Rollover Contribution
         made to the Plan prior to an Eligible Employee becoming a Participant.

         (e)      For Plan Years ending on or before December 31, 2001,
         participation in the Plan shall be determined under the terms of the
         Plan as then in effect.

2.2.     General Participation After December 31, 2002. Each Eligible Employee
hired after December 31, 2002 will become a Participant effective with the first
payroll period beginning on or after the first day of the month coinciding with
or next following the date he or she completes a Year of Service and attains age
21. If an Employee is not an Eligible Employee on such date, he or she will
become a Participant as of the first payroll period beginning on or after the
first day of the month coincident with or immediately following the date on
which he or she becomes an Eligible Employee.

2.3.     Reemployment. If a Participant terminates employment and is reemployed
as an Eligible Employee, he or she will be reinstated as a Participant on the
date of his or her reemployment.


                                      -7-


Each other former Employee who is reemployed will become a Participant in
accordance with the general rule in Sections 2.1 or 2.2, but his or her previous
service shall be credited for purposes of determining his or her eligibility to
participate upon reemployment if he or she had fewer than five consecutive
Breaks in Service.

2.4.     Change in Status. If the Plan Sponsor discovers that an individual was
mistakenly treated as an Eligible Employee, it will cause the individual's
401(k) Contributions to be refunded as soon as practicable after the discovery.
In no event will Matching Contributions or Safe Harbor Matching Contributions be
made with respect to those refunded 401(k) Contributions.

If the Plan Sponsor discovers that an Eligible Employee was not treated as
covered under the Plan, it will take any action that it deems appropriate and
proper under the circumstances to remedy the omission as soon as practicable
after the discovery.

2.5.     Not a Contract of Employment. This Plan is not a contract of
employment. Thus participation in this Plan will not give any person the right
to be retained as an Employee or, upon termination of a person's employment, the
right to any interest in the Trust Fund other than as expressly provided in this
Plan.

2.6.     USERRA. Notwithstanding any provision of this Plan to the contrary,
contributions, benefits and service credit with respect to qualified military
service will be provided in accordance with Code Section 414(u).

                          ss.3. EMPLOYEE CONTRIBUTIONS

3.1.     401(k) Contributions.

         (a)      General. Subject to the rules and limitations in this Section
         3 and in Section 6, each Eligible Employee who has met the applicable
         eligibility requirements in Section 2 may elect that his or her
         Participating Employer make 401(k) Contributions to this Plan on his or
         her behalf through payroll deductions, and 401(k) Contributions shall
         begin as soon as administratively possible on or after the date on
         which he or she has completed all election and enrollment forms
         required by the Plan Administrator. A Participant's initial
         contribution election will continue while the Participant is an
         Eligible Employee until the Participant changes the rate of his or her
         401(k) Contributions in accordance with Section 3.3 or suspends his or
         her 401(k) Contributions in accordance with Section 3.4.

         (b)      Amount of 401(k) Contributions. 401(k) Contributions must be
         made in 1% increments, from 1% to 10% prior to January 1, 2003 and up
         to 15% on or after January 1, 2003 of Compensation. The Plan
         Administrator has the right at any time unilaterally to reduce
         prospectively the amount or percentage of 401(k) Contributions elected
         by any Highly Compensated Employee or by all Highly Compensated
         Employees as a group if it determines that a reduction is appropriate
         in light of the applicable limitations under Section 6.


                                      -8-


         (c)      401(k) Accounts. A Participant's 401(k) Contributions will be
         credited to his or her 401(k) Account.

3.2.     Rate Changes.

         (a)      General. A Participant may change or suspend his or her rate
         of 401(k) Contributions at any time by following the procedures
         established by the Plan Administrator for rate changes.

         (b)      Change in Eligibility Status. A Participant's 401(k)
         Contributions will automatically stop when he or she ceases to be an
         Eligible Employee. If a Participant's status thereafter changes to an
         Eligible Employee (whether by reemployment or otherwise), he or she may
         elect to resume 401(k) Contributions at any time by following the
         procedures established by the Plan Administrator.

         (c)      Hardship Withdrawal. A Participant's 401(k) Contributions will
         be suspended for the six month period following a hardship withdrawal
         in accordance with Section 7.3(a)(4). A Participant may resume 401(k)
         Contributions at any time after the end of the suspension period. The
         suspension period for hardship withdrawals made prior to January 1,
         2002 shall be twelve (12) months.

         (d)      Leave of Absence. A Participant's 401(k) Contributions will
         continue to be deducted during any period of paid leave of absence
         during which the Participant continues to receive Compensation from a
         Participating Employer, provided he or she continues to be classified
         as an Eligible Employee during the leave. However, a Participant's
         401(k) Contributions will be suspended during any period of unpaid
         leave of absence. A Participant returning from an unpaid leave may
         resume 401(k) Contributions at any time after he or she resumes active
         employment as an Eligible Employee.

3.3.     Payment of 401(k) Contributions to Trustee. All 401(k) Contributions
will be paid to the Trust Fund as soon as practicable after the related payroll
deductions are made and, in any event, by the deadline, if any, established for
making those payments under ERISA or the Code.

3.4.     Rollover Contributions.

         (a)      General. An Eligible Employee may elect to contribute a
         Rollover Contribution to the Trust Fund, provided it is made by the
         Eligible Employee (or transferred to this Plan in a direct rollover
         from another plan): (a) in cash or in a form acceptable to the Trustee,
         and (b) in accordance with any rules that the Trustee and the Plan
         Administrator deem appropriate under the circumstances.

         (b)      Rollover Accounts. A Participant's Rollover Contributions will
         be credited to his or her Rollover Account.


                                      -9-


                          ss.4. EMPLOYER CONTRIBUTIONS

4.1.     Employer Matching Contributions.

         (a)      Matching Contributions for the 2002 Plan Year. Subject to the
         rules and limitations in this Section 4 and in Section 6, the Board in
         its absolute discretion will determine the percentage, if any, of
         401(k) Contributions made by its Eligible Participants that will be
         matched for each Plan Year and the maximum percentage or dollar
         limitation, if any, on those contributions. In no case will a Matching
         Contribution under this Section 4.1(a) be made in the same Plan Year as
         a Safe Harbor Matching Contribution under Section 4.1(b). Matching
         Contributions will be made only on behalf of Eligible Participants.
         This contribution will be made in cash as the Board may determine from
         time to time. No Matching Contribution will be made to the Plan for
         Plan Years beginning on or after January 1, 2003.

         (b)      Safe Harbor Matching Contributions after December 31, 2002.
         Effective for Plan Years beginning after December 31, 2002, if the Plan
         Sponsor in its absolute discretion elects to have the Plan satisfy Code
         Sections 401(k)(12) and 401(m)(10), a Safe Harbor Matching Contribution
         will be made in cash for each payroll period during such Plan Year for
         each Eligible Participant in an amount equal to:

                  (1)      one hundred percent (100%) of the first three percent
                  (3%) of a Participant's Compensation deferred to the Plan
                  pursuant to Section 3.1, and

                  (2)      fifty percent (50%) of the next two percent (2%) of a
                  Participant's Compensation deferred to the Plan pursuant to
                  Section 3.1.

         Within a reasonable period of time, before the beginning of the Plan
         Year, the Plan Administrator will notify each Eligible Employee that
         the Plan will comply with Code Sections 401(k)(12) and 401(m)(10), and
         shall provide such notice to other Employees as they become eligible to
         participate in the Plan in accordance with the requirements of Code
         Sections 401(k)(12) and 401(m)(10).

         (c)      Application of Forfeitures. Forfeitures occurring in a Plan
         Year that are not used to make the corrective contributions and
         restorations described in Sections 7.1(e) and 8.7 will, at the Plan
         Sponsor's discretion, be used to reduce Matching Contributions or Safe
         Harbor Matching Contributions, or to pay Plan expenses.

         (d)      No Matching Contributions or Safe Harbor Matching
         Contributions on Refunds. No Matching Contribution or Safe Harbor
         Matching Contribution will be made with respect to any 401(k)
         Contributions that are refunded under Section 6.3 or Appendix A to
         comply with the limitations under Code Sections 402(g) or 401(k). Any
         Matching Contributions and Safe Harbor Matching Contributions
         attributable to those refunded 401(k) Contributions that have actually
         been credited to the Participant's Matching Account or Safe Harbor
         Matching Account will be treated as a Forfeiture as soon as practicable
         after a determination is made that this corrective action is necessary.


                                      -10-


         (e)      Allocation. Matching Contributions made on an Eligible
         Participant's behalf for a Plan Year will be credited to his or her
         Matching Account as of the last day of that Plan Year. Safe Harbor
         Matching Contributions made on a Participant's behalf for a Plan Year
         will be credited to his or her Safe Harbor Matching Account each
         payroll period, or such time as determined by the Plan Sponsor in
         accordance with applicable sections of the Code and the regulations
         thereunder. The employer matching contribution described in section
         4.2(c) of the prior plan document will be allocated in the 2002 Plan
         Year in accordance with such section of the prior plan document.

4.2.     Application of Suspense Account. Excess amounts that are transferred to
a Code Section 415 suspense account for a Plan Year under Section 6.2(d) will be
treated as a Forfeiture for the current or next following Plan Year.

4.3.     Top Heavy Contributions. If a determination is made that this Plan is
top heavy under Section 13.8(a) for a Plan Year, the Participating Employers
will contribute the amount, if any, needed to satisfy the minimum allocation
requirements under Section 13.8(b). Those contributions will be credited as of
the last day of that Plan Year to the affected Participants' Matching Accounts.

4.4.     Payment of Employer Contributions. Except as otherwise provided herein,
Matching Contributions and Safe Harbor Matching Contributions for a Plan Year
shall be paid to the Trust Fund at the time determined by the Plan Sponsor in
its discretion, but in no event later than the due date (including any
extensions thereof) of the Plan Sponsor's or Participating Employer's federal
income tax return for its taxable year ending with or within the Plan Year for
which the contribution was made.

                   ss.5. ACCOUNT INVESTMENTS AND ALLOCATIONS

5.1.     General. It is intended that Participants, Beneficiaries of deceased
Participants and alternate payees will have an opportunity to direct the
investment of their Accounts among investment funds selected by the Plan Sponsor
or, at the discretion of the Plan Sponsor, a committee, which committee may be
the same Committee referenced in Section 9.2, in accordance with Section 404(c)
of ERISA. The Plan Sponsor or committee will select four or more investment
funds to make available under the Trust Fund, and each such investment fund will
be described for Participants in the summary plan description for this Plan or
in such other materials as the Plan Sponsor or the committee deem suitable under
the circumstances. Investment funds may be added or eliminated at any time by
the Plan Sponsor or the committee. The investment funds may include, but are not
limited to, (1) mutual funds, (2) collective investment funds, (3) the Lodgian
Stock Fund and (4) the Lodgian Warrant Funds A and B (collectively the "Lodgian
Warrant Funds"). Effective as of December 6, 2001, the Lodgian Stock Fund is
closed to new investments. The Lodgian Warrant Funds are frozen investment funds
that were established on December 3, 2002 solely for the purpose of holding
Lodgian Warrants received by the Trust Fund on that date in connection with the
court approved bankruptcy plan of reorganization of the Plan Sponsor. A
Participant whose Account included an investment in the Lodgian Stock Fund on
December 3, 2002, the date the Lodgian Warrants were received by the Trust Fund,
shall


                                      -11-


automatically have a portion of his or her Account invested in the Lodgian
Warrant Funds in the same proportion that his interest in the Lodgian Stock Fund
bears to the total amount of all Accounts which are invested in the Lodgian
Stock Fund at that time. The Lodgian Warrant Funds will remain frozen funds
until the U.S. Department of Labor issues a prohibited transaction exemption
which permits the sale and exercise of Lodgian Warrants at the direction of
individual Participants who have an interest in the Lodgian Warrant Fund. No
Lodgian Warrant may be exercised or sold except as permitted under the terms of
such prohibited transaction exemption, the terms of which are incorporated into
the Plan by reference. The assets of the Plan may be commingled for investment
purposes in a group trust and with the assets of other plans whether or not the
assets of this Plan will be held in a separate investment fund.

5.2.     Investment Elections. Each Participant, Beneficiary of a deceased
Participant and alternate payee will have the right to elect how his or her
Account will be invested among the available investment funds in accordance with
procedures established from time to time by the Plan Administrator. An
individual may revise his or her investment Election at such times and in
accordance with such procedures as are established by the Plan Administrator,
which may include restrictions on the investment of Accounts in the Lodgian
Stock Fund and the Lodgian Warrant Funds. An individual's Account will continue
to be invested in accordance with his or her most recent investment Election
until such Election is properly changed.

5.3.     Amounts Available for Investment. Contributions under this Plan will
not be treated as part of an Account for investment purposes until such
contributions are actually received by the Trust Fund and posted on its records
as available for investment by the Participant, Beneficiary or alternate payee.

5.4.     Allocations to Accounts. Subject to the limitations in Section 6, all
Accounts will be adjusted as of each Valuation Date for contributions,
distributions, withdrawals and investment earnings or losses since the last
Valuation Date in accordance with nondiscriminatory procedures for adjusting
Account balances. Each Account will share in the investment earnings or losses
for each investment fund based on the portion of the Account invested in that
fund.

5.5.     Allocation Corrections. If an error or omission is discovered in any
Account, an appropriate equitable adjustment will be made to remedy the error or
omission as soon as practicable after its discovery.

5.6.     Transition Period to Implement Plan Changes. In connection with a
change in record keepers, trustees, or other service providers for the Plan, a
change in the methodology for valuing Accounts (including Lodgian Stock and/or
Lodgian Warrants), a change in investment options, a plan merger or other
circumstances, a temporary interruption in the normal operations of the Plan may
be required in order to properly implement such change or merger or take action
in light of such circumstances. In such event or under such circumstances, the
Plan Administrator may take such action as it deems appropriate under the
circumstances to implement such change or merger or in light of such
circumstances, including authorizing a temporary interruption in a Participant's
ability to obtain information about his or her Account, to take distributions
from such Account and to make changes in the investment of that Account,
provided the Plan


                                      -12-


Administrator will take appropriate action as to give Participants,
Beneficiaries of a deceased Participant and alternate payees advance notice in
accordance with the requirements of ERISA as possible and to minimize the scope
and length of the interruption in normal Plan operations. In addition, when
changing investment options, the Plan Administrator will take such action as it
deems appropriate under the circumstances to direct the investment of the funds
pending completion by the Trustee and recordkeeper of the administrative
processes necessary to transfer investment authority to the Participants,
Beneficiaries of deceased Participants or alternate payees, including, but not
limited to, mapping monies from old funds to new funds.

5.7.     Special Rules Concerning Investment in Lodgian Stock Fund.
Notwithstanding any other provision of the Plan to the contrary, the following
rules shall apply to investments in the Lodgian Stock Fund.

         (a)      Dividends. A Participant's allocation share of cash dividends
         (and other cash earnings) credited to the Lodgian Stock Fund will be
         reinvested in Lodgian Stock held in the Lodgian Stock Fund. Dividends
         on Lodgian Stock paid in the form of stock shall be credited to the
         Lodgian Stock Fund for allocation to Participant Accounts invested in
         such fund.

         (b)      Voting of Lodgian Stock and Other Similar Rights. Each
         Participant may direct the Trustee as to the exercise of any voting or
         similar rights (including a response to a tender offer) attributable to
         whole shares of Lodgian Stock allocated to the Participant's Account
         through the Account's investment in the Lodgian Stock Fund.
         Participants shall communicate their voting or other directions to an
         agent appointed by the Employer for such purpose, and the agent shall
         communicate the instructions it receives from all Participants in total
         to the Trustee. Such instructions shall be held in confidence by the
         agent and Trustee and shall not be divulged to the Plan Sponsor, or any
         officer or employee thereof, or any other person except as required by
         law. Upon the timely receipt of voting or other instructions, the
         Trustee shall vote or tender the shares of Lodgian Stock held in the
         Participant's Account as directed by the Participants. The Trustee
         shall vote shares of Lodgian Stock for which it has received no
         direction from the Participant and partial shares allocated to
         Participant Accounts in accordance with instructions to the Trustee
         from the Employer or a committee appointed by the Employer. Unless the
         Employer or authorized committee determines otherwise, the Employer or
         authorized committee shall direct the Trustee to vote any partial
         shares allocated to a Participant's Account and shares for which the
         Participants have not given the agent timely voting instructions in
         proportion to the shares for which it receives voting directions from
         Participants. In the case of a tender offer, the Trustee shall only
         tender those shares for which a Participant has directed a tender and
         shares for which no Participant communication is timely received shall
         not be tendered.

         (c)      Restrictions. The ability of a Participant or a Beneficiary to
         engage in transactions with respect to the Lodgian Stock allocated to
         his or her Account (within the Lodgian Stock Fund) will be subject to
         such restrictions as the Plan Administrator determines are necessary or
         appropriate to satisfy federal or state securities laws.


                                      -13-


              ss. 6. LIMITATIONS ON CONTRIBUTIONS AND ALLOCATIONS

6.1.     Ordering Rule. The allocation of contributions made under this Plan
(other than Rollover Contributions) will be subject to the limitations of this
Section 6 as applied in the following order:

         (a)      the Code Section 415 limitations under Section 6.2,

         (b)      the Code Section 402(g) limitations under Section 6.3,

         (c)      the Code Section 401(k) limitations for Highly Compensated
         Employees under Appendix A for Plan Years in which a Safe Harbor
         Matching Contribution is not made to the Plan; and

         (d)      the Code Section 401(m) limitations for Highly Compensated
         Employees under Appendix A for Plan Years beginning prior to January 1,
         2003.

6.2.     Code Section 415 Limitations.

         (a)      General. The limitation year for purposes of Code Section 415
         and the related regulations is the Plan Year. The total annual
         additions (as described in Section 6.2(b)) allocated to a Participant's
         Account for any Plan Year, when added to the contributions that are
         treated as made on behalf of the Participant for the Plan Year under
         the coordination rules in Section 6.2(c), will not exceed the lesser
         of:

                  (1)      100% of the Participant's compensation for the Plan
                  Year,

                  (2)      $40,000, as adjusted for increases in the
                  cost-of-living under Code Section 415(d), or

                  (3)      any lesser amount as the Plan Sponsor deems necessary
                  or appropriate to satisfy the requirements of Code Section 415
                  (including any applicable transition rules) in light of
                  Section 6.2(c) and any benefits accrued and any contributions
                  made for the Participant under any other employee benefit plan
                  maintained by an Affiliate.

         For purposes of this Section 6.2, the term "compensation" means
compensation as defined in Code Section 415(c)(3).

         (b)      Annual Additions. The term annual additions for a Plan Year
         means the total 401(k) Contributions (other than 401(k) Contributions
         refunded pursuant to Section 6.3), Matching Contributions, Safe Harbor
         Matching Contributions and Forfeitures allocated to a Participant's
         Account for that Plan Year. For purposes of this Section 6.2, any
         corrective allocations made under this Plan will be treated as annual
         additions in the Plan Year to which those allocations relate.

         (c)      Coordination Rules. Any contributions allocated to an
         individual medical benefit account described in Code Section 415(l) and
         contributions credited under a welfare benefit


                                      -14-


         fund maintained by an Affiliate for any year to a reserve for
         post-retirement medical benefits for a Participant who is a key
         employee (within the meaning of Code Section 416(i)) will be treated as
         a contribution made on his or her behalf under this Plan when, and to
         the extent, required under Code Sections 415 or 419A(d).

         (d)      Corrections. If crediting contributions or Forfeitures to a
         Participant's Account would exceed the restrictions in this Section
         6.2, the excess will be corrected in the following steps:

                  (1)      by refunding unmatched 401(k) Contributions (and any
                  investment gain attributable to those refunded contributions);

                  (2)      by refunding matched 401(k) Contributions (and any
                  investment gain attributable to those refunded contributions)
                  and transferring the related Matching Contributions and Safe
                  Harbor Matching Contributions to a Code Section 415 suspense
                  account; and

                  (3)      by transferring any remaining excess to a Code
                  Section 415 suspense account.

         Amounts transferred to a Code Section 415 suspense account will not be
         allocated to the Participant's Account, but will be held unallocated in
         a separate suspense account and will be treated as a Forfeiture for the
         next Plan Year. The balance credited to the suspense account will be
         returned to the Participating Employers in the event this Plan is
         terminated prior to the date the suspense account has been applied in
         accordance with this Section 6.2.

         Any 401(k) Contributions refunded under this Section 6.2 will be
         disregarded for purposes of the Code Section 402(g) limitations under
         Section 6.3 and the Code Section 401(k) limitations under Appendix A.

6.3.     Code Section 402(g) Limitations.

         (a)      This Plan and Other Affiliate Plans. A Participant's total
         401(k) Contributions under this Plan and elective deferrals (within the
         meaning of Code Section 402(g)) under all other qualified plans,
         contracts and arrangements maintained by the Affiliates during any
         calendar year (other than amounts refunded to reduce a Code Section 415
         excess under Section 6.2 or under those other plans) will not exceed
         the annual dollar limit under Code Section 402(g). If a Participant's
         401(k) Contributions together with other elective deferrals exceed this
         limitation, the Participant will be deemed to have requested a refund
         from this Plan and the excess will be refunded in accordance with this
         Section 6.3.

         (b)      Other Plans or Arrangements. Any elective deferrals (within
         the meaning of Code Section 402(g)) made for a calendar year on a
         Participant's behalf under plans or contracts of an employer that is
         not an Affiliate, such as another employer's Code Section 401(k) plan
         or Code Section 403(b) tax sheltered annuity, will be taken into
         account under


                                      -15-


         this Plan for purposes of the limitations under this Section 6.3 if
         requested by the Participant and approved by the Plan Administrator.

         (c)      Action to Satisfy 402(g) Limitation.

                  (1)      Refund Request. If a Participant's 401(k)
                  Contributions and other elective deferrals described in
                  Section 6.3(a) and (b) for a calendar year exceed the Code
                  Section 402(g) dollar limit, he or she may request a refund of
                  that excess (or, if less, the Participant's 401(k)
                  Contributions deducted for that calendar year) by filing an
                  Election no later than March 1 of the following calendar year.
                  A Participant's Election under this Section 6.3(c) must
                  specify the dollar amount of the excess and include a written
                  statement that, absent the refund, the 401(k) Contributions
                  made under this Plan and other elective deferrals described in
                  Section 6.3(a) and (b) will exceed the Code Section 402(g)
                  limitation for the calendar year.

                  (2)      Refund. Any refund timely requested or deemed
                  requested under this Section 6.3 (adjusted for investment gain
                  or loss) will be made no later than the April 15 that
                  immediately follows the date the refund is requested or deemed
                  requested.

                  (3)      Treatment. Any 401(k) Contributions that exceed the
                  Code Section 402(g) limit will be taken into account for
                  purposes of the ADP Test under Appendix A even if the excess
                  401(k) Contributions are refunded in accordance with this
                  Section 6.3(c). However, excess 401(k) Contributions refunded
                  to a Nonhighly Compensated Employee will not be taken into
                  account for purposes of the ADP Test to the extent the excess
                  arises solely from 401(k) Contributions under this Plan and
                  elective deferrals under all other qualified plans, contracts
                  and arrangements maintained by the Affiliates pursuant to Code
                  Section 401(a)(30). Excess 401(k) Contributions refunded under
                  this Section 6.3 will not be taken into account for purposes
                  of the Code Section 415 limitations under Section 6.2.

                  (4)      Determination of Investment Gain or Loss. Refunds of
                  excess elective deferrals will be adjusted for investment gain
                  or loss for the Plan Year for which the deferrals were made in
                  accordance with the regulations under Code Section 402(g) but
                  will not be adjusted for investment gain or loss for the
                  period between the end of the Plan Year and the date the
                  deferrals are distributed.


                                      -16-


                              ss.7. PLAN BENEFITS

7.1.     Participant.

         (a)      Distribution Events. A Participant's Vested Benefit will be
         payable to the Participant in accordance with Section 8 upon his or her
         severance from employment (within the meaning of Code Section 401(k)).
         In addition, a Participant may request an in-service withdrawal from
         his or her Vested Benefit before those events in accordance with
         Section 7.3. Finally, distributions must begin to a Participant who is
         a 5% owner in accordance with Section 8.2(c).

         (b)      Vested Benefit. A Participant's 401(k) Account, Rollover
         Account and Safe Harbor Matching Account are fully vested at all times.
         A Participant's Matching Account will become fully vested upon his or
         her:

                  (1)      death while an Employee,

                  (2)      reaching age 65 (which is the normal retirement date
                  under the Plan) while an Employee, or

                  (3)      completing the number of Years of Service required to
                  be fully vested in accordance with Section 7.1(c) or Section
                  7.1(d) as applicable.

         Otherwise, the vested portion of a Participant's Matching Account will
         be determined in accordance with the vesting schedule in Section 7.1(c)
         or Section 7.1(d) as applicable.

         (c)      Vesting Schedule for Participants without an Hour of Service
         after March 31, 2002.

                  (1)      General. The vested percentage of the Matching
                  Contribution Account of a Participant who does not complete
                  one Hour of Service after March 31, 2002 shall be determined
                  in accordance with the following vesting schedule:



                           Full Years of Service        Vested Portion
                           ---------------------        --------------
                                                     

                                less than 3                   0%
                                3                            20%
                                4                            40%
                                5                            60%
                                6                            80%
                                7 or more                   100%


                  (2)      AMI Operating Partners, L.P. Vesting Schedule. The
                  vested percentage of the portion of a Participant's Account
                  which represents the employer matching account directly
                  transferred to this Plan from the Winegardner & Hammons, Inc.
                  Managed Properties Profit Sharing Plan - AMI Operating
                  Partners as a result of


                                      -17-


                  the acquisition of AMI Operating Partner, L. P. by Servico,
                  Inc. on May 28, 1998 shall be determined in accordance with
                  the following vesting schedule:



                           Full Years of Service        Vested Portion
                           ---------------------        --------------
                                                     

                                less than 2                   0%
                                2                            20%
                                3                            40%
                                4                            60%
                                5                            80%
                                6 or more                   100%


         (d)      Vesting Schedule for Participants with an Hour of Service on
         or after April 1, 2002. The vested percentage of the Matching
         Contribution Account of a Participant who completed one Hour of Service
         on or after April 1, 2002 shall be determined in accordance with the
         following vesting schedule:



                           Full Years of Service        Vested Portion
                           ---------------------        --------------
                                                     

                                less than 3                    0%
                                3 or more                    100%


         (e)      Forfeiture. If a Participant has a severance from employment
         (within the meaning of Code Section 401(k)), the nonvested portion of
         his or her Account will be treated as a Forfeiture after the earlier of
         (1) the occurrence of 5 consecutive Breaks in Service or (2) the date
         his or her Vested Benefit is distributed from the Plan. For this
         purpose, a Participant whose Matching Account has a Vested Benefit of
         zero will be deemed to receive a distribution from the Plan of his or
         her Matching Account when he or she has a severance from employment.

         Forfeitures occurring in a Plan Year will be applied as soon as
         practicable in the following steps: (1) to make the corrective
         contributions and restorations called for under Sections 7.1(f) or 8.7,
         (2) to pay Plan expenses and (3) to offset Matching Contributions and
         Safe Harbor Matching Contributions in accordance with Section 4.1.

         (f)      Reemployment.

                  (1)      Before Forfeiture. If a former Employee is reemployed
                  before the nonvested portion of his or her Account has been
                  treated as a Forfeiture, that nonvested portion will remain a
                  part of his or her Account subject to the vesting rules of
                  this Section 7.1.

                  (2)      After Forfeiture. If a former Employee is reemployed
                  as an Employee before he or she has 5 consecutive Breaks in
                  Service but after the nonvested portion of his or her Account
                  has been treated as a Forfeiture, that nonvested portion will
                  be restored without interest as of the first Valuation Date
                  after his or


                                      -18-


                  her reemployment if the Employee repays to the Plan the full
                  amount of the distribution attributable to Matching
                  Contributions before the earlier of i) 5 years after the first
                  date on which the Employee is subsequently reemployed by the
                  Employer or ii) the date the Employee incurs 5 consecutive
                  Breaks in Service following the date of the distribution.
                  Restorations will be made first from Forfeitures and then from
                  new contributions by the Participating Employer. If a
                  Participant was not vested in any portion of his or her
                  Matching Account and was deemed to receive a cash out of such
                  Matching Account under Section 7.1(e), the Participant's
                  Matching Account shall be credited with the amount forfeited
                  as of the first Valuation Date after his or her reemployment
                  if he or she has not incurred five consecutive Breaks in
                  Service.

7.2.     Death of Participant. If a Participant dies before receiving payment in
full of his or her Vested Benefit, the remaining balance of that Vested Benefit
will be payable in accordance with Section 8 to his or her Beneficiary,
determined in accordance with the following rules.

         (a)      If the Participant is lawfully married at death, the
         Participant's Beneficiary will be the Participant's surviving spouse,
         except as otherwise provided below.

         (b)      If the Participant is not lawfully married at death or if the
         Participant's surviving spouse consented in writing before a notary
         public to the designation of another person as the Participant's
         Beneficiary (or the Plan Administrator determines that spousal consent
         is not required under the Code or ERISA), the Participant's Beneficiary
         will be the person or persons so designated by a Participant in an
         Election.

         (c)      If paragraphs (a) and (b) do not apply or if no Beneficiary
         designated under those paragraphs survives the Participant or can be
         located (after checking his or her last known mailing address) within
         12 months after the Participant's death, the Participant's Beneficiary
         will be the personal representative of the Participant, provided the
         representative has qualified within 12 months after the Participant's
         death.

         (d)      If paragraphs (a), (b) and (c) do not apply, the Participant's
         Beneficiary will be the Participant's heirs at law (including legally
         adopted children of the deceased Participant) who make their
         whereabouts known to the Plan Administrator within 12 months after the
         Participant's death.

If the Participant designates a Beneficiary in more than one Election, the most
recent valid Election completed and received by the Plan Administrator before
the Participant's death will control.

7.3.     In-Service Withdrawals.

         (a)      Hardship Withdrawals.

                  (1)      General. Subject to the restrictions in Section
                  7.3(a)(5), a Participant who is an Employee may withdraw all
                  or any part of his or her 401(k) Account, and


                                      -19-


                  Rollover Account for a financial hardship. A hardship
                  withdrawal will be granted if, and to the extent that, the
                  Plan Administrator determines that the withdrawal is
                  "necessary" to satisfy an "immediate and heavy financial need"
                  as determined in accordance with this Section 7.3(a).

                  (2)      Immediate and Heavy Financial Need. An "immediate and
                  heavy financial need" means one or more of the following:

                           (i)      expenses for medical care described in Code
                           Section 213(d) incurred by the Participant or the
                           Participant's spouse or dependents (as defined in
                           Code Section 152) and amounts necessary for those
                           individuals to obtain the medical care,

                           (ii)     the purchase (excluding mortgage payments)
                           of a principal residence for the Participant,

                           (iii)    the payment of room and board, tuition and
                           related educational fees for the next 12 months of
                           post-secondary education for the Participant or the
                           Participant's spouse, children or dependents (as
                           defined in Code Section 152),

                           (iv)     the prevention of the eviction of the
                           Participant from his or her principal residence or
                           the foreclosure on the mortgage of the Participant's
                           principal residence or

                           (v)      any other events that the Internal Revenue
                           Service identifies as a deemed immediate and heavy
                           financial need pursuant to the regulations under Code
                           Section 401(k).

                  (3)      Withdrawal Necessary to Satisfy Need. A hardship
                  withdrawal will be deemed to be "necessary" to satisfy an
                  immediate and heavy financial need only if both of the
                  following conditions are satisfied:

                           (i)      The withdrawal will not exceed the amount of
                           the need and any amounts necessary to pay any
                           federal, state or local income taxes or penalties
                           reasonably anticipated to result from the withdrawal.

                           (ii)     The Participant has obtained all
                           distributions and withdrawals (other than hardship
                           withdrawals) and all nontaxable loans currently
                           available from this Plan and all plans maintained by
                           the Affiliates. However, a Participant will not be
                           required to obtain a loan if the effect of the loan
                           would be to increase the amount of the need.

                  (4)      Suspension of Contributions and Adjusted Limits. If
                  any portion of the hardship withdrawal comes from the
                  Participant's 401(k) Account, for the 6 month period following
                  the date of the withdrawal, the Participant cannot make


                                      -20-


                  any 401(k) Contributions under this Plan or elective
                  deferrals, employee contributions or catch-up contributions
                  under any other plans maintained by the Affiliates. For this
                  purpose, "other plans" means all qualified and nonqualified
                  plans of deferred compensation, including a stock option,
                  stock purchase or other similar plan, but excluding a health
                  or welfare benefit plan (even if it is part of a cafeteria
                  plan described in Code Section 125). The contribution
                  suspension period shall be twelve (12) months for a hardship
                  withdrawal made prior to January 1, 2002.

                  (5)      Restrictions On Hardship Withdrawals. A Participant's
                  hardship withdrawals are subject to the following
                  restrictions:

                           (i)      Investment gain on 401(k) Contributions made
                           after January 1, 1989 are not available for hardship
                           withdrawals.

                           (ii)     Effective January 1, 2003, a Participant may
                           only make two hardship withdrawals per Plan Year.

                  (6)      Procedures. Any hardship withdrawal Election must be
                  made in writing, describe in detail the nature of the hardship
                  and the amount needed as a result of the hardship and must
                  include any additional information that the Plan Administrator
                  requests consistent with this Section 7.3(a).

                  Finally, the hardship withdrawal rules in this Section 7.3(a)
                  are intended to satisfy the safe harbor requirements in the
                  Code Section 401(k) regulations, and the Plan Administrator
                  has the power to implement written procedures to modify these
                  rules and to adopt additional rules to the extent permissible
                  under those regulations.

                  (7)      Any withdrawal under this subsection 7.3(a) shall not
                  be eligible for a direct rollover under Section 8.3.

         (b)      Age 59 1/2 Withdrawals. A Participant who is an Employee may
         make an Election to withdraw all or any portion of his or her Vested
         Benefit on or after reaching age 59 1/2. A Participant may only make
         one age 59 1/2 withdrawal in a Plan Year.

         (c)      Rollover Account Withdrawals. A Participant who is an Employee
         may make an Election to withdraw all (but not less than all) of his or
         her Rollover Account at any time.

         (d)      Limitations. If at anytime the Plan Administrator imposes
         restrictions on the sale of Lodgian Stock pursuant to Section 5.2, the
         portion of a Participants' Account invested in the Lodgian Stock Fund
         will not be considered in the amount available for withdrawal under
         this Section 7.3. Similarly, any interest in the Lodgian Warrant Funds
         will also be disregarded for in-service withdrawal purposes under this
         Section 7.3 at anytime when the Lodgian Warrants may not be sold or
         exercised. All in-service withdrawals will be made in a cash lump sum.


                                      -21-


                             ss.8. BENEFIT PAYMENT

8.1.     Methods.

         (a)      General. A Participant's Vested Benefit that becomes payable
         under Section 7 will be paid to the Participant or, in the event of his
         or her death, to his or her Beneficiary in one of the following
         methods, as specified in an Election made by the Participant or
         Beneficiary, as applicable:

                  (1)      a single sum; or

                  (2)      installment distribution consisting of approximately
                  equal annual or more frequent installments over a maximum of
                  10 years, not to exceed the life expectancy of the
                  Participant.

         If an installment option is available, and a Participant makes a valid
         Election to receive installments, the installment rules of Section
         8.1(c) shall apply. Notwithstanding the forgoing, the installment
         distribution option in Section 8.1(a)(2) will be eliminated effective
         February 1, 2004.

         A Participant may elect to receive his or her Vested Benefit in either
         a) cash, b) Lodgian Stock to the extent his or her Account is invested
         in the Lodgian Stock Fund at the time of the distribution, or c) a
         combination of cash and Lodgian Stock, unless distribution in Lodgian
         Stock is not permitted by applicable law. No distribution will be made
         of Lodgian Warrants or the portion of a Participant's Account which is
         invested in the Lodgian Warrant Funds until the Lodgian Warrants are
         sold or exercised and cash is substituted for such Lodgian Warrants in
         the Lodgian Warrant Funds. Distributions of Lodgian Stock may only be
         made in whole shares and cash shall be distributed for partial shares.

         (b)      Automatic Single Sum in Certain Cases. Notwithstanding
         anything to the contrary in this Section 8:

                  (1)      any in-service withdrawals under Section 7.3 will be
                  made in a single sum;

                  (2)      any distribution will be made in cash in a single sum
                  if the value of the Vested Benefit (excluding the value of any
                  Rollover Account) is $5,000 or less.

                  (3)      if a Participant continues to participate in the Plan
                  after being paid in a single sum upon his or her required
                  beginning date (as described in Section 8.2(c)), any
                  additional amounts allocated to the Participant's Account will
                  be paid in a single sum no later than the date required under
                  Code Section 401(a)(9) or the related regulations.


                                      -22-


         (c)      Installment Rules.

                  (1)      Distributions Beginning Before Death. If the
                  Participant dies after installments have started but before
                  the Vested Benefit has been paid in full, the remaining Vested
                  Benefit will be distributed to his or her Beneficiary in
                  installments at least as rapidly as the installments were
                  being distributed to the Participant at his or her death.

                  (2)      Distributions Beginning After Death. The following
                  rules apply if the Participant dies before distribution of his
                  or her Vested Benefit has started:

                           (i)      For installments payable to the
                           Participant's surviving spouse, the installment
                           period may not exceed the spouse's life expectancy.

                           (ii)     For installments payable to a Beneficiary
                           who is not the Participant's spouse, the installment
                           period may not exceed the period ending on December
                           31 of the calendar year containing the fifth
                           anniversary of the date of the Participant's death.

                  (3)      Life Expectancy. A Participant's life expectancy and
                  the life expectancy of the Participant's Beneficiary or spouse
                  will be calculated in accordance with the tables under Code
                  Section 72. Life expectancies will not be recalculated.

                  (4)      Acceleration. The remaining Vested Benefit will be
                  paid in a single sum if this Plan is terminated or if the
                  Participant (or, in the event of his or her death, his or her
                  Beneficiary) so requests.

         (d)      Limitations. If at anytime the Plan Administrator imposes
         restrictions on investments in the Lodgian Stock Fund pursuant to
         Section 5.2, the portion of a Participant's Account invested in the
         Lodgian Stock Fund will not be considered in the amount available for a
         distribution under this Section 8.1. Similarly, any interest in the
         Lodgian Warrant Funds will not be available for distribution until the
         Lodgian Warrants have been sold or exercised as provided herein.

         (e)      Minimum Distribution Rule.

                  (1)      Effective Date. The provisions of this Section 8.1(e)
                  will apply for purposes of determining required minimum
                  distributions for calendar years beginning with the 2003
                  calendar year.

                           (i)      Precedence. The requirements of this Section
                           8.1(e) will take precedence over any inconsistent
                           provisions of the Plan. However, the only benefit
                           payment options available from the Plan are contained
                           in Section 8.1(a). This Section 8.1(e) does not
                           provide for any benefit payment options that are not
                           provided for in Section 8.1(a).


                                      -23-


                           (ii)     Requirements of Treasury Regulations
                           Incorporated. All distributions required under this
                           Section 8.1(e) will be determined and made in
                           accordance with the Treasury regulations under Code
                           Section 401(a)(9).

                           (iii)    TEFRA Section 242(b)(2) Elections.
                           Notwithstanding the other provisions of this Section
                           8.1(e), distributions may be made under a designation
                           made before January 1, 1984, in accordance with
                           Section 242(b)(2) of the Tax Equity and Fiscal
                           Responsibility Act (TEFRA) and the provisions of the
                           Plan that relate to section 242(b)(2) of TEFRA.

         (2)      Time and Manner of Distribution.

                  (i)      Required Beginning Date. The Participant's entire
                  interest will be distributed, or begin to be distributed, to
                  the Participant no later than the Participant's Required
                  Beginning Date as defined in Section 8.2(c).

                  (ii)     Death of Participant Before Distributions Begin. If
                  the Participant dies before distributions begin, the
                  Participant's entire interest will be distributed, or begin to
                  be distributed, no later than as follows:

                           (A)      If the Participant's surviving spouse is the
                                    Participant's sole designated Beneficiary,
                                    then, if the Vested Benefit is payable to
                                    the spouse in installments, distributions to
                                    the surviving spouse will begin by December
                                    31 of the calendar year immediately
                                    following the calendar year in which the
                                    Participant died, or by December 31 of the
                                    calendar year in which the Participant would
                                    have attained age 70-1/2, if later.

                           (B)      If the Participant's surviving spouse is not
                                    the Participant's sole designated
                                    Beneficiary, distributions to the designated
                                    Beneficiary will begin by December 31 of the
                                    calendar year immediately following the
                                    calendar year in which the Participant died.
                                    Alternatively, distribution to the
                                    designated Beneficiary is not required to
                                    begin by the date specified above, if the
                                    Participant's entire vested interest will be
                                    distributed to the designated Beneficiary by
                                    the December 31 of the calendar year
                                    containing the fifth anniversary of the
                                    Participant's death.

                           (C)      If there is no designated beneficiary as of
                                    September 30 of the year following the year
                                    of the Participant's death, the
                                    Participant's entire interest will be
                                    distributed by December 31 of the calendar
                                    year containing the fifth anniversary of the
                                    Participant's death.


                                      -24-


                           (D)      If the Participant's surviving spouse is the
                                    Participant's sole designated Beneficiary
                                    and the surviving spouse dies after the
                                    Participant but before distributions to the
                                    surviving spouse begin, this Section
                                    8.1(e)(2), other than Section
                                    8.1(e)(2)(ii)(A), will apply as if the
                                    surviving spouse were the Participant.

                  For purposes of this Section 8.1(e)(2) and Section 8.1(e)(4),
                  unless Section 8.1(e)(2)(ii)(D) applies, distributions are
                  considered to begin on the Participant's Required Beginning
                  Date. If Section 8.1(e)(2)(ii)(D) applies, distributions are
                  considered to begin on the date distributions are required to
                  begin to the surviving spouse under Section 8.1(e)(2)(ii)(A).

                  (iii)    Forms of Distribution. Unless the Participant's
                  interest is distributed in the form of a single sum on or
                  before the Required Beginning Date, as of the first
                  distribution calendar year distributions will be made in
                  accordance with Section 8.1(e)(3) and (4).

         (3)      Required Minimum Distributions During Participant's Lifetime.

                  (i)      Amount of Required Minimum Distribution For Each
                  Distribution Calendar Year. During the Participant's lifetime,
                  the minimum amount that will be distributed for each
                  distribution calendar year is the lesser of:

                           (A)      the quotient obtained by dividing the
                                    Participant's Account balance by the
                                    distribution period in the Uniform Lifetime
                                    Table set forth in Treasury Regulation
                                    1.401(a)(9)-9, using the Participant's age
                                    as of the Participant's birthday in the
                                    distribution calendar year; or

                           (B)      if the Participant's sole designated
                                    Beneficiary for the distribution calendar
                                    year is the Participant's spouse, the
                                    quotient obtained by dividing the
                                    Participant's Account balance by the number
                                    in the Joint and Last Survivor Table set
                                    forth in Treasury Regulation 1.401(a)(9)-9
                                    using the Participant's and spouse's
                                    attained ages as of the Participant's and
                                    spouse's birthdays in the distribution
                                    calendar year.

                  Required minimum distributions will be determined under this
                  Section 8.1(e)(3) beginning with the first distribution
                  calendar year and up to and including the distribution
                  calendar year that includes the Participant's date of death.


                                      -25-


         (4)      Required Minimum Distributions After Participant's Death.

                  (i)      Death On or After Date Distributions Begin.

                           (A)      Participant Survived by Designated
                                    Beneficiary. If the Participant dies on or
                                    after the date distributions begin and there
                                    is a designated Beneficiary, the minimum
                                    amount that will be distributed for each
                                    distribution calendar year after the year of
                                    the Participant's death is the quotient
                                    obtained by dividing the Participant's
                                    Account balance by the longer of the
                                    remaining life expectancy of the Participant
                                    or the remaining life expectancy of the
                                    Participant's designated Beneficiary,
                                    determined as follows:

                                    (1)      The Participant's remaining life
                                             expectancy is calculated using the
                                             age of the Participant in the year
                                             of death, reduced by one for each
                                             subsequent year.

                                    (2)      If the Participant's surviving
                                             spouse is the Participant's sole
                                             designated Beneficiary, the
                                             remaining life expectancy of the
                                             surviving spouse is calculated for
                                             each distribution calendar year
                                             after the year of the Participant's
                                             death using the surviving spouse's
                                             age as of the spouse's birthday in
                                             that year. For distribution
                                             calendar years after the year of
                                             the surviving spouse's death, the
                                             remaining life expectancy of the
                                             surviving spouse is calculated
                                             using the age of the surviving
                                             spouse as of the spouse's birthday
                                             in the calendar year of the
                                             spouse's death, reduced by one for
                                             each subsequent calendar year.

                                    (3)      If the Participant's surviving
                                             spouse is not the Participant's
                                             sole designated Beneficiary, the
                                             designated Beneficiary's remaining
                                             life expectancy is calculated using
                                             the age of the Beneficiary in the
                                             year following the year of the
                                             Participant's death, reduced by one
                                             for each subsequent year.

                           (B)      No Designated Beneficiary. If the
                                    Participant dies on or after the date
                                    distributions begin and there is no
                                    designated Beneficiary as of September 30 of
                                    the year after the year of the Participant's
                                    death, the minimum amount that will be
                                    distributed for each distribution calendar
                                    year after the year of the Participant's
                                    death is the quotient obtained by


                                      -26-


                                    dividing the Participant's Account balance
                                    by the Participant's remaining life
                                    expectancy calculated using the age of the
                                    Participant in the year of death, reduced by
                                    one for each subsequent year.

                           (ii)     Death before Date Distributions Begin.

                                    (A)      Participant Survived by Designated
                                             Beneficiary. If the Participant
                                             dies before the date distributions
                                             begin and there is a designated
                                             Beneficiary, the minimum amount
                                             that will be distributed for each
                                             distribution calendar year after
                                             the year of the Participant's death
                                             is the quotient obtained by
                                             dividing the Participant's Account
                                             balance by the remaining life
                                             expectancy of the Participant's
                                             designated Beneficiary, determined
                                             as provided in Section
                                             8.1(e)(4)(i).

                                    (B)      No Designated Beneficiary. If the
                                             Participant dies before the date
                                             distributions begin and there is no
                                             designated Beneficiary as of
                                             September 30 of the year following
                                             the year of the Participant's
                                             death, distribution of the
                                             Participant's entire interest will
                                             be completed by December 31 of the
                                             calendar year containing the fifth
                                             anniversary of the Participant's
                                             death.

                                    (C)      Death of Surviving Spouse Before
                                             Distributions to Surviving Spouse
                                             Are Required to Begin. If the
                                             Participant dies before the date
                                             distributions begin, the
                                             Participant's surviving spouse is
                                             the Participant's sole designated
                                             Beneficiary, and the surviving
                                             spouse dies before distributions
                                             are required to begin to the
                                             surviving spouse under Section
                                             8.1(e)(2)(ii)(A), this Section
                                             8.1(e)(4) will apply as if the
                                             surviving spouse were the
                                             Participant.

         (5)      Definitions.

                  (i)      Designated Beneficiary. The individual who is
                  designated as the Beneficiary under Section 1.3 and is the
                  designated Beneficiary under Code Section 401(a)(9) and
                  Treasury Regulation 1.401(a)(9)-4, Q&A-1.

                  (ii)     Distribution Calendar Year. A calendar year for which
                  a minimum distribution is required. For distributions
                  beginning before the Participant's death, the first
                  distribution calendar year is the calendar year immediately
                  preceding the calendar year which contains the Participant's
                  Required Beginning Date. For distributions beginning after the
                  Participant's death, the first distribution calendar year is
                  the calendar year in which distributions are required to begin
                  under Section 8.1(e)(2)(ii). The


                                      -27-


                  required minimum distribution for the Participant's first
                  distribution calendar year will be made on or before the
                  Participant's Required Beginning Date. The required minimum
                  distribution for other distribution calendar years, including
                  the required minimum distribution for the distribution
                  calendar year in which the Participant's Required Beginning
                  Date occurs, will be made on or before December 31 of that
                  distribution calendar year.

                  (iii)    Life Expectancy. Life expectancy as computed by use
                  of the Single Life Table in Treasury Regulation 1.401(a)(9)-9.

                  (iv)     Participant's Account Balance. The Account balance as
                  of the last valuation date in the calendar year immediately
                  preceding the distribution calendar year (valuation calendar
                  year) increased by the amount of any contributions made and
                  allocated or forfeitures allocated to the account balance as
                  of dates in the valuation calendar year after the valuation
                  date and decreased by distributions made in the valuation
                  calendar year after the valuation date. The Account balance
                  for the valuation calendar year includes any amounts rolled
                  over or transferred to the Plan either in the valuation
                  calendar year or in the distribution calendar year if
                  distributed or transferred in the valuation calendar year.

         (6)      Required Beginning Date. The date specified in Section 8.2(c).

8.2.     Timing.

         (a)      General. A Participant's Vested Benefit will become payable as
         soon as practicable after the occurrence of an event described in
         Section 7. As a general rule, a Participant's Vested Benefit will be
         paid to him or her as soon as practicable after he or she has a
         severance from service, subject to the following:

                  (1)      The Participant's consent to payment will not be
                  required if the value of the Vested Benefit (excluding the
                  value of any Rollover Account) is $5,000 or less.

                  (2)      No payment will be made without the Participant's
                  consent before the Participant's required beginning date (as
                  described in Section 8.2(c)) if the value of the Vested
                  Benefit (excluding the value of any Rollover Account) exceeds
                  $5,000.

         (b)      Deferral of Payment. Unless the Participant elects otherwise,
         payment of a Participant's Vested Benefit will not be delayed beyond
         the 60th day after the close of the Plan Year in which the latest of
         the following events occurs:

                  (1)      the date on which the Participant attains age 65
                  (which is the normal retirement date under the Plan);


                                      -28-


                  (2)      the tenth anniversary of the Participant's
                  participation in the Plan; and

                  (3)      the date the Participant separates from service.

         However, unless he or she consents to an earlier distribution, the
         Participant will be deemed to have elected to defer payment of his or
         her Vested Benefit (which deemed election will be in lieu of a written
         election described in Treasury Regulation Section 1.401(a)-14) until
         the Participant's death or until the Participant's required beginning
         date (as described in Section 8.2(c)), whichever comes first.

         (c)      Participant's Required Beginning Date. Notwithstanding the
         foregoing, payment of a Participant's Vested Benefit will be made (or
         commence) to the Participant no later than April 1 of the calendar year
         following the calendar year in which he or she (1) reaches age 70 1/2
         or (2) for a Participant who is not a 5% owner (as defined in Code
         Section 416), terminates employment, whichever is later.

         (d)      Beneficiary. A deceased Participant's Vested Benefit will
         become payable to his or her Beneficiary as soon as practicable after
         the Plan Administrator determines that the person has an interest in
         the Vested Benefit. A distribution generally must be completed by
         December 31 of the calendar year containing the fifth anniversary of
         the Participant's death. However, if the Vested Benefit is payable to
         the Participant's spouse in installments, distribution must begin no
         later than December 31 of the calendar year (1) in which the
         Participant would have reached age 70 1/2, or (2) containing the first
         anniversary of the Participant's death, whichever is later.

8.3.     Direct Rollover. Notwithstanding any provision of this Plan to the
contrary that would otherwise limit a distributee's election under this Section
8, a distributee may elect, at the time and in the manner prescribed by the Plan
Administrator, to have any portion of an eligible rollover distribution paid
directly to an eligible retirement plan specified by the distributee in a direct
rollover.

         (a)      Eligible Rollover Distribution. An eligible rollover
         distribution is any distribution or withdrawal of all or any portion of
         the balance to the credit of the distributee, except that an eligible
         rollover distribution does not include (1) any payment that is one of a
         series of substantially equal periodic payments (not less frequently
         than annually) made for the life (or life expectancy) of the
         distributee or the joint lives (or joint life expectancies) of the
         distributee and the distributee's designated beneficiary or for a
         specified period of ten years or more; (2) any payment to the extent it
         is required under Code Section 401(a)(9); and (3) the portion of any
         payment that is not includible in gross income (determined without
         regard to the exclusion for net unrealized appreciation with respect to
         employer securities). Any amount that is distributed on account of
         hardship shall not be an eligible rollover distribution and the
         distributee may not elect to have any portion of such a distribution
         paid directly to an eligible retirement plan. A portion of a
         distribution shall not fail to be an eligible rollover distribution
         merely because the portion consists of after-tax employee contributions
         which are not includible in gross income. However, such portion may be
         transferred only to an individual retirement account or


                                      -29-


         annuity described in Code Sections 408(a) or (b), or to a qualified
         defined contribution plan described in Code Sections 401(a) or 403(a)
         that agrees to separately account for amounts so transferred, including
         separately accounting for the portion of such distribution which is
         includible in gross income and the portion of such distribution which
         is not so includible.

         (b)      Eligible Retirement Plan. An eligible retirement plan is (1)
         an individual retirement account described in Code Section 408(a), (2)
         an individual retirement annuity described in Code Section 408(b), (3)
         an annuity plan described in Code Section 403(a), (4) a qualified trust
         described in Code Section 401(a), (5) an annuity contract described in
         Code Section 403(b) and (6) an eligible plan under Code Section 457(b)
         which is maintained by a state, political subdivision of a state, or
         any agency or instrumentality of a state or political subdivision of a
         state and which agrees to separately account for amounts transferred
         into such plan from this Plan. The definition of eligible retirement
         plan shall also apply in the case of a distribution to a surviving
         spouse, or to a spouse or former spouse who is the alternate payee
         under a qualified domestic relation order, as defined in Code Section
         414(p).

         (c)      Distributee. A distributee includes an employee or former
         employee. In addition, the employee's or former employee's surviving
         spouse and the employee's or former employee's spouse or former spouse
         who is the alternate payee under a qualified domestic relations order,
         as defined in Code Section 414(p), are distributees with regard to the
         interest of the spouse or former spouse.

         (d)      Direct Rollover. A direct rollover is a payment by the Plan to
         the eligible retirement plan specified by the distributee.
         Notwithstanding the foregoing, a hardship withdrawal under Section 7.3
         shall not be treated as an eligible rollover distribution.

8.4.     Claim for Benefit. A Participant or Beneficiary may be required to
complete and file a claim for a benefit in an Election as a condition to payment
of that benefit. All claims will be processed in accordance with the claims
procedure in the summary plan description for this Plan. Any payment to a
Participant or Beneficiary (or to their legal representative or heirs-at-law)
made in accordance with the provisions of this Plan will to the extent of that
payment be in full satisfaction of all claims under this Plan against the
Trustee, the Plan Administrator and each Participating Employer, any of whom may
require that person (or his or her legal representative or heirs-at-law), as a
condition precedent to that payment, to execute a receipt and release in a form
acceptable to the Trustee, Plan Administrator or Participating Employer, as the
case may be.

8.5.     No Estoppel of Plan. No person is entitled to any benefit under this
Plan except and to the extent expressly provided under this Plan. The fact that
payments have been made from this Plan in connection with any claim for benefits
under this Plan does not (a) establish the validity of the claim, (b) provide
any right to have the benefits continue for any period of time or (c) prevent
this Plan from recovering the benefits paid to the extent that the Plan
Administrator determines that there was no right to payment of the benefits
under this Plan.

Thus, if a benefit is paid to a person under this Plan and thereafter the Plan
Administrator determines that the benefit should not have been paid (whether or
not attributable to an error by


                                      -30-


that person, the Plan Administrator or any other person), the Plan Administrator
may take any action it deems necessary or appropriate to correct the
overpayment, including without limitation by (1) deducting the amount of any
overpayment previously made to or on behalf of that person from any succeeding
payments to or on behalf of that person under this Plan or from any amounts due
or owing to that person by any Affiliate or under any other plan, program or
arrangement benefiting the employees or former employees of any Affiliate or (2)
otherwise recovering the overpayment from the person who benefited from it.

If the Plan Administrator determines that an underpayment of benefits has been
made, the Plan Administrator will take any action it deems necessary or
appropriate to correct the underpayment. However, in no event will interest be
paid on the amount of the underpayment other than the investment gain or loss
credited to the Account pending payment.

8.6.     Legally Incompetent. At the discretion of the Plan Administrator
payments may be made (a) directly to an incompetent or disabled person, whether
because of minority or mental or physical disability, (b) to an individual
appointed by a court of competent jurisdiction as the guardian or custodian of
that incompetent or disabled person or (3) to any person designated or
authorized under any state statute to receive payments on behalf of that
incompetent or disabled person, without further liability on the part of a
Participating Employer, the Plan Administrator or the Trustee for the amount of
the payments to the person on whose account the payment is made.

8.7.     Missing Person. If a benefit is required to be paid under this Plan but
the Plan Administrator is unable to locate (in accordance with reasonable
procedures established for this purpose) the individual to whom payment is to be
made, that individual's benefit will be treated as a Forfeiture as of the date
determined by the Plan Administrator but no earlier than the last day of the
Plan Year that includes the second anniversary of the date that benefit first
became payable. However, the amount forfeited will be paid (from Forfeitures or
from additional Participating Employer contributions) to the missing individual
if he or she files a proper claim for the benefit while this Plan remains in
effect. If the Plan Administrator is unable to locate a Participant or any
Beneficiary for an Account and this Plan is terminated before the Account
becomes a Forfeiture under this Section 8.7, those persons will be presumed dead
upon the Plan's termination and the Account will be applied thereafter to pay
administrative expenses of the Plan and Trust Fund.

8.8.     Other Payment Rules.

         (a)      Withholding Obligations. The amount of any payment from an
         Account under this Plan will be reduced as necessary or appropriate to
         satisfy any applicable tax withholding requirements with respect to the
         payment.

         (b)      Waiver of Notices. A Participant or Beneficiary may waive the
         notice period under Code Sections 401(a)(31), 402(f) or 411(a)(11).


                                      -31-


         (c)      Account Balance. A payment or Forfeiture from an Account may
         be delayed pending completion of allocations to the Account if
         necessary to avoid underpayment or overpayment.

         (d)      Order of Withdrawal. Unless otherwise expressly set forth in
         this Plan, any payment of less than the Participant's entire Vested
         Benefit will be deducted from the subaccounts in a Participant's
         Account and the investment funds in which the subaccount is invested in
         accordance with procedures established by the Plan Administrator.

         (e)      Reemployment. Except for required distributions under Section
         8.2(c) or in-service withdrawals under Section 7.3, no payment will be
         made to a Participant under this Section 8 after he or she is
         reemployed as an Employee.

                   ss.9. NAMED FIDUCIARIES AND ADMINISTRATION

9.1.     Named Fiduciaries. The Plan Sponsor and the Plan Administrator are the
named fiduciaries responsible for the control, management and administration of
this Plan. Any power or responsibility for the control, management or
administration of this Plan that is not expressly assigned to a named fiduciary
under the Plan, or with respect to which the proper assignment is in doubt, will
be deemed to have been assigned to the Plan Sponsor. One named fiduciary will
have no responsibility to inquire into the acts and omissions of the other named
fiduciary in exercising its powers or discharging its responsibilities under
this Plan.

A named fiduciary, by written instrument filed by the Plan Administrator with
the records of the Plan, may designate a person who is not a named fiduciary to
carry out any of its responsibilities under this Plan. A named fiduciary or a
person designated to perform any responsibility of a named fiduciary pursuant to
the procedure described in this Section 9.1 may employ one or more persons to
render advice with respect to any responsibility assigned to the named fiduciary
or allocated to that person under this Plan. Any person (including a member of a
committee which is a Plan Administrator) may serve in more than one fiduciary
capacity under this Plan, and a fiduciary may be a Participant if he or she
otherwise satisfies the Plan's participation requirements.

9.2.     Plan Administrator Appointment and Term of Office. If the Plan
Administrator is a committee (the "Committee"), the Committee will (except on a
temporary basis) consist of not less than three persons. The Committee members
will be appointed by the Board and will serve without compensation. The Board
has the right to remove any Committee member at any time, and a member may
resign at any time by written resignation to the Board. The Board may fill by
appointment any vacancy in the membership of the Committee.

9.3.     Organization of Plan Administrator. If the Plan Administrator is a
Committee, the Committee members may allocate among themselves by mutual consent
specific Plan Administrator responsibilities and functions for the operation and
administration of this Plan, provided that allocation is reported in the records
of the Committee. The Committee will act by majority vote. The Committee may
appoint agents or advisors to perform any functions it deems


                                      -32-


necessary and helpful to the effective performance of its duties and the duties
of the individual Committee members. The compensation of those agents or
advisors will be fixed by the Committee within limits set by the Board and will
constitute an expense of the Plan.

9.4.     Plan Administrator Powers and Duties.

         (a)      General. Except to the extent expressly reserved under this
         Plan to the Plan Sponsor, the Plan Administrator (or the Committee in
         the case of an appointment of a committee) has the exclusive
         responsibility and complete discretionary authority to control the
         operation, management and administration of this Plan, with all powers
         necessary to enable it properly to carry out those responsibilities,
         including (but not limited to) the power to construe this Plan, to
         determine eligibility for benefits, to settle disputed claims and to
         resolve all administrative, interpretive, operational, equitable and
         other questions that arise under this Plan. The decisions of the Plan
         Administrator on all matters within the scope of its authority will be
         final and binding. To the extent a discretionary power or
         responsibility under this Plan is expressly assigned to a person other
         than the Plan Administrator, that person will have complete
         discretionary authority to carry out that power or responsibility and
         that person's decisions on all matters within the scope of that
         person's authority will be final and binding.

         (b)      Liquidity Requirements. The Plan Administrator will be
         responsible for determining the funding policy for the Plan, including
         any anticipated liquidity requirements and for communicating that
         policy to the Trustee when it deems appropriate.

         (c)      Records. All Plan records will be maintained by or at the
         direction of the Plan Administrator.

         (d)      Information from Others. The Plan Administrator, the Committee
         members, Participating Employers and their officers, directors,
         employees and agents will be entitled to rely upon all information and
         data in any certificate, report or other material prepared by any
         actuary, accountant, attorney, consultant or advisor selected by the
         Plan Administrator to perform services on behalf of this Plan. All
         action taken or omitted in good faith in reliance upon the advice or
         opinion of any of those persons will be conclusive upon all persons
         interested in this Plan.

9.5.     Indemnification. To the extent that the Plan Administrator or a member
of the Committee is not protected and held harmless by or through insurance, and
to the extent permissible under ERISA and any other applicable law, the Plan
Sponsor will indemnify the Plan Administrator and Committee members from and
against any liability, assessment, loss, expense or other cost, of any kind or
description whatsoever, including legal fees and expenses, actually incurred by
the member on account of any action or proceeding, actual or threatened, that
arises as a result of his or her being the Plan Administrator or a member of the
Committee.


                                      -33-


9.6.     Reporting and Disclosure. The Plan Administrator will be responsible
for satisfying any applicable reporting and disclosure requirement under federal
or state law with respect to this Plan.

                     ss.10. DUTIES AND AUTHORITY OF TRUSTEE

The Trust Fund will be held, administered, controlled and invested by the
Trustee subject to the terms of the Trust Agreement for the exclusive benefit of
Participants and Beneficiaries.

                                 ss.11. LOANS.

11.1.    Administration. The Plan Administrator will be the named fiduciary
responsible for the administration of the loan program under this Plan. The Plan
Administrator will establish objective nondiscriminatory written procedures for
the loan program in compliance with Section 2550.408b-1 of the Department of
Labor regulations. Those procedures and any amendments to those procedures, to
the extent not inconsistent with the terms of this Plan, are incorporated by
this reference as part of this Plan.

11.2.    Statutory Requirements.

         (a)      General. All loans made under this Plan will comply with the
         following requirements under ERISA Section 408(b)(1):

                  (1)      Loans will be made available to Participants and
                  Beneficiaries who are eligible for a loan on a reasonably
                  equivalent basis.

                  (2)      Loans will not be made available to Highly
                  Compensated Employees in an amount greater than the amount
                  made available to other Employees.

                  (3)      Loans will be made in accordance with specific
                  provisions regarding loans set forth in this Plan and the
                  written loan procedures described above.

                  (4)      Loans will bear a reasonable rate of interest.

                  (5)      Loans will be adequately secured by 1/2 of the
                  Participant's Vested Benefit or, if less, the amount of the
                  outstanding loan principal balance.

         (b)      Repayments. Principal and interest on the loan must be repaid
         in substantially level installments with payments not less frequently
         than quarterly over a period of 5 years or less, unless such loan is
         used to acquire the principal residence of the Participant, then over a
         period of 10 years. The Plan Administrator may establish other payment
         rules, including rules regarding a grace period and suspension of
         payments during unpaid leaves of absence, in the written loan
         procedures.

         (c)      Limitations on Amounts. The principal amount of a loan made
         under this Plan to a Participant or Beneficiary, together with the
         outstanding principal amount of any loan


                                      -34-


         made under any plan maintained by an Affiliate that satisfies the
         requirements of Code Sections 401 or 403, may not exceed the lesser of

                  (1)      50% of that person's Vested Benefit at the time the
                           loan is made, or

                  (2)      $50,000, reduced by the excess (if any) of

                           (A)      the highest outstanding balance of any
                           previous loans from this Plan and any other plan
                           maintained by an Affiliate during the one-year period
                           ending immediately before the date on which the
                           current loan is made over

                           (B)      the outstanding balance of the previous
                           loans on the date on which the current loan is made.

                  (3)      If at anytime the Plan Administrator imposes
                  restrictions on investments in the Lodgian Stock Fund pursuant
                  to Section 5.2, the portion of a Participants' Account
                  invested in the Lodgian Stock Fund will not be considered in
                  the amount available for a loan under this Section 11.
                  Similarly, any interest in the Lodgian Warrant Funds will also
                  be disregarded for purposes of determining the amount
                  available for a loan unless such amount consists solely of
                  cash.

         The Plan Administrator may establish other loan limits, including
         minimum loan amounts and rules regarding the subaccounts from which a
         loan may be made, in the written loan procedures.

11.3.    Distribution and Default. The Vested Benefit actually payable to an
individual who has an outstanding loan will be determined by reducing the Vested
Benefit by the amount of the security interest in the Account (if any).
Notwithstanding anything to the contrary in this Plan or in the written loan
procedures described above, in the event of default, foreclosure on the note and
execution of the security interest in an Account will not occur until a
distributable event occurs under this Plan and interest will continue to accrue
only to the extent permissible under applicable law.

11.4.    USERRA. Loan repayments will be suspended under this Plan as permitted
under Section 414(u) of the Internal Revenue Code.

                        ss.12. AMENDMENT AND TERMINATION

12.1.    Amendment. The Plan Sponsor on behalf of all Participating Employers
has the right to amend this Plan in any respect whatsoever and at any time by
action of the Board, or a committee of the Board to which such authority has
been delegated. An officer of the Plan Sponsor has the right to amend the Plan
if such amendment is to comply with law. No amendment will be made that (unless
otherwise permissible under applicable law) would (a) divert any of the assets
of the Trust Fund to any purpose other than the exclusive benefit of


                                      -35-


Participants and Beneficiaries, (b) eliminate or reduce an optional form of
benefit, except as permitted by law or (c) decrease a Participant's accrued
benefit under the Plan. However, this Plan may be amended retroactively to
affect the Accounts maintained for any person if necessary to cause this Plan
and the Trust Fund to be exempt from income taxes under the Code.

12.2.    Termination. The Plan Sponsor expects this Plan to be continued
indefinitely but, of necessity, it reserves the right to terminate or to
partially terminate this Plan or to permanently discontinue contributions to
this Plan at any time by action of the Board. Each other Participating Employer
will have the right by action of its Board of Directors to terminate or to
partially terminate its participation in this Plan or to permanently discontinue
its contributions to this Plan. In the case of any termination of or permanent
discontinuance of contributions to this Plan, the Account of each affected
Participant who is an Employee as of its effective date will become fully
vested. Further, the Plan Administrator will, where appropriate, direct (1) the
allocation of unallocated amounts to the Accounts of affected individuals, (2)
distributions from those Accounts in accordance with procedures established by
the Plan Administrator consistent with Code Section 401(k), (3) any action
necessary to implement the missing person provisions under Section 8.7 and (4)
the return of any Trust Fund assets attributable to a Code Section 415 suspense
account in accordance with Section 13.5.

                             ss. 13. MISCELLANEOUS

13.1.    Headings and Construction. The headings and subheadings in this Plan
have been inserted for convenience of reference only and are to be ignored in
construction of the provisions of this Plan. All references to sections and to
subsections are to sections and subsections of this Plan unless otherwise
indicated. Where appropriate, the singular should be read as the plural and the
plural as the singular. Any reference to a statute also includes any successor
statute and, if any amendment renumbers a section of a statute referred to in
this Plan, that reference automatically will become a reference to that section
as renumbered. This Plan is to be construed in accordance with the laws of the
State of Georgia to the extent that those laws are not preempted by federal law.
This Plan does not, and should not be construed to, grant any rights or
privileges to Participants or Beneficiaries in addition to those minimum rights
and privileges required under the Code and ERISA.

13.2.    Nontransferability. Except to the extent permitted by law and subject
to Section 13.7, no Account, benefit, payment or distribution under this Plan
will be subject to the claim of, or legal process by, any creditor of a
Participant or Beneficiary, and no Participant or Beneficiary will have any
right to alienate, commute, anticipate or assign all or any portion of his or
her Account, benefit, payment or distribution under this Plan.

13.3.    Benefits Supported Only by Trust Fund. Any person having any claim for
any benefit under this Plan must look solely to the assets of the Trust Fund for
satisfaction of that claim. In no event will a Participating Employer, the Plan
Administrator, the Trustee or any of their employees, officers, directors or
agents be liable in their individual capacities to any person whomsoever for the
payment of benefits under the provisions of this Plan.


                                      -36-


13.4.    Nondiscrimination. The Plan Administrator, will administer this Plan in
a uniform and consistent manner with respect to all similarly situated
Participants and Beneficiaries and will not permit discrimination in favor of
highly compensated employees that would be prohibited under Code Section 401(a).

13.5.    Nonreversion. No part of the Trust Fund will ever be used for or be
diverted to purposes other than for the exclusive benefit of Participants and
Beneficiaries except that, upon direction of the Plan Administrator, the Trustee
will return contributions to a Participating Employer in the following
circumstances, to the extent permitted by the Code and ERISA:

         (a)      a contribution made by a mistake of fact will be returned,
         provided the return is made within one year after the payment of the
         contribution;

         (b)      a nondeductible contribution will be returned, provided the
         return is made within one year after the Internal Revenue Service
         denies the deduction for the contribution, all Plan contributions being
         made expressly on the condition that the contributions are deductible
         in full for federal income tax purposes; and

         (c)      any amount held in a Code Section 415 suspense account (as
         described in Section 6.2(d)) that cannot be allocated upon the
         termination of this Plan will be returned.

13.6.    Merger, Consolidation or Similar Transaction.

         (a)      General. In the case of any merger or consolidation of this
         Plan with, or transfer of assets or liabilities of this Plan to, any
         other employee benefit plan, each person for whom an Account is
         maintained will be entitled to receive a benefit from this Plan or the
         other plan, as applicable, if it is then terminated, that is equal to
         or greater than the benefit he or she would have been entitled to
         receive immediately before the merger, consolidation or transfer, if
         this Plan had then been terminated.

         (b)      Authorization. The Plan Administrator may authorize the
         Trustee to accept a transfer of assets from or to transfer Trust Fund
         assets to the trustee, custodian or insurance company holding assets of
         any other plan that satisfies the requirements of Code Section 401(a),
         in connection with a merger or consolidation with or other transfer of
         assets to or from that plan, provided that (1) the transfer will not
         affect the qualification of this Plan under Code Section 401(a) and (2)
         the assets to be transferred are acceptable to the Trustee.

         (c)      No Annuities. No assets may be transferred directly to this
         Plan from a plan described in Code Section 401(a)(11)(B) that is
         subject to the survivor annuity requirements in Code Section 417,
         unless the transfer meets the requirements of Code Section 414(l) and
         the person for whom the transfer is made has made an elective transfer
         that satisfies the requirements in Q&A-3(b) of Treas. Reg. Section
         1.411(d)-4.

13.7.    Qualified Domestic Relations Order. In accordance with uniform and
nondiscriminatory procedures established by the Plan Administrator from time to
time, the Plan Administrator will,


                                      -37-


upon the receipt of a domestic relations order that seeks to require the
distribution of a Participant's Account in whole or in part to an alternate
payee (as defined in Code Section 414(p)(8)),

         (a)      promptly notify the Participant and alternate payee of the
         receipt of the order and of the procedure that the Plan Administrator
         will follow to determine whether the order constitutes a qualified
         domestic relations order (within the meaning of Code Section 414(p));

         (b)      determine whether the order constitutes a qualified domestic
         relations order, notify the Participant and the alternate payee of the
         results of its determination and, if the Plan Administrator determines
         that the order does constitute a qualified domestic relations order;

         (c)      transfer any amounts that the Plan Administrator determines
         necessary or appropriate from the Participant's Account to a special
         account for the alternate payee; and

         (d)      make any distributions to the alternate payee from the special
         account that the Plan Administrator deems called for under the terms of
         the order in accordance with Code Section 414(p).

Unless otherwise provided in the order, an alternate payee's special account
shall be distributed as soon as practicable after the account has been
established in a lump sum, without regard to whether a distribution would be
permissible at that time to a Participant under the terms of this Plan. Unless
otherwise provided in the order, if an alternate payee dies before his or her
special account is paid in full, the balance in the account will be paid to the
person designated by the alternate payee as his or her Beneficiary or, if no
Beneficiary designation is made, to the alternate payee's estate.

13.8.    Top Heavy Plan.

         (a)      Determination of Top-Heavy Status. This section shall apply
         for purposes of determining whether the Plan is a top-heavy plan under
         Code Section 416(g) and whether the Plan satisfies the minimum benefits
         requirements of Code Section 416(c) for Plan Years beginning on or
         after January 1, 2002. If, as of the last day of any such Plan Year
         ("determination date"), the sum of the present value of the accrued
         benefits of key employees (as defined below) exceeds 60% of the sum of
         the present value of the accrued benefits of all employees as of that
         determination date, this Plan will be top heavy for the immediately
         following Plan Year. For this purpose,

                  (1)      Key Employee. Key employee means any employee or
                  former employee (including any deceased employee) who at any
                  time during the Plan Year that includes the determination date
                  was an officer of an Affiliate having annual compensation
                  greater than $130,000 (as adjusted under Code Section
                  416(i)(1) for Plan Years beginning after December 31, 2002), a
                  5-percent owner of an Affiliate, or a 1-percent owner of an
                  Affiliate having annual compensation of more than $150,000.
                  For this purpose, annual compensation means compensation
                  within the


                                      -38-


                  meaning of Code Section 415(c)(3). The determination of who is
                  a key employee will be made in accordance with Code Section
                  416(i)(1) and the applicable regulations and other guidance of
                  general applicability issued thereunder.

                  (2)      Determination of Present Values and Amounts. This
                  Section 13.9(a) shall apply for purposes of determining the
                  present values of accrued benefits and the amounts of account
                  balances of employees as of the determination date. The
                  present value of the accrued benefit of each employee will
                  equal the sum of:

                           (i)    the balance of his or her Account under this
                           Plan (determined for this purpose as of each
                           determination date); and

                           (ii)     the present value of his or her accrued
                           benefit, if any, under each of the following plans
                           (determined as of the valuation date that coincides
                           with or precedes the determination date for that
                           plan) under

                                    (A)      each qualified plan (as described
                                    in Code Section 401(a)) maintained by an
                                    Affiliate (i) in which a key employee is a
                                    participant or (ii) that enables any plan
                                    described in subclause (i) to meet the
                                    requirements of Code Sections 401(a)(4) or
                                    410, and

                                    (B)      each other qualified plan
                                    maintained by an Affiliate (other than a
                                    plan described in clause (A)) that may be
                                    aggregated with this Plan and the plans
                                    described in clause (A), provided the
                                    aggregation group (including a plan
                                    described in this clause (B)) continues to
                                    meet the requirements of Code Sections
                                    401(a)(4) and 410.

                  (3)      Distribution During Year Ending on the Determination
                  Date. The present values of accrued benefits and the amounts
                  of account balances of an employee as of the determination
                  date shall be increased by the distributions made with respect
                  to the employee under the Plan and any plan aggregated with
                  the Plan under Code Section 416(g)(2) during the 1-year period
                  ending on the determination date. The preceding sentence shall
                  also apply to distributions under a terminated plan which, had
                  it not been terminated, would have been aggregated with the
                  Plan under Code Section 416(g)(2)(A)(i). In the case of a
                  distribution made for a reason other than separation from
                  service, death, or disability, this provision shall be applied
                  by substituting "5-year period" for "1-year period".

                  (4)      Employees Not Performing Services During Year Ending
                  on the Determination Date. The accrued benefits and accounts
                  of any individual who has not performed services for the
                  employer during the 1-year period ending on the determination
                  date shall not be taken into account.

         (b)      Special Top Heavy Plan Rules. Notwithstanding any other rules
         to the contrary in this Plan, the following special rules will apply if
         the Plan Administrator determines that this Plan is top heavy for any
         Plan Year.


                                      -39-


                  (1)      Minimum Contribution. A contribution will be made by
                  the Participating Employer for the Plan Year for each
                  Participant described in Section 1.23(a) who is not a key
                  employee and who is an Eligible Employee on the last day of
                  that Plan Year that, when added to the employer contributions
                  and forfeitures otherwise allocated on behalf of such
                  individual for such Plan Year under this Plan and any other
                  defined contribution plan maintained by an Affiliate, is equal
                  to

                           (i)      the excess, if any, of:

                                    (A)      the lesser of (a) 3% of the
                                    Participant's Compensation or (b) the
                                    largest amount (expressed as a percentage of
                                    Compensation) of Forfeitures, 401(k)
                                    Contributions and Matching Contributions
                                    allocated for the Plan Year to the Account
                                    of any key employee; over

                                    (B)      the total Forfeitures and Matching
                                    Contributions allocated to the Participant's
                                    Account for the Plan Year; or

                           (ii)     for each such Eligible Employee who also
                           participates in a top heavy defined benefit plan
                           maintained by an Affiliate, 5% of such Eligible
                           Employee's Compensation for such year;

                  provided, however, that no such contribution shall be made
                  under this Section 13.8(b) for any Eligible Employee to the
                  extent such Eligible Employee receives the top heavy minimum
                  contributions (as described in Code Section 416(c)) under
                  another defined contribution plan maintained by an Affiliate
                  for such Plan Year.

                  (2)      Matching Contributions. Matching Contributions shall
                  be taken into account for purposes of satisfying the minimum
                  contribution requirements of Code Section 416(c)(2) of the
                  Plan. The preceding sentence shall apply with respect to
                  Matching Contributions and Safe Harbor Matching Contributions
                  under the Plan or, if the Plan provides that the minimum
                  contribution requirement shall be met in another plan, such
                  other plan. Matching Contributions that are used to satisfy
                  the minimum contribution requirements shall be treated as
                  Matching Contributions for purposes of the ACP Test and other
                  requirements of Code Section 401(m).


                                      -40-


IN WITNESS WHEREOF, the Plan Sponsor and the Participating Employers have caused
this Plan to be executed by their duly authorized officers and each to have its
seal to be affixed as of the date set forth below.


                                  LODGIAN, INC.



                                  By: /s/ Daniel E. Ellis
                                     -------------------------------------------


                                  Title: Senior Vice President & General Counsel
                                        ----------------------------------------


                                  Date: 9/1/03
                                       -----------------------------------------


                                      -41-


                                APPENDIX A TO THE
                            LODGIAN, INC. 401(k)PLAN
                            EFFECTIVE JANUARY 1, 2002

         The allocation of 401(k) Contributions made under the Plan will be
subject to the limitations of this Appendix A for the Plan Year ending December
31, 2002 and any Plan Year beginning on or after January 1, 2003 in which the
Participating Employers do not make a Safe Harbor Matching Contribution to the
Plan. The allocation of Matching Contributions made under the Plan will be
subject to the limitation of this Appendix A for the Plan Year ending December
31, 2002. No Matching Contributions will be made to the Plan for Plan Years
beginning on or after January 1, 2003.

The following terms have the following meanings for purposes of this Appendix A:

ACP -- means the ratio (expressed as a percentage) of (a) the Matching
Contributions credited to a Participant's Account for the applicable Plan Year
to (b) his or her Compensation for the applicable Plan Year.

ACP Test -- means the Code Section 401(m) nondiscrimination test described in
Section 2 below.

ADP -- means the ratio (expressed as a percentage) of (a) the 401(k)
Contributions credited to a Participant's Account for the applicable Plan Year
to (b) his or her Compensation for the applicable Plan Year.

ADP Test -- means the Code Section 401(k) nondiscrimination test described in
Section 1 below.

Excess Aggregate Contributions -- means the excess of (a) the Matching
Contributions actually made on behalf of Highly Compensated Employees for a Plan
Year over (b) the maximum permissible amount of Matching Contributions for that
Plan Year under the ACP Test described in this Appendix A.

Excess Contributions -- means the excess of (a) the 401(k) Contributions
actually made on behalf of Highly Compensated Employees for a Plan Year over (b)
the maximum permissible amount of 401(k) Contributions for that Plan Year under
the ADP Test described in this Appendix A.

Section 1. Code Section 401(k) Limitations for Highly Compensated Employees.

         (a)      ADP Test. Each Plan Year a determination will be made whether
         the average of the Highly Compensated Employees' ADPs for that Plan
         Year, when compared to the average of the Nonhighly Compensated
         Employees' ADPs for the preceding Plan Year, satisfies either of the
         following tests:

                  (1)      the average of the ADPs for all Highly Compensated
                  Employees is not more than 125% of the average of the ADPs for
                  all Nonhighly Compensated Employees, or


                                      -42-

                  (2)      the average of the ADPs for all Highly Compensated
                  Employees is not more than two times the average of the ADPs
                  for all Nonhighly Compensated Employees, and the excess of the
                  average of the ADPs for all Highly Compensated Employees over
                  the average of the ADPs for all Nonhighly Compensated
                  Employees is not more than two percentage points.

         In performing the ADP Test for a Plan Year, the applicable averages
         will be calculated taking into account each Participant who was an
         Eligible Employee at any time during that Plan Year.

         (b)      Aggregation with Other Plans or Arrangements. For purposes of
         Section 1 of this Appendix A, all contributions made on a Highly
         Compensated Employee's behalf under Code Section 401(k) for a Plan Year
         under any other plan described in Code Section 401(k) maintained by an
         Affiliate will be treated as if made under this Plan in determining his
         or her ADP for that Plan Year. If this Plan satisfies the coverage
         requirements of Code Section 410(b) only if aggregated with one or more
         other plans or if one or more other plans satisfy the coverage
         requirements of Code Section 410(b) only if aggregated with this Plan,
         this 1 of Appendix A will be applied by determining the ADPs of all
         Participants as if all those plans were a single plan.

         (c)      Other Requirements and Elections. The determination and
         treatment of the 401(k) Contributions and ADP of any Participant will
         satisfy any other requirements prescribed by the Secretary of the
         Treasury, including any subsequent IRS guidance issued under Code
         Section 401(k), and, in performing the ADP Test, the Plan Administrator
         may use any alternatives and elections authorized under the applicable
         regulations, rulings or revenue procedures.

         (d)      Action to Satisfy ADP Test.

                  (1)      Refund of Excess Contributions. Excess Contributions
                  for a Plan Year (adjusted for investment gain or loss) will be
                  refunded no later than the last day of the immediately
                  following Plan Year to Highly Compensated Employees on whose
                  behalf the Excess Contributions were made. Refunds will be
                  made on the basis of the amount of 401(k) Contributions,
                  starting with the Highly Compensated Employee with the
                  greatest dollar amount of 401(k) Contributions and ending when
                  the Excess Contributions have been refunded in full. The
                  Excess Contributions that would otherwise be refunded will be
                  reduced (in accordance with the Code Section 401(k)
                  regulations) by any refund made to the Highly Compensated
                  Employee under Section 6.3 of the Plan.

                  (2)      Determination of Investment Gain or Loss. Excess
                  Contributions will be adjusted for investment gain or loss for
                  the Plan Year for which the contributions were made in
                  accordance with the regulations under Code Section 401(k) but
                  will not be adjusted for investment gain or loss for the
                  period between the end of the Plan Year and the date the
                  Excess Contributions are distributed.


                                      -43-


Section 2. Code Section 401(m) Limitations For Highly Compensated Employees.

         (a)      Each Plan Year a determination will be made whether the
         average of the Highly Compensated Employees' ACPs for that Plan Year,
         when compared to the average of the Nonhighly Compensated Employees'
         ACPs for the preceding Plan Year, satisfies one of the following tests:

                  (1)      the average of the ACPs for all Highly Compensated
                  Employees is not more than 125% of the average of the ACPs for
                  all Nonhighly Compensated Employees, or

                  (2)      the average of the ACPs for all Highly Compensated
                  Employees is not more than two times the average of the ACPs
                  for all Nonhighly Compensated Employees, and the excess of the
                  average of the ACPs for all Highly Compensated Employees over
                  the average of the ACPs for all Nonhighly Compensated
                  Employees is not more than two percentage points.

         In performing the ACP Test for a Plan Year, the applicable averages
         will be calculated taking into account each Participant who was an
         Eligible Employee at any time during that Plan Year.

         (b)      Aggregation with Other Plans or Arrangements. For purposes of
         Section 2 of this Appendix A, all employee contributions (within the
         meaning of Code Section 401(m)) and matching contributions (within the
         meaning of Code Section 401(m)(4)) allocated to a Highly Compensated
         Employee's account for a Plan Year under any other plan described in
         Code Sections 401(a) or 401(k) maintained by an Affiliate will be
         treated as if made under this Plan in determining his or her ACP for
         that Plan Year. If this Plan satisfies the coverage requirements of
         Code Section 410(b) only if aggregated with one or more other plans or
         if one or more other plans satisfy the coverage requirements of Code
         Section 410(b) only if aggregated with this Plan, Section 2 of this
         Appendix A will be applied by determining the ACPs of all Participants
         as if all those plans were a single plan.

         (c)      Other Requirements. The determination and treatment of the
         Matching Contributions and ACP of any Participant will satisfy any
         other requirements prescribed by the Secretary of the Treasury,
         including any subsequent IRS guidance issued under Code Section 401(m),
         and, in performing the ACP Test, the Plan Administrator may use any
         alternatives and elections authorized under the applicable regulations,
         rulings or revenue procedures.

         (d)      Action to Satisfy ACP Test.

                  (1)      Distribution or Forfeiture of Excess Aggregate
                  Contributions. Excess Aggregate Contributions for a Plan Year
                  (adjusted for investment gain or loss) will be forfeited to
                  the extent forfeitable under Section 7.1 or distributed to the
                  extent not so forfeitable from the Accounts of Highly
                  Compensated Employees no later


                                      -44-


                  than the last day of the immediately following Plan Year. The
                  distributions or Forfeitures will be made on the basis of the
                  amount of Matching Contributions, starting with the Highly
                  Compensated Employee with the greatest dollar amount of
                  Matching Contributions and ending when the Excess Aggregate
                  Contributions have been distributed or forfeited in full.

                  (2)      Determination of Investment Gain or Loss. Excess
                  Aggregate Contributions will be adjusted for investment gain
                  or loss for the Plan Year for which the contributions were
                  made in accordance with the regulations under Code Section
                  401(m) but will not be adjusted for investment gain or loss
                  for the period between the end of the Plan Year and the date
                  the Excess Aggregate Contributions are distributed.


                                      -45-


                                APPENDIX B TO THE
                            LODGIAN, INC. 401(k) PLAN

An Employee will be credited with service under the Plan for his or her service
with the following employers on the same basis as is used to determine service
with an Affiliate under the Plan:

                  -        Servico Corporation;
                  -        Impac Hotel Group;
                  -        AMI Operating Partners, L.P.;
                  -        Any other employers for whom service was credited
                           under the qualified retirement plan(s) of Servico
                           Corporation, Impac Hotel Group, or AMI Operating
                           Partners, L. P.; and
                  -        Any other employer required to be aggregated with any
                           of the above three entities under Code Sections
                           414(b), (c), (m) or (o).


                                      -46-

EX-23.1

                                                                    EXHIBIT 23.1



INDEPENDENT AUDITORS' CONSENT


We consent to the use in this Amendment No. 2 to the Registration Statement No.
333-113410 of Lodgian, Inc. of our report dated March 5, 2004 (May 10, 2004 as
to Note 22) (which expresses an unqualified opinion and includes an explanatory
paragraph relating to the Successor Company's change in its method of accounting
for discontinued operations to conform with Statement of Financial Accounting
Standards No. 144 and the Successor Company's adoption of the provisions of
Statement of Financial Accounting Standards No. 150), appearing in the
Registration Statement of which this Prospectus is a part, and to the reference
to us under the heading "Experts" in such Prospectus.


/s/ DELOITTE & TOUCHE LLP
Atlanta, Georgia
June 2, 2004