UNITED STATES SECURITIES AND EXCHANGE COMMISSION ~~Washington, D.C. 20549~~

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)
þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the fiscal year ended December 31, 2008
or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

(MARK ONE)

~~Commission~~þ ~~file no. 1-14537~~ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

~~Lodgian~~For the fiscal year ended December 31, ~~Inc.~~ 2009


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NO. 1-14537

LODGIAN, INC.

(Exact name of registrant as specified in its charter)

DELAWARE		52-2093696
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
3445 Peachtree Road N.E., Suite 700 Atlanta, GA (Address of principal executive offices)		30326 (Zip Code)
3445 PEACHTREE ROAD N.E., SUITE 700 ATLANTA, GA		30326 (Zip Code)
(Address of principal executive offices)

Registrant’s telephone number, including area code: (404) 364-9400

(404) 364-9400

Securities registered pursuant to Section 12(b) of the Act

Title of Each Class		Name of Each Exchange on Which Registered
TITLE OF EACH CLASS		NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, $.01 par value per share		NYSE ~~Alternext~~Amex USEquities

Securities registered pursuant to Section 12(g) of the Act Title of Each Class Class B warrants

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has ~~been~~ been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if ~~disclosure~~any, ofevery ~~delinquent~~Interactive ~~filers~~Data File required to be submitted and posted pursuant to ~~Item~~Rule 405 of Regulation S-K T (~~Section 229~~§232.405 of this chapter) isduring ~~not~~the ~~contained~~preceding ~~herein~~12 months ~~and~~(or ~~will~~for ~~not~~such beshorter ~~contained,~~period tothat the ~~best of~~ registrant~~’s knowledge,~~ inwas ~~definitive~~required ~~proxy~~to orsubmit ~~information~~and ~~statements incorporated~~post bysuch ~~reference~~files). ~~in Part III of this~~Yes ~~Form 10-K or~~o ~~any~~No ~~amendment to this Form 10-K.~~ o

Indicate by check mark ~~whether~~if ~~the~~disclosure ~~registrant~~of isdelinquent afilers ~~large accelerated~~pursuant ~~filer,~~to anItem 405 ~~accelerated~~of ~~filer,~~Regulation S-K a(Section 229.405) ~~non-accelerated filer~~is not contained herein, orand awill ~~smaller~~not ~~reporting~~be ~~company.~~contained, ~~See~~to the ~~definitions~~best of ~~“large~~registrant’s ~~accelerated filer~~knowledge,” ~~“accelerated filer”~~in ~~and~~definitive ~~“smaller~~proxy ~~reporting~~or ~~company”~~information instatements ~~Rule~~incorporated by reference in ~~12b-2~~Part III of ~~the Exchange~~this ~~Act.~~Form ~~(Check~~10-K ~~one):~~or any amendment to this Form 10-K. o

~~Large~~ Indicate by check mark whether the registrant is a large accelerated filer, oan ~~Accelerated~~ accelerated filer, þa ~~Non~~non-accelerated filer, oor ~~Smaller~~a smaller reporting company. oSee the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer o Non-accelerated filer o (Do not check if a smaller reporting company) Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 1212b-b-2 of ~~the~~of the Act). Yes o No þ

The aggregate market value of Common Stock, par value $.01 per share, held by non-affiliates of the registrant as of June 30, ~~2008~~2009, was $~~100~~17,~~642~~339,~~748~~706 based on the closing price of $71.~~83 per~~30 per share on the NYSE ~~Alternext~~Amex USEquities on such date. For purposes of this computation, all directors, ~~executive~~ executive officers and 10% shareholders are treated as affiliates of the registrant.

The registrant had 21,~~694~~631,~~558~~958, shares of Common Stock, par value $.01, outstanding as of March 1, ~~2009~~2010.

Lodgian, Inc. Form 10-K ~~DOCUMENTS INCORPORATED~~For BYthe ~~REFERENCE~~Year Ended December 31, 2009

~~Portions~~Table of ~~the proxy statement for the 2009 Annual Meeting of~~Contents ~~Shareholders, to be filed with the Securities and Exchange Commission, are incorporated by reference in Part III of this Form 10-K.~~

LODGIAN, INC. Form 10-K For the Year Ended December 31, 2008 TABLE OF CONTENTS


	Page
PART I.
Item 1. Business		1
Item 1A. Risk Factors		12
Item 1B. Unresolved Staff Comments		24
Item 2. Properties		24
Item 3. Legal Proceedings		24
Item 4. Reserved		24

PART II.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		24
Item 6. Selected Financial Data		26
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations		26
Item 7A. Quantitative and Qualitative Disclosures About Market Risk		54
Item 8. Financial Statements and Supplementary Data		56
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		56
Item 9A. Controls and Procedures		56
Item 9B. Other Information		58

PART III.
Item 10. Directors, Executive Officers and Corporate Governance		58
Item 11. Executive Compensation		62
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		85
Item 13. Certain Relationships and Related Transactions, and Director Independence		87
Item 14. Principal Accountant Fees and Services		88

PART IV.
Item 15. Exhibits and Financial Statement Schedules		89
Signatures		90
EX-21
EX-23
EX-31.1
EX-31.2
EX-32

			Page
PART I.
	Item 1.	Business	1
	Item 1A.	Risk Factors	13
	Item 1B.	Unresolved Staff Comments	23
	Item 2.	Properties	23
	Item 3.	Legal Proceedings	23
	Item 4.	Submission of Matters to a Vote of Security Holders	23
PART II.
	Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	23
	Item 6.	Selected Financial Data	27
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operation	28
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	56
	Item 8.	Financial Statements and Supplementary Data	57
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	57
	Item 9A.	Controls and Procedures	57
	Item 9B.	Other Information	59
PART III.
	Item 10.	Directors, Executive Officers and Corporate Governance	59
	Item 11.	Executive Compensation	59
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	59
	Item 13.	Certain Relationships and Related Transactions, and Director Independence	59
	Item 14.	Principal Accountant Fees and Services	59
PART IV.
	Item 15.	Exhibits, Financial Statement Schedules	59
Signatures			60
EX-10.6
EX-10.7
EX-21
EX-23
EX-31.1
EX-31.2
EX-32

PART I

Item 1. ~~Business~~BUSINESS

When we use the terms Lodgian, “we,” “our,” and “us,” we mean Lodgian, Inc. and its subsidiaries.

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 according to Hotel Business. 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,”, “Four Points by Sheraton”, “Hilton,” “Holiday Inn,” “Marriott,” and “Wyndham”. As of March 1, ~~2009~~2010, we operated 4128 hotels with an aggregate of 7 5,~~578~~359 rooms, located in ~~23 states~~19 ~~and Canada~~states. Of the 41 28 hotels, 35 27 hotels, with an aggregate of 65,~~655~~230 rooms, ~~are~~were held for use and the results of operations ~~are~~ were classified in continuing operations, while 61 ~~hotels~~hotel, with an aggregate of ~~923~~ 129 rooms, ~~are~~was held for sale and the results of operations of ~~those hotels~~the ~~are~~hotel were classified in discontinued operations. ~~Our portfolio~~ ~~of hotels, all of which we consolidate in our financial statements, consists of:~~

	•	40 hotels that we wholly own and operate through subsidiaries; and
	•	one hotel that we operate in a joint venture in the form of a limited partnership, in which a Lodgian subsidiary serves as the general partner, has a 51% voting interest and exercises significant control.

Our portfolio of hotels, all of which we consolidate in our financial statements, consists of:

Our hotels are primarily full-service properties that offer food and beverage services, meeting space and banquet facilities and compete in the midscale, upscale and upper upscale market segments of the lodging industry. Most of our hotels are under franchises obtained from nationally recognized hospitality franchisors. We operate 21 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 12 of our hotels under franchises from Marriott International as franchisor of the Marriott, Courtyard by Marriott, Fairfield Inn by Marriott, Residence Inn by Marriott, and SpringHill Suites by Marriott brands. We operate another 7 hotels under other nationally recognized brands and one hotel is non-branded. We believe that franchising under strong national brands affords us many benefits such as guest loyalty and market share premiums.

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

	•		one hotel that we operate in a joint venture in the form of a limited partnership, in which a Lodgian subsidiary serves as the general partner, has a 51% voting interest and exercises significant control.

Our ~~management~~hotels ~~consists~~are ofprimarily anfull-service ~~experienced~~properties ~~team~~that ofoffer ~~professionals~~food and beverage services, meeting ~~with~~space ~~extensive~~and banquet facilities and compete in the midscale, upscale and upper upscale market segments of the lodging industry. ~~experience~~Most ~~led~~of byour hotels are under franchises obtained from nationally recognized hospitality franchisors. We operate 14 of our ~~Interim~~hotels under franchises obtained from ~~President~~InterContinental ~~and~~Hotels ~~Chief~~Group ~~Executive~~as ~~Officer,~~franchisor ~~Peter~~of T.the ~~Cyrus~~Crowne Plaza, ~~who~~Holiday ~~has~~Inn and Holiday Inn ~~over~~Express ~~30 years~~brands. We operate 8 of ~~experience~~our inhotels ~~the~~under ~~lodging~~franchises ~~industry.~~from InMarriott International as ~~addition~~franchisor of the Marriott, ~~our~~Courtyard ~~Vice~~by ~~President~~Marriott, ofResidence ~~Operations~~Inn by Marriott, and ~~our~~SpringHill ~~Vice~~Suites ~~President~~by ofMarriott ~~Asset~~brands. ~~Management~~We ~~have~~operate ~~each~~another ~~been~~6 inhotels ~~the~~under ~~hospitality~~other nationally recognized brands. We ~~industry~~believe ~~for~~that ~~over~~franchising ~~twenty~~under ~~years~~strong national brands affords 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, Daniel E. Ellis, who has over 12 years of experience in the lodging industry and has been a member of the management team at Lodgian since 1999. In addition, our Vice President of Hotel Operations and our Vice President of Asset Management have each been in the hospitality industry for over thirty years.

Our Operations

Our operations team is responsible for the management of our properties. Our ~~vice~~Vice ~~president~~President of Hotel ~~operations~~Operations is 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 finance and accounting, information technology, capital investment, human resources, and legal services.

The functions of our treasury, corporate finance and accounting team include internal audit, insurance, payroll and accounts payable processing, credit, tax, property accounting and financial reporting services. The corporate operations team oversees the budgeting and forecasting for our hotels and also identifies new systems and procedures to employ within our hotels to improve efficiency and profitability. The corporate capital investment team oversees the interior design and renovation of all our hotels. The capital investment process includes scoping, budgeting, return on investment analysis, design, procurement, and construction. Capital investment projects are approved when management determines that the appropriate return on investment will be achieved, following thorough planning, diligence, and analysis. The legal team coordinates contract reviews ~~and~~ and provides the hotels with legal support as needed.

The information technology team maintains our computer systems, which provide real-time tracking of each hotel’s daily occupancy, average daily rate (“ADR”), room, food, beverage and other revenues, revenue per available room (“RevPAR”) and hotel expenses. By having current information available, we are better able to respond to changes in each market by focusing sales efforts and we are able to make appropriate adjustments to control expenses and maximize profitability as new current information becomes available.

Creating cost and guest service efficiencies in each hotel is a top priority. With centralized purchasing oversight and partnership with a third party vendor for rebate program expertise, we are able to realize significant cost savings by securing volume pricing and administering national rebate programs from our vendors.

The corporate human resources staff works closely with management and employees throughout Lodgian to ensure compliance with employment laws and related government filings, counsel management on employee relations and labor relations matters, design and administer benefit programs, and develop recruiting and retention strategies.

Corporate History

Lodgian, Inc. 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 effective date 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, 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 effective date of our reorganization, we emerged from Chapter 11 with 97 hotels after eight of our hotels were conveyed to a lender in satisfaction of outstanding debt obligations and one hotel was returned to the lessor of a capital lease of the property. Of the 97 hotels, 78 hotels emerged from Chapter 11 on November 25, 2002, 18 hotels emerged from Chapter 11 on May 22, 2003 and one property never filed under Chapter 11. Effective November 22, 2002, the Company adopted fresh start reporting. As a result, all assets and liabilities were restated to reflect their estimated fair values at that time.

Since that time, we have sold hotels that did not fit our business strategy.

Our business is conducted in one reportable segment, which is the hospitality segment. ~~During 2008, we derived approximately~~ ~~98% of our consolidated revenues from hotels located within the United States and the balance from our one hotel located in Windsor, Canada.~~

Planned Merger and Loan Amendment ~~Franchise Affiliations~~

WeOn ~~operate~~January 22, ~~substantially~~2010, ~~all~~Lodgian, ofLSREF ~~our~~Lodging ~~hotels~~Investments, ~~under~~LLC, ~~nationally~~(“Purchaser”), and LSREF Lodging ~~recognized~~Merger ~~brands~~Co., InInc., ~~addition~~an toaffiliate ~~benefits~~of inPurchaser ~~terms~~(“Merger ofSub”), ~~guest loyalty~~entered into an Agreement and ~~market~~Plan ~~share~~of Merger ~~premiums~~(the “Merger Agreement”), ~~our~~pursuant ~~hotels~~to ~~benefit~~which ~~from franchisors’~~Merger ~~central~~Sub ~~reservation~~will ~~systems,~~be ~~their~~merged ~~global~~with and into Lodgian, ~~distribution~~with ~~systems~~Lodgian being the surviving corporation and ~~their~~continuing ~~brand~~its ~~Internet~~separate ~~booking~~existence ~~sites~~under the laws of the State of Delaware (the “Merger”).

WePursuant ~~enter~~to ~~into~~the ~~franchise~~Merger ~~agreements~~Agreement, ~~generally~~at ~~for~~the ~~terms~~effective time of 10the ~~to 20 years~~Merger, ~~with~~each ~~hotel~~issued ~~franchisors.~~and ~~The franchise agreements~~outstanding ~~typically~~share ~~authorize~~of uscommon tostock ~~operate~~of ~~the~~Lodgian, ~~hotel~~other ~~under~~than ~~the~~any ~~franchise name,~~shares atowned aby ~~specific~~Purchaser ~~location~~ or ~~within~~Merger ~~a specified area~~Sub, ~~and~~by ~~require~~Lodgian ~~that~~as wetreasury ~~operate~~stock, ~~the~~or ~~hotel in accordance with the standards specified~~ by ~~the~~any ~~franchisor.~~stockholders Aswho ~~part of our franchise agreements, we~~ are ~~generally~~entitled ~~required~~ to, ~~pay~~and awho ~~royalty~~properly ~~fee~~exercise, an ~~advertising/marketing~~appraisal ~~fee,~~rights aunder ~~fee~~Delaware ~~for~~law, ~~the~~will ~~use~~be ofcancelled ~~the franchisor’s nationwide reservation system~~ and ~~certain other~~will ~~ancillary~~be ~~charges.~~converted Asautomatically ainto ~~percentage of gross room revenues,~~the ~~royalty~~right ~~fees range from 4.0%~~ to ~~6.0%,~~receive ~~advertising/marketing fees range from 1.0% to~~ $2.~~5%,~~50 ~~reservation~~in ~~system fees range from 1.0% to 3.2%~~cash, ~~and~~without ~~club and restaurant fees from 0~~interest.1% toThe ~~3.3%.~~consummation Inof the ~~aggregate,~~ ~~royalty~~Merger ~~fees,~~is ~~advertising/marketing~~subject ~~fees, reservation~~to ~~fees and other ancillary fees for the~~ various ~~brands~~customary ~~under which we operate our hotels range from 6.5% to 10.0% of gross room revenues. In 2008~~conditions, ~~franchise~~including ~~fees~~the ~~for~~approval ~~our continuing operations were 9.6%~~ of ~~room~~Lodgian’s ~~revenues~~stockholders.

Concurrently with the execution of the Merger Agreement, on January 22, 2010, Hospitality Mortgage Investments, LLC, a Delaware limited liability company (“Hospitality”), and an affiliate of Purchaser, purchased the lender’s interest in Lodgian’s $130 million mortgage loan facility originally made by Goldman Sachs Commercial Mortgage Capital, L.P. An amendment to the loan was also concurrently entered into by Hospitality and Lodgian’s subsidiary borrowing entities which own the hotels securing the loan. The material terms of the loan amendment are summarized as follows:

	•		Effective immediately, the cash lockbox provisions of the loan were amended to provide that excess cash flow from the mortgaged properties after debt service, reserves and operating expenses, will not be retained by the lender in an excess cash flow reserve account, but will instead be released to the borrowers on a monthly basis, even if the properties do not meet a previously required financial covenant test.

	•		The deadline for Lodgian’s subsidiary which owns the Crowne Plaza Albany, New York, to complete certain renovation work was extended to May 1, 2010.

	•		The allocated loan amounts for each of the properties securing the loan were readjusted.

	•		Effective July 1, 2010, the margin over LIBOR used to determine the interest rate on the loan will be increased from 1.50% to 4.25%.

	•		If the Merger Agreement is validly terminated for any reason other than as a result of a breach by Purchaser of any of its representations, warranties, covenants or agreements contained in the Merger Agreement such that certain of Lodgian’s closing conditions set forth in the Merger Agreement would not be met, Lodgian’s subsidiary borrowing entities on the loan will be required, in their sole discretion, to either pay down the principal balance of the loan by $5 million, or to cause the Holiday Inn Monroeville, Pennsylvania property to be pledged as additional security for the loan. If the Holiday Inn Monroeville, Pennsylvania property is pledged as additional security for the loan, it may be subsequently released from the loan upon payment of a cash release price of $5 million.

Franchise Affiliations

We operate substantially all of our hotels under nationally recognized brands. 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.

We enter into franchise agreements, generally for terms of 10 to 20 years, with hotel franchisors. 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 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 other ancillary charges. As a percentage of gross room revenues, royalty fees range from 3.5% to 6.0% of gross room revenues, advertising/marketing fees range from 1.0% to 2.5%, reservation system fees range from 0.4% to 3.3%, and club and restaurant fees from 0.6% to 3.0%. In the aggregate, royalty fees, advertising/marketing fees, reservation fees and other ancillary fees for the various brands under which we operate our hotels range from 6.5% to 10.0% of gross room revenues. In addition, we are charged club fees on a per-stay basis. In 2009, franchise fees for our continuing operations were 10.2% of room revenues.

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 franchise renewals. In connection with a renewal, a franchisor may require payment of a renewal fee, increased royalty and other recurring fees and substantial renovation of the facility, or the franchisor may elect at its sole discretion, not to renew the franchise.

When a hotel does not meet the terms of its franchise license agreement, a franchisor reserves the right to issue a notice of non-compliance to the franchisee. This notice of non-compliance provides the franchisee with a cure period which typically ranges from 3 to 24 months. At the end of the cure period, the franchisor will review the criteria for which the non-compliance notice was issued and either (1) cure the franchise agreement, returning to good standing, or (2) issue a notice of default and termination, giving the franchisee another opportunity to cure the non-compliant issue. At the end of the default and termination period, the franchisor will review the criteria for which the non-compliance notice was issued and either cure the default, issue an extension which will grant the franchisee additional time to cure, or terminate the franchise agreement. Termination of the franchise agreement could lead to a default and acceleration under one or more of our loan agreements, which would materially and adversely affect us. In the past, we have been able to cure most cases of non-compliance and most defaults within the cure periods. If we perform an economic analysis of a hotel and determine it is not economically justifiable to comply with a franchisor’s requirements, we will select an alternative franchisor, operate the hotel without a franchise affiliation, or sell the hotel. Generally, under the terms of our loan agreements, we are not permitted to operate hotels without an approved franchise affiliation. See “Item 1A. Risk Factors.”

As of March 1, ~~2009~~2010, we ~~have~~were ~~been~~not orin ~~expect~~compliance with the franchise agreement for one hotel due to substandard beguest ~~notified~~satisfaction scores. If the hotel does not achieve scores above the required ~~that~~thresholds wethrough ~~are~~December 2011, the hotel could be placed in default by the franchisor. Our corporate operations team as well as our hotel’s general manager and~~/or~~ associates have focused their efforts to cure this instance of non-compliance. ~~with~~We ~~respect~~believe that we will cure the non-compliance, but cannot assure you that we will continue to ~~three~~be ~~franchise~~in compliance with our other franchise agreements ~~and~~or that we ~~are~~ ~~anticipating~~will be able to cure ~~letters~~any ~~with~~current ~~respect~~or future alleged instances of non-compliance and default prior to ~~two~~the ~~franchise~~specified termination dates or be granted additional time ~~agreements~~in aswhich ~~summarized~~to ~~below:~~cure any defaults or non-compliance.

~~• One hotel is in default of the franchise agreements because of substandard guest satisfaction scores.~~ If wea ~~do not achieve scores above the required thresholds by the designated cure dates, this hotel could be subject to termination of the~~ franchise agreement. ~~However,~~is ~~since we recently completed some renovations at the hotel~~terminated, we ~~anticipate~~would ~~that~~expect ~~we will be given additional time~~ to ~~cure~~select ~~the~~an ~~default.~~alternative ~~• One hotel is in default of the franchise agreement for failure to complete a Property Improvement Plan. If we do not cure the default by April 2009~~franchisor, operate the hotel’s ~~franchise~~independently ~~agreement~~of ~~could~~any befranchisor ~~terminated~~or bysell the ~~franchisor~~hotel. ~~This~~However, ~~hotel~~terminating isor changing ~~also in default of~~ the franchise ~~agreement~~affiliation ~~because~~ of ~~substandard~~a ~~guest satisfaction scores. If we do not achieve scores above the required thresholds by March 2009, this~~ hotel could berequire ~~subject~~us to ~~termination~~incur bysignificant ~~the franchisor. However~~costs, including ~~since~~franchise ~~the~~termination ~~hotel~~payments isand ~~currently~~capital ~~under renovation~~expenditures, weand ~~anticipate~~in ~~that~~certain wecircumstances could ~~will~~lead ~~be given additional time~~ to ~~cure~~acceleration ~~the defaults. • One hotel is not in compliance with some~~ of ~~the~~parts ~~terms~~ of ~~the franchise agreement because of substandard guest scores~~indebtedness. IfThis ~~we do not achieve scores above the required quality thresholds by March 2009, this hotel~~ could bematerially ~~placed~~and inadversely ~~default~~affect our ~~by the franchisor. However~~business, wefinancial ~~have~~condition ~~met with the franchisor, are following a specific action plan for improvement,~~ and ~~anticipate~~results ~~that~~of ~~we will cure the failure by the required cure date~~operations. ~~• We are anticipating cure letters for two hotels to be delivered no later than February 2010.~~

Our corporate operations team, as well as each property’s general manager and associates, have focused their efforts to cure each of these instances of non-compliance or default through enhanced service, and product improvements by the required cure dates.

We believe that we will cure the non-compliance and defaults for which the franchisors have given notice on or before the applicable termination dates, except for one hotel which is in default for failure to complete a Property Improvement Plan. We will continue to work with the franchisor to extend the default cure period, if necessary. We cannot provide assurance that we will be able to complete the action plans (which are estimated to cost approximately $2.5 million for the capital improvements portion of the action plans, of which $0.4 million had been spent as of December 31, 2008) 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 noncompliance. If a franchise agreement is terminated, we will select an alternative franchisor, operate the hotel independently of any

~~franchisor or sell the hotel. However~~Also, ~~terminating~~our orloan ~~changing the~~agreements ~~franchise~~generally ~~affiliation~~prohibit of a hotel ~~could~~from ~~require~~operating uswithout toa ~~incur significant~~national ~~costs, including~~ franchise ~~termination payments and~~ ~~capital expenditures~~affiliation, and inthe ~~certain~~loss ~~circumstances could lead to acceleration~~ of ~~parts~~such ofan ~~indebtedness.~~affiliation ~~This~~ could ~~materially~~trigger ~~and adversely~~a ~~affect~~default ~~our~~under ~~business,~~one ~~financial~~or ~~condition~~more ~~and results~~such ofagreements. ~~operations~~See “Item 1A. Risk Factors.”

Also, our loan agreements generally prohibit a hotel from operating without a national franchise affiliation, and the loss of such an affiliation could trigger a default under one or more such agreements. All three of the hotels that are in default or non-compliance under their respective franchise agreements are part of the collateral security for an aggregate of $199.3 million of mortgage debt as of March 1, 2009. See “Item 1A. Risk Factors.”

Sales and Marketing

We have developed a unique sales and marketing culture that is focused on revenue generation and long term profitability. We developed several key components that we believe set us apart from a typical brand or independent management approach.

The hotel sales, marketing and revenue management efforts are led by each property General Manager, whose team includes a Director of Sales and a Revenue Manager. This streamlined structure, which excludes layers of corporate operations support, provides a distinct advantage as the hotels can proactively and quickly adjust the hotel’s specific marketing plans and business strategies as market conditions change. Support is provided by the brand, the Vice President of Sales and Revenue Management, Corporate Director of E-Commerce, Area Director of Sales, and the Lodgian Councils, a core of seasoned hotel veterans in three different disciplines, including Sales, Catering and Revenue Management. Each council is comprised of five to six individuals who work on property and excel in their area of expertise. They are responsible for developing programs, training, and motivational efforts for the entire organization, as well as creating synergies within the portfolio by sharing best practices and working together with common clients. Every hotel sales associate is armed with sales training administered by each hotel’s respective brand.

In collaboration with the Directors of Sales, each hotel is assigned a Revenue Manager, either on property, working remotely, or via the brand. The ~~revenue~~Revenue ~~managers~~Managers work with the Director of Sales to steer the efforts of the property-level teams, ensuring the appropriate mix of business and pricing for each hotel. We have developed a forecasting tool that provides history by day of week and segment of business. This customized tool provides each hotel with a means to analyze trends ~~from~~ from previous years as well as changes in market conditions to forecast rooms sold and ADR by segment of business on a day-by-day basis. The forecast is then used to identify the types of business and periods of time where the sales effort will result in the greatest revenue gains and where changes in current strategy are necessary.

Joint Ventures

As of March 1, ~~2009~~2010, we ~~operate~~operated one hotel, the Crowne Plaza West Palm Beach, FL, in a joint venture in which we have a 51% voting equity interest and exercise control.

On March 20, 2007, we acquired our joint venture partner’s 18% interest in the Radisson New Orleans ~~Airport~~ Airport Plaza, LA for $2.9 million. On July 26, 2007, we acquired our joint venture partner’s 50% interest in the Crowne Plaza Melbourne, FL for $13.5 million. As a result, the hotels are now owned by wholly-owned subsidiaries.

Competition and Seasonality

The hotel business is highly competitive. Each of our hotels competes in its market area with numerous other hotel properties operating under various lodging brands. ~~National chains, including in many instances chains from which we obtain franchises, may compete with us in various markets.~~ Our competition is comprised of public companies, privately-held equity fund companies, and small independent owners ~~and~~ and operators. Competitive factors in the lodging industry include, among others, room rates, quality of accommodation, 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~~comparable ~~located~~hotels. Furthermore, the economic recession has heightened the level of competition as luxury and upper ~~comparable~~upscale hotels are substantially discounting rates to attract customers in downstream segments.

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 4in warmer climates. Aggregate demand for accommodations in our portfolio is lowest during the winter months. Levels of demand are also dependent upon many factors that are beyond our control, including national 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.

Demand for accommodations, and the resulting revenues, varies 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 lowest during the winter months. Levels of demand are also dependent upon many factors that are beyond our control, including national 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, upper upscale and midscale hotels in targeted markets.

The Lodging Industry

~~The~~In ~~U.S. lodging~~2009, ~~industry enjoyed five consecutive years of positive RevPAR growth from 2003 through 2007 after~~ the ~~economic devastation of the terrorist attacks in September 2001. Demand exceeded supply for four of those five years, and supply growth was less than 0.5% in 2004, 2005, and 2006. The~~ U.S. lodging industry experienced a significant ~~gains~~downturn ~~in 2006 and 2007,~~ with full year RevPAR upfor ~~7.5% and 5.7%, respectively, according to Smith Travel Research. For~~ the ~~first 6 months~~ ~~of 2008, RevPAR reflected growth, but to a lesser degree, up 1~~U.5%S. ~~The~~ industry ~~began~~decreasing ~~showing signs of a downward trend in the third quarter, with RevPAR down 1~~16.17%. ~~Full~~compared ~~year~~to ~~RevPAR for the U.S. industry was down 1.9%~~2008, according to Smith Travel Research as reported in ~~January 2009. Smith Travel Research~~ ~~predicted annual U.S.~~January ~~lodging industry RevPAR to decline by 2~~2010.5% inThe ~~2009~~reduction ~~with an annual increase~~ in ~~supply~~RevPAR ofwas ~~2.4% coupled with~~ a ~~decline in demand of 1.0%. As a~~ result~~, industry~~ occupancy is expected to decline 3.5%, and ADR is expected to increase 1.0%. These industry forecasts may not necessarily reflect our portfolio of hotels. In addition, the current severe economic recession could result in lower than expected results.

of a 3.2% increase in supply and a 5.8% decrease in demand. These factors led to declines in both occupancy and average daily rate of 8.7% and 8.8%, respectively, according to Smith Travel Research.

In December 2009, PKF Hospitality Research predicted a 1.1% decline in RevPAR in 2010 for the U.S. lodging industry as a whole. In January 2010, Smith Travel Research projected a 3.2% decrease in RevPAR in 2010, with increases in both supply and demand of 1.8%, flat occupancy, and a decrease in average daily rate of 3.2% for the U.S. hotel industry as a whole.

The economic recession could result in lower than expected results.

Chain-Scale Segmentation

Smith Travel Research classifies the lodging industry into six chain scale segments by brand according to their respective national average daily rate or ADR. The six segments are defined as: luxury, upper upscale, upscale, midscale with food and beverage, midscale without food and beverage and economy. We operate hotel brands in the following four chain scale segments:

• Upper Upscale (Hilton and Marriott); • Upscale (Courtyard by Marriott, Crowne Plaza, Four Points by Sheraton, Radisson, Residence Inn by Marriott, SpringHill Suites by Marriott and Wyndham); • Midscale with Food & Beverage (Holiday Inn~~, Holiday Inn Select~~); and • Midscale without Food & Beverage (Fairfield Inn by Marriott and Holiday Inn Express);

WeRevPAR ~~believe~~for ~~that~~ our ~~hotels~~held ~~and~~for ~~brands~~use ~~will~~hotels ~~perform~~decreased ~~competitively with the U~~18.~~S. lodging~~0% ~~industry,~~in ~~although~~2009 ~~both~~as ~~occupancy~~compared ~~and ADR~~to ~~are~~16.7% ~~expected~~for tothe ~~decline~~industry inas a ~~2009~~whole. ~~RevPAR~~We ~~for~~believe that our ~~held for use~~ hotels ~~decreased~~and ~~0.9%~~brands inwill ~~2008~~continue ~~as compared~~ to ~~1.9%~~perform ~~for~~slightly below the U.S. lodging industry asin ~~a whole~~2010.

Properties

We own and manage our hotels. Accordingly, we retain responsibility for all aspects of the day-to-day management for each of our hotels. We establish and implement standards for hiring, training and supervising staff, creating and maintaining financial controls, complying with laws and regulations related to hotel operations, and providing for the repair and maintenance of the hotels. Because we own and manage our hotels, we are able to directly control our labor costs, we can negotiate purchasing arrangements without fees to third parties, and as an owner and operator, we are motivated to focus our results on bottom-line profit performance instead of solely on top-line revenue growth. Accordingly, we are focused on maximizing returns for our shareholders.

Dispositions

A summary of our disposition activity is as follows:


	Number of
	Hotels
Owned and operated at December 31, 2007		46
Sold in 2008		(5	)

Owned and operated at December 31, 2008		41
Sold in 2009		(5	)
Deconsolidated in 2009		(2	)

Owned and operated at December 31, 2009		34

In February 2010, we deconsolidated the following six hotels upon surrendering control of the hotels to a court-appointed receiver: Courtyard by Marriott Abilene, TX, Courtyard by Marriott Bentonville, AR, Courtyard by Marriott Florence, KY, Crowne Plaza Houston, TX, Fairfield Inn Merrimack, NH, and Holiday Inn Inner Harbor Baltimore, MD.

The six hotels served as collateral for Merrill Lynch Fixed Rate Pool 3 (“Pool 3”), which had a balance of $45.5 million as of December 31, 2009 and matured on October 1, 2009, following two short-term extensions. The extensions were intended to provide time for us to reach an agreement with the special servicer to modify the loan. Since we were unable to reach a modification agreement, we surrendered control of the six hotels that secured Pool 3 to a court-appointed receiver. As of March 1, 2010, we owned and operated 28 hotels.

Portfolio

Our hotel portfolio, as of March 1, ~~2009~~2010, by franchisor, is set forth below:

								Year of
								Year of Last Major
	~~Room Count~~		Room Count					~~Last Major~~ Renovation or
Franchisor/Hotel Name	Held for Use		Held for Sale		Total		Location	Construction
InterContinental Hotels Group PLC (IHG)
Crowne Plaza Albany		384				384	Albany, NY	2001
Crowne Plaza Houston		294				294	Houston, TX	1999
Crowne Plaza Melbourne		270				270	Melbourne, FL	2006
Crowne Plaza Phoenix Airport		295				295	Phoenix, AZ	2004
Crowne Plaza Pittsburgh		193				193	Pittsburgh, PA	2001
Crowne Plaza Silver Spring		231				231	Silver Spring, MD	2005
Crowne Plaza West Palm Beach (51% owned)		219				219	West Palm Beach, FL	~~Planning and Diligence~~2005
Crowne Plaza Worcester		243				243	Worcester, MA	Being Renovated
Holiday Inn BWI Airport		259				259	Baltimore, MD	2009 - Guestrooms, Commercial space being renovated
Holiday Inn BWI Airport		260				260	Baltimore, MD	Being Renovated
Holiday Inn Cromwell Bridge				139		139	Cromwell Bridge, MD	2000
Holiday Inn East Hartford				130		130	East Hartford, CT	2000
Holiday Inn Hilton Head		202				202	Hilton Head, SC	2008
Holiday Inn Inner Harbor		375				375	Baltimore, MD	Being Renovated
Holiday Inn Meadowlands		138				138	Pittsburgh, PA	2005
Holiday Inn Monroeville		187				187	Monroeville, PA	~~Planning and Diligence~~2005
Holiday Inn Myrtle Beach		133				133	Myrtle Beach, SC	2006
Holiday Inn Phoenix West				144		144	Phoenix, AZ	2003
Holiday Inn Santa Fe		130				130	Santa Fe, NM	2003
Holiday Inn Express Palm Desert		129				129	Palm Desert, CA	2003
Holiday Inn Strongsville		303				303	Cleveland, OH	2005
Holiday Inn Select Strongsville		303				303	Cleveland, OH	2005
Holiday Inn Express Palm Desert				129		129	Palm Desert, CA	2003
Holiday Inn Select Windsor				214		214	Windsor, Ontario	2004
Total IHG Room Count		2,944		129		3,073
Total IHG Room Count		3,986		627		4,613
Total IHG Hotel Count		13		1		14
Total IHG Hotel Count		17		4		21
Marriott International Inc.
Courtyard by Marriott Abilene		100				100	Abilene, TX	2004
Courtyard by Marriott Bentonville		90				90	Bentonville, AR	2004
Courtyard by Marriott Buckhead		181				181	Atlanta, GA	2008
Courtyard by Marriott Florence		78				78	Florence, KY	2004
Courtyard by Marriott Lafayette		90				90	Lafayette, LA	2004
Courtyard by Marriott Paducah		100				100	Paducah, KY	2004
Courtyard by Marriott Tulsa		122				122	Tulsa, OK	2004
Fairfield Inn by Marriott Merrimack		115				115	Merrimack, NH	2002
Marriott Denver Airport		238				238	Denver, CO	2008
Residence Inn by Marriott Dedham		81				81	Dedham, MA	2004
Residence Inn by Marriott Little Rock		96				96	Little Rock, AR	2004
SpringHill Suites by Marriott Pinehurst		107				107	Pinehurst, NC	2007
Total Marriott Room Count		1,~~398~~015		—		1,~~398~~015
Total Marriott Hotel Count		128		—		128
Hilton Hotels Corporation
Hilton Columbia		152				152	Columbia, MD	2003
Hilton Fort Wayne		244				244	Fort Wayne, IN	Being Renovated
Total Hilton Room Count		396		—		396
Total Hilton Hotel Count		2		—		2
Carlson Companies
Radisson New Orleans Airport Plaza		244				244	New Orleans, LA	2005
Radisson Phoenix		159				159	Phoenix, AZ	2005
Total Carlson Room Count		403		—		403
Total Carlson Hotel Count		2		—		2
Starwood Hotels & Resorts Worldwide, Inc.
Four Points by Sheraton Philadelphia		190				190	Philadelphia, PA	2008
Total Starwood Room Count		190		—		190
Total Starwood Hotel Count		1		—		1
Wyndham Hotels and Resorts, LLC
Wyndham DFW Airport North		282				282	Dallas, TX	2008
Total Wyndham Room Count		282		—		282
Total Wyndham Hotel Count		1		—		1
Grand Total Room Count		5,230		129		5,359
Grand Total Hotel Count		27		1		28

								Year of
	Room Count							Last Major Renovation or
Franchisor/Hotel Name	Held for Use		Held for Sale		Total		Location	Construction
Hilton Hotels Corporation
Hilton Columbia		152				152	Columbia, MD	Planning and Diligence
Hilton Fort Wayne		244				244	Fort Wayne, IN	Being Renovated
Hilton Northfield				191		191	Troy, MI	2003
Total Hilton Room Count		396		191		587
Total Hilton Hotel Count		2		1		3
Carlson Companies
Radisson New Orleans Airport Plaza		244				244	New Orleans, LA	2005
Radisson Phoenix		159				159	Phoenix, AZ	2005
Total Carlson Room Count		403		—		403
Total Carlson Hotel Count		2		—		2
Starwood Hotels & Resorts Worldwide, Inc.
Four Points by Sheraton Philadelphia(1)		190				190	Philadelphia, PA	2008
Total Starwood Room Count		190		—		190
Total Starwood Hotel Count		1		—		1
Wyndham Hotels and Resorts, LLC
Wyndham DFW Airport North		282				282	Dallas, TX	2008
Total Wyndham Room Count		282		—		282
Total Wyndham Hotel Count		1		—		1
Non-branded hotels
French Quarter Suites Memphis(2)				105		105	Memphis, TN	1997
Total Non-branded Room Count		—		105		105
Total Non-branded Hotel Count		—		1		1
Grand Total Room Count		6,655		923		7,578
Grand Total Hotel Count		35		6		41

Hotel data by market segment and region

(1)		This hotel converted from a DoubleTree Club in January 2008.
(2)		This hotel is currently closed.

The following four tables include data for all hotels in our portfolio as of December 31, 2009. The number of properties and number of rooms disclosed in the tables are as of the end of the applicable year. Therefore, the tables include the six hotels that we deconsolidated in February 2010 upon surrendering control of the hotels to a court-appointed receiver, as discussed in “Dispositions” above.

The first two tables below present data on occupancy, ADR and RevPAR for the hotels in our portfolio for the years ended December 31, 2009, December 31, 2008, and December 31, 2007 by chain ~~Dispositions~~scale segment. The chain scale segments are defined on page 5.

A Combined ~~summary~~Continuing ofand ~~our~~Discontinued ~~disposition~~Operations ~~activity~~— is34 ~~as follows:~~hotels

	Number of
	2009			2008			2007
	Hotels
Upper Upscale Number of properties		3			3			3
Owned at December 31, 2006		69
Number of rooms		634			634			634
Sold in 2007		(23	)
Occupancy		65.3	%		70.1	%		73.9	%
Owned at December 31, 2007		46
Average daily rate	$	114.44		$	126.36		$	124.78
Sold in 2008		(5	)
RevPAR	$	74.68		$	88.55		$	92.22
Owned at December 31, 2008		41
Upscale Number of properties		21			21			20
Number of rooms		3,806			3,806			3,616
Occupancy		64.8	%		71.4	%		68.9	%
Average daily rate	$	93.86		$	106.23		$	108.11
RevPAR	$	60.82		$	75.83		$	74.50
Midscale with Food & Beverage Number of properties		8			8			9
Number of rooms		1,717			1,717			1,907
Occupancy		60.5	%		68.5	%		70.3	%
Average daily rate	$	96.77		$	99.15		$	101.65
RevPAR	$	58.55		$	67.92		$	71.46
Midscale without Food & Beverage Number of properties		2			2			2
Number of rooms		244			244			244
Occupancy		45.8	%		52.4	%		58.0	%
Average daily rate	$	78.52		$	90.93		$	90.00
RevPAR	$	36.00		$	47.69		$	52.24
All Hotels Number of properties		34			34			34
Number of rooms		6,401			6,401			6,401
Occupancy		63.0	%		69.8	%		69.4	%
Average daily rate	$	96.30		$	105.92		$	107.33
RevPAR	$	60.64		$	73.89		$	74.49

No Continuing ~~hotels~~Operations ~~were~~— ~~sold~~33 ~~between January 1, 2009 and~~hotels ~~March 1, 2009.~~

Hotel data by market segment and region


	2009			2008			2007
Upper Upscale Number of properties		3			3			3
Number of rooms		634			634			634
Occupancy		65.3	%		70.1	%		73.9	%
Average daily rate	$	114.44		$	126.36		$	124.78
RevPAR	$	74.68		$	88.55		$	92.22
Upscale Number of properties		21			21			20
Number of rooms		3,806			3,806			3,616
Occupancy		64.8	%		71.4	%		68.9	%
Average daily rate	$	93.86		$	106.23		$	108.11
RevPAR	$	60.82		$	75.83		$	74.50
Midscale with Food & Beverage Number of properties		8			8			9
Number of rooms		1,717			1,717			1,907
Occupancy		60.5	%		68.5	%		70.3	%
Average daily rate	$	96.77		$	99.15		$	101.65
RevPAR	$	58.55		$	67.92		$	71.46
Midscale without Food & Beverage Number of properties		1			1			1
Number of rooms		115			115			115
Occupancy		32.2	%		43.7	%		45.8	%
Average daily rate	$	71.31		$	85.87		$	87.74
RevPAR	$	22.94		$	37.55		$	40.20
All Hotels Number of properties		33			33			33
Number of rooms		6,272			6,272			6,272
Occupancy		63.1	%		70.0	%		69.4	%
Average daily rate	$	96.56		$	106.13		$	107.65
RevPAR	$	60.90		$	74.24		$	74.72

No hotels were sold between January 1, 2009 and March 1, 2009.

Hotel data by market segment and region

The following four tables include data for all hotels in our portfolio as of December 31, 2008, except for the French Quarter Suites Memphis, TN, a held for sale (discontinued operations) hotel, which is closed. The number of properties and number of rooms disclosed in the tables are as of the end of the applicable year.

The first two tables below present data on occupancy, ADR and RevPAR for the hotels in our portfolio for the years ended December 31, 2008, December 31, 2007, and December 31, 2006 by chain scale segment with one hotel excluded as noted above. The chain scale segments are defined on page 5.

Combined Continuing and Discontinued Operations — 40 hotels (excludes the Memphis hotel)

	2008			2007			2006
Upper Upscale
Number of properties		4			4			4
Number of rooms		825			825			825
Occupancy		69.3	%		72.4	%		68.3	%
Average daily rate	$	120.07		$	118.74		$	113.65
RevPAR	$	83.23		$	86.00		$	77.67
Upscale
Number of properties		22			21			20
Number of rooms		4,048			3,858			3,576
Occupancy		70.4	%		68.2	%		68.4	%
Average daily rate	$	106.26		$	107.85		$	106.13
RevPAR	$	74.78		$	73.61		$	72.61
Midscale with Food & Beverage
Number of properties		12			13			14
Number of rooms		2,355			2,545			2,827
Occupancy		66.8	%		69.9	%		68.3	%
Average daily rate	$	98.49		$	101.56		$	96.12
RevPAR	$	65.81		$	70.97		$	65.69
Midscale without Food & Beverage
Number of properties		2			2			2
Number of rooms		244			244			244
Occupancy		52.4	%		58.0	%		58.6	%
Average daily rate	$	90.93		$	90.00		$	87.58
RevPAR	$	47.69		$	52.24		$	51.34
All Hotels
Number of properties		40			40			40
Number of rooms		7,472			7,472			7,472
Occupancy		68.6	%		68.9	%		68.1	%
Average daily rate	$	105.03		$	106.45		$	102.63
RevPAR	$	72.00		$	73.38		$	69.85

The two tables below present data on occupancy, ADR and RevPAR for the hotels in our portfolio ~~Continuing Operations~~for the years ended December —31, 352009, ~~hotels~~December 31, 2008, and December 31, 2007 by geographic region.

	2008			2007			2006
Upper Upscale
Number of properties		3			3			3
Number of rooms		634			634			634
Occupancy		70.1	%		73.9	%		70.0	%
Average daily rate	$	126.36		$	124.78		$	118.16
RevPAR	$	88.55		$	92.22		$	82.76
Upscale
Number of properties		22			21			20
Number of rooms		4,048			3,858			3,576
Occupancy		70.4	%		68.2	%		68.4	%
Average daily rate	$	106.26		$	107.85		$	106.13
RevPAR	$	74.78		$	73.61		$	72.61
Midscale with Food & Beverage
Number of properties		8			9			10
Number of rooms		1,728			1,918			2,200
Occupancy		68.5	%		70.3	%		68.4	%
Average daily rate	$	99.15		$	101.65		$	95.85
RevPAR	$	67.92		$	71.46		$	65.56
Midscale without Food & Beverage
Number of properties		2			2			2
Number of rooms		244			244			244
Occupancy		52.4	%		58.0	%		58.6	%
Average daily rate	$	90.93		$	90.00		$	87.58
RevPAR	$	47.69		$	52.24		$	51.34
All Hotels
Number of properties		35			35			35
Number of rooms		6,654			6,654			6,654
Occupancy		69.2	%		69.0	%		68.2	%
Average daily rate	$	105.95		$	107.21		$	103.30
RevPAR	$	73.32		$	73.97		$	70.46

The two tables below present data on occupancy, ADR and RevPAR for the hotels in our portfolio for the years ended December 31, 2008, December 31, 2007, and December 31, 2006 by geographic region with one hotel excluded as previously noted.

The regions in the two tables below are defined as:

• Northeast: ~~Canada, Connecticut,~~ Massachusetts, Maryland, New Hampshire, New York, Ohio, Pennsylvania; • Southeast: Florida, Georgia, Kentucky, Louisiana, North Carolina, South Carolina; • Midwest: Arkansas, Indiana, ~~Michigan,~~ Oklahoma, Texas; and • West: Arizona, California, Colorado, New Mexico.

Combined Continuing and Discontinued Operations — 34 hotels


	2009			2008			2007
Northeast Region Number of properties		12			12			12
Number of rooms		2,598			2,598			2,598
Occupancy		61.8	%		67.6	%		69.1	%
Average daily rate	$	100.32		$	106.98		$	107.89
RevPAR	$	61.97		$	72.35		$	74.56
Southeast Region Number of properties		10			10			10
Number of rooms		1,624			1,624			1,624
Occupancy		66.5	%		71.4	%		70.0	%
Average daily rate	$	95.78		$	108.69		$	112.31
RevPAR	$	63.67		$	77.57		$	78.61
Midwest Region Number of properties		7			7			7
Number of rooms		1,228			1,228			1,228
Occupancy		57.1	%		68.2	%		62.5	%
Average daily rate	$	89.77		$	98.81		$	98.52
RevPAR	$	51.25		$	67.38		$	61.61
West Region Number of properties		5			5			5
Number of rooms		951			951			951
Occupancy		67.8	%		74.8	%		78.0	%
Average daily rate	$	94.23		$	107.13		$	107.42
RevPAR	$	63.91		$	80.18		$	83.79
All Hotels Number of properties		34			34			34
Number of rooms		6,401			6,401			6,401
Occupancy		63.0	%		69.8	%		69.4	%
Average daily rate	$	96.30		$	105.92		$	107.33
RevPAR	$	60.64		$	73.89		$	74.49

~~Combined~~ Continuing ~~and Discontinued~~ Operations — 4033 hotels ~~(excludes the Memphis hotel)~~

	2008			2007			2006
	2009			2008			2007
Northeast Region
Northeast Region Number of properties		12			12			12
Number of properties		16			16			16
Number of rooms		2,598			2,598			2,598
Number of rooms		3,335			3,335			3,335
Occupancy		61.8	%		67.6	%		69.1	%
Occupancy		65.7	%		67.9	%		66.8	%
Average daily rate	$	100.32		$	106.98		$	107.89
Average daily rate	$	105.67		$	106.32		$	103.65
RevPAR	$	61.97		$	72.35		$	74.56
RevPAR	$	69.38		$	72.17		$	69.26
Southeast Region Number of properties		10			10			10
Southeast Region
Number of properties		10			10			10
Number of rooms		1,624			1,624			1,624
Occupancy		7166.45	%		7071.04	%		6770.50	%
Average daily rate	$	~~108~~95.6978		$	~~112~~108.3169		$	~~113~~112.3031
RevPAR	$	7763.5767		$	7877.6157		$	7678.4561
Midwest Region
Midwest Region Number of properties		7			7			7
Number of properties		8			8			8
Number of rooms		1,228			1,228			1,228
Number of rooms		1,418			1,418			1,418
Occupancy		57.1	%		68.2	%		62.5	%
Occupancy		68.0	%		63.2	%		68.0	%
Average daily rate	$	89.77		$	98.81		$	98.52
Average daily rate	$	98.72		$	98.27		$	89.23
RevPAR	$	51.25		$	67.38		$	61.61
RevPAR	$	67.13		$	62.11		$	60.70
West Region Number of properties		4			4			4
West Region
Number of rooms		822			822			822
Number of properties		6			6			6
Occupancy		69.4	%		77.1	%		79.4	%
Number of rooms		1,095			1,095			1,095
Average daily rate	$	95.82		$	108.71		$	109.61
Occupancy		73.9	%		77.9	%		72.7	%
RevPAR	$	66.46		$	83.85		$	87.03
Average daily rate	$	105.58		$	107.57		$	101.45
All Hotels Number of properties		33			33			33
RevPAR	$	78.02		$	83.81		$	73.75
Number of rooms		6,272			6,272			6,272
All Hotels
Occupancy		63.1	%		70.0	%		69.4	%
Number of properties		40			40			40
Average daily rate	$	96.56		$	106.13		$	107.65
Number of rooms		7,472			7,472			7,472
RevPAR	$	60.90		$	74.24		$	74.72
Occupancy		68.6	%		68.9	%		68.1	%
Average daily rate	$	105.03		$	106.45		$	102.63
RevPAR	$	72.00		$	73.38		$	69.85

Continuing Operations — 35 hotels.

	2008			2007			2006
Northeast Region
Number of properties		13			13			13
Number of rooms		2,852			2,852			2,852
Occupancy		66.5	%		68.2	%		66.8	%
Average daily rate	$	106.97		$	107.56		$	105.23
RevPAR	$	71.16		$	73.35		$	70.34
Southeast Region
Number of properties		10			10			10
Number of rooms		1,624			1,624			1,624
Occupancy		71.4	%		70.0	%		67.5	%
Average daily rate	$	108.69		$	112.31		$	113.30
RevPAR	$	77.57		$	78.61		$	76.45
Midwest Region
Number of properties		7			7			7
Number of rooms		1,227			1,227			1,227
Occupancy		68.2	%		62.5	%		68.9	%
Average daily rate	$	98.81		$	98.52		$	88.14
RevPAR	$	67.38		$	61.61		$	60.69
West Region
Number of properties		5			5			5
Number of rooms		951			951			951
Occupancy		74.8	%		78.0	%		72.7	%
Average daily rate	$	107.13		$	107.42		$	100.78
RevPAR	$	80.18		$	83.79		$	73.25
All Hotels
Number of properties		35			35			35
Number of rooms		6,654			6,654			6,654
Occupancy		69.2	%		69.0	%		68.2	%
Average daily rate	$	105.95		$	107.21		$	103.30
RevPAR	$	73.32		$	73.97		$	70.46

Hotel Encumbrances

Of the 4134 hotels that we ~~own~~owned and ~~consolidate~~consolidated as of December 31, ~~2008~~2009, 3532 hotels were pledged as collateral to secure long-term debt. Refer to the table in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operation, Liquidity and Capital Resources. ~~See~~In addition, see “Item 1A. Risk Factors.”

Insurance

We maintain the following types of insurance:

• general liability; • property damage and business interruption (including coverage for terrorism); • flood; • directors’ and officers’ liability; • liquor liability; • workers’ compensation; • fiduciary liability; and • business automobile.

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 11history of claims. If these claims exceed our estimates, our future financial condition and results of operations would be adversely affected. As of December 31, 2009, we had accrued $8.9 million for these costs (including employee medical coverage). We believe that we have adequate reserves and sufficient insurance coverage for our business.

• liquor liability; • workers’ compensation; • fiduciary liability; • business automobile; and • employment practices liability insurance.

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 December 31, 2008, we had accrued $10.4 million for these costs (including employee medical and dental coverage). We believe that we have adequate reserves and sufficient insurance coverage for our business.

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 property 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. See “Item 1A. Risk Factors.”

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 (“ADA”). 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 are also 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. See “Item 1A. Risk Factors.”

11 ~~Employees~~

At December 31, 2008, we had 2,157 full-time and 889 part-time employees. We had 47 full-time employees engaged in administrative, operations, and executive activities and the balance of our employees manage, operate and maintain our properties. At December 31, 2008, 279 of our full and part-time employees located at four hotels were covered by five collective bargaining agreements. These five agreements expire between 2009 and 2011. We consider relations with our employees to be good.

Employees

At December 31, 2009, we had 1,686 full-time and 676 part-time employees. We had 37 full-time employees engaged in administrative, operations, and executive activities and the balance of our employees manage, operate and maintain our properties. At December 31, 2009, 161 of our full and part-time employees located at two hotels were covered by collective bargaining agreements. One of these agreements expired on October 31, 2009 and there is a dispute as to which union represents the unionized associates. We are waiting for the National Labor Relations Board to issue an appeal ruling on which union legally represents the union associates before addressing the expired collective bargaining agreement. The remaining collective bargaining agreement expires in April 2010. We consider relations with our employees to be good.

Legal Proceedings

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.

On January 26, 2010, a putative class action was commenced in the Superior Court of Fulton County, Georgia against us, each of our directors, Purchaser and Merger Sub alleging that our board of directors breached their fiduciary duties to our stockholders in approving and adopting a merger agreement that allegedly contains preclusive deal protection measures and unfair merger consideration. The complaint further alleges that we, Purchaser and Merger Sub aided and abetted our board of directors in allegedly breaching their fiduciary duties. On February 23, 2010, the plaintiff amended his complaint to add claims that the members of our board breached their duties of disclosure by allegedly failing to disclose certain matters in the Schedule 14A Preliminary Proxy. The amended complaint seeks to enjoin the completion of the merger, an award of unspecified monetary damages and to recover certain costs incurred by the plaintiff. In addition, on January 29, 2010, a putative class action was commenced in the Court of Chancery of the State of Delaware by United Capital Corp. against us, each of our directors, Purchaser, Merger Sub and Lone Star Funds, alleging that our board of directors breached their fiduciary duties to our stockholders by allegedly failing to obtain the highest price available for our stockholders, failing to adequately shop the Company and approving and adopting a merger agreement that allegedly contains preclusive deal protection measures. The complaint further alleges that Lone Star Funds aided and abetted our board of directors in allegedly breaching their fiduciary duties. The complaint seeks to enjoin the completion of the merger, an order compelling the board of directors to undertake a new sale process, an award of unspecified monetary damages and costs of litigation. In other papers filed with the Court, United Capital Corp. has asserted that it desires to make a bid for the Company but has not done so because of the allegedly preclusive deal protection measures contained in the merger agreement. We believe both lawsuits to be without merit and intend to defend them vigorously, including opposing any efforts to enjoin the proposed transaction.

SEC Filings and Financial Information

This Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and our Proxy Statement on Schedule 14A, and amendments to those reports are available free of charge on our website (www.Lodgian.com) as soon as practicable after they are submitted to the Securities and Exchange Commission (“SEC”).

You may read and copy any materials the Company files with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other information about us.

Financial information about our revenues and expenses for the last three fiscal years and assets and liabilities for the last two years may be found in the Consolidated Financial Statements, beginning on page F-1.

Item 1A. ~~Risk~~RISK ~~Factors~~FACTORS

WeThis ~~make~~Form ~~forward~~10-K for the year ended December 31, 2009 contains forward-looking statements inwithin ~~this~~the meaning ~~report~~of ~~and~~the federal securities laws. All statements, other than statements of historical facts, ~~reports~~including, weamong ~~file~~others, ~~with~~statements regarding the ~~SEC.~~anticipated Inmerger, ~~addition~~Lodgian’s expectations regarding returning certain hotels to lenders, ~~management~~anticipated ~~may~~cost ~~make~~reductions, optional maturity ~~oral~~extensions, ~~forward-looking~~property ~~statements~~dispositions, infuture ~~discussions~~financial ~~with~~position, ~~analysts~~business strategy, projected ~~the~~performance ~~media~~and financing needs, ~~investors~~are ~~and~~forward-looking ~~others~~statements. ~~These~~Those statements include statements ~~relating~~regarding tothe ~~our plans~~intent, ~~strategies,~~belief ~~objectives,~~ or current expectations, ~~intentions~~of Lodgian and ~~adequacy~~members of ~~resources~~its management team, ~~and~~as ~~are~~well ~~made pursuant~~as to the ~~safe~~assumptions ~~harbor~~on ~~provisions~~which ofsuch ~~the~~statements ~~Private~~are ~~Securities~~based, and generally are ~~Litigation~~identified ~~Reform~~by ~~Act~~the use of ~~1995.~~words ~~The~~such ~~words~~as “may”, ” “will”,” “seeks,” “anticipates,” “believes,” “~~anticipates~~estimates,” “expects,” ~~“intends,”~~ “plans,” “~~estimates~~intends,” ~~“projects,”,~~ “should” ~~and~~or similar expressions. Forward-looking statements are ~~intended~~not toguarantees ~~identify~~of future performance and involve risks and uncertainties that actual results may differ materially from those contemplated by such forward-looking statements. Many of ~~These~~these ~~forward-looking~~factors ~~statements~~are ~~reflect~~beyond ~~our~~the ~~current~~Lodgian’s ~~views~~ability ~~with~~to control or predict. Such factors include, but are ~~respect~~not limited to, ~~future~~any ~~events~~conditions ~~and~~imposed in connection with the ~~impact~~merger, approval of ~~these~~the ~~events~~merger agreement onby ~~our business,~~the ~~financial~~stockholders ~~condition~~of Lodgian, ~~results~~the satisfaction of ~~operations~~various ~~and~~other conditions to the ~~prospects.~~closing ~~Our~~of ~~business~~the ismerger ~~exposed~~contemplated toby ~~many~~the ~~risks~~merger agreement, ~~difficulties and~~the ~~uncertainties,~~effects ~~including~~of ~~the~~regional, ~~following:~~national and international

• Our ability to refinance or extend the portion of our mortgage indebtedness that is scheduled to mature in 2009; • The effects of regional, national and international economic conditions; • Competitive conditions in the lodging industry and increases in room supply; • The effects of actual and threatened terrorist attacks and international conflicts in the Middle East and elsewhere, 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; • Our ability to complete planned hotel dispositions; • Seasonality of the hotel business; • The effects of unpredictable weather events such as hurricanes; • 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; • 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;12

•economic ~~Potential~~conditions, ~~litigation~~our ~~and/or~~ability ~~governmental~~to ~~inquiries~~refinance ~~and~~or ~~investigations;~~extend •maturing ~~Laws~~mortgage ~~and~~indebtedness, ~~regulations~~competitive conditions ~~applicable~~in tothe ~~our~~lodging ~~business,~~industry ~~including~~and ~~federal,~~increases ~~state~~in orroom ~~local hotel~~supply, ~~resort,~~requirements ~~restaurant~~of orfranchise agreements ~~land~~(including ~~use~~the ~~regulations,~~right ~~employment,~~of ~~labor~~franchisors orto ~~disability~~immediately ~~laws~~terminate ~~and~~their ~~regulations;~~respective •agreements if Awe ~~downturn~~breach incertain ~~the~~provisions), ~~economy~~our ~~due~~ability to ~~several~~complete ~~factors,~~planned ~~including~~hotel ~~but~~dispositions, ~~not~~the ~~limited~~ ability to, ~~high~~realize ~~energy~~anticipated ~~costs~~cost reductions, ~~natural~~the ~~gas~~effects ~~and~~of ~~gasoline~~unpredictable ~~prices;~~weather •events ~~The~~such ~~impact~~as hurricanes, ofthe ~~continued~~financial ~~disruptions~~condition inof the ~~stock~~airline industry and ~~credit~~its ~~markets~~impact ~~and~~on ~~potential~~air ~~failures~~travel, the effect of ~~financial~~self-insured ~~institutions~~claims onin excess of our ~~ability~~reserves toand ~~access~~our ~~capital,~~ability ~~and~~to •obtain ~~The~~adequate insurance ~~risks~~at ~~identified~~reasonable ~~below~~rates, ~~under~~and ~~“Risks~~other ~~Related~~factors todiscussed ~~Our~~below. ~~Business”~~Lodgian ~~and~~assumes ~~“Risks~~no ~~Related~~duty to update ~~Our~~these ~~Common Stock”~~statements.

The Company believes these forward-looking statements are reasonable; however, undue reliance should not be placed on any forward-looking statements, which are based on current expectations. All written and oral forward-looking statements attributable to Lodgian or persons acting on its behalf are qualified in their entirety by these cautionary statements. Further, forward-looking statements speak only as of the date they are made, and the company undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time unless otherwise required by law.

Our business is exposed to many risks, difficulties and uncertainties, including the following:

	•		Our ability to refinance or extend the portion of our mortgage indebtedness that is scheduled to mature in 2010 and beyond;

	•		The effects of regional, national and international economic conditions;

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

	•		The effects of actual and threatened terrorist attacks and international conflicts in the Middle East and elsewhere, 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;

	•		Our ability to complete planned hotel dispositions;

	•		Seasonality of the hotel business;

	•		The effects of unpredictable weather events such as hurricanes;

	•		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;

	•		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 and/or governmental inquiries and investigations;

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

	•		A downturn in the economy due to several factors, including but not limited to, high energy costs, natural gas and gasoline prices;

	•		The impact of continued disruptions in the credit markets and potential failures of financial institutions on our ability to access capital, and

	•		The risks identified below under “Risks Related to Our Business” and “Risks Related to Our Common Stock”.

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 our 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 and prospects.

The following represents risks and uncertainties which could either individually or together cause actual results to differ materially from those described in the forward-looking statements. If any of the following risks actually occur, our business, financial ~~condition, results of operations, cash flow,~~ ~~liquidity and prospects could be adversely affected. In that case, the market price of our common stock could decline and you may lose all or part of your investment in our common stock.~~

condition, results of operations, cash flow, liquidity and prospects could be adversely affected. In that case, the market price of our common stock could decline and you may lose all or part of your investment in our common stock.

Risks Related to Our Business

We may be unable to refinance, extend or repay our substantial mortgage indebtedness maturing in 2010 ~~July~~and ~~2009~~beyond, ~~which~~as ~~could~~a ~~have~~result of, among other things, the current condition of the economy, the resulting decline in the lodging industry and the challenging credit markets. If we were unable to extend or refinance such indebtedness, or engage in a ~~material~~strategic ~~adverse~~transaction, ~~effect~~such onas ~~our~~the ~~business~~proposed merger, ~~financial~~one ~~condition~~or more of our subsidiaries or the Company as a whole may be forced to make a Chapter 11 bankruptcy filing to seek protection from our creditors. Even if we were able to refinance or extend our indebtedness, ~~results~~a substantial amount of indebtedness could limit our operational flexibility or otherwise adversely ~~operations~~affect ~~and~~our ~~stock~~financial ~~price~~condition.

AsOur ofability ~~December 31~~to successfully refinance or extend our debt is negatively affected by, ~~2008~~among other things: (i) the challenging credit markets, we(ii) the ~~had~~lower ~~$332.6~~loan-to-value ratios now required in refinancings, (iii) ~~million~~the perception of ~~total~~ ~~mortgage~~our ~~obligations~~Company ~~outstanding~~due to, ~~including~~among other things, our past bankruptcy filing, and (iv) the decrease in the current ~~portion.~~ ~~This~~value ~~mortgage~~of ~~indebtedness~~our isproperties, ~~secured~~and bythe ~~interests~~imminent inmaturities of certain indebtedness. As of ~~our~~December 31, ~~hotel~~2009, ~~properties.~~we ~~Approximately~~ had $~~148~~292.52 million of ~~this~~total mortgage obligations ~~debt~~outstanding, ~~matures~~including inthe ~~May~~current portion, and ~~December~~ 32 of ~~2009,~~our ~~both~~consolidated ofhotels ~~which~~were pledged weas ~~currently~~collateral ~~expect~~for toexisting ~~extend for~~mortgage ~~additional~~loans. ~~one-year~~These ~~periods~~32 inhotels ~~accordance~~represented ~~with~~approximately 91% of the ~~extension options~~book ~~set~~value ~~forth~~of inour ~~the~~consolidated ~~relevant~~property ~~loan~~and ~~documents.~~equipment, ~~However~~net, ~~approximately~~ ~~$128 million~~as of ~~our~~December 31, ~~mortgage~~2009. ~~debt~~As isa ~~scheduled~~result, we have limited flexibility to ~~mature~~sell inor ~~July~~finance ~~2009~~an ~~and~~unencumbered ~~cannot~~property beto ~~extended~~satisfy ~~without~~our cash ~~the~~needs. ~~approval~~In ofaddition, ~~the~~our ~~loan~~cash ~~servicers,~~flow ~~which~~from ~~extension~~operations ~~has~~may ~~been~~be insufficient to make required debt service ~~requested~~payments ~~but~~and we may not ~~yet~~be ~~granted.~~able Weto ~~cannot~~extend, ~~currently~~repay ~~predict whether~~or refinance our ~~efforts~~maturing toindebtedness ~~obtain~~on favorable anterms ~~extension~~or ~~will~~at ~~be successful~~all.

ToPool ~~address~~3 ~~the~~with ~~pending~~a ~~maturities~~balance inof ~~July~~$45.5 million ~~2009,~~as weof ~~are~~December 31, ~~also pursuing~~2009, ~~opportunities~~matured toon ~~refinance~~October 1, ~~the maturing mortgage debt~~2009, orfollowing totwo ~~acquire~~short-term ~~new~~extensions. ~~mortgage~~The ~~debt~~extensions ~~using~~were ~~currently~~intended ~~unencumbered properties.~~to Toprovide ~~date,~~time wefor ~~have~~us ~~been unable~~ to ~~secure refinancing~~reach ~~and,~~an inagreement ~~light~~with of the ~~current~~special ~~credit~~servicer ~~markets~~to ~~generally~~modify ~~and~~ the ~~real~~ ~~estate~~loan. ~~credit~~Since ~~markets specifically,~~ we ~~expect~~were itunable ~~will remain difficult~~ to ~~refinance~~reach ~~the~~a modification ~~mortgage~~agreement, ~~debt~~we ~~prior~~surrendered tocontrol of the ~~July~~ ~~2009~~six ~~maturity~~hotels ~~date.~~that Wesecure ~~cannot~~Pool ~~currently~~3 ~~predict~~to ~~whether~~a ~~these~~court-appointed ~~efforts~~receiver ~~will~~in ~~be successful~~February 2010.

~~Our~~Approximately ~~ability~~$55.7 million toof ~~operate as a going concern is dependent upon~~ our ~~ability~~ ~~to extend, refinance or repay our July 2009~~ mortgage ~~debt~~ ~~prior to or upon its maturity. For example~~debt, ifcomprised weof ~~default on~~three ~~this~~ mortgage ~~debt~~loans ~~our~~secured ~~lenders~~by ~~could seek to foreclose on the~~six ~~properties~~hotels, ~~securing~~matures ~~the~~in ~~debt~~2010, ~~which could cause the loss of any anticipated income~~ and ~~cash~~cannot ~~flow~~be ~~from,~~extended ~~and~~without ~~our~~the ~~invested~~approval ~~capital in,~~of the ~~hotels~~loan servicers. ~~Moreover,~~We ~~we could be required to utilize an~~are ~~increasing~~pursuing ~~percentage~~opportunities ~~of our cash flow~~ to ~~service~~extend ~~any remaining debt~~ or ~~any~~refinance ~~new~~these ~~debt~~mortgages. ~~incurred~~A ~~with~~$130.0 million ~~a refinancing~~loan, which ~~would~~is ~~further~~secured ~~limit~~by ~~our~~10 ~~cash~~hotels, ~~flow~~matures ~~available~~in toMay 2010, ~~fund business operations~~ and ~~our strategic plan. If~~ we ~~are~~currently ~~unable~~expect to ~~refinance or~~exercise ~~extend~~ the ~~maturity~~second of ~~our July 2009 mortgage debt and~~three ~~maintain~~available ~~sufficient~~one-year ~~cash~~extension ~~flow~~options toin ~~fund~~accordance ~~our~~with ~~operations,~~the ~~our business,~~extension ~~financial~~options ~~condition,~~set ~~results~~forth ofin ~~operations and stock~~the ~~price~~loan ~~may be materially adversely affected, and we may be forced to restructure or significantly curtail our operations or to seek protection from our lenders~~document.

In addition, $26 million and $33 million of our mortgage debt mature in 2011 and 2012, respectively, with no available extension options.

We expect it will remain difficult to refinance the maturing mortgage debt and we cannot predict whether our efforts to extend or refinance the maturing debt will be successful. Our ability to operate as a going concern is dependent upon our ability to extend or refinance our maturing mortgage debt prior to the scheduled maturity dates. For example, a debt default could lead us to sell one or more of our hotels on unfavorable terms or, our lenders could seek to foreclose on the property or properties securing the debt, which could cause the loss of any anticipated income and cash flow from, and our invested capital in, the hotels. Moreover, we could be required to utilize an increasing percentage of our cash flow to service any remaining debt or any new debt incurred with a refinancing, particularly as a result of continued hotel dispositions, which would further limit our cash flow available to fund business operations and our strategic plan. If we are unable to obtain reasonable refinancing for such indebtedness and maintain sufficient cash flow to fund our operations, one or more of our subsidiaries or the Company as a whole may be forced to make a Chapter 11 bankruptcy filing to seek protection from our creditors or we may be forced to surrender certain properties securing our indebtedness in satisfaction of such indebtedness, or both.

Even if we are able to refinance or extend our indebtedness, our indebtedness could still have important consequences to us. It is likely that refinanced or extended debt will contain terms, such as more restrictive operational and financial covenants and higher fees and interest rates, that are less attractive than the terms contained in the debt being refinanced or extended. Our substantial indebtedness may increase our vulnerability to downturns in our business, the lodging industry and the general economy. In addition, we may be required to dedicate a substantial and increasing portion of our cash flow from operations to debt service payments. This could reduce the availability of our cash flow to fund working capital, capital expenditures and other needs, and limit our ability to react to changes in our industry and capitalize on business opportunities. This may also place us at a competitive disadvantage to our competitors that may have greater financial strength than we do.

Weadversely ~~may not~~affect beour ~~able~~operating toresults, ~~meet~~cash ~~the~~flow ~~requirements~~and ~~imposed~~liquidity. byAny ~~our~~additional ~~franchisors~~debt would inincrease our ~~franchise~~leverage, ~~agreements~~which ~~and~~would ~~therefore~~reduce ~~could~~our ~~lose~~operational ~~the~~flexibility ~~right to~~and ~~operate~~increase ~~one~~our ~~or more hotels under a national~~risk ~~brand~~exposure.

WeThe ~~operate~~terms ~~substantially all~~ of our ~~hotels~~debt ~~pursuant~~instruments toplace ~~franchise agreements~~many ~~for nationally recognized hotel brands. The franchise agreements generally contain specific standards for, and~~ restrictions ~~and limitations~~ on us, ~~the~~which ~~operation~~reduce ~~and~~operational ~~maintenance of a hotel in order to maintain uniformity within the franchisor system. The standards are also subject to change over time. Compliance with any new~~ and ~~existing standards could cause us to~~ ~~incur~~financial ~~significant~~flexibility ~~expenses~~ and ~~investment~~create indefault ~~capital expenditures~~risks.

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 non-compliance or default. As of March 1, 2009, we have been or expect to be notified that we are in default and/or non-compliance with respect to three franchise agreements. We cannot assure you that we will be able to cure the alleged instances of non-compliance and default prior to the specified termination dates or be granted additional time in which to cure any defaults or non-compliance. If a franchise agreement is terminated, we may be required to incur significant costs, including franchise termination payments and capital expenditures, which in certain circumstances could lead to acceleration of portions of our indebtedness. Our loan agreements generally prohibit a hotel from operating without a national franchise affiliation, and the loss of such an affiliation could trigger a default under one or more of our loan agreements. Therefore, the termination of one or more of our franchise agreements could materially and adversely affect our revenues, cash flow and liquidity. The hotels that are, or are expected to be, in default or non-compliance under their respective franchise agreements are part of the collateral security for an aggregate of $199.3 million of our mortgage debt as of March 1, 2009.

Refer to “Franchise Affiliations” above for specific information regarding the current status of our franchise agreements.

Hotels typically require a higher level of capital expenditures, maintenance and repairs than other building types. If we are not able to meet the requirements of our hotels appropriately, our business 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. When we make needed capital improvements, we can be more competitive in the market and our hotel occupancy and room rates can grow accordingly. Further, the process of renovating a hotel has the potential to be disruptive to operations. It is vital that we properly plan and execute renovations during lower occupancy and/or lower rated months in order to minimize “displacement”, an industry term for a temporary loss of revenues caused by rooms being out of service during a renovation. Additionally, if capital improvements are not made, franchise agreements could be at risk.

Market conditions and other factors may limit our ability to repay, extend or refinance our debt and fund our future capital needs. Even if we are able to refinance or extend our indebtedness, a substantial amount of indebtedness could limit our operational flexibility or otherwise adversely affect our financial condition.

We have a substantial amount of debt, which we may not be able to extend, refinance or repay. As of December 31, 2008, we had $332.6 million of total mortgage obligations outstanding, including the current portion, and 35 of our consolidated hotels were pledged as collateral for existing mortgage loans. These 35 hotels represented 88.2% of the book value of our consolidated property and equipment, net, as of December 31, 2008. As a result, we have limited flexibility to sell a property to satisfy our cash needs. In addition, our cash flow from operations may be insufficient to make required debt service payments and we may not be able to extend,

repay or refinance our maturing indebtedness on favorable terms or at all. Our ability to successfully refinance or extend our debt is also negatively affected by the current condition of the general economy, which has caused a real or perceived decline in the value of our properties, and of the credit markets, which has significantly reduced levels of commercial lending, in particular in the real estate capital markets.

If we are unable to refinance or extend the maturity of our maturing indebtedness, we may not be able to repay such indebtedness or make required debt service payments, resulting in a default of the debt. Debt defaults could lead us to sell one or more of our hotels on unfavorable terms or, in the case of secured debt, permit the lender to institute a foreclosure action, causing a loss of any anticipated income and cash flow from, and our invested capital in, the hotels. If we are unable to refinance or extend the maturity of our debt and maintain sufficient cash flow to fund our operations, our business, financial condition, results of operations and stock price will be materially adversely affected, and we may be forced to restructure or significantly curtail our operations or to seek protection from our lenders.

In addition, we may not be able to fund our future capital needs, including necessary working capital, funds for capital expenditures or acquisition financing from operating cash flow. Consequently, we may have to rely on third-party sources to fund our capital needs. We may be unable to obtain third-party financing on favorable terms or at all, which could materially and adversely affect our operating results, cash flow and liquidity. Any additional debt would increase our leverage, which would reduce our operational flexibility and increase our risk exposure.

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

Our outstanding debt instruments subject us to certain operational and financial covenants. Operational covenants include requirements to maintain certain levels of insurance and affiliations with nationally recognized hotel brands. The operational 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 certain of these restrictive covenants, may result in additional interest being due and could constitute an event of default, and in some cases with notice or the lapse of time, if not cured or waived, could result in the acceleration of the defaulted debt and the sale or foreclosure of the affected hotels. 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.

We are also subject to certain financial covenants~~, including leverage and coverage ratios~~. As of December 31, ~~2008~~2009, the Company was in compliance with ~~all of~~ its financial debt ~~covenants.~~ ~~However~~covenants, ~~our~~except ~~continued~~for ~~compliance~~the ~~with~~financial ~~our~~ratios ~~financial~~related to the ~~covenants~~Merrill ~~depends~~Lynch ~~substantially~~Fixed ~~upon~~Pools ~~the~~3 ~~financial~~and ~~results~~4, with outstanding principal balances of ~~our~~ ~~hotels~~$45.5 million ~~Given~~and ~~the~~$34.6 million, ~~severe~~respectively, ~~economic~~and ~~recession,~~the weGoldman ~~could~~Sachs ~~breach certain~~loan, ofwith ~~our~~an ~~financial~~outstanding ~~covenants~~principal ~~during~~balance ~~2009~~of $130 million. The breach of ~~a financial~~these ~~covenant~~covenants, if not cured or waived by the ~~lender~~lenders, could lead, ~~under the Merrill Lynch Fixed Rate loans and the Goldman Sachs loan,~~ to the declaration of a “cash trap” by the ~~lender~~ lenders whereby excess cash flows produced by the mortgaged hotels securing the applicable ~~loan~~loans (after funding of required reserves, principal and interest, operating expenses, management fees and servicing fees) could be ~~placed~~held in a restricted cash account. With ~~For~~respect to the Merrill Lynch ~~loans~~Fixed ~~only~~Rate loans, the funds held in the restricted cash account may be used for capital expenditures reasonably approved by the loan servicer. The cash trap provisions under the Goldman Sachs loan were waived in conjunction with the loan amendment dated January 22, 2010.

As of December 31, 2009, Pool 4 was operating under the provisions of a cash trap and approximately $0.8 million was held in a restricted cash account. We surrendered control of the six hotels which 16secure Pool 3 to a court-appointed receiver in February 2010.

~~Table~~Our continued compliance with the financial covenants for the remaining loans depends substantially upon the financial results of ~~Contents~~our hotels. Given the economic recession, we could breach certain of our financial covenants during 2010.

Furthermore, certain of our indebtedness is included in securitized loan pools, which makes it difficult and costly to remove specific assets from the loan pools. If we are unable to maintain compliance with our financial covenants or maintain sufficient cash flow to fund our operations, one or more of our subsidiaries or the Company as a whole may be forced to make a Chapter 11 bankruptcy filing to seek protection from our creditors or we may be forced to surrender certain properties securing our indebtedness in satisfaction of such indebtedness, or both.

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

A significant portion of our capital needs are fulfilled by borrowings, of which $169.50 million was variable rate debt at December 31, ~~2008~~2009. In the future, we may incur additional indebtedness bearing interest at a variable rate, or we may be required to refinance our existing fixed-rate 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. ~~We have reduced the risk of rising~~ ~~interest rates by entering into interest rate cap agreements for all our variable interest rate debt.~~

The value of our hotels and our ability to service our indebtedness is dependent upon the successful operation and cash flows of our hotels. 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, extend or 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. In addition, the value of our hotels is heavily dependent on our cash flows. Various factors could adversely affect our ability to generate cash from operations. These risks include the following:

• Effects of the ~~severe~~economic ~~global~~ recession and the ~~adverse~~weakened conditions of the real estate and banking industries; • Changes in interest rates and changes in the availability, cost and terms of credit; • Cyclical overbuilding in the lodging industry; • Varying levels of demand for rooms and related services; • Competition in our markets 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 have; • Loss of franchise affiliations; • Decreases in air travel or other adverse changes in travel patterns; • Fluctuations in operating costs, including but not limited to, labor, food, and energy costs; • The need for renovations and the effectiveness of renovations or repositioning in attracting customers; • Changes in governmental laws and regulations that influence or determine wages or required remedial expenditures; • Natural disasters, including, but not limited to hurricanes; • Dependence on business and leisure travelers, who have been and continue to be affected by threats of terrorism, or other outbreaks of hostilities, and new laws to counter terrorism which result to some degree in a reduction of foreign travelers visiting the U.S.; and • The perception of the lodging industry and lodging companies in the debt and equity markets.

15 The global economic crisis and adverse economic conditions in the specific major metropolitan markets in which we do substantial business could materially and adversely affect our business and results of operations.

We depend in part on consumers spending discretionary funds on travel and leisure activities as well as the general health and volume of airline and business-related travel to generate revenues at our hotels. General economic conditions continue to weaken, and we expect the severe global economic recession to continue and potentially worsen in 2009. The unemployment rate is expected to continue to rise, consumer confidence and consumer and business spending have decreased dramatically and the stock market remains extremely volatile. Given these current and expected economic conditions and their impact on our occupancy and revenues, we believe there is a significantly increased risk that our operating performance will be materially adversely affected.

In• ~~addition~~Cyclical tooverbuilding ~~weakness~~ in the ~~general~~lodging ~~economy,~~industry; ~~adverse~~• ~~economic conditions~~Varying inlevels ~~the~~of ~~specific~~demand ~~markets~~for rooms and related services; • Competition in our markets 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 have; ~~multiple hotels~~• Loss of franchise affiliations; • Reductions in air travel or other adverse changes in travel patterns; • Fluctuations in operating costs, ~~such~~including asbut ~~Pittsburgh~~not limited to, ~~Baltimore/Washington~~labor, ~~D.C.~~ ~~and Phoenix~~food, ~~could~~and ~~significantly~~energy ~~and~~costs; ~~negatively~~• ~~affect~~The ~~our~~need ~~revenues~~ for renovations and ~~results~~the effectiveness of ~~operations.~~renovations ~~The~~or ~~eight~~repositioning ~~continuing~~in ~~operations hotels~~attracting customers; • Changes in ~~these~~governmental ~~markets~~laws ~~combined~~and ~~provided~~regulations ~~29%~~that influence or determine wages or required remedial expenditures; • Natural disasters, ~~30%~~including, ~~and~~but ~~29%~~not limited to, hurricanes; • Continued sale or surrender of hotels in our ~~continuing~~portfolio ~~operations~~and ~~revenues~~resulting reduction in ~~2008,~~cash ~~2007,~~flow from operations; • Dependence on business and ~~2006~~leisure travelers, ~~respectively.~~ Aswho ahave ~~result~~been ofand continue to be affected by the ~~geographic~~economic ~~concentration~~recession, threats of ~~these~~ ~~hotels~~terrorism, weor ~~are~~other ~~particularly~~outbreaks ~~exposed~~of hostilities, and new laws to counter terrorism which result to some degree in a reduction of foreign travelers visiting the ~~risks~~U.S.; and • The perception of ~~downturns~~ inthe ~~these~~lodging ~~markets,~~industry ~~which~~and ~~could~~lodging ~~have~~companies ain ~~material~~the ~~adverse effect~~debt onand ~~our~~equity ~~profitability~~markets.

The economic recession and adverse economic conditions in the specific major metropolitan markets in which we do substantial business could materially and adversely affect our business and results of operations.

We depend in part on consumers spending discretionary funds on travel and leisure activities as well as the general health and volume of airline and business-related travel to generate revenues at our hotels. Because of the weakened state of the general economy and the current unemployment rate, consumer confidence and consumer and business spending have decreased dramatically. Given these current and expected economic conditions and their impact on our occupancy and revenues, we believe there is a significantly increased risk that our operating performance will continue to be materially adversely affected.

In addition to weakness in the general economy, adverse economic conditions in the specific markets in which we have multiple hotels, such as Pittsburgh, Baltimore/Washington, D.C. and Phoenix, could significantly and negatively affect our revenues and results of operations. The eight continuing operations hotels in these markets combined provided 34% of our continuing operations revenues in 2009, 2008, and 2007. As a result of the geographic concentration of these hotels, we are particularly exposed to the risks of downturns in these markets, which could have a material adverse effect on our profitability.

Further, we use significant amounts of electricity, gasoline, natural gas and other forms of energy to operate our hotels. A shortage in supply or a period of sustained high energy costs could negatively affect our results of operations. Additionally, a shortage of supply could impact our ability to operate our hotels and could adversely impact our guests’ experience at our hotels, and ultimately, our guest satisfaction scores and potentially our franchisor affiliations.

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.

We operate all of our hotels pursuant to franchise agreements 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 also subject to change over time. Compliance with any new and existing standards could cause us to incur significant expenses and investment in 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 non-compliance or default. As of March 1, 2010, we were not in compliance with the franchise agreement for one hotel due to substandard guest satisfaction scores. If the hotel does not achieve scores above the required thresholds through December 2011, the hotel could be placed in default by the franchisor. Our corporate

operations team as well as our hotel’s general manager and associates have focused their efforts to cure this instance of non-compliance. We cannot assure you that we will continue to be in compliance with our other franchise agreements or that we will be able to cure any current or future alleged instances of non-compliance and default prior to the specified termination dates or be granted additional time in which to cure any defaults or non-compliance. If a franchise agreement is terminated, we may be required to incur significant costs, including franchise termination payments and capital expenditures, which in certain circumstances could lead to acceleration of portions of our indebtedness. Our loan agreements generally prohibit a hotel from operating without a national franchise affiliation, and the loss of such an affiliation could trigger a default under one or more of our loan agreements. Therefore, the termination of one or more of our franchise agreements could materially and adversely affect our revenues, cash flow and liquidity.

Refer to “Franchise Affiliations” above for specific information regarding the current status of our franchise agreements.

In addition, our current franchise agreements, generally for terms of 10 to 20 years, terminate at various times and have differing remaining terms. As a condition to renewal of the franchise agreements, franchisors frequently contemplate a renewal application process, which may require substantial capital improvements to be made to the hotel and increases in franchise fees. A significant increase in unexpected capital expenditures and franchise fees related to renewal of franchise agreements would adversely affect our financial condition and results of operations. If we are unable to maintain sufficient cash flow to fund our operations and capital expenditures, one or more of our subsidiaries or the Company as a whole may be forced to make a Chapter 11 bankruptcy filing to seek protection from our creditors or we may be forced to surrender certain properties securing our indebtedness in satisfaction of such indebtedness, or both.

Provisions for liquidated damages in our franchise agreements could require us to pay material amounts to our franchisors if we are forced to surrender properties to our lenders.

If we are unable to refinance, extend or repay certain mortgage indebtedness and it becomes necessary to transfer a property to a lender in satisfaction of our obligations, we could be required to pay liquidated damages under the franchise agreement associated with such property. Significant payments of liquidated damages could adversely affect our financial condition and results of operations.

Hotels typically require a higher level of capital expenditures, maintenance and repairs than other building types due in part to property improvement requirements that may be imposed by franchisors. The increasing age of our hotels could result in additional capital expenditures to remain competitive. If we are not able to meet the requirements of our hotels appropriately, our business and operating results will suffer.

Because of the economic recession and its impact on our ability to generate cash flows and access credit, we may not be able to fund the required capital improvements.

If we are not able to execute our strategic initiatives, we may not be able to improve our financial performance.

~~Our~~We ~~strategic~~believe ~~initiatives~~that ~~are~~the ~~focused~~planned onmerger ~~improving~~is the ~~operations~~ ofbest ~~our~~strategic ~~continuing~~alternative ~~operations~~for ~~hotels~~the ~~with~~Company. ~~improved product~~Absent ~~quality~~a merger, ~~improved~~our ~~services~~strategic ~~levels,~~initiatives ~~and~~include ~~disciplined capital~~surrendering ~~investment~~certain inunderperforming ~~our~~ hotels, ~~including~~to ~~repositionings and~~the ~~renovations~~lenders, ~~that~~improving ~~will~~the ~~earn~~operations aof ~~sufficient~~our ~~return~~remaining oncore ~~the capital~~hotels, ~~invested.~~exploring ~~The~~the ~~execution~~possibility of ~~these~~ceasing ~~initiatives~~to ~~are~~be ~~dependent upon~~ a ~~number~~public ofcompany ~~factors,~~and continuing ~~including but not limited~~ to, reduce our ~~ability to~~corporate ~~dispose~~overhead ofcosts. ~~the~~These ~~assets~~initiatives ~~that~~contain doseveral ~~not fit into our core portfolio~~risks, inincluding: ~~a timely manner and at~~ (i) the ~~desired~~potential ~~selling~~for ~~prices. Additionally,~~franchisors ~~we periodically evaluate our portfolio of hotels~~ to ~~identify~~claim ~~underperforming~~liquidated ~~hotels~~damages ~~that~~in ~~should~~connection bewith ~~sold. We~~the ~~cannot~~surrender ~~assure~~of ~~you~~hotels, ~~that~~ (ii) the ~~execution~~illiquidity of our ~~strategic initiatives~~stock ~~will~~should ~~produce~~we ~~improved~~cease ~~financial~~to ~~performance~~be atpublicly ~~the~~traded, (iii) ~~affected~~the ~~hotels~~ability orto ~~for~~“right-size” ~~Lodgian~~our incorporate ~~general.~~overhead Wecosts ~~compete for growth opportunities~~ with ~~national~~a ~~and~~much ~~regional~~smaller ~~hospitality~~number ~~companies, many~~ of ~~which~~hotels ~~have~~in our ~~greater name recognition~~portfolio, ~~marketing support~~ and ~~financial~~(iv) the ~~resources~~ability ~~than we do. An inability~~ to ~~successfully implement~~improve ~~our~~operations ~~strategic~~with ~~initiatives~~limited ~~could~~cash ~~limit~~flows ~~our~~from ~~ability to~~operations ~~grow~~and ~~our~~lack ~~revenues,~~of ~~net~~available ~~income and cash flow~~credit.

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

We had an accumulated deficit of $~~105~~157.26 million as of December 31, ~~2008~~2009. Our ability to improve our performance to achieve profitability is dependent upon the state of the economy in general and the lodging industry in particular, as well as the successful implementation of our business strategy. In ~~August~~Over ~~2007, we announced cost-reduction initiatives to improve future operating performance, which resulted in position eliminations at~~ the ~~corporate,~~past ~~regional,~~three ~~and hotel levels. In 2008~~years, we eliminated ~~additional~~numerous positions ~~at all levels. The reduction~~ in ~~staff, particularly at~~ the ~~hotel~~corporate ~~level,~~office ~~could have a negative impact on our guest satisfaction scores, which could ultimately impact our financial performance~~ and~~/or~~ result in the loss of one or more franchise agreements. In addition, 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. Furthermore, Smith Travel Research forecasted a 2.5% decline in RevPAR for the U.S. lodging industry in 2009, while PKF Hospitality Research projected a 7.8% decrease in RevPAR, the fifth largest annual decline since 1930. Rising energy costs, the financial condition of the airline industry in general and continued threats to national security or air travel safety, among other things, could adversely affect the industry, resulting in our inability to meet our internal profit expectations.

17 Force majeure events, including natural disasters, 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.

Force majeure events, including natural disasters, such as Hurricanes Katrina and Ike, which affected the Gulf Coast in August 2005 and September 2008, respectively, the terrorist attacks of September 11, 2001 and the continued threat of terrorism and 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. These events can cause a significant decrease in occupancy and ADR due to disruptions in business and leisure travel patterns and concerns about travel

~~safety~~at the hotels. InThe ~~particular~~reduction in staff, asparticularly itat ~~relates~~the tohotel ~~terrorism~~level, ~~major~~could have a negative ~~metropolitan~~impact ~~areas~~on our guest satisfaction scores, which could ultimately impact our financial performance and/or ~~airport~~result ~~hotels~~in ~~can~~the beloss ~~adversely~~of ~~affected~~one or more franchise agreements. In addition, our failure to improve byour ~~concerns~~performance ~~about~~could ~~air~~have ~~travel~~a ~~safety~~material adverse effect on our business, results of operations, financial condition, cash flow, liquidity and ~~may~~prospects. ~~see~~Furthermore, anSmith ~~overall~~Travel Research forecasted a 3.2% decline in RevPAR for the U.S. lodging industry in 2010, while PKF Hospitality Research projected a 1.1% decrease in RevPAR. Rising energy costs, the ~~amount~~financial condition of the airline industry in general and continued threats to national security or air travel safety, among other things, could adversely affect the industry, resulting in our inability to meet our internal profit expectations. If we are unable to maintain sufficient cash flow to fund our operations, one or more of our subsidiaries or the Company as a whole may be forced to make a Chapter 11 bankruptcy filing to seek protection from our creditors or we may be forced to surrender certain properties securing our indebtedness in satisfaction of such indebtedness, or both.

Force majeure events, including natural disasters, 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.

Our expenses may remain constant or increase even if revenues decline.

Certain expenses associated with owning and operating a hotel are relatively fixed and do not proportionately reduce with a decline in revenues. Consequently, during periods when revenues decline, we could continue to incur certain expenses which are fixed in nature. Moreover, we could be adversely affected by:

• Rising interest rates; • Tightening of ~~funding~~credit available to the lodging industry on favorable terms, or at all; • Rising energy costs, gasoline or heating fuel supply shortages; • Rising insurance premiums; • Rising property tax expenses; • Increase in labor and related costs; and • Changes in, and as a result, increases in the cost of compliance with new governmental regulations, including those governing environmental, usage, zoning and tax matters.

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

WeTable may acquire or make investments in hotel companies or groups of hotels that we believe complement our business. If we fail to properly evaluate and execute acquisitions or investments, it may have a material adverse effect on our results of operations. In making or attempting to make acquisitions or investments, we face a number of risks, including: Contents

• Significant errors or miscalculations in identifying suitable acquisition or investment candidates, performing appropriate due diligence, identifying potential liabilities and negotiating favorable terms; • 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; • Overpaying by competing for acquisition opportunities with resourceful competitors; • Inaccurate forecasting of the financial impact of an acquisition or investment; and • Failure to effectively integrate acquired companies or investments into our Company and the resultant inability to achieve expected synergies.

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 or building code upgrades associated with such an occurrence. Inflation, changes 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); or,

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

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 could 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 the related 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. No single competitor or small number of competitors dominates the industry. We generally operate in areas that contain numerous other competitors, some of which may have substantially greater resources than we have. Competitive factors in the ~~lodging~~ lodging industry include, among others, oversupply in a particular market, franchise affiliation, reasonableness of room rates, quality of accommodations, age of the facility, 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 ~~future~~ future demand for our hotels, or that the competing and new hotels will not pose a greater threat to our business. Any of these adverse factors could materially and adversely affect us.

The lodging business is seasonal.

Demand for accommodations varies 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 lowest during the winter months. We generate substantial cash flow in the summer months compared to the slower winter months. If adverse factors affect our ability to generate cash in the summer months, the impact on our profitability is much greater than if similar factors were to occur during the winter months.

We are exposed to potential risks of brand concentration.

As of March 1, ~~2009~~2010, we operated 3322 of our 4128 hotels under the InterContinental Hotels Group and Marriott flags, and therefore, are subject to potential risks associated with the concentration of our hotels under limited brand names. If either of these brands suffered a major decline in popularity with the traveling public, it could adversely affect our revenues and profitability.

We have experienced significant changes in our senior management team and Board of Directors.

~~There~~Our ~~have~~current ~~been~~Chief aExecutive ~~number~~Officer ofhas ~~changes~~been in ~~our~~this ~~senior~~role ~~management team~~since June 2009. ~~Since~~The ~~January~~Chief ~~2008,~~Executive Officer ~~the chief executive officer~~ role ~~has been~~was filled by a member of the Board of Directors on an interim basis from January 2008 until June 2009. Our current ~~vice~~Vice ~~president~~President of ~~operations~~Hotel Operations assumed ~~this~~ the position in December 2008. If our management team is unable to develop and successfully execute our 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~~ meet operational challenges could be impaired.

The composition of our Board of Directors has changed. From January 1, 2008 through March 1, 2009, two Board members resigned their positions (including the resignation of the former chief executive officer, who was also a director), while two new members joined the Board of Directors.

Our success is dependent on recruiting and retaining high caliber key personnel.

Our future success and our ability to manage future growth will depend in large part on our ability to attract and retain other highly qualified personnel. Competition for qualified personnel is intense, and we may not be successful in attracting and retaining key personnel. The inability to attract and retain highly qualified personnel could hinder our business.

19 20

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 in a position to demand higher commissions, reduced room rates or induce 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. Although we expect to continue to derive most of our business through the traditional channels, if the revenues generated through Internet intermediaries increase significantly, room revenues may flatten or decrease and our profitability may be adversely affected.

We will be unable to utilize all of our net operating loss carryforwards.

As of December 31, ~~2008~~2009, we ~~had~~have approximately $~~223~~244.07 million of net operating loss carryforwards available for federal income tax purposes with a full valuation allowance. To the extent that we do not have sufficient future taxable income to be offset by these net operating loss carryforwards, any unused losses will expire between ~~2018~~2019 and ~~2028~~2029. Our ability to use these net operating loss carryforwards to offset future income is also subject to annual limitations. An audit or review by the Internal Revenue Service could result in a reduction in the net operating loss carryforwards available to us.

Many aspects of our operations are subject to government regulations, and changes in these 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. Operators of hotels are also subject to the Americans with Disabilities Act, and various employment laws, which regulate minimum wage requirements, overtime, working conditions and work permit requirements. Compliance with, or changes in, these laws could increase our operating costs and reduce profitability.

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 non-compliance 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, 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, could 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 is also 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.

Some of our hotels contain asbestos-containing building materials (“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 have been developed for those hotels which are known to contain ACBMs.

Many, but not all, of our hotels have undergone Phase I environmental site assessments within the past several years, 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, whose presence could adversely affect our results of operations. In addition, if any hotel in our portfolio is not properly connected to a water or sewer system, or if the integrity of such systems are breached, microbial matter or other contamination might develop. If this were to occur, we could incur significant remedial costs and we might 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 us and our insurability for such matters in the future and on our results of operations, financial condition, liquidity and prospects.

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 groups of hotels that we believe complement our business. If we fail to properly evaluate and execute acquisitions or investments, it may have a material adverse effect on our results of operations. In making or attempting to make acquisitions or investments, we face a number of risks, including:

	•		Significant errors or miscalculations in identifying suitable acquisition or investment candidates, performing appropriate due diligence, identifying potential liabilities and negotiating favorable terms;

	•		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;

	•		Overpaying by competing for acquisition opportunities with resourceful competitors;

	•		Inaccurate forecasting of the financial impact of an acquisition or investment; and

	•		Failure to effectively integrate acquired companies or investments into our Company and the resultant inability to achieve expected synergies.

Risks Related to Our Common Stock

Our stock price may be volatile, and consequently, investors may be unable to resell their common stock at or above their purchase price.

The market price of our common stock could decline or 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;

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

	•		Concentration of ownership;

	•		The extent of institutional investor interest in us;

	•		Changes in financial estimates by securities analysts; and

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

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

We may never pay dividends on our common stock, in which event our stockholders’ only return on their investment, if any, will occur on their 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, our stockholders’ only return on their investments, if any, will occur on their 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 into, and could enter into in the future, employment contracts with certain of our employees that contain change of control provisions.

~~Item~~The ~~1B.~~decline ~~Unresolved~~in ~~Staff~~our ~~Comments~~common stock price and the threat of delisting or a delisting of our common stock could have materially adverse effects on our business.

The price of our common stock has declined significantly since December 31, 2004. In the event we seek bankruptcy protection, it is possible that the value of our common stock could decline further. A reduction in stock price could have materially adverse effects on our business, including reducing our ability to use our common stock as compensation or to otherwise provide incentives to employees and by reducing our ability to generate capital through stock sales or otherwise use our stock as currency with third parties. In addition, our common stock could be delisted from the NYSE AMEX Equities market. The threat of delisting or a delisting of our common stock from the NYSE AMEX Equities market could have adverse effects by, among other things:

	•		reducing the liquidity and market price of our common stock;

	•		reducing the number of investors willing to hold or acquire our common stock, thereby further restricting our ability to obtain equity financing; and

	•		reducing our ability to retain, attract and motivate our directors, officers and employees.

Risks Related to the Planned Merger

The closing of the Merger is subject to the satisfaction of customary closing conditions, including the approval of the Merger by our stockholders.

The closing of the Merger is subject to the satisfaction of customary closing conditions, including the approval of the Merger by our stockholders. The timing of such approval and the closing of the Merger are subject to factors beyond our control. While our Board of Directors has unanimously recommended that stockholders approve the Merger Agreement, we cannot predict the outcome of the stockholders’ vote. The Merger will not close if approval is not received from the stockholders.

Failure to complete the Merger in a timely manner, or at all, could negatively impact the market price of our common stock and our future financial results and liquidity.

Failure to complete the Merger in a timely manner, or at all, could negatively impact the market price of our common stock to the extent that the current market price reflects an assumption that the Merger will be completed. In addition, such failure could negatively impact our future business and financial results because of, among other things, the disruption that could occur as a result of uncertainties relating to a failure to complete the Merger and the potential inability to recover certain transaction costs related to the Merger, including a $3.25 million termination fee that could be payable to Purchaser under certain conditions.

Moreover, if the Merger Agreement is terminated for any reason other than as a result of certain breaches by Purchaser, Lodgian’s subsidiary borrowing entities would be required to either pay down the principal balance of the $130 million mortgage loan facility owned by Hospitality by $5 million or pledge the Holiday Inn, Monroeville, PA as additional security for the loan. A $5 million

pay down of the principal balance would further weaken our liquidity, while pledging an additional hotel as security would further limit our financial flexibility.

In addition, if the Merger is terminated or is not completed by July 1, 2010, Lodgian would be required to pay a higher interest rate on the $130 million mortgage loan facility owned by Hospitality, which would have a negative impact on our financial results and liquidity.

The Merger could negatively impact our current and future business and financial results.

The Merger Agreement contains customary representations and warranties of Lodgian, Purchaser and Merger Sub. The Merger Agreement also contains customary covenants and agreements, including covenants relating to (a) the conduct of Lodgian’s business between the date of the signing of the Merger Agreement and the closing of the Merger, (b) non-solicitation of competing acquisition proposals and (c) the efforts of the parties to cause the Merger to be completed.

Compliance with the covenants outlined in the Merger Agreement could restrict our ability to operate the business or result in our failure to pursue other opportunities which could be beneficial to our business in the future, should the Merger not be completed. Furthermore, management’s efforts may be focused on completing the Merger and diverted from the operation of the business.

The announcement of the Merger could have a negative impact on our ability to retain and, if necessary, attract key employees, which could in turn have an unfavorable impact on our financial results.

Our success depends significantly on the continued contributions of key employees. The loss of a key employee or the inability to attract and retain experienced employees could harm our operating results.

Litigation has commenced against us in connection with the planned Merger.

The cost of defending such lawsuits could have an adverse impact on our financial results.

Item 1B. UNRESOLVED STAFF COMMENTS

None.

Item 2. ~~Properties~~PROPERTIES

The information required to be presented in this section is presented in “Item 1. Business.”

Item 3. ~~Legal~~LEGAL ~~Proceedings~~PROCEEDINGS

The information required to be presented in this section is presented in “Item 1. Business.”

Item 4. ~~Submission of Matters to a Vote of Security Holders~~ RESERVED

No matters were submitted to a vote of security holders during the fourth quarter of 2008.

PART II

Item 5. ~~Market~~MARKET ~~For~~FOR ~~Registrant~~REGISTRANT’sS ~~Common~~COMMON ~~Equity~~EQUITY, ~~Related~~RELATED ~~Stockholder~~STOCKHOLDER ~~Matters~~MATTERS ~~and~~AND ~~Issuer~~ISSUER ~~Purchases~~PURCHASES ofOF ~~Equity~~EQUITY ~~Securities~~SECURITIES

Historical Data

Our common stock is traded on the NYSE ~~Alternext~~Amex USEquities under the symbol “LGN”. The following table sets forth the high and low sales prices of our common stock on a quarterly basis for the past two years:

	2007
	High		Low
First Quarter	$	15.26	$	11.97
Second Quarter	$	16.84	$	12.76
Third Quarter	$	15.50	$	9.88
Fourth Quarter	$	12.79	$	10.81


	2008
	High		Low
First Quarter	$	11.93	$	8.26
Second Quarter	$	11.39	$	7.61
Third Quarter	$	9.67	$	6.63
Fourth Quarter	$	7.76	$	1.19

	2009
	High		Low
First Quarter (up to March 1, 2009)	$	3.46	$	1.50
First Quarter	$	3.46	$	1.41
Second Quarter	$	3.00	$	1.21
Third Quarter	$	2.09	$	1.15
Fourth Quarter	$	2.15	$	1.20

At March 10, 2009, we had approximately 2,322 holders of record of our common stock.


	2010
	High		Low
First Quarter (up to March 1, 2010)	$	2.59	$	1.40

At March 10, 2010, we had approximately 1,975 holders of record of our common stock.

We have not declared or paid any 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, if any, and other cash resources will be retained to pay principal and interest on our debt, fund our business operations, and build cash reserves and will be available for other strategic opportunities that may develop. 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.

Stock Repurchase Programs

In ~~May 2006~~2007, ~~the~~we ~~Board~~repurchased of1.3 million ~~Directors~~shares ofat ~~the~~an ~~Company~~aggregate ~~approved~~cost a of $15.2 million under a $30 million share repurchase program, approved by our Board of Directors, which expired in ~~May 2007~~August 2009. In ~~Under this program~~addition, ~~the~~we ~~Company~~ repurchased ~~225,267~~ 0.1 million shares at an aggregate cost of $21.89 million ~~during~~ ~~2006.~~under ~~During~~a ~~2007,~~$15 million ~~the~~share ~~Company~~repurchase ~~repurchased 146~~program,~~625 shares~~ atapproved anby ~~aggregate~~our ~~cost~~Board of ~~$1.9~~Directors, which expired in May ~~million~~2007.

In August 2007, the Board of Directors of the Company approved a $30 million share repurchase program which was due to expire on August 22, 2009. Under this program, the Company repurchased 1.3 million shares at an aggregate cost of $15.2 million in 2007. During 2008, the Company repurchased 1.5 million shares at an aggregate cost of $14.9 million fulfilling the remaining authority under the program.

On April 11, 2008, the Board of Directors of the Company approved the repurchase of an additional $10 million of common stock over a period ending no later than April 15, 2009. As of December 31, 2008, the Company had repurchased approximately 554,000 shares at an aggregate cost of $4.4 million.

Equity Compensation Plan Information

The tables below summarize certain information with respect to our equity compensation plan as of December 31, 2008:

Number of

Securities Remaining

Securities to be

Weighted-Average

Available for Future

Issued Upon

Exercise Price of

Issuance Under

Exercise

Outstanding

Equity Compensation

of Outstanding

Options,

Plans (Excluding

Options, Warrants

Warrants and

Securities Reflected

and Rights (1)

Rights

in Column (a))

(a)

(b)

(c)

Equity compensation plans approved by security holders

174,911(1

)(2)

10.66

2,499,921(3

)

Equity compensations plans not approved by security holders

—

(1) Column (a) excludes Class B warrants which are not a component of the Stock Incentive Plan.

(2)		All of these awards have been granted under the Stock Incentive Plan.
(3)		After taking into account the outstanding options, the exercised options and the shares of nonvested common stock, we have 2,499,921 shares of common stock available for grant under the Stock Incentive Plan.

In 2008, we repurchased 1.5 million shares at an aggregate cost of $14.9 million, fulfilling the remaining authority under the $30 million share repurchase program. In addition, we repurchased 0.6 million shares at an aggregate cost of $4.4 million under a $10 million share repurchase program, approved by our Board of Directors, which expired in April 2009.

On November 25, 2002, we adopted a stock incentive plan (“Stock Incentive Plan”) which replaced the stock option plan previously in place. The Stock Incentive Plan, prior to the completion of the secondary stock offering on June 25, 2004, authorized us to award our directors, officers, or other key employees or consultants as determined by a committee appointed by the Board of Directors, options to acquire and other equity incentives up to 353,333 shares of common stock. With the completion of the secondary stock offering on June 25, 2004, the total number of shares available for issuance under our stock incentive plan increased to 3,301,058 shares. As of December 31, 2008, we have issued options to acquire 981,332 shares (537,501 of which were forfeited), 12,413 shares of restricted stock (of which 4,719 shares were withheld to satisfy tax obligations), 66,666 shares of restricted stock units (of which 21,633 were withheld to satisfy tax obligations) and 350,566 shares of nonvested stock (of which 27,741 shares were forfeited and 18,246 of which were withheld to satisfy tax obligations).

Awards made during 2008 pursuant to the Stock Incentive Plan are summarized below:

	Issued Under
	the Stock
	Incentive Plan
Available under the plan, less previously issued as of December 31, 2007		2,536,666
Nonvested stock issued January 22, 2008		(76,500	)
Nonvested stock issued February 12, 2008		(24,000	)
Shares of nonvested stock withheld from awards to satisfy tax withholding obligations		11,257
Nonvested shares forfeited in 2008		17,335
Stock options forfeited in 2008		35,163
Available for issuance, December 31, 2008		2,499,921

Treasury Stock Repurchases

There were no purchases of our common stock during the three months ended December 31, ~~2008~~2009.

Performance Graph

The following stock performance graph compares the cumulative total stockholder return of our common stock between December 31, ~~2003~~2004 and December 31, ~~2008~~2009, against the cumulative stockholder return during such period achieved by the Dow Jones US Hotels Index and the Dow Jones Wilshire 5000 Index. The graph assumes that $100 was invested on December 31, ~~2003~~ 2004 in each of the comparison indices and in our common stock. ~~The chart is adjusted to reflect a 1 for 3 reverse stock split which was effective on April 30, 2004.~~

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Lodgian, Inc., The Dow Jones Wilshire 5000 Index
And The Dow Jones US Hotels Index

* $100 invested on 12/31/0304 in stock &or index-, including reinvestment of dividends. ~~Fiscal year ending December 31.~~

	12/03		12/04		12/05		12/06		12/07		12/08
Lodgian, Inc.		100.00		78.10		68.13		86.35		71.49		13.52
Dow Jones Wilshire 5000		100.00		112.48		119.65		138.52		146.30		91.83
Dow Jones US Hotels		100.00		146.13		159.51		203.69		172.68		78.30

25 26

Item 6. Selected Financial Data

12/04

12/05

12/06

12/07

12/08

12/09

Lodgian, Inc.

100.00

87.24

110.57

91.54

17.32

12.03

Dow Jones Wilshire 5000

100.00

106.38

123.16

130.07

81.64

102.00

Dow Jones US Hotels

100.00

109.15

139.39

118.17

53.58

91.83

Item 6. SELECTED FINANCIAL DATA

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, ~~2008~~2009.

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. The historical income statements have been reclassified based on the ~~assets~~ assets sold or held for sale as of December 31, ~~2008~~2009.

You should read the financial data below in conjunction with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation” and “Item 8. Financial Statements and Supplementary Data” included in this Form 10-K.

The income statement financial data for the years ended December 31, ~~2008~~2009, December 31, ~~2007~~2008, and December 31, ~~2006~~2007, and selected balance sheet data for the years ended December 31, ~~2008~~2009 and December 31, ~~2007~~2008, were extracted from the audited financial statements included in this Form 10-K, which commence on page F-1.

	(In thousands, except per-share data)
	2009			2008			2007			2006			2005
	2008			2007			2006			2005			2004
	($ in thousands, except per share data)
Income statement data:
Revenues — continuing operations	$	~~240~~188,~~428~~544		$	~~242~~228,~~558~~194		$	~~227~~229,~~635~~875		$	~~187~~214,~~747~~832		$	~~184~~175,~~076~~235
Revenues — discontinued operations		3116,~~199~~367			7543,~~592~~432			~~124~~88,~~136~~274			~~152~~136,~~480~~939			~~176~~164,~~232~~992
Revenues — continuing and discontinued operations		~~271~~204,~~627~~911			~~318~~271,~~150~~626			~~351~~318,~~771~~149			~~340~~351,~~227~~771			~~360~~340,~~308~~227
(Loss) income — continuing operations		(12,911	)		(5,581	)		(10,438	)		9,830			(22,070	)
Loss — continuing operations		(50,349	)		(8,014	)		(5,236	)		(5,767	)		8,541
Income (loss) — discontinued operations		927			(2,865	)		(4,738	)		2,471			(9,764	)
(Loss) income — discontinued operations		(3,553	)		(3,970	)		(2,789	)		(9,409	)		3,760
Net (loss) income		(1153,~~984~~902	)		(811,~~446~~984	)		(158,~~176~~025	)		12(15,~~301~~176	)		~~(31~~12,~~834~~301	)
Basic (loss) earnings per common share:
Net (loss) income attributable to common stock		(52,365	)		(11,984	)		(8,446	)		(15,176	)		12,301
(Loss) income — continuing operations		(0.59	)		(0.23	)		(0.42	)		0.40			(1.60	)
Basic and diluted (loss) earnings per share attributable to common stock:
Income (loss) — discontinued operations		0.04			(0.12	)		(0.19	)		0.10			(0.71	)
Loss from continuing operations		(2.29	)		(0.37	)		(0.24	)		(0.24	)		0.35
Net (loss) income		(0.55	)		(0.35	)		(0.62	)		0.50			(2.30	)
(Loss) income from discontinued operations		(0.17	)		(0.18	)		(0.11	)		(0.38	)		0.15
Diluted (loss) earnings per common share:
Net (loss) income attributable to common stock		(2.46	)		(0.55	)		(0.35	)		(0.62	)		0.50
(Loss) income — continuing operations		(0.59	)		(0.23	)		(0.42	)		0.40			(1.60	)
Basic and diluted weighted average shares		21,315			21,774			24,292			24,617			24,576
Income (loss) — discontinued operations		0.04			(0.12	)		(0.19	)		0.10			(0.71	)
Net (loss) income		(0.55	)		(0.35	)		(0.62	)		0.50			(2.30	)
Basic weighted average shares		21,774			24,292			24,617			24,576			13,817
Diluted weighted average shares		21,774			24,292			24,617			24,630			13,817
Balance sheet data (at period end):
Total assets	$	~~555~~452,~~414~~963		$	~~624~~555,~~730~~414		$	~~699~~624,~~158~~730		$	~~726~~699,~~685~~158		$	~~723~~726,~~648~~685
Assets held for sale		336,~~021~~406			833,~~009~~021			898,~~437~~009			1489,~~866~~437			3014,~~559~~866
Long-term liabilities		~~194~~185,~~800~~132			~~355~~194,~~728~~800			~~292~~355,~~301~~728			~~394~~292,~~432~~301			~~393~~394,~~143~~432
Liabilities related to assets held for sale		166,~~167~~029			~~961~~16,167			~~68,351~~961			468,~~610~~351			304,~~572~~610
Total liabilities		~~368~~319,~~009~~698			~~404~~368,~~142~~009			~~446~~404,~~122~~142			~~466~~446,~~424~~122			~~495~~466,~~385~~424
Total stockholders’ equity		187,405			220,588			242,114			249,044			226,634
Total equity		133,265			187,405			220,588			242,114			249,044

27 Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation

You should read the discussion below in conjunction with the consolidated financial statements and accompanying notes. Also, the discussion which follows contains forward-looking statements which 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 above under the caption “Risk Factors.”

Executive Summary

26 As of March 1, 2009, we operated 41 hotels with an aggregate of 7,578 rooms, located in 23 states and Canada. Of the 41 hotels, 35 hotels, with an aggregate of 6,655 rooms, are held for use and the results of operations are classified in continuing operations, while 6 hotels, with an aggregate of 923 rooms, are held for sale and the results of operations are classified in discontinued operations.

AsTable of December 31, 2008, we had $332.6 million of total mortgage obligations outstanding, including the current portion. This mortgage indebtedness is secured by interests in certain of our hotel properties. Approximately $128 million of this mortgage debt is scheduled to mature in July 2009 and cannot be extended without the approval of the loan servicers, which extension has been requested but not yet granted. To address the pending maturities, we are also pursuing opportunities to refinance the maturing mortgage debt or to acquire new mortgage debt using currently unencumbered properties. To date, we have been unable to secure financing and, in light of the current credit markets generally and the real estate credit markets specifically, we expect it will remain difficult to refinance the mortgage debt prior to the July 2009 maturity date. We cannot currently predict whether our efforts to refinance or extend the maturing debt will be successful. See “Item 1A. Risk Factors” for additional information. Contents

~~Total~~As ~~assets~~of ~~decreased~~March 1, ~~from~~2010, ~~$624.7 million~~we ~~at December 31~~operated 28 hotels with an aggregate of 5,359 ~~2007~~rooms, tolocated ~~$555.4 million~~in at19 states. ~~December 31~~Of the 28 hotels, ~~2008.~~27 ~~The~~hotels, ~~reduction~~with ~~was~~an ~~primarily~~aggregate ~~due~~of to5,230 ~~lower cash~~rooms, ~~balances~~were ~~(approximately~~held ~~$34 million)~~for use and ~~lower~~the ~~book value~~results of operations ~~property~~were classified in continuing operations, while 1 hotel, with 129 rooms, was held for sale and ~~equipment~~the ~~due~~results toof ~~hotels~~operations ~~sold~~were ~~during~~classified ~~2008~~in discontinued operations.

~~Long-term~~The ~~liabilities~~economic ~~decreased~~recession ~~from~~has ~~$355.7 million~~continued atto put downward pressure on revenue per available room, or ~~December 31~~RevPAR, ~~2007~~and toprofit ~~$194~~margins in the lodging industry.~~8 million~~ ~~at December 31~~The decline in RevPAR, ~~2008~~occupancy and average daily rate, ~~mainly~~is asdriven by oversupply in certain markets, a ~~result~~significant ofdecrease ~~the~~in demand as ~~reclassification~~companies ofand ~~the~~individuals ~~maturing~~reduce ~~debt~~their ~~from~~travel ~~long-term~~costs, ~~liabilities~~and increased competition as many luxury and upper upscale hotels are substantially discounting rates to ~~current~~attract ~~liabilities~~customers in downstream segments. InCosts ~~addition,~~in the ~~long-term~~lodging ~~liabilities~~industry are largely fixed, thus declining revenues result in ~~associated~~margin ~~with~~erosion. ~~the~~To ~~assets~~partially ~~that~~mitigate ~~were~~margin ~~reclassified~~erosion and to ~~held~~better position the company for the ~~sale~~future, ~~during~~we ~~2008~~remain ~~were~~focused ~~reclassified~~on topreserving ~~Liabilities~~market ~~related~~share, ~~to assets~~lowering ~~held~~costs ~~for~~and ~~sale~~strengthening our balance sheet.

Our RevPAR declined 18.0% in 2009 compared to a RevPAR decline of 16.7% for the U.S. Lodging industry as a whole according to Smith Travel Research. We recognize the need to protect market ~~Overview~~share in these difficult economic conditions, especially given the intensely competitive ofenvironment, ~~Continuing~~and ~~Operations~~our sales and revenue management teams are focused on retaining our existing customers and attracting new business.

~~Below~~This isyear, awe ~~summary~~have ofsignificantly reduced our ~~results~~cost ofstructure. ~~continuing~~We ~~operations~~have reduced headcount, ~~presented~~implemented ina ~~more~~freeze ~~detail~~on merit increases, reduced or eliminated certain employee benefits, reduced or eliminated cash bonuses at the corporate level, restructured the bonus program at the hotel level, and eliminated discretionary spending in ~~“Results~~several ofareas. We will continue to look for ~~Operations-Continuing~~opportunities ~~Operations”:~~to lower costs in the future.

	•	Revenues decreased $2.1 million, or 0.9%. Rooms revenues decreased $1.1 million, or 0.6%, as ADR fell 1.2% and occupancy remained relatively flat, increasing 0.3%. Food and beverage revenues decreased $1.5 million, or 2.8%, driven largely by lower banquet revenues.
	•	Operating income declined $12.1 million primarily as a result of impairment charges, casualty losses and margin erosion driven by the weakened economy.

To strengthen our balance sheet, we conducted a portfolio analysis in 2009. In July 2009, we surrendered control of the Holiday Inn Phoenix, AZ to a court-appointed receiver. In November 2009, we surrendered control of the Crowne Plaza Worcester, MA to a court-appointed receiver. We believed that the hotels were worth substantially less than the $9.4 million and $16.3 million, respectively, of mortgage debt encumbering the hotels and that it was unlikely that the value of the hotels would increase in the near or intermediate term. The hotels were deconsolidated upon surrender of control and, as a result, the assets and liabilities, including the related loan balances, were excluded from our balance sheet as of December 31, 2009.

As of December 31, 2009, we had $292.2 million of total mortgage obligations outstanding, including the current portion of $102.5 million. This mortgage indebtedness is secured by interests in ~~Overview~~certain of our hotel properties. Merrill Lynch Fixed Rate Pool 3 (“Pool 3”) with a balance of $45.5 million as of ~~Discontinued~~December 31, ~~Operations~~2009, matured on October 1, 2009, following two short-term extensions. The extensions were intended to provide time for us to reach an agreement with the special servicer to modify the loan because we determined that the cash flow generated by the hotels that secure Pool 3 was not sufficient to fund the debt service requirements. Since we were unable to reach a modification agreement, we began negotiations with the servicer of Pool 3 in 2009 to surrender control of these six hotels. We were required to perform a fair value assessment of the six hotels in 2009 in accordance with U.S. GAAP and we concluded that the book value of the six hotels exceeded fair value and recorded impairment charges totaling $27.8 million. In February 2010, we surrendered control of the six hotels that secure Pool 3 to a court-appointed receiver. The Pool 3 loan is non-recourse, except in certain limited circumstances (which we believe are remote) and is not cross-collateralized with any other mortgage debt. Refer to “Liquidity and Capital Resources” for additional information.

$55.7 million of mortgage debt is scheduled to mature in 2010 and cannot be extended without the Inapproval ~~December~~of ~~2007~~the loan servicers. To address the pending maturities, we ~~announced~~are apursuing ~~strategic~~opportunities to ~~initiative~~refinance ~~to reconfigure~~or ~~our~~extend ~~hotel~~the ~~portfolio~~maturing mortgage debt. WeTo ~~redefined~~date, ~~our~~we ~~held~~have ~~for~~been ~~use~~unable to secure ~~portfolio~~financing and, ~~which~~in ~~contains~~light 35of ~~hotels.~~the Incurrent ~~accordance~~credit ~~with~~markets ~~this strategy~~generally and ~~our~~the ~~previously~~real ~~announced~~estate ~~disposition~~credit ~~program~~markets specifically, we ~~sold~~ 5expect ~~hotels~~it inwill ~~2008.~~remain ~~For~~difficult to refinance the 5mortgage ~~hotels~~debt ~~sold~~prior into ~~2008,~~the ~~total~~2010 ~~revenues~~maturity ~~were $7~~dates.~~3 million,~~ ~~direct~~We ~~operating~~cannot ~~expenses~~currently ~~were~~predict whether our efforts to refinance or extend the $2maturing debt will be successful.~~9 million,~~ ~~and~~If ~~other~~we ~~hotel~~are ~~operating~~unable ~~expenses~~to ~~were~~refinance or extend the maturing mortgage ~~$3.1 million~~debt, ~~for~~one or more of our subsidiaries or the ~~year~~Company ~~ended~~as ~~December~~a whole may be forced to make a Chapter ~~31,~~11 bankruptcy ~~2008~~filing to seek protection from our creditors or we may be forced to surrender certain properties securing our indebtedness in satisfaction of such indebtedness, or both. See “Item 1A. ~~respectively~~Risk Factors” for additional information.

We negotiated with the special servicer for Merrill Lynch Fixed Rate Pool 1 (“Pool 1”) and agreed to two six-month extensions of the maturity date for this indebtedness. The principal balance of Pool 1 was $34.5 million as of December 31, 2009 and we exercised the second six-month extension, extending the maturity date of Pool 1 to July 1, 2010. We are pursuing opportunities to extend or refinance Pool 1 in anticipation of the 2010 maturity date. The interest rate on Pool 1 remains fixed at 6.58% during the term of the extension. In July 2009, we paid the special servicer an extension fee of approximately $0.2 million. Additionally, in July 2009, we made a principal reduction payment of $2.0 million. In December 2009, we paid the special servicer an extension fee of approximately $0.3 million. Additionally, in December 2009, we made a principal reduction payment of $1.0 million. To date, we have been unable to secure refinancing and, in light of the current credit markets generally and the real estate credit markets specifically, we expect it to remain difficult to refinance the mortgage debt prior to the July 2010 maturity date. We cannot currently predict whether these efforts will be successful. We have classified this loan as current in the Consolidated Balance Sheet as of December 31, 2009. Pool 1 is secured by four hotels.

Merrill Lynch Fixed Rate Pool 4 (“Pool 4”), with a principal balance of $34.6 million as of December 31, 2009, was successfully extended to a maturity date of July 1, 2012. The interest rate on Pool 4 will remain fixed at 6.58%. In connection with this agreement, we paid an extension fee of approximately $0.2 million and made a principal reduction payment of $0.5 million in July 2009. The parties also have agreed to revise the allocated loan amounts for each property serving as collateral for Pool 4 and to allow partial prepayments of the indebtedness. Pursuant to this agreement, we may release individual assets from Pool 4 by paying the lender specified amounts (in excess of the allocated loan amounts) in connection with a property sale or refinancing. We also agreed to pay the lender an “exit fee” upon a full or partial repayment of Pool 4. The amount of this fee will increase each year but, assuming Pool 4 is held for the full three year term, the fee will effectively increase the current interest rate by 100 basis points per annum. We also have issued a full recourse guaranty of Pool 4 in connection with this amendment. We have classified Pool 4 as long-term in the Consolidated Balance Sheet as of December 31, 2009. Pool 4 is secured by six hotels.

Certain other mortgage debt will mature in 2010, but each has available extension options as discussed in further detail in “Liquidity and Capital Resources”.

Total assets decreased from $555.4 million at December 31, 2008 to $453.7 million at December 31, 2009. The reduction was primarily due to an impairment charge of $27.8 million related to Pool 3, the deconsolidation of the Crowne Plaza Worcester, MA and Holiday Inn Phoenix, AZ upon surrender of control to court-appointed receivers, and the sale of five of our held for sale hotels in 2009.

Long-term liabilities decreased from $194.8 million at December 31, 2008 to $185.1 million at December 31, 2009, mainly as a result of the deconsolidation of two hotels upon surrender of control and the reclassification of maturing debt from long-term liabilities to current liabilities offset in part by the extension of the maturity date of Pool 4 to 2012.

Planned Merger and Loan Amendment

On January 22, 2010, Lodgian, Purchaser, and Merger Sub, entered into the Merger Agreement. Pursuant to the Merger Agreement, at the effective time of the Merger, each issued and outstanding share of common stock of Lodgian, other than any shares owned by Purchaser or Merger Sub, by Lodgian as treasury stock, or by any stockholders who are entitled to, and who properly exercise, appraisal rights under Delaware law, will be cancelled and will be converted automatically into the right to receive $2.50 in cash, without interest. The consummation of the Merger is subject to various customary conditions, including the approval of Lodgian’s stockholders.

Concurrently with the execution of the Merger Agreement, on January 22, 2010, Hospitality, an affiliate of Purchaser, purchased the lender’s interest in Lodgian’s $130 million mortgage loan facility originally made by Goldman Sachs Commercial Mortgage Capital, L.P. An amendment to the loan was also concurrently entered into by Hospitality and Lodgian’s subsidiary borrowing entities which own the hotels securing the loan. The material terms of the loan amendment are summarized as follows:

	•		Effective immediately, the cash lockbox provisions of the loan were amended to provide that excess cash flow from the mortgaged properties after debt service, reserves and operating expenses, will not be retained by the lender in an excess cash flow reserve account, but will instead be released to the borrowers on a monthly basis, even if the properties do not meet a previously required financial covenant test.

	•		The deadline for Lodgian’s subsidiary which owns the Crowne Plaza Albany, New York, to complete certain renovation work was extended to May 1, 2010.

	•		The allocated loan amounts for each of the properties securing the loan were readjusted.

	•		Effective July 1, 2010, the margin over LIBOR used to determine the interest rate on the loan will be increased from 1.50% to 4.25%.

	•		If the Merger Agreement is validly terminated for any reason other than as a result of a breach by Purchaser of any of its representations, warranties, covenants or agreements contained in the Merger Agreement such that certain of Lodgian’s closing conditions set forth in the Merger Agreement would not be met, Lodgian’s subsidiary borrowing entities on the loan will be required, in their sole discretion, to either pay down the principal balance of the loan by $5 million, or to cause the Holiday Inn Monroeville, Pennsylvania property to be pledged as additional security for the loan. If the Holiday Inn Monroeville, Pennsylvania property is pledged as additional security for the loan, it may be subsequently released from the loan upon payment of a cash release price of $5 million.

We believe that the planned merger is the best strategic alternative for the Company. Absent a merger, our strategic initiatives include surrendering certain underperforming hotels to the lenders, improving the operations of our remaining core hotels, exploring the possibility of ceasing

~~The~~to ~~consolidated~~be ~~statements~~a ofpublic ~~operations~~company ~~for discontinued operations for the years ended 2008, 2007~~ and ~~2006 include the~~ ~~results~~continuing ofto ~~operations~~reduce ~~for~~our ~~the~~corporate 6overhead ~~hotels that were held for sale at December 31, 2008, as well as all properties that have been sold in accordance with SFAS No~~costs. ~~144.~~

~~The~~Overview assets held for sale at December 31, 2008 and December 31, 2007 and the liabilities related to these assets are separately disclosed in the Consolidated Balance Sheets. Among other criteria, we classify an asset as held for sale if we expect to dispose of itContinuing ~~within one year, we have~~Operations initiated an active marketing plan to sell the asset at a reasonable price and it is unlikely that significant changes to the plan to sell the asset will be made. While we believe that 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. We believe that all of our held for sale assets as of December 31, 2008 remain properly classified in accordance with SFAS No. 144.

~~Where~~Below ~~the~~is ~~carrying~~a ~~values~~summary of ~~the~~our ~~assets~~results ~~held~~of continuing operations for ~~sale~~the ~~exceeded~~33 hotels that were classified ~~the~~as ~~estimated~~held ~~fair~~for ~~values,~~use ~~net~~as of ~~selling costs~~December 31, we2009 ~~reduced~~(including the ~~carrying~~ ~~values~~six ~~and~~hotels ~~recorded~~that ~~impairment~~secure ~~charges.~~Pool ~~During~~3, ~~the~~which ~~year~~were ~~ended~~subsequently ~~December 31,~~surrendered ~~2008,~~to wea ~~recorded~~court-appointed ~~impairment~~receiver ~~charges~~in ~~of $10.8~~February ~~million~~2010), onpresented ~~assets~~in ~~held~~more ~~for~~detail in ~~sale.~~“Results of Operations-Continuing Operations”:

~~Our~~• ~~continuing~~Revenues ~~operations~~decreased ~~reflect~~$39.7 ~~the~~million, ~~results~~or 17.4%. Rooms revenues decreased $31.3 million, or 18.3%, as ADR fell 9.0% and occupancy decreased 9.9%. Food and beverage revenues decreased $7.6 million, or 15.2%, driven largely by lower banquet revenues. • As previously discussed, we conducted a portfolio analysis to strengthen our balance sheet. As of ~~operations~~December 31, 2009, we had surrendered control of ~~those~~ two hotels ~~which~~to court-appointed receivers. In 2009, we ~~are~~began ~~likely~~negotiations towith ~~retain~~the inservicer ~~our~~of ~~portfolio~~Pool ~~for~~ 3 to surrender control of the ~~foreseeable~~six ~~future~~hotels asthat ~~well~~secure asPool ~~those~~3 ~~assets~~to ~~which~~a docourt-appointed receiver because the cash flows generated by these hotels were not ~~currently~~ ~~meet~~sufficient to fund the ~~held~~debt ~~for~~service ~~sale~~requirements. ~~criteria~~We were required to perform a fair value assessment of ~~SFAS No~~ the six hotels in 2009 in accordance with U. ~~144~~S. WeGAAP ~~periodically~~and ~~evaluate~~we concluded that the ~~assets~~book ~~in our~~value ~~portfolio~~of tothe ~~ensure~~six ~~they~~hotels ~~continue~~exceeded fair value and recorded impairment charges totaling $27.8 million. In February 2010, we surrendered control of the six hotels that secure Pool 3 to ~~meet~~a ~~our~~court-appointed ~~performance objectives~~receiver. ~~Accordingly~~• Excluding impairment, ~~from~~operating ~~time~~income decreased $20.1 million to ~~time~~a loss of $6.7 million. We realized the benefits of several cost containment initiatives as total operating expenses excluding impairment decreased $19.6 million. However, wethese ~~could~~initiatives ~~identify other~~did ~~assets~~not ~~for~~fully ~~disposition~~offset the $39. 7 million decline in revenues, since many of our operating costs are fixed in nature.

Overview of Discontinued Operations

In 2009, we sold 5 of our held for sale hotels and surrendered control of two hotels to court-appointed receivers. For the five hotels sold and two hotels surrendered in 2009, total revenues were $14.1 million, direct operating expenses were $7.1 million, and other hotel operating expenses were $5.4 million for the year ended December 31, 2009, respectively.

The consolidated statements of operations for discontinued operations for the years ended 2009, 2008 and 2007 include the results of operations for all properties that have been sold or otherwise disposed in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) FASB ASC 360 Property, Plant, and Equipment (“FASB ASC 360”).

The assets held for sale at December 31, 2009 and December 31, 2008 and the liabilities related to these assets are separately disclosed in the Consolidated Balance Sheets. Among other criteria, we classify an asset as held for sale if we expect to dispose of it within one year, we have initiated an active marketing plan to sell the asset at a reasonable price and it is unlikely that significant changes to the plan to sell the asset will be made. While we believe that 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. We believe that our held for sale hotel as of December 31, 2009 remains properly classified in accordance with FASB ASC 360.

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. During the year ended December 31, 2009, we recorded impairment charges of $13.9 million on assets held for sale.

Our continuing operations reflect the results of operations of those hotels which we are likely to retain in our portfolio for the foreseeable future as well as those assets which do not currently meet the held for sale criteria of FASB ASC 360. We periodically evaluate the assets in our portfolio to ensure they continue to meet our performance objectives. Accordingly, from time to time, we could identify other assets for disposition.

Critical Accounting Policies and Estimates

Our financial statements are prepared in accordance with generally accepted accounting principles (“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 revenues and expenses during the reporting period. Actual results could differ from our estimates.

These financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. However, as discussed in “Item 1A. Risk Factors”, approximately $128 million of outstanding mortgage debt is scheduled to mature in July 2009 and the current severe economic recession has negatively impacted our operating results, which affects operating cash flows as well as our ability to refinance the maturing indebtedness. In the absence of an extension, refinancing or repayment of the July 2009 debt, these factors raise substantial doubt as to our ability to continue as a going concern. We have engaged mortgage bankers to facilitate the refinancing process and to assist in negotiations with prospective lenders. Management is also negotiating to extend the maturing mortgage debt. However, management can provide no assurance that we will be able to refinance or extend the debt. The financial statements do not include any adjustments relating to the recoverability and classifications of recorded asset amounts or the amounts and classifications of liabilities or any other adjustments that may be necessary if we are unable to continue as a going concern.

A summary of our significant accounting policies is included in Note 1 of the notes to our 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 significant control. All of the subsidiaries are wholly-owned except for one joint venture, which meets the criteria for consolidation.

When we consolidate a hotel in which we own less than 100% of the voting equity interest, we include the assets and liabilities of the hotel in our consolidated balance sheet. The third party interest in the net assets of the hotel is reported as minority interest on our consolidated balance sheet. In addition, our consolidated statement of operations reflects the full revenues and expenses of the hotel 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.

~~Deferral~~These ~~policy —~~financial Westatements ~~defer~~have ~~franchise application~~been ~~fees~~prepared on ~~the~~a ~~acquisition~~going orconcern ~~renewal~~basis, ofwhich acontemplates ~~franchise as~~the ~~well~~realization asof ~~loan~~assets ~~origination~~and ~~costs~~the ~~related~~satisfaction toof ~~new~~liabilities orin ~~renewed~~the ~~loan~~normal course of business. ~~financing~~However, ~~arrangements~~as discussed in “Item 1A. ~~Deferrals~~Risk ~~relating~~Factors”, toapproximately ~~the~~$101.2 million ~~acquisition~~of oroutstanding ~~renewal~~mortgage debt as of aDecember 31, ~~franchise~~2009 ~~are~~has ~~amortized~~matured, onor ais ~~straight-line~~scheduled ~~basis~~to mature in 2010 without ~~over~~available ~~the~~extension ~~period~~options ofand the ~~franchise~~economic ~~agreement.~~recession Wehas ~~amortize~~negatively ~~deferred~~impacted our operating ~~financing~~results, ~~costs~~which ~~over~~affects ~~the~~operating ~~term~~cash offlows ~~the~~as ~~loan~~well ~~using~~as our ability to refinance the ~~effective~~maturing ~~interest method~~indebtedness. ~~The~~In ~~effective~~the ~~interest~~absence ~~method~~of ~~incorporates~~an extension, refinancing or repayment of the debt, these factors ~~present~~raise ~~values~~substantial ofdoubt ~~future~~as ~~cash~~to ~~outflows~~our ~~and~~ability ~~the~~to ~~effective~~continue ~~yield~~as a going concern. We surrendered control onof the ~~debt~~six inhotels ~~determining~~that ~~the~~secure ~~amortization~~Pool of3 ~~loan~~to ~~fees~~a court-appointed receiver in February 2010. AtPool 3 had an outstanding balance of $45.5 million at December 31, ~~2008,~~2009. ~~these~~We ~~deferrals~~are ~~totaled~~pursuing opportunities to extend or refinance the debt maturing in 2010, which totaled $255.7 million ~~for~~at ~~our~~December 31, ~~held~~2009. ~~for~~However, we ~~use~~can ~~hotels.~~provide Ifno assurance that we ~~were~~will be able to ~~write-off~~ ~~these~~refinance ~~expenses~~or inextend the ~~year~~debt. ofThe ~~payment,~~financial statements ~~our~~do ~~operating expenses~~not ininclude ~~those~~any ~~years~~adjustments ~~would~~relating beto ~~significantly~~the ~~higher~~recoverability and ~~lower~~classifications of inrecorded asset amounts or the amounts and classifications of liabilities or any other ~~years~~adjustments that ~~covered~~may inbe ~~the~~necessary ~~related~~if ~~agreement~~we are unable to continue as a going concern.

~~Asset~~A ~~impairment —~~summary Weof ~~invest~~our ~~significantly~~significant ~~in real~~accounting ~~estate~~policies ~~assets.~~is ~~Property~~included ~~and~~in ~~equipment~~Note ~~for~~1 ~~our held for use assets represented 80.5%~~ of the ~~total~~notes ~~assets~~to on our ~~consolidated~~ ~~balance~~consolidated ~~sheet~~financial ~~at December 31, 2008~~statements. ~~Accordingly,~~We ~~our~~consider ~~policy on~~the ~~asset~~following ~~impairment~~to isbe ~~considered~~our a critical accounting ~~estimate.~~ ~~Management periodically evaluates our property and~~policies ~~equipment to determine whether events or changes in circumstances indicate that a possible impairment in the carrying values of the assets has occurred. As part of this evaluation,~~ and ~~in accordance with SFAS No. 144, we classify our properties into two categories~~estimates: ~~“assets held~~ ~~for sale” and “assets held for use”.~~

WeConsolidation ~~consider~~policy an—All ~~asset~~of ~~held~~our ~~for~~hotels ~~sale~~are ~~when~~owned by operating subsidiaries. We consolidate the assets, ~~following~~liabilities ~~criteria~~and results of operations of those hotels where we own at least 50% of the ~~per~~voting ~~SFAS No~~equity interest and we exercise significant control. ~~144~~ All of the subsidiaries are wholly-owned ~~met:~~except for one joint venture, which meets the criteria for consolidation.

Noncontrolling interest — Noncontrolling interest represents the minority stockholder’s 1proportionate share of equity of the joint venture that we consolidate and is shown as “noncontrolling interest” in the Consolidated Balance Sheet. In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, Consolidation (“FASB ASC 810” formerly referenced as Statement of Financial Accounting Standards (“SFAS”) SFAS No. ~~Management~~160, ~~commits~~Noncontrolling toInterest ain ~~plan~~Consolidate Financial statements — An Amendment of ARB No. 51), we allocate to ~~sell~~the noncontrolling interest its share of any profits or losses in accordance with the ~~asset;~~provisions of the applicable agreements.

Deferral policy —We defer franchise application fees on the acquisition or renewal of a franchise 2as 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 ~~asset~~effective isinterest ~~available~~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, 2009, these deferrals totaled $1.5 million for ~~immediate~~our ~~sale~~held for use hotels. If we were to write-off these expenses in ~~its~~the ~~present~~year of payment, our operating expenses in ~~condition;~~those years would be significantly higher and lower in other years covered in the related agreement.

Asset impairment —We invest significantly in real estate assets. Property and equipment for our 3held for use assets represented 84.3% of the total assets on our consolidated balance sheet at December An31, ~~active~~2009. ~~marketing~~Accordingly, ~~plan~~our policy on asset impairment is considered a critical accounting estimate. We periodically evaluate property and equipment to ~~sell~~determine whether events or changes in circumstances indicate that a possible impairment in the ~~asset~~carrying values of the assets has ~~been~~occurred. As part of this evaluation, and in accordance with FASB ASC 360 Property, Plant, and ~~initiated~~Equipment, atwe aclassify ~~reasonable~~our ~~price;~~properties into two categories: “assets held for sale” and “assets held for use”.

~~4. The~~We consider an asset held for sale ofwhen the ~~asset~~following iscriteria ~~probable~~per ~~within~~FASB ~~one~~ASC 360 are met: ~~year; and~~

1. Management commits to a plan to sell the asset; 2. The asset is available for immediate sale in its present condition; 3. An active marketing plan to sell the asset has been initiated at a reasonable price; 4. The sale of the asset is probable within one year; and 5. It is unlikely that significant changes to the plan to sell the asset will be made.

Upon designation of an asset as held for sale, we record the carrying value of the asset at the lower of its carrying value or its estimated fair value less estimated selling costs, and we ~~cease~~ cease depreciation of the asset. ~~Management’s~~Our estimate of the fair value of an asset is generally based on a number of factors, including letters of intent or other indications of value from prospective buyers, or, in the absence of such, the opinions of third-party brokers or appraisers. While ~~management~~ we may consider one or more opinions or appraisals in arriving at an asset’s estimated fair value, our estimate is ultimately based on ~~management’s~~our determination and we remain ~~responsible~~ responsible for the impact of the estimate on the financial statements. The estimated selling costs are ~~generally 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.~~

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. The carrying value of a long-lived asset is considered for impairment when the estimated undiscounted cash flows to be generated by the asset over its estimated useful life are less than the asset’s carrying value. For those assets where there are indicators of impairment, we determine the estimated fair values of these assets by taking into consideration indicators of value including broker valuations or appraisals. While management may consider one or more opinions or appraisals in arriving at an asset’s estimated fair value, our estimate is ultimately based on management’s determination and we remain responsible for the impact of the estimate on the financial statements. The broker valuations of fair value normally use the “cap rate” approach of estimated cash flows, a “per key” approach or a “room revenue multiplier” approach for determining fair value. If the estimated fair value exceeds the asset’s carrying value, no adjustment is generally recorded. Additionally, if an asset is replaced prior to the end of its useful life, the remaining net book value is recorded as an impairment loss.

Accrual of self-insured obligations — We are self-insured up to certain amounts for 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 other accrued liabilities on 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~~generally ~~levels~~based ofon ~~costs~~our ~~per claim. Trends in actual~~ experience ~~are~~ anwith ~~important~~similar ~~factor~~asset ~~in the determination of these estimates~~sales. We ~~believe~~record ~~that~~impairment ~~our~~charges ~~estimated reserves for such claims are adequate; however, actual experience in claim frequency~~ and ~~amount~~ ~~could materially differ from our estimates and adversely~~write ~~affect~~down ~~our~~respective ~~results~~hotel ofassets ~~operations,~~if ~~cash~~their ~~flow,~~carrying ~~liquidity~~values ~~and financial~~exceed ~~condition.~~the Asestimated ofselling ~~December 31,~~prices ~~2008, our reserve~~less ~~balance~~costs ~~related~~ to ~~these self-insured obligations was $10~~sell.~~4 million.~~

With respect to assets held for use where impairment indicators exist, 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. The carrying value of a long-lived asset is considered for impairment when the estimated undiscounted cash flows to be generated by the asset over its estimated useful life are less than the asset’s carrying value. For those assets where there are indicators of impairment, we determine the estimated fair values of these assets by taking into consideration indicators of value including broker valuations or appraisals. While we may consider one or more opinions or appraisals in arriving at an asset’s estimated fair value, our estimate is ultimately based on our determination and we remain responsible for the impact of the estimate on the financial statements. The broker valuations of fair value normally use the “cap rate” approach of estimated cash flows, a “per key” approach or a “room revenue multiplier” approach for determining fair value. If the estimated fair value exceeds the asset’s carrying value, no adjustment is generally recorded. Additionally, if an asset is replaced prior to the end of its useful life, the remaining net book value is recorded as an impairment loss.

Accrual of self-insured obligations —We are self-insured up to certain amounts for employee medical, 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 other accrued liabilities on 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 December 31, 2009, our reserve balance related to these self-insured obligations was $8.9 million.

Income Statement Overview

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 ~~35 consolidated~~33 hotels that, as of December 31, ~~2008~~2009, are classified as assets held for use.

Revenues

We categorize our revenues into the following three categories:

	•		Rooms 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 accounted for approximately 6943% of our ~~2008~~ 2009 room revenues, are revenues derived from individual guests who stay only for brief periods of time without a long-term contract. Demand from corporate clients was 28% of our 2009 room revenues, groups made up approximately 2422% of our ~~2008~~ 2009 room revenues while our contract revenues (such as contracts with airlines for crew rooms) accounted for the remaining 7%.

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

	•		Occupancy — computed by dividing total room nights sold by the total available room nights. To obtain available room nights for a particular period, we multiply the number of rooms in each hotel by the number of days the hotel was open;

	•		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 for a particular period by the total available room nights over the same period. Our calculation of total room revenues and the number of available rooms is adjusted, as appropriate, for the opening and closing of hotels in our portfolio. Our RevPAR can also be calculated by multiplying our occupancy for a particular period by our average daily rate over the same period.

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 operating 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;~~

31 o Rooms expenses — expenses incurred in generating room revenues; o Food and beverage expenses — expenses incurred in generating food and beverage revenues; and o Other direct expenses — expenses incurred in generating the revenue activities classified in “other revenues.”

~~Table~~We use certain “non-GAAP financial measures,” which are measures of ~~Contents~~our historical financial performance that are not calculated and presented in accordance with GAAP, within the meaning of applicable SEC rules. For instance, we use the term direct operating contribution to mean revenues less direct operating expenses as presented in the consolidated statement of operations. We assess profitability by measuring changes in our direct operating contribution and direct operating contribution percentage, which is direct operating contribution as a percentage of the applicable revenue source. These measures assist us in distinguishing whether increases or decreases in revenues and/or expenses are due to growth or decline of operations or from other factors. We believe that direct operating contribution, when combined with the presentation of GAAP operating income, revenues and expenses, provide useful information to us. • Other hotel operating expenses — these expenses include salaries for hotel management, advertising and promotion, franchise fees, repairs and maintenance and utilities; • Property and other taxes, insurance and leases — these expenses include equipment, ground and building rentals, insurance, and property, franchise and other taxes; • Corporate and other — these expenses include corporate salaries and benefits, legal, accounting and other professional fees, directors’ fees, costs for office space and information technology costs. Also included are costs related to compliance with Sarbanes-Oxley legislation; • Casualty (gains) losses, net — these expenses include hurricane and other repair costs and charges related to the assets written off that were damaged, netted against any gains realized on the final settlement of property damage claims; • Depreciation and amortization — depreciation of fixed assets (primarily hotel assets) and amortization of deferred franchise fees; and • Impairment of long-lived assets — charges required to write down the carrying values of long-lived assets to the fair values of assets where the estimated undiscounted cash flows over the life of the asset were less than the carrying value of the asset. Also included is the write-off of assets that were replaced and had remaining net book value.

• 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.”

We use certain “non-GAAP financial measures,” which are measures of our historical financial performance that are not calculated and presented in accordance with GAAP, within the meaning of applicable SEC rules. For instance, we use the term direct operating contribution to mean revenues less direct operating expenses as presented in the consolidated statement of operations. We assess profitability by measuring changes in our direct operating contribution and direct operating contribution percentage, which is direct operating contribution as a percentage of the applicable revenue source. These measures assist management in distinguishing whether increases or decreases in revenues and/or expenses are due to growth or decline of operations or from other factors. We believe that direct operating contribution, when combined with the presentation of GAAP operating income, revenues and expenses, provide useful information to management.

• Other hotel operating expenses — these expenses include salaries for hotel management, advertising and promotion, franchise fees, repairs and maintenance and utilities; • Property and other taxes, insurance and leases — these expenses include equipment, ground and building rentals, insurance, and property, franchise and other taxes; • Corporate and other — these expenses include corporate salaries and benefits, legal, accounting and other professional fees, directors’ fees, costs for office space and information technology costs. Also included are costs related to compliance with Sarbanes-Oxley legislation; • Casualty (gains) losses, net — these expenses include hurricane and other repair costs and charges related to the assets written off that were damaged, netted against any gains realized on the final settlement of property damage claims; • Depreciation and amortization — depreciation of fixed assets (primarily hotel assets) and amortization of deferred franchise fees; and • Impairment of long-lived assets — charges required to write down the carrying values of long-lived assets to the fair values of assets where the estimated undiscounted cash flows over the life of the asset were less than the carrying value of the asset.

Non-operating items

Non-operating items include:

• ~~Business~~Interest ~~interruption~~expense ~~insurance~~includes ~~proceeds~~interest ~~represent~~incurred ~~insurance~~on ~~proceeds~~our ~~for~~debt ~~lost profits~~ as awell result of a business shutdown. Our 2008 business interruption proceeds relate primarily to the recovery of lost profits and reimbursement for additional expenses incurred at the Holiday Inn Hotel & Suites Marietta, which was closed as ~~a result of the fire in January 2006. • Interest expense and other financing costs represent interest expense, which includes~~ amortization of deferred loan costs and changes in the fair value of interest rate caps; • Interest income; and • ~~Minority~~Loss ~~interests~~on —debt ~~our equity partner’s share of the income or loss of the hotel owned by joint venture that we consolidate~~extinguishment.

Results of Operations — Continuing Operations

Results of operations for the years ended December 31, 2009 and December 31, 2008

Results of Operations — Continuing Operations

Results of operations for the years ended December 31, 2008 and December 31, 2007

Revenues — Continuing Operations

	2008			2007			Increase (decrease)
	For the Years Ended December 31,
	2009			2008			Increase (decrease)
	($ in thousands)
Revenues:
Rooms	$	~~178~~139,~~623~~501		$	~~179~~170,~~716~~752		$	(131,~~093~~251	)	(018.63	)%)
Food and beverage		5342,~~543~~191			5549,~~089~~741			(17,~~546~~550	)	(215.82	)%)
Other		86,~~262~~852			7,~~753~~701			~~509~~(849	)	6(11.60	%)
Total revenues	$	~~240~~188,~~428~~544		$	~~242~~228,~~558~~194		$	(239,~~130~~650	)	(017.94	)%)
Occupancy		6963.21	%		6970.0	%				0(9.39	%)
ADR	$	~~105~~96.9556		$	~~107~~106.2113		$	(19.2657	)	(19.20	)%)
RevPAR	$	73.32		$	73.97			(0.65	)	(0.9	)%
RevPar	$	60.90		$	74.24		$	(13.34	)	(18.0	%)

Rooms revenues decreased $131.13 million, or 018.63%, driven by a 1 9.29% decrease in ~~ADR,~~occupancy ~~partly~~and ~~offset by~~ a 0 9.30% ~~rise~~decrease in ~~occupancy~~ADR. The decline in rooms revenues was the result of deteriorating ~~economic~~ economic conditions. InWe ~~spite~~slightly ofunderperformed ~~the~~when ~~challenging~~compared ~~economic environment,~~to ~~we outperformed~~ the U.S. lodging industry as a whole in 2009 ~~2008~~ as our RevPAR decreased 018.90%, compared to a decrease of 116.97% for the U.S. lodging industry, ~~according~~ according to Smith Travel Research. ~~This~~The ~~was~~loss ~~achieved largely because~~ of ~~our~~ ~~planned~~occupancy ~~strategic~~created ~~shift~~pricing ~~toward~~pressures, ~~the~~resulting ~~contract~~in a ~~segment~~9.0% ~~of business~~decline in ~~order to react to market conditions~~ADR.

Food and beverage revenues decreased $17.56 million, or 215.82%, driven largely by a decrease in our banquet revenues as businesses reduced their spending on conferences and other events. Other revenues ~~grew~~decreased $0.58 million, or 611.60%, due largely to fees for canceled events in 2008 that did not recur in 2009.

Revenue growth was negatively impacted by displacement. Displacement refers to lost revenues and profits due to rooms being out of service as a result of renovation. Revenue is considered “displaced” only when a hotel has sold all available rooms and denies additional reservations due to rooms ~~out~~ out of service. We feel this method is conservative, as it does not include estimated “soft” displacement costs associated with a renovation. During a renovation, there is ~~significant~~ significant disruption of normal business operations. In many cases, renovations result in the relocation of front desk operations, restaurant and bar services, and meeting rooms. In addition, the construction activity itself can be disruptive to our guests. As a result, guests may depart earlier than planned due to the disruption caused by the renovation work, local customers or frequent guests may choose an alternative hotel during the renovation, and local groups may not solicit the hotel to house their groups during renovations. These “soft” displacement costs are difficult to quantify and are excluded from our displacement calculation. Total ~~revenue~~ revenue displacement during the year ended December 31, ~~2008~~ 2009 for the ~~eleven~~three hotels under renovation was $2.1 ~~million~~. ~~The largest amount of this displacement~~0 ~~occurred at our former Holiday Inn Select DFW Airport hotel, which was converted to a Wyndham hotel and recently completed an extensive renovation~~million. Total revenue displacement for the ~~seven~~ eleven hotels under renovation during the year ended December 31, ~~2007~~ 2008 was $12.91 million.

Direct operating expenses — Continuing Operations


													% of total revenues
	2009			2008			Increase (decrease)					2009			2008
	($ in thousands)
Direct operating expenses:
Rooms	$	39,438		$	44,330		$	(4,892	)	(11.0	%)		20.9	%		19.4	%
Food and beverage		29,444			34,293			(4,849	)	(14.1	%)		15.6	%		15.0	%
Other		4,730			5,467			(737	)	(13.5	%)		2.5	%		2.4	%

Total direct operating expenses	$	73,612		$	84,090		$	(10,478	)	(12.5	%)		39.0	%		36.9	%


Direct operating contribution (by revenue source):
Rooms	$	100,063		$	126,422		$	(26,359	)	(20.9	%)
Food and beverage		12,747			15,448			(2,701	)	(17.5	%)
Other		2,122			2,234			(112	)	(5.0	%)

Total direct operating contribution	$	114,932		$	144,104		$	(29,172	)	(20.2	%)


Direct operating contribution % (by revenue source):
Rooms		71.7	%		74.0	%
Food and beverage		30.2	%		31.1	%
Other		31.0	%		29.0	%

Total direct operating contribution		61.0	%		63.1	%

Total direct operating expenses decreased $10.5 million, or 12.5%. To react to declining revenues, we implemented several initiatives to reduce our cost structure including a reduction in ~~Direct~~labor costs (both headcount and hours worked) as well as a reduction in certain non-essential costs. However, because a portion of our costs are fixed, we experienced some erosion in direct operating ~~expenses —~~contribution. ~~Continuing~~As ~~Operations~~a percentage of total revenues, direct operating contribution decreased from 63.1% in 2008 to 61.0% in 2009.

												% of Total Revenues
	2008			2007			Increase (decrease)					2008			2007
	($ in thousands)
Direct operating expenses:
Rooms	$	46,588		$	44,833		$	1,755		3.9	%		19.4	%		18.5	%
Food and beverage		36,755			37,239			(484	)	(1.3	)%		15.3	%		15.4	%
Other		5,806			5,503			303		5.5	%		2.4	%		2.3	%
Total direct operating expenses	$	89,149		$	87,575		$	1,574		1.8	%		37.1	%		36.1	%
Direct operating contribution (by revenue source):
Rooms	$	132,035		$	134,883		$	(2,848	)	(2.1	)%
Food and beverage		16,788			17,850			(1,062	)	(5.9	)%
Other		2,456			2,250			206		9.2	%
Total direct operating contribution	$	151,279		$	154,983		$	(3,704	)	(2.4	)%
Direct operating contribution % (by revenue source):
Rooms		73.9	%		75.1	%
Food and beverage		31.4	%		32.4	%
Other		29.7	%		29.0	%
Total direct operating contribution		62.9	%		63.9	%

Rooms expenses decreased $4.9 million, or 11.0%, driven primarily by lower payroll costs of $2.4 million, or 9.4%, as a result of decreased occupancy and cost control measures, as well as decreased travel agent and credit card commissions of $1.2 million on lower rooms sold. Room expenses on a cost per occupied room (“POR”) basis declined from $27.32 in 2008 to $27.24 in 2009 as a result of our cost control measures.

~~Rooms~~Food and beverage expenses ~~increased~~decreased $14.8 million, or 314.91%. ~~Room expenses~~Labor oncosts adecreased $2.6 million and cost ~~per~~of ~~occupied~~goods ~~room~~decreased ~~(“POR”) basis increased from~~ $261.647 million indue ~~2007~~ to ~~$27.41~~a decline in ~~2008,~~sales. anIn ~~increase of 2.9%~~addition, ~~primarily~~audio asand avisual equipment ~~result~~expenses ofdecreased a $0.62 million ~~increase in employee medical costs and increased seasonal labor~~ as ~~the hotels~~a ~~reduced~~result ~~full-time~~of ~~employees~~fewer ~~and~~events ~~increased contractors to allow greater flexibility~~ in ~~managing labor costs~~2009.

~~Food~~Other ~~and beverage~~ expenses decreased $0.57 million, or 113.35%~~, driven~~. ~~primarily~~We byinsourced ~~lower~~the ~~food~~management ~~and~~of ~~beverage~~a ~~revenues,~~parking ~~partially~~facility ~~offset~~at byone ~~higher~~of ~~employee~~our ~~medical~~hotels, ~~costs~~ which ~~increased~~ resulted in a $0.53 million reduction in ~~2008~~costs. ~~Food~~Telephone ~~and beverage direct operating~~costs ~~contribution~~ decreased $10.1 million, oron 5reduced telephone revenues.~~9%.~~

Other expenses grew $0.3 million, or 5.5%, while the related direct operating contribution rose $0.2 million, an increase of 9.2%. In total, direct operating contribution decreased $3.7 million, or 2.4%.

Other operating expenses — Continuing Operations

												% of Total Revenues
												% of total revenues
	2008			2007			Increase (decrease)					2008			2007
	2009			2008			Increase (decrease)					2009			2008
	($ in thousands)						~~($ in thousands)~~
Other operating expenses:
Other hotel operating costs
General and administrative	$	1512,~~042~~335		$	14,~~563~~209		$	~~479~~(1,874	)	3(13.32	%)		6.35	%		6.02	%
Advertising and promotion		129,~~587~~328			1211,~~880~~869			(~~293~~2,541	)	(221.34	)%)		54.29	%		5.32	%
Franchise fees		1714,~~145~~255			16,~~967~~372			~~178~~(2,117	)	1(12.09	%)		7.16	%		7.02	%
Repairs and maintenance		119,~~636~~982			1011,~~894~~064			~~742~~(1,082	)	6(9.8	%)		45.83	%		4.58	%
Utilities		1311,~~213~~051			12,~~720~~370			~~493~~(1,319	)	3(10.97	%)		5.59	%		5.24	%
Other expenses		~~337~~58			~~599~~337			(~~262~~279	)	(4382.78	)%)		0.10	%		0.21	%
Other hotel operating costs		6957,~~960~~009			6866,~~623~~221		$	1(9,~~337~~212	)	1(13.9	%)		2930.12	%		2829.30	%
Property and other taxes, insurance, and leases		16,~~561~~387			1715,~~662~~769			~~(1,101~~618	)	(63.29	)%		68.97	%		76.39	%
Corporate and other		1614,~~805~~769			2116,~~391~~289			(41,~~586~~520	)	(219.43	)%)		7.08	%		87.81	%
Casualty (gains) losses, net		1,095			(1,867	)		2,962		(158.7	)%		0.5	%		(0.8	)%
Casualty losses, net		119			1,095			(976	)	(89.1	%)		0.1	%		0.5	%
Restructuring		—			1,232			(1,232	)	(100.0	)%		0.0	%		0.5	%
Depreciation and amortization		33,323			31,306			2,017		6.4	%		17.7	%		13.7	%
Depreciation and amortization		31,930			28,765			3,165		11.0	%		13.3	%		11.9	%
Impairment of long-lived assets		30,674			4,512			26,162		579.8	%		16.3	%		2.0	%
Impairment of long-lived assets		9,468			1,622			7,846		483.7	%		3.9	%		0.7	%
Total other operating expenses	$	152,281		$	135,192		$	17,089		12.6	%		80.8	%		59.2	%
Total other operating expenses	$	145,819		$	137,428		$	8,391		6.1	%		60.6	%		56.7	%
Total operating expenses	$	225,893		$	219,282		$	6,611		3.0	%		119.8	%		96.1	%
Total operating expenses	$	234,968		$	225,003		$	9,965		4.4	%		97.7	%		92.8	%
Operating income	$	(37,349	)	$	8,912		$	(46,261	)	(519.1	%)		(19.8	%)		3.9	%
Operating income	$	5,460		$	17,555		$	(12,095	)	(68.9	)%		2.3	%		7.2	%

Operating income decreased $1246.13 million in ~~2008~~2009. ~~Impairment~~ ~~charges~~Of ~~increased~~this decrease, $727.8 million was due to a ~~$4.8 million~~the impairment atof ~~the~~long-lived ~~Crowne~~assets ~~Plaza~~associated ~~Worcester,~~with ~~MA and~~ the ~~write-off~~six ofhotels ~~assets~~ that ~~were~~secure ~~replaced~~Pool ~~during~~3. ~~our~~In ~~recent~~2009, we ~~hotel~~began ~~renovations,~~negotiations ~~including~~with ~~certain~~the ~~building~~servicer ~~improvements~~of ~~and furniture,~~Pool ~~fixtures~~3 ~~and~~to ~~equipment.~~surrender ~~Our~~control ~~renovations~~of ~~were~~these ~~largely related~~hotels to ~~hotel~~a court-appointed ~~conversion~~receiver ~~projects~~because ~~and~~the ~~required~~cash ~~franchisor improvements.~~flows Ingenerated ~~addition,~~by inthese ~~2007,~~hotels wewere ~~recorded~~not ~~casualty~~sufficient ~~gains~~to offund ~~$1.9 million related to~~ the ~~settlement~~debt ofservice arequirements. ~~property damage~~We ~~claim~~were atrequired ~~one~~to ofperform ~~our~~a ~~hotels~~fair asvalue ~~compared~~assessment toof ~~casualty~~the ~~losses~~six ofhotels ~~$1.1 million~~ in ~~2008~~2009 ~~primarily~~and ~~related~~concluded tothat ~~hurricane damage~~the ~~sustained~~book atvalue ~~one~~ of ~~our~~the six hotels. ~~Excluding~~exceeded ~~these~~fair ~~items,~~value and recorded ~~operating~~impairment ~~income~~charges ~~decreased~~totaling $127.38 million~~, or 7~~.~~4%.~~ ~~The remaining~~We ~~decrease~~surrendered ~~was~~control ~~largely~~of ~~attributable~~the hotels to ~~the~~a court-appointed ~~decline~~receiver in ~~ADR~~ February 2010.

~~Other~~Excluding ~~hotel~~impairment, operating ~~costs~~income ~~increased~~decreased $20.1 million as the $29.32 million, ordecline in 1.direct operating contribution was partially offset by a decrease in other operating expenses (excluding impairment) of $9%.1 million. The ~~increase~~reduction isin aother ~~result~~operating ofexpenses ~~the~~was ~~following:~~driven in large part by our focus on cost containment.

•Other ~~General~~hotel ~~and~~operating ~~administrative~~ costs increased $0.5 million. As a percent of revenues, general and administrative expenses increased 30 basis points in 2008 to 6.3%. The increase was due in large part to higher employee medical costs. In addition, we benefited from sales tax credits and bad debt recoveries in 2007 that did not recur in 2008. • Advertising and promotion costs decreased $09.~~3 million, or~~ 2~~.3%, driven by cost containment initiatives. • Franchise fees increased $0.2~~ million, or 113.09%~~, but remained relatively constant as a percentage of revenues~~. •The ~~Repairs~~decrease ~~and~~was ~~maintenance expenses increased $0.7 million, or 6.8%, primarily as~~ a result of increased automotive maintenance costs and higher medical costs. As a percentage of total revenues, repairs and maintenance costs increased 30 basis points from 4.5% in 2007 to 4.8% in 2008. • Utilities costs increased $0.5 million, or 3.9%. This increase is driven largely by higher energy rates. As a percentage of total revenues, utilities costs increased 30 basis points to 5.5% in 2008.the following:

	•		Hotel general and administrative costs decreased $1.9 million, or 13.2%, primarily due to decreased payroll and travel costs. Despite the decrease in expense, as a percent of revenues, hotel general and administrative expenses increased 30 basis points in 2009 to 6.5%.

	•		Advertising and promotion costs decreased $2.5 million, or 21.4%, driven by a reduction in labor costs of $1.4 million. In addition, we eliminated our in-house reservation office in the fourth quarter of 2008 and outsourced that function to our franchisors. This action resulted in a $0.7 million decrease in advertising expenses compared to last year. The remaining $0.4 million was primarily the result of other cost containment initiatives.

	•		Franchise fees decreased $2.1 million, or 12.9%, largely as a result of lower revenues, but increased as a percentage of revenue due largely to the outsourcing of the reservation function to our franchisors in the fourth quarter of 2008.

	•		Repairs and maintenance expenses decreased $1.1 million, or 9.8%, primarily as a result of a reduction in labor costs of $0.3 million, decreased automotive and fuel costs of $0.3 million and a reduction in repair and maintenance project spending of $0.2 million.

	•		Utilities costs decreased $1.3 million, or 10.7%. This decrease was driven largely by lower consumption.

	•		Other expenses decreased $0.3 million, or 82.8%. In 2008, we incurred costs associated with a hotel brand conversion. Such costs were not incurred at the same level in 2009.

•Property ~~Other~~and ~~expenses~~other ~~decreased~~taxes, insurance and leases increased $0.3 6 million in 2009 and increased 180 basis points as a percentage of revenues, orto 438.7%. InThe ~~2007,~~increase wewas ~~incurred~~due ~~costs~~largely ~~associated~~to ~~with~~windstorm insurance apremiums ~~hotel~~on ~~brand~~certain ~~conversion.~~properties ~~Such~~that ~~costs~~ were not incurred atin ~~the~~2008 ~~same~~to ~~level~~reduce inour ~~2008~~risk associated with windstorm damage.

~~Property~~Corporate and other ~~taxes~~expenses decreased $1.5 million, ~~insurance~~or ~~and~~9.3%. ~~leases~~Corporate costs decreased $2.5 million, or 15.3%, due in large part to our cost reduction initiatives. We reduced headcount, reduced or eliminated cash bonuses, and implemented various other measures to lower our corporate cost structure. In addition, in 2008 we incurred $1.1 million in ~~2008~~costs ~~and~~associated ~~decreased~~with 40the resignation of Mr. ~~basis~~Edward ~~points~~Rohling, ~~as a~~our ~~percentage~~former ofPresident ~~revenues,~~and toChief 6Executive Officer.9% Similar costs were not incurred in 2009. ~~The~~Other ~~decrease~~costs ~~was~~increased ~~due~~$1.0 million ~~largely~~as we incurred loan extension fees toas ~~lower~~well ~~property~~as ~~insurance~~legal, ~~premiums~~appraisal and ~~lower~~title ~~claims~~search fees associated with ~~our~~the ~~self-insurance~~modification ~~programs~~and ~~for~~extension ~~general~~of Pool ~~liability~~1 and ~~automobile~~ ~~coverage~~Pool 4.

~~Corporate~~Casualty losses, net, represent costs related to hurricane and other ~~expenses~~property ~~decreased~~damage, offset by gains related to the final settlement of the related property damage claims, where applicable. In 2008, we incurred net losses of $41.61 million, ~~or 21.4%,~~almost ~~due~~entirely ~~largely~~related to the ~~following:~~damage at the Crowne Plaza Houston, TX, as a result of Hurricane Ike. We did not experience significant property damage in 2009.

•Depreciation Weand ~~realized~~amortization expenses increased $2.0 million, inor ~~savings due to reductions in corporate staffing~~6. ~~• $1.~~4 ~~million in lower public company related costs such as audit fees~~%, ~~Sarbanes-Oxley~~driven ~~compliance~~by ~~costs~~the ~~and~~completion ~~Director~~of several ~~and~~renovation ~~Officer~~projects ~~Insurance~~in 2009. • In ~~January~~accordance ~~2007,~~with wegenerally ~~announced~~accepted aaccounting ~~review of strategic alternatives to enhance shareholder value. During 2007~~principles, we ~~incurred~~begin ~~$1.5~~recognizing ~~million~~depreciation inexpense ~~related~~when ~~costs.~~the ~~Similar~~asset ~~costs~~is ~~were~~placed ~~not incurred~~ in ~~2008~~service. ~~• These decreases were partially offset by $1.1 million in costs associated with the resignation of Mr. Edward Rohling, our former President and Chief Executive Officer.~~

~~Casualty~~We ~~(gains)~~recorded ~~losses,~~$30.7 million ~~net~~of ~~represent~~impairment ~~costs~~losses related to ~~hurricane~~ ~~and~~assets ~~other~~held ~~property~~for ~~damage, offset by gains related to the final settlement of the related property damage claims~~use. ~~In 2008,~~Of wethis ~~incurred net losses of~~ amount, $127.18 million ~~almost entirely~~represented ~~related to~~ the ~~damage~~write atdown of the ~~Crowne~~six ~~Plaza~~hotels ~~Houston,~~which ~~TX, as~~secure aPool ~~result~~3 ofto ~~Hurricane~~their ~~Ike~~estimated fair values. InThe ~~2007,~~remaining ~~we recognized total net gains of~~ $12.9 ~~million~~ ~~related~~represented to the ~~settlement~~write-off of ~~a property~~assets ~~damage~~that ~~claim~~were atreplaced ~~our~~and ~~Radisson New Orleans Airport hotel,~~had ~~which~~remaining ~~was~~book ~~damaged in 2005 by Hurricane Katrina~~value.

In August 2007, we announced cost-reduction initiatives to improve future operating performance. These initiatives resulted in position eliminations in our corporate staff as well as reductions in hotel staff at certain locations. As a result, we incurred restructuring costs totaling $1.2 million, which included severance and related costs. All of the terminations were completed and the related costs were paid as of December 31, 2007.

Depreciation and amortization expenses increased $3.2 million, or 11.0%, driven by the completion of several renovation projects in late 2007 and 2008. In accordance with generally accepted accounting principles, we begin recognizing depreciation expense when the asset is placed in service.

During 2008, we recorded $9.5 million of impairment losses related to assets held for use. Of this amount, $4.7 represented the write-off of assets that were replaced and had remaining book value. The remaining $4.8 million represented the write-down of the Crowne Plaza Worcester, MA to its estimated fair value upon reclassification to held for use in accordance with SFAS No. 144. In 2007, we recorded $1.6 million of impairment losses related to the write-off of assets that were replaced but had remaining book value.

Non-operating income (expenses) — Continuing Operations

	2008			2007			Increase (decrease)
	For the Year Ended December 31,
	2009			2008			Increase (decrease)
	($ in thousands)
Non-operating income (expenses):
Interest income and other	$	~~1,054~~110		$	31,~~944~~054		$	(~~2,890~~944	)	(7389.36	)%)
Interest expense		(1912,~~345~~837	)		(2317,~~172~~900	)		(35,~~827~~063	)	(1628.53	)%)
Loss on debt extinguishment		—			(3,330	)		(3,330	)	n/m

Interest income and other decreased $20.9 million, ~~or 73.3%,~~ due to lower balances in our interest-bearing and escrow accounts throughout the year as well as lower interest rates.

Interest expense decreased $35.81 million, ~~or 16.5%~~ due to lower rates related to our variable rate debt and lower debt balances.

~~The~~Results ~~$3.3 million~~of ~~loss~~operations onfor ~~debt~~the ~~extinguishment~~years ~~related~~ended toDecember 31, ~~the refinancing~~2008 ~~that~~and ~~occurred~~December 31, ~~in April~~ 2007.

Revenues — Continuing Operations


	For the Years Ended December 31,
	2008			2007			Increase (decrease)
	($ in thousands)
Revenues:
Rooms	$	170,752		$	171,396		$	(644	)	(0.4	%)
Food and beverage		49,741			51,232			(1,491	)	(2.9	%)
Other		7,701			7,247			454		6.3	%

Total revenues	$	228,194		$	229,875		$	(1,681	)	(0.7	%)


Occupancy		70.0	%		69.4	%				0.9	%
ADR	$	106.13		$	107.65		$	(1.52	)	(1.4	%)
RevPar	$	74.24		$	74.72		$	(0.48	)	(0.6	%)

Rooms revenues decreased $0.6 million, or 0.4%, driven by a 1.4% decrease in ADR, partly offset by a 0.9% rise in occupancy. The decline in rooms revenues was the result of deteriorating economic conditions. In spite of the challenging economic environment, we outperformed the U.S. lodging industry as a whole in 2008 as our RevPAR decreased 0.6%, compared to a

decrease of 1.9% for the U.S. lodging industry, according to Smith Travel Research. This was achieved largely ~~Results~~ because of ~~operations~~our ~~for~~planned strategic shift toward the ~~years~~contract ~~ended~~segment ~~December 31,~~of ~~2007~~business ~~and~~in order to react to ~~December 31,~~market ~~2006~~conditions.

Food and beverage revenues decreased $1.5 million, or 2.9%, driven by a decrease in our banquet revenues as businesses reduced their spending on conferences and other events. Other revenues grew ~~Revenues~~$0.5 ~~— Continuing~~million, ~~Operations~~or 6.3%, due largely to fees for canceled events.

	2007			2006			Increase (decrease)
	($ in thousands)
Revenues:
Rooms	$	179,716		$	170,764		$	8,952	5.2	%
Food and beverage		55,089			49,807			5,282	10.6	%
Other		7,753			7,064			689	9.8	%
Total revenues		242,558			227,635			14,923	6.6	%
Occupancy		69.0	%		68.2	%			1.2	%
ADR	$	107.21		$	103.30		$	3.91	3.8	%
RevPAR	$	73.97		$	70.46		$	3.51	5.0	%

Revenue growth was negatively impacted by displacement. Total revenue displacement during the year ended December 31, 2008 for the eleven hotels under renovation was $2.1 million. The largest amount of this displacement occurred at our former Holiday Inn Select DFW Airport hotel, which was converted to a Wyndham hotel and completed an extensive renovation. Total revenue displacement for the seven hotels under renovation during the year ended December 31, 2007 was $1.9 million.

~~Rooms~~ Direct ~~revenues~~operating ~~increased~~expenses ~~$9.0 million,~~– orContinuing ~~5.2%, driven by a~~Operations 3.8% increase in ADR and a 1.2% increase in occupancy. Our RevPAR increased 5.0%, while RevPAR for the U.S. lodging industry increased 5.7%. Excluding hotels under renovation in both years, our RevPAR increased 6.9%.

Food and beverage revenues increased $5.3 million, or 10.6%, driven by the successful execution of initiatives to improve our food and beverage operations. Other revenues grew $0.7 million, or 9.8%, largely as a result of new programs offered at our beachfront and resort hotels.


												% of total revenues
	For the Years Ended December 31,											For the Years Ended December 31,
	2008			2007			Increase (decrease)					2008			2007
	($ in thousands)
Direct operating expenses:
Rooms	$	44,330		$	42,566		$	1,764		4.1	%		19.4	%		18.5	%
Food and beverage		34,293			34,762			(469	)	(1.3	%)		15.0	%		15.1	%
Other		5,467			5,214			253		4.9	%		2.4	%		2.3	%

Total direct operating expenses	$	84,090		$	82,542		$	1,548		1.9	%		36.9	%		35.9	%


Direct operating contribution (by revenue source):
Rooms	$	126,422		$	128,830		$	(2,408	)	(1.9	%)
Food and beverage		15,448			16,470			(1,022	)	(6.2	%)
Other		2,234			2,033			201		9.9	%

Total direct operating contribution	$	144,104		$	147,333		$	(3,229	)	(2.2	%)


Direct operating contribution % (by revenue source):
Rooms		74.0	%		75.2	%
Food and beverage		31.1	%		32.1	%
Other		29.0	%		28.1	%

Total direct operating contribution		63.1	%		64.1	%

~~Revenue~~Rooms ~~growth~~expenses ~~was~~increased ~~negatively~~$1.8 million, ~~impacted~~or ~~by displacement~~4.1%. ~~Total revenue~~Room ~~displacement~~expenses ~~during~~on ~~the~~a ~~year~~cost ~~ended~~per ~~December 31,~~occupied room ~~2007~~(“POR”) ~~for~~basis ~~the~~increased ~~seven~~from ~~hotels~~$26.63 ~~under~~in ~~renovation~~2007 ~~was~~ to $127.~~9 million.~~32 ~~The~~in ~~largest~~2008, ~~amount~~an increase of ~~this~~2.6%, ~~displacement occurred~~primarily atas ~~our~~a result ~~former~~of ~~Holiday~~a ~~Inn~~$0.6 million ~~Select~~increase ~~DFW~~in ~~Airport~~employee ~~hotel, which~~medical ~~was~~costs ~~recently~~and ~~converted~~increased toseasonal alabor ~~Wyndham~~as ~~hotel and is~~the ~~undergoing~~hotels anreduced ~~extensive~~full-time ~~renovation.~~employees ~~Total~~and ~~revenue~~increased ~~displacement for~~contractors ~~the~~to ~~year~~allow ~~ended~~greater ~~December 31,~~flexibility ~~2006~~in managing ~~was~~labor $0costs.~~3 million.~~

Food and beverage expenses decreased $0.5 million, or 1.3%, driven primarily by lower food and beverage revenues, partially offset by higher employee medical costs which increased $0.5 million ~~Direct~~ in 2008. Food and beverage direct operating ~~expenses~~contribution decreased $1.0 —million, ~~Continuing~~or ~~Operations~~6.2%.

											% of Total Revenues
	2007			2006			Increase (decrease)				2007			2006
	($ in thousands)
Direct operating expenses:
Rooms	$	44,833		$	43,329		$	1,504	3.5	%		18.5	%		19.0	%
Food and beverage		37,239			34,861			2,378	6.8	%		15.4	%		15.3	%
Other		5,503			5,402			101	1.9	%		2.3	%		2.4	%
Total direct operating expenses	$	87,575		$	83,592		$	3,983	4.8	%		36.1	%		36.7	%
Direct operating contribution (by revenue source):
Rooms	$	134,883		$	127,435		$	7,448	5.8	%
Food and beverage		17,850			14,946			2,904	19.4	%
Other		2,250			1,662			588	35.4	%
Total direct operating contribution	$	154,983		$	144,043		$	10,940	7.6	%
Direct operating contribution % (by revenue source):
Rooms		75.1	%		74.6	%
Food and beverage		32.4	%		30.0	%
Other		29.0	%		23.5	%
Total direct operating contribution		63.9	%		63.3	%

Other expenses grew $0.3 million, or 4.9%, while the related direct operating contribution rose $0.2 million, an increase of 9.9%. In total, direct operating contribution decreased $3.2 million, or 2.2%.

Other operating expenses – Continuing Operations

Rooms expenses increased $1.5 million, or 3.5%. Room expenses on a cost per occupied room (“POR”) basis increased from $26.08 in 2006 to $26.64 in 2007, an increase of 2.1%, primarily as a result of higher fee-based expenses including credit card and other commissions driven by revenue growth. Direct operating contribution for rooms increased $7.4 million, a growth rate of 5.8%. The increase in direct operating contribution is attributable to the realization of our labor management initiatives.


											% of total revenues
	For the Year Ended December 31,										For the Year Ended December 31,
	2008		2007			Increase (decrease)					2008			2007
	($ in thousands)
Other operating expenses:
Other hotel operating costs
General and administrative	$	14,209	$	13,796		$	413		3.0	%		6.2	%		6.0	%
Advertising and promotion		11,869		12,105			(236	)	(1.9	%)		5.2	%		5.3	%
Franchise fees		16,372		16,157			215		1.3	%		7.2	%		7.0	%
Repairs and maintenance		11,064		10,331			733		7.1	%		4.8	%		4.5	%
Utilities		12,370		11,861			509		4.3	%		5.4	%		5.2	%
Other expenses		337		570			(233	)	(40.9	%)		0.1	%		0.2	%

Other hotel operating costs		66,221		64,820		$	1,401		2.2	%		29.0	%		28.2	%

Property and other taxes, insurance, and leases		15,769		16,770			(1,001	)	(6.0	%)		6.9	%		7.3	%
Corporate and other		16,289		21,386			(5,097	)	(23.8	%)		7.1	%		9.3	%
Casualty losses (gains), net		1,095		(1,867	)		2,962		(158.7	%)		0.5	%		(0.8	%)
Restructuring		—		1,232			(1,232	)	(100.0	%)		0.0	%		0.5	%
Depreciation and amortization		31,306		27,736			3,570		12.9	%		13.7	%		12.1	%
Impairment of long-lived assets		4,512		1,154			3,358		291.0	%		2.0	%		0.5	%

Total other operating expenses	$	135,192	$	131,231		$	3,961		3.0	%		59.2	%		57.1	%



Total operating expenses	$	219,282	$	213,773		$	5,509		2.6	%		96.1	%		93.0	%



Operating income	$	8,912	$	16,102		$	(7,190	)	(44.7	%)		3.9	%		7.0	%

~~Food~~Other ~~and~~hotel ~~beverage~~operating ~~expenses~~costs increased $21.4 million, or 62.82%~~, driven primarily by higher food and beverage revenues~~. ~~Food~~The ~~and beverage~~increase ~~direct~~is ~~operating contribution grew $2.9 million, or 19.4%, largely as~~ a result of the ~~successful deployment of~~ ~~our revenue growth and labor management initiatives.~~following:

~~Other~~• Hotel general and administrative costs increased $0.4 million. As a percent of revenues, general and administrative expenses ~~grew~~increased 20 basis points in 2008 to 6.2%. The increase was due in large part to higher employee medical costs. In addition, we benefited from sales tax credits and bad debt recoveries in 2007 that did not recur in 2008. • Advertising and promotion costs decreased $0.1 2 million, or 1.9%, ~~while~~driven ~~the related~~by ~~direct~~cost ~~operating~~containment ~~contribution~~initiatives. ~~rose~~• Franchise fees increased $0.6 2 million, ~~an increase~~or 1.3%, but remained relatively constant as a percentage of 35revenues.~~4%.~~ In• ~~total,~~Repairs ~~direct~~and ~~operating~~maintenance ~~contribution~~ expenses increased $100.9 7 million, or 7.61%, primarily as a result of increased automotive maintenance costs and higher medical costs. As a percentage of total revenues, ~~direct~~repairs ~~operating~~and ~~contribution~~maintenance ~~expanded~~costs 60 increased 30 basis points, from 634.5% in 2007 to 4.8% in 2008. • Utilities costs increased $0.5 million, or 4.3%. This increase was driven largely by higher energy rates. As a percentage of total revenues, utilities costs increased 20 basis points to 635.4% in 2008. • Other expenses decreased $0.2 million, or 40.9%. In 2007, we incurred costs associated with a hotel brand conversion. Such costs were not incurred at the same level in 2008.

Property and other taxes, insurance and leases decreased $1.0 million in 2008 and decreased 40 basis points as a percentage of revenues, to 6.9%. The decrease was due largely to lower property ~~Other~~insurance premiums and lower claims associated with our self-insurance programs for general ~~operating~~liability ~~expenses —~~and ~~Continuing~~automobile ~~Operations~~coverage.

											% of Total Revenues
	2007			2006			Increase (decrease)				2007			2006
	($ in thousands)
Other operating expenses:
Other hotel operating costs
General and administrative	$	14,563		$	12,995		$	1,568	12.1	%		6.0	%		5.7	%
Advertising and promotion		12,880			11,279			1,601	14.2	%		5.3	%		5.0	%
Franchise fees		16,967			15,879			1,088	6.9	%		7.0	%		7.0	%
Repairs and maintenance		10,894			10,842			52	0.5	%		4.5	%		4.8	%
Utilities		12,720			12,290			430	3.5	%		5.2	%		5.4	%
Other expenses		599			182			417	229.1	%		0.2	%		0.1	%
Total other hotel operating expenses		68,623			63,467			5,156	8.1	%		28.3	%		27.9	%
Property and other taxes, insurance and leases		17,662			17,383			279	1.6	%		7.3	%		7.6	%
Corporate and other		21,391			20,693			698	3.4	%		8.8	%		9.1	%
Casualty (gains) losses, net		(1,867	)		(2,985	)		1,118	(37.5	)%		(0.8	)%		(1.3	)%
Restructuring		1,232			—			1,232	n/m			0.5	%		0.0	%
Depreciation and amortization		28,765			27,414			1,351	4.9	%		11.9	%		12.0	%
Impairment of long-lived assets		1,622			632			990	156.6	%		0.7	%		0.3	%
Total other operating expenses	$	137,428		$	126,604		$	10,824	8.5	%		56.7	%		55.6	%
Total operating expenses	$	225,003		$	210,196		$	14,807	7.0	%		92.8	%		92.3	%
Operating income	$	17,555		$	17,439		$	116	0.7	%		7.2	%		7.7	%

Corporate and other expenses decreased $5.1 million, or 23.8%, due largely to the following:

~~Other~~• ~~hotel~~We ~~operating~~realized ~~costs~~$2.0 ~~increased~~million in savings due to reductions in corporate staffing. • $51.2 4 million in lower public company related costs such as audit fees, ~~or 8~~Sarbanes-Oxley compliance costs and Director and Officer Insurance.~~1%.~~ ~~The~~• ~~increase~~In isJanuary 2007, we announced a ~~result~~review of strategic alternatives to enhance shareholder value. During 2007, we incurred $1.5 million in related costs. Similar costs were not incurred in 2008. • $0.7 million reduction in corporate bonuses driven by operating performance being lower than the ~~following:~~ established targets.

• General and administrative costs increased $1.6 million. As a percent of revenues, general and administrative expenses increased 30 basis points in 2007 to 6.0%. The increase was due in large part to higher payroll costs (fewer vacant positions and higher caliber employees), legal and other professional fees, relocation, and travel and training costs. • Advertising and promotion costs increased $1.6 million, or 14.2%. As a percentage of revenues, advertising and promotional costs increased 30 basis points from 5.0% in 2006 to 5.3% in 2007. The increase is largely attributable to staffing related to sales and marketing programs designed to drive higher revenues. • Franchise fees increased $1.1 million, or 6.9%, primarily as a result of revenue growth. As a percentage of revenues, franchise fees remained flat year over year at 7.0%.

	•	Repairs and maintenance expenses were essentially flat to the prior year, resulting from improved preventive maintenance programs and the execution of our capital expenditures plan. As a percentage of total revenues, repairs and maintenance costs decreased 30 basis points from 4.8% in 2006 to 4.5% in 2007.
	•	Utilities costs increased $0.4 million, or 3.5%. This increase is driven largely by higher occupancy. As a percentage of total revenues, utilities costs decreased 20 basis points to 5.2% in 2007.

•

These decreases were partially offset by $1.1 million in costs associated with the resignation of Mr. Edward Rohling, our former President and Chief Executive Officer in 2008.

~~Property~~Casualty (gains) losses, net represent costs related to hurricane and other ~~taxes~~property damage, ~~insurance~~offset by ~~and~~gains ~~leases~~related ~~increased~~to the final settlement of the related property damage claims. In 2008, we incurred net losses of $01.31 million inalmost ~~2007~~entirely ~~and~~related ~~but~~to ~~decreased~~the ~~30 basis~~damage ~~points~~at the Crowne Plaza Houston, TX, as a ~~percentage~~result of ~~revenues~~Hurricane Ike. In 2007, towe ~~7.3%.~~recognized ~~The~~total ~~increase~~net ~~was~~gains ~~the~~of $1.9 million ~~result~~related to the settlement of ~~higher~~a ~~claims~~property ~~associated~~damage ~~with~~claim at our ~~self-insurance~~Radisson New Orleans Airport hotel, ~~programs~~which was damaged in 2005 by Hurricane Katrina.

In August 2007, we announced cost-reduction initiatives to improve future operating performance. ~~Corporate~~These ~~and~~initiatives ~~other~~resulted ~~expenses~~in ~~increased~~position eliminations in our corporate staff as well as reductions in hotel staff at certain locations. As a result, we incurred restructuring costs totaling $01.7 2 million, ~~or 3~~which included severance and related costs.~~4%,~~ ~~due~~All ~~largely~~of tothe terminations were completed and the ~~following:~~related costs were paid as of December 31, 2007.

•Depreciation Inand ~~January~~amortization ~~2007,~~expenses weincreased ~~announced a review of strategic alternatives to enhance shareholder value. During 2007, we incurred~~ $13.5 6 million, inor ~~related costs~~12.9%, ~~Similar~~driven ~~costs~~by ~~were not incurred in 2006. • $0.4 million related to~~ the ~~amortization~~ completion of ~~non-vested~~several ~~stock~~renovation ~~awards~~projects ~~granted to our Board of Directors~~ in ~~February~~late 2007. ~~Two~~and ~~members of the Board did not stand for reelection at the April 2007 annual meeting of stockholders~~2008. In ~~addition,~~accordance ~~one~~with ~~Board~~generally ~~member~~accepted accounting ~~resigned~~principles, inwe ~~August~~begin ~~2007~~recognizing ~~and~~depreciation ~~another Board member resigned in December 2007. The Board of Directors elected to accelerate the vesting of the awards for all four of these members and the related~~ expense ~~was~~when ~~recorded. The stock awarded to~~ the ~~remaining~~asset ~~members of our Board of Directors~~ is ~~being~~placed ~~amortized over a three-year vesting period at an annualized rate of $0.1 million. • These increases~~ in ~~costs were largely offset by lower payroll and related expenses primarily as a result of the August 2007 restructuring plan~~ service.

~~Casualty~~During ~~(gains) losses~~2008, ~~net~~we ~~represent~~recorded ~~costs~~$4.5 million ~~related~~of ~~to hurricane~~impairment ~~and~~losses ~~other~~related ~~property~~to ~~damage,~~the ~~offset~~write-off byof ~~gains~~assets ~~related to~~that ~~the~~were ~~final~~replaced ~~settlement~~and ofhad ~~the~~remaining ~~related~~book ~~property damage claims~~value. In 2007, we ~~recognized~~recorded ~~total net gains of~~ $1.92 million ~~related~~of impairment losses related to the ~~settlement~~write-off of aassets ~~property~~that ~~damage~~were ~~claim~~replaced atbut ~~our~~had ~~Radisson~~remaining ~~New Orleans~~book ~~Airport hotel, which was damaged in 2005 by Hurricane Katrina~~value.

In August 2007, we announced cost-reduction initiatives to improve future operating performance. These initiatives resulted in position eliminations in our corporate and regional staff as well as reductions in hotel staff at certain locations. As a result, we incurred restructuring costs totaling $1.2 million, which included severance and related costs. All of the terminations were completed and the related costs were paid as of December 31, 2007.

Depreciation and amortization expenses increased $1.4 million, or 4.9%, driven by the completion of several renovation projects in 2006 and 2007. In accordance with generally accepted accounting principles, we begin recognizing depreciation expense when the asset is placed in service.

During 2007, we recorded $1.6 million of impairment losses related to the write-off of assets that were replaced but had remaining book value.

Non-operating income (expenses) — Continuing Operations

	2007			2006			Increase (decrease)
	For the Year Ended December 31,
	2008			2007			Increase (decrease)
	($ in thousands)
Non-operating income (expenses):
Business interruption proceeds	$	—		$	3,094		$	(3,094	)	n/m
Interest income and other	$	1,054			3,944		$	(2,890	)	(73.3	%)
Interest income and other		3,944			2,558			1,386		54.2	%
Interest expense		(17,900	)		(21,707	)		(3,807	)	(17.5	%)
Interest expense		(23,172	)		(21,970	)		1,202		5.5	%
Loss on debt extinguishment		—			(3,330	)		(3,330	)	n/m
Loss on debt extinguishment		(3,330	)		—			3,330		n/m

~~Business~~Interest ~~interruption~~income ~~proceeds~~and ~~represent~~other ~~funds~~decreased ~~received or amounts for which proofs of loss have been signed~~$2.9 million ~~Business interruption~~due ~~proceeds~~to inlower ~~2006~~balances ~~were recorded for the Crowne Plaza hotels~~ in ~~West~~our ~~Palm Beach~~ interest-bearing and ~~Melbourne,~~escrow FLaccounts ~~that~~throughout ~~were~~the ~~closed~~year as a ~~result~~well ofas ~~hurricane~~lower ~~damage~~interest ~~sustained in 2004~~rates.

Interest ~~income~~expense ~~and~~decreased ~~other increased~~ $13.48 million, ~~or 54.2%,~~ due to ~~higher~~lower ~~balances~~rates inrelated to our ~~interest-bearing~~variable ~~and~~rate ~~escrow~~debt and ~~accounts~~lower ~~throughout~~debt ~~the year as well as higher interest rates~~balances.

The $3.3 million loss on debt extinguishment related to the refinancing that occurred in April 2007.

Results of Operations — Discontinued Operations

During 2009, we sold 5 hotels for an aggregate sales price of $21.9 million, $6.8 million of which was used to pay down debt. A list of the properties sold in 2009 is summarized below:

	•		On March 4, 2009, we sold the Holiday Inn, a 130 room hotel located in East Hartford, CT.

	•		On April 21, 2009, we sold the Holiday Inn Select, a 214 room hotel located in Windsor, Ontario, Canada.

	•		On May 28, 2009, we sold the Holiday Inn, a 139 room hotel located in Cromwell Bridge, MD.

	•		On October 21, 2009, we sold the Ramada Plaza, a 185 room hotel located in Northfield, MI.

	•		On November 20, 2009, we sold the French Quarter Suites, a 105 room hotel located in Memphis, TN.

We realized gains of approximately $1.8 million in 2009 from the sale of these assets. As part of the sale agreement for the Holiday Inn East Hartford, CT we provided seller financing of $1.8 million in the form of a note receivable maturing in March 2012. As part of the sale agreement for the Ramada Plaza Northfield, MI we provided seller financing of $1.8 million in the form

~~Interest~~of ~~expense~~a ~~increased $1.2 million following the~~note ~~refinancing~~receivable ~~that~~maturing ~~occurred~~ in ~~April 2007~~November 2011. WeBoth ~~entered~~notes ~~into~~are ~~a $130 million~~recorded ~~loan~~in ~~agreement~~Other ~~with~~Assets ~~Goldman~~in ~~Sachs~~the ~~Commercial~~Consolidated ~~Mortgage~~Balance ~~Capital,~~Sheet ~~L.P.,~~as ~~defeased the entire $67.7 million balance~~ of ~~the Merrill Lynch Fixed Rate~~December ~~#2 Loan~~31, ~~and paid off the $55~~2009.~~8 million Merrill Lynch Floating Rate Loan. The~~ refinancing decreased our overall interest expense, but resulted in higher interest expense for continuing operations and lower interest expense for discontinued operations based on the respective hotels that were encumbered by the debt facilities.

~~The~~In July 2009, we deconsolidated the Holiday Inn Phoenix, AZ and recorded a gain of $34.34 million. In ~~loss~~November 2009, onwe deconsolidated the Crowne Plaza Worcester, MA and recorded a gain of $6.0 million. We surrendered control of the hotels to the respective court-appointed receiver. We believed that the hotels were worth substantially less than the mortgage debt ~~extinguishment~~encumbering the hotels and that it was aunlikely ~~result~~that the value of the hotels would increase in the near or intermediate term. The hotels were deconsolidated upon surrender of control and, as a result, the ~~April~~assets ~~2007~~and ~~refinancing~~liabilities, including the related loan balances were excluded from our balance sheet as of December 31, 2009.

Results of Operations — Discontinued Operations

In January 2008, we reclassified an additional 9 hotels as held for sale. In May 2008, we reclassified the former Holiday Inn Marietta, GA to held for sale. In June 2008, we reclassified the Crowne Plaza Worcester, MA, from held for sale to held for use. As of December 31, 2008, six hotels were held for sale.

In 2008, we finalized the casualty and business interruption claims for the former Holiday Inn Marietta, GA, which suffered a fire on January 15, 2006. We received proceeds totaling $6.1 million, of which $0.7 million related to business interruption and $5.4 million related to casualty claims. As a result of the settlement, we recognized business interruption insurance proceeds of $0.7 million and a total casualty gain of $5.6 million, after deducting related costs.

During 2008, we sold 5 hotels, or 851 rooms, for an aggregate sales price of $25.0 million, $7.9 million of which was used to pay down debt. The remaining proceeds, after paying settlement costs, were used for capital expenditures and general corporate purposes. We realized gains of approximately $6.1 million in 2008 from the sales of these assets. A list of the properties sold in 2008 is summarized below:

	•		On April 17, 2008, we sold the Holiday Inn, a 158 room hotel located in Frederick, MD.

	•		On May 13, 2008, we sold the former Holiday Inn, a 156 room hotel located in St. Paul, MN.

	•		On August 14, 2008, we sold the former Holiday Inn, a 193 room hotel located in Marietta, GA.

	•		On October 9, 2008, we sold the Holiday Inn, a 127 room hotel located in Glen Burnie, MD.

	•		On December 16, 2008, we sold the Holiday Inn, a 217 room hotel located in Frisco, CO.

Also in 2008, we finalized the casualty and business interruption claims for the former Holiday Inn Marietta, GA, which suffered a fire on January 15, 2006. We received proceeds totaling $6.1 million, of which $0.7 million related to business interruption and $5.4 million related to casualty claims. As a result of the settlement, we recognized business interruption insurance proceeds of $0.7 million and a total casualty gain of $5.6 million, after deducting related costs.

In 2008, we also recorded a loss on debt extinguishment of $0.9 million as a result of defeasing the debt associated with three of our held for sale hotels.

During 2007, we sold 23 hotels, or 4,109 rooms, for an aggregate sales price of $82.2 million, $2.0 million of which was used to pay down debt. The remaining proceeds, after paying settlement costs, were used for capital expenditures and general corporate purposes. We realized gains of approximately $4.0 million in 2007 from the sale of these assets. A list of the properties sold in 2007 is summarized below:

	•		On January 15, 2007, we sold the University Plaza, a 186 room hotel located in Bloomington, IN.

	•		On March 9, 2007, we sold the Holiday Inn, a 130 room hotel located in Hamburg, NY.

	•		On June 13, 2007, we sold the following 16 hotels:

•o Holiday Inn, a 202 room hotel located in Sheffield, AL •o Clarion, a 393 room hotel located in Louisville, KY •o Crowne Plaza, a 275 room hotel located in Cedar Rapids, IA •o Augusta West Inn, a 117 room hotel located in Augusta, GA •o Holiday Inn, a 201 room hotel located in Greentree, PA •o Holiday Inn, a 189 room hotel located in Lancaster East, PA •o Holiday Inn, a 244 room hotel located in Lansing, MI •o Holiday Inn, a 152 room hotel located in Pensacola, FL •o Holiday Inn, a 228 room hotel located in Winter Haven, FL o Holiday Inn, a 100 room hotel located in York, PA o Holiday Inn Express, a 112 room hotel located in Dothan, AL o Holiday Inn Express, a 122 room hotel located in Pensacola, FL o Park Inn, a 126 room hotel located in Brunswick, GA o Quality Inn, a 102 room hotel located in Dothan, AL o Ramada Plaza, a 297 room hotel located in Macon, GA o Ramada Inn, a 197 room hotel located in North Charleston, SC

• Holiday Inn, a 100 room hotel located in York, PA • Holiday Inn Express, a 112 room hotel located in Dothan, AL • Holiday Inn Express, a 122 room hotel located in Pensacola, FL • Park Inn, a 126 room hotel located in Brunswick, GA • Quality Inn, a 102 room hotel located in Dothan, AL • Ramada Plaza, a 297 room hotel located in Macon, GA • Ramada Inn, a 197 room hotel located in North Charleston, SC

	•		On July 12, 2007, we sold the Holiday Inn, a 159 room hotel located in Clarksburg, WV.

	•		On July 20, 2007, we sold the Holiday Inn, a 208 room hotel located in Fort Wayne, IN.

	•		On August 14, 2007, we sold the Holiday Inn, a 106 room hotel located in Fairmont, WV.

	•		On December 18, 2007, we sold the Holiday Inn, a 146 room hotel located in Jamestown, NY.

	•		On December 27, 2007, we sold the Vermont Maple Inn, a 117 room hotel located in Burlington, VT.

During ~~2006,~~2007 we ~~sold~~recorded ~~one~~casualty ~~land~~gains ~~parcel and six hotels with an aggregate 929 rooms for an aggregate sales price~~ of ~~$27.1 million,~~ $52.07 million ofrelated ~~which~~to ~~was~~the ~~used~~settlement toof ~~pay~~a property ~~down~~damage ~~debt.~~claims ~~The~~at ~~remaining~~the ~~proceeds~~Quality ~~were~~Inn ~~used~~Metairie, ~~for~~LA ~~capital expenditures~~ and ~~general~~business ~~corporate~~interruption ~~purposes.~~proceeds ~~We realized gains~~ of ~~approximately~~ $3.0.6 million ~~in 2006 from the sale of~~ ~~these~~related ~~assets. Also in 2006, we surrendered two Holiday Inn hotels, located in Lawrence and Manhattan, KS,~~ to ~~a bond trustee pursuant to~~ the ~~settlement~~former ~~agreement entered into in August 2005. Further, a venture in which we own a minority interest and which owned the~~ Holiday Inn ~~City Center Columbus~~Marietta, ~~OH transferred the hotel to the lender~~GA.

Summary statement of operations information for discontinued operations for the years ended December 31, ~~2008~~2009, ~~2007~~2008 and ~~2006~~ 2007 is as follows:

	2008			2007			2006
	For the Years Ended December 31,
	2009			2008			2007
	($ in thousands)
Total revenues	$	3116,~~199~~367		$	7543,~~592~~432		$	~~124~~88,~~136~~274
Total expenses		(2916,~~330~~966	)		(6840,~~632~~061	)		(~~114~~79,~~698~~398	)
Impairment of long-lived assets		(1013,~~752~~897	)		(915,~~911~~709	)		(2310,~~248~~379	)
Business interruption proceeds		~~672~~—			~~571~~672			~~1,590~~571
Interest income and other		2976			7129			5971
Interest expense		(1,~~639~~723	)		(43,~~526~~081	)		(95,~~233~~986	)
Casualty gains, net		5,583			2,658			143
Casualty (losses) gains, net		(21	)		5,583			2,658
Gain on asset disposition		61,~~144~~823			36,~~956~~144			23,~~961~~956
Loss on extinguishment of debt		(948	)		(1,828	)		10,231
Gain on asset deconsolidation		10,418			—			—
Provision for income taxes		(31	)		(816	)		3,321
Gain (loss) on extinguishment of debt		174			(948	)		(1,828	)
(Loss) income from discontinued operations	$	927		$	(2,865	)	$	(4,738	)
Benefit (provision) for income taxes		196			(31	)		(728	)
Loss from discontinued operations	$	(3,553	)	$	(3,970	)	$	(2,789	)

We recorded impairment on assets held for sale in ~~2008~~2009, ~~2007~~2008, and ~~2006~~2007, in accordance with our accounting policy.

~~During~~In ~~2008~~2009, we recorded impairment charges totaling $1013.89 million on 65 hotels as follows ~~(amounts below are rounded individually)~~:

	•	$6.7 million on the Holiday Inn Select in Windsor, Ontario, Canada to reflect the current estimated selling price, net of selling costs;
	•	$1.9 million on the Hilton Northfield, MI to reflect the current estimated selling price, net of selling costs;

	•		$4.5 million on the Crowne Plaza Worcester, MA to reflect the fair market value upon the decision to surrender the hotel to the lender;

	•		$4.4 million on the Ramada Plaza Northfield, MI to reflect the selling price, net of selling costs;

	•		$3.1 million on the Holiday Inn Phoenix West, AZ to reflect the fair market value upon the decision to surrender the hotel to the lender;

	•		$0.8 million on the Holiday Inn Select Windsor, Ontario, Canada to reflect the selling price, net of selling costs;

	•		$0.5 million on the closed French Quarter Suites Memphis, TN to reflect the selling price, net of selling costs; and

	•		$0.6 million to record the disposal of replaced assets at various hotels.

In 2008, we recorded impairment charges totaling $15.7 million on 7 hotels as follows:

	•		$6.7 million on the Holiday Inn Select Windsor, Ontario, Canada to reflect the then current estimated selling price, net of selling costs;

	•		$4.8 million on the Crowne Plaza Worcester, MA to reflect the then current fair market value;

• $1.9 million on the Ramada Plaza Northfield, MI to reflect the then current estimated selling price, net of selling costs; • $1.7 million on the Holiday Inn East Hartford, CT to reflect the then current estimated selling price, net of selling costs; • $0.2 million on the closed French Quarter Suites Memphis, TN to reflect the then current estimated selling price, net of selling costs; • $0.1 million on the former Holiday Inn St. Paul, MN to record the final disposition of the hotel; and • $0.13 million to record the final disposition of the Holiday Inn Frederick, MD as well as the disposal of replaced assets at various hotels;

In 2007, we recorded impairment charges totaling $910.94 million on 78 hotels as follows ~~(amounts below are rounded individually)~~:

• $3.3 million on the ~~Hilton~~Ramada Plaza Northfield, MI to reflect the then estimated selling price; • $1.68 million on the Holiday Inn ~~Select in Windsor~~Frederick, ~~Ontario,~~MD ~~Canada~~ to reflect the then estimated selling price; • $1.86 million on the Holiday Inn ~~Frederick~~Select Windsor, MDOntario, Canada to reflect the then estimated selling price ~~less costs to sell~~; • $1.3 million on the Holiday Inn Clarksburg, WV to reflect the then estimated selling price less costs to sell, and to record the final disposition of the hotel; • $0.8 million on the Vermont Maple Inn Colchester, VT to reflect the then estimated selling price less costs to sell, and to record the final disposition of the hotel; • $0.6 million on the Holiday Inn Jamestown, NY to reflect the then estimated selling price less costs to sell, and to record the final disposition of the hotel; • $0.3 million on the Crowne Plaza Worcester, MA to reflect the then current fair market value; • $0.1 million on the University Plaza Bloomington, IN to record the final disposition of the hotel,; and • $0.46 million to record the disposal of replaced assets at various hotels.

In 2006, we recorded impairment charges totaling $23.2 million on 16 hotels as follows (amounts below are rounded individually):

• $3.9 million on the Holiday Inn Manhattan, KS to record the loss on disposal of fixed assets; • $2.2 million on the Holiday Inn Lawrence, KS to record the loss on disposal of fixed assets; • $1.4 million on the Holiday Inn Sheffield, AL which was classified as held for sale during 2006, to reduce the carrying value to estimated selling price less costs to sell; • $0.3 million on the Holiday Inn McKnight, PA to reflect the lowered estimated selling price less, the write-off of capital improvements spent on this hotel for franchisor compliance that did not add incremental value or revenue generating capacity to the property, and the final disposition of the hotel; • $0.1 million on the Holiday Inn Valdosta, GA to reflect the estimated selling costs of the sale as this hotel was identified for sale during 2006, and to reflect the final disposition of the hotel; • $0.1 million on the Azalea Inn Valdosta, GA to reflect the estimated selling costs of the sale as this hotel was identified for sale during 2006, and to reflect the final disposition of the hotel; • $0.7 million on the University Plaza Bloomington, IN, which was classified as held for sale during 2006, to reduce the carrying value to estimated selling price less costs to sell; • $1.3 million on the Ramada Plaza Macon, GA, which was classified as held for sale during 2006, to reduce the carrying value to estimated selling price less cost to sell; • $2.1 million on the Holiday Inn University Mall, FL, which was classified as held for sale during 2006, to reduce the carrying value to estimated selling price less costs to sell; • $1.8 million on the Holiday Inn Express Pensacola, FL, which was classified as held for sale during 2006, to reduce the carrying value to estimated selling price less costs to sell;

• $0.8 million on the Holiday Inn Greentree, PA, which was classified as held for sale during 2006, to reduce the carrying value to estimated selling price less costs to sell; • $0.2 million on the Holiday Inn York, PA, which was classified as held for sale during 2006, to reduce the carrying value to estimated selling price less costs to sell; • $0.9 million on the Holiday Inn Lancaster, PA, which was classified as held for sale during 2006, to reduce the carrying value to estimated selling price less costs to sell; • $6.4 million on the Holiday Inn Lansing, MI, which was classified as held for sale during 2006, to reduce the carrying value to estimated selling price less costs to sell; • $0.6 million on the Holiday Inn Clarksburg, WV, which was classified as held for sale during 2006, to reduce the carrying value to estimated selling price less costs to sell; • $0.1 million on the Holiday Inn Jekyll Island, GA to record the disposal costs of furniture, fixtures and equipment incurred during the closing of the hotel; and • $0.3 million to record the disposal of replaced assets at various hotels.

Historical operating results and gains are reflected as discontinued operations in our consolidated statement of operations. See Note 1 and Note 3 to the accompanying consolidated financial statements for further discussion.

Income Taxes

We expect to have a taxable loss of $319.47 million for the year ended December 31, ~~2008~~2009. We reported a net taxable loss of $493.51 million for federal income tax purposes for the year ended December 31, ~~2007~~2008. We reported a net taxable ~~income~~ loss of $49.5 million for federal income tax purposes for the year ended December 31, ~~2006~~2007. Because we have net operating losses (“NOLs”) available we paid no federal income taxes. At December 31, ~~2008~~2009, we have available net operating ~~loss~~ loss carryforwards of $~~223~~244.07 million for federal income tax purposes, which will expire in years 2019 ~~2018~~ through ~~2028~~2029 if not utilized against taxable income. In addition, we have excess tax benefits related to current year stock option exercises subsequent to the adoption of ~~FAS~~FASB ASC 718 Stock Compensation (formerly referenced as SFAS No. 123(R) a revision of SFAS No. 123 Accounting for Stock-Based Compensation) of $1.0.2 million that are not recorded as a deferred tax asset as the amounts have not yet resulted in a reduction in current taxes payable. The benefit of these deductions will be recorded to additional paid-in capital at the time the tax deduction results in a reduction of current taxes payable. ~~Our 2002~~ reorganization under Chapter 11 and our 2004 secondary stock offering resulted in “ownership changes,” as defined in Section 382 of the Internal Revenue Code. As a result of the most recent Section 382 ownership change, our ability to use these net operating loss carryforwards is subject to an annual limitation of $8.3 million. Net operating loss carryforwards generated during the 2004 calendar year after June 24, 2004 as well as those generated during the 2005 and 2007 calendar year, are generally not subject to Section 382 limitations to the extent the losses generated are not recognized built in losses. At the June 24, 2004 ownership change date we had a Net Unrealized Built in Loss (“NUBIL”) of $150 million. As of December 31, 2008, $95.7 million of the NUBIL has been recognized. The amount of losses subject to Section 382 limitations is $171.5 million; losses not subject to 382 limitations are $51.5 million.

AtUtilization ~~December 31, 2008, a valuation allowance~~ of ~~$64.1 million~~ ~~fully~~the ~~offset our~~ net ~~deferred~~operating ~~tax~~loss ~~asset.~~carryforwards Asand ~~a result~~credit ofmay ~~our~~be ~~history~~subject ofto ~~losses,~~an weadditional annual ~~believed~~limitation itdue ~~was~~to ~~more~~the ~~likely than~~ownership ~~not~~change ~~that~~limitations ~~our~~provided ~~net~~by ~~deferred~~the ~~tax~~Internal ~~asset~~Revenue ~~would~~Code ~~not be realized~~of ~~and~~1986, ~~therefore~~as amended, ~~provided~~along awith ~~valuation~~similar ~~allowance~~state ~~to fully reserve against these amounts~~provisions. OfLodgian ~~this~~has ~~$64.1 million,~~fully ~~the~~offset ~~2008 deferred~~these ~~tax~~losses ~~asset was increased by $4.9 million~~ with ~~$6.0 million~~a ofvaluation ~~the~~allowance. ~~increase~~We ~~relating~~have tonot ~~impairment~~performed ~~charges incurred~~a ~~for~~detailed ~~books,~~analysis ~~$(0.6) million~~to ~~related~~determine towhether ~~prior~~an ~~year~~ownership ~~true-ups, and~~change byunder ~~$(0.5)~~Section ~~million~~382 of ~~additional~~the ~~deferred~~Internal ~~tax~~Revenue ~~assets generated~~Code ~~during the period~~occurred. The ~~balance~~effect of ~~$64.1 million is~~an ~~primarily~~ownership ~~attributable to pre-emergence deferred tax assets~~change ~~and~~would ~~may~~ be ~~credited to additional paid-in capital in future~~the ~~periods.~~

42 In addition, we recognized an income tax provision of $0.1 million for 2008, $1.0 million for 2007, and $8.5 million for 2006. $7.9 million of the income tax provision for 2006 is for a non-cash charge related to the utilization of pre-emergence net operating losses in accordance with SOP 90-7 “Financial Reporting by Entities in Reorganization under the Bankruptcy Code”.

Inimposition ~~July~~of ~~2006, the FASB issued Interpretation 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes,”~~ an ~~interpretation~~annual oflimitation ~~SFAS No. 109, “Accounting~~on ~~for Income Taxes”. FIN 48 clarifies~~ the ~~accounting~~use ~~for~~of ~~uncertainty~~net inoperating ~~income~~loss ~~taxes recognized in an~~carryforwards ~~enterprise’s~~attributable ~~financial~~to ~~statements~~periods inbefore ~~accordance~~the ~~with SFAS No~~change. ~~109.~~ ~~FIN 48~~Potential ~~applies~~Net toUnrealized ~~all~~Built ~~tax positions accounted for~~ in ~~accordance~~Losses ~~with~~(“NUBIL”) ~~SFAS No. 109~~as ~~and requires~~ a ~~recognition threshold and measurement attribute for~~ ~~the~~result ~~financial statement recognition and measurement~~ of a ~~tax position~~potential ~~taken,~~ownership orchange ~~expected~~would toalso be ~~taken,~~subject into anthat ~~income~~annual ~~tax return~~limitation. ~~Subsequent recognition, derecognition, and measurement~~ is based on management’s best judgment given the facts, circumstances and information available at the reporting date. FIN 48 is effective for fiscal years beginning after December 15, 2006.

WeAt ~~adopted the provisions of FIN~~December 4831, ~~with~~2009, ~~respect~~a tovaluation ~~all~~allowance of ~~our~~ ~~tax positions as of January 1, 2007~~$84. ~~While FIN~~9 ~~48 was~~million ~~effective~~fully onoffset ~~January 1,~~our ~~2007, the new standards apply~~net todeferred ~~all open~~ tax ~~years~~asset. ~~The~~As ~~only~~a ~~major~~result ~~tax~~of ~~jurisdiction~~our inhistory ~~which we~~of ~~file~~losses, ~~income~~we ~~taxes~~believed isit ~~Federal.~~was ~~The~~more ~~tax~~likely ~~years~~than ~~which~~not that ~~are~~our ~~open for~~net ~~examination~~deferred ~~are~~tax ~~calendar~~asset ~~years~~would ~~ended~~not ~~1998,~~be ~~1999,~~realized ~~2000~~and, ~~2001~~therefore, ~~2003~~provided ~~and~~a ~~2004,~~valuation ~~due~~allowance to ~~losses~~fully ~~generated~~reserve ~~that~~against ~~may~~these beamounts. ~~utilized~~Of ~~in current~~this ~~or future filings~~$84. ~~Additionally~~9 million, the ~~statutes of~~ ~~limitation~~2009 ~~for~~deferred ~~calendar~~tax ~~years~~asset ~~ended~~was ~~2005,~~increased ~~2006~~by ~~and~~$20.8 million ~~2007~~with ~~and 2008 remain open~~$12.4 million Weof ~~have no significant unrecognized tax benefits; therefore,~~ the ~~adoption~~increase ~~of FIN 48 had no impact on our~~relating ~~financial~~to ~~statements.~~impairment ~~Additionally,~~charges noincurred ~~increases~~for inbooks ~~unrecognized tax~~and ~~benefits~~timing ~~are~~differences ~~expected~~between inbook ~~the year 2008. Interest~~ and ~~penalties~~ ~~on unrecognized~~ tax ~~benefits~~depreciation, and ~~will~~$8.4 million berelated ~~classified~~to ~~as income~~net ~~tax~~operating ~~expense~~losses ifgenerated ~~recorded~~during inthe ~~a future~~ period.

In ~~December 2007~~addition, ~~the~~we ~~FASB~~recognized issued SFAS No. 141(R), “Business Combinations” (“SFAS No. 141(R)”), which is a revision of SFAS No. 141 “Business Combinations”. SFAS No. 141(R) significantly changes the accounting for business combinations. Under this statement, an ~~acquiring entity~~income ~~will~~tax beprovision required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. Additionally, SFAS No. 141(R) includes a substantial number of ~~new disclosure requirements~~$0. ~~SFAS~~1 ~~No. 141(R)~~million ~~applies prospectively to business combinations~~ for ~~which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15~~2009, ~~2008. Earlier adoption is prohibited. We have~~ $640.1 million offor ~~deferred~~2008, ~~tax~~and ~~assets fully offset by a valuation allowance. The balance of the~~ $~~64.~~1.0 million is primarily attributable to pre-emergence deferred tax assets. If the reduction of the valuation allowance attributable to pre-emergence deferred tax assets occurs subsequent to the effective date for ~~SFAS No. 141(R),~~ ~~such release will affect the income~~2007 ~~tax provision in the period of release.~~

In July 2006, the FASB updated the provisions of FASB ASC 740 Income Taxes (formerly referenced as Interpretation 48, Accounting for Uncertainty in Income Taxes, an interpretation of SFAS No. 109, 44Accounting for Income Taxes. The updated provisions of FASB ASC 740 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB ASC 740. The updated provisions of FASB ASC 740 apply to all tax positions accounted for in accordance with FASB ASC 740 and requires a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken, or expected to be taken, in an income tax return. Subsequent recognition, derecognition, and measurement is based on our best judgment given the facts, circumstances and information available at the reporting date. The updated provisions of FASB ASC 740 were effective for fiscal years beginning after December 15, 2006.

~~Table~~We adopted the updated provisions of ~~Contents~~FASB ASC 740 with respect to all of our tax positions as of January 1, 2007. While the updated provisions of FASB ASC 740 were effective on January 1, 2007, the new standards apply to all open tax years. The only major tax jurisdiction in which we file income taxes is Federal. The tax years which are open for examination are calendar years ended 1998, 1999, 2000, 2001, 2003, 2004 and 2005 due to losses generated that may be utilized in current or future filings. Additionally, the statutes of limitation for calendar years ended 2006 ,2007, 2008, and 2009 remain open. We have no significant unrecognized tax benefits; therefore, the adoption of the updated provisions of FASB ASC 740 had no impact on our financial statements. Additionally, no increases in unrecognized tax benefits are expected in the year 2009. Interest and penalties on unrecognized tax benefits will be classified as income tax expense if recorded in a future period.

In December 2007, the FASB updated the provisions of FASB ASC 805, Business Combinations (formerly referenced as SFAS No. 141(R) Business Combinations). The updated provisions of FASB ASC 805 significantly change the accounting for business combinations. Under this statement, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. Additionally, the updated provisions of FASB ASC 805 include a substantial number of new disclosure requirements. The updated provisions of FASB ASC 805 apply prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. We have $84.9 million of deferred tax assets fully offset by a valuation allowance.

Quarterly Results of Operations

The following table presents certain quarterly data for the eight quarters ended December 31, ~~2008~~2009. 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 report and include all adjustments, consisting primarily of normal recurring adjustments, that we we consider to be necessary to present this information fairly, when read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report. ~~The~~ The results of operations for certain quarters may vary from the amounts previously reported on our Forms 10-Q filed for prior quarters due to the timing of our classification of assets held for sale. 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. This table represents the comparative quarterly operating results ~~for~~ for the 3533 hotels classified as held for use at December 31, 2009 (including the six hotels that ~~2008~~secure Pool 3, which were subsequently surrendered to a court-appointed receiver in February 2010).

	2008												2007
	Fourth			Third			Second			First			Fourth			Third			Second			First
	Quarter			Quarter			Quarter			Quarter			Quarter			Quarter			Quarter			Quarter
	(Unaudited in thousands)
Revenues:
Rooms	$	38,732		$	46,679		$	49,364		$	43,848		$	40,730		$	46,942		$	49,224		$	42,821
Food and beverage		13,532			12,545			15,404			12,062			14,429			12,857			15,323			12,480
Other		1,886			2,176			2,138			2,062			1,819			2,134			2,131			1,668
Total revenues		54,150			61,400			66,906			57,972			56,978			61,933			66,678			56,969
Direct operating expenses:
Rooms		11,026			12,200			12,179			11,183			10,497			11,997			11,725			10,614
Food and beverage		9,015			9,070			9,851			8,819			9,054			9,432			9,918			8,835
Other		1,333			1,548			1,537			1,388			1,288			1,512			1,462			1,242
Total direct operating expenses		21,374			22,818			23,567			21,390			20,839			22,941			23,105			20,691
		32,776			38,582			43,339			36,582			36,139			38,992			43,573			36,278
Other operating expenses:
Other hotel operating costs		16,075			18,287			17,719			17,879			16,285			17,847			17,603			16,889
Property and other taxes, insurance and leases		4,223			4,226			3,760			4,352			4,334			4,087			4,418			4,824
Corporate and other		3,063			4,373			3,484			5,885			4,248			5,575			5,906			5,663
Casualty losses (gain), net		1,152			(57	)		—			—			—			—			—			(1,867	)
Restructuring		—			—			—			—			(25	)		1,258			—			—
Depreciation and amortization		8,352			8,120			7,989			7,469			7,464			7,226			7,098			6,977
Impairment of long-lived assets		354			1,393			5,580			2,141			796			512			155			159
Other operating expenses		33,219			36,342			38,532			37,726			33,102			36,505			35,180			32,645
Operating (loss) income		(443	)		2,240			4,807			(1,144	)		3,037			2,487			8,393			3,633
Other income (expenses):
Business interruption insurance proceeds		—			—			—			—			—			—			—			—
Interest income and other		147			241			276			390			912			1,312			807			912
Other interest expense		(4,577	)		(4,821	)		(4,775	)		(5,172	)		(5,790	)		(5,958	)		(6,044	)		(5,378	)
Loss on debt extinguishment		—			—			—			—			—			—			(3,330	)		—
(Loss) income before income taxes and minority interests		(4,873	)		(2,340	)		308			(5,926	)		(1,841	)		(2,159	)		(174	)		(833	)
Minority interests (net of taxes, nil)		—			—			—			—			—			—			(56	)		(365	)
(Loss) income before income taxes — continuing operations		(4,873	)		(2,340	)		308			(5,926	)		(1,841	)		(2,159	)		(230	)		(1,198	)
Benefit (provision) for income taxes — continuing operations		(74	)		81			(24	)		(63	)		(2,262	)		1,027			372			707
(Loss) income from continuing operations		(4,947	)		(2,259	)		284			(5,989	)		(4,103	)		(1,132	)		142			(491	)

	2008												2007
	2009												2008
	Fourth			Third			Second			First			Fourth			Third			Second			First
	Quarter			Quarter			Quarter			Quarter			Quarter			Quarter			Quarter			Quarter
	(unaudited in thousands)
	(unaudited in thousands, except per share data)
Revenues:
Rooms	$	29,864		$	36,686		$	38,053		$	34,898		$	36,857		$	45,014		$	47,183		$	41,698
Food and beverage		10,428			9,930			11,765			10,068			12,507			11,752			14,217			11,265
Other		1,523			1,911			1,834			1,584			1,750			2,042			1,977			1,932
		41,815			48,527			51,652			46,550			51,114			58,808			63,377			54,895
Direct operating expenses:
Rooms		9,231			10,430			10,222			9,555			10,470			11,644			11,594			10,622
Food and beverage		7,223			7,348			7,760			7,113			8,365			8,500			9,174			8,254
Other		1,049			1,199			1,254			1,228			1,252			1,459			1,445			1,311
		17,503			18,977			19,236			17,896			20,087			21,603			22,213			20,187
		24,312			29,550			32,416			28,654			31,027			37,205			41,164			34,708
Other operating expenses:
Other hotel operating costs		13,209			14,911			14,150			14,739			15,146			17,404			16,782			16,889
Property and other taxes, insurance and leases		4,170			3,951			4,249			4,017			4,029			4,034			3,559			4,147
Corporate and other		3,322			4,288			3,559			3,600			3,057			4,368			3,505			5,359
Casualty losses (gain), net		1			23			14			81			1,151			(56	)		—			—
Depreciation and amortization		8,174			8,433			8,505			8,211			8,119			7,927			7,891			7,369
Impairment of long-lived assets		325			29,488			699			162			258			1,371			743			2,140
Other operating expenses		29,201			61,094			31,176			30,810			31,760			35,048			32,480			35,904
Operating (loss) income		(4,889	)		(31,544	)		1,240			(2,156	)		(733	)		2,157			8,684			(1,196	)
Other income (expenses):
Interest income and other		12			16			37			45			146			242			276			390
Other interest expense		(3,287	)		(2,949	)		(3,172	)		(3,429	)		(4,218	)		(4,438	)		(4,424	)		(4,820	)
(Loss) income before income taxes		(8,164	)		(34,477	)		(1,895	)		(5,540	)		(4,805	)		(2,039	)		4,536			(5,626	)
(Provision) benefit for income taxes — continuing operations		(246	)		(9	)		47			(65	)		(79	)		15			(16	)		—
(Loss) income from continuing operations		(8,410	)		(34,486	)		(1,848	)		(5,605	)		(4,884	)		(2,024	)		4,520			(5,626	)
Discontinued operations:
Income (loss) from discontinued operations before income taxes		~~199~~5,693			(32,~~870~~461	)		(5,~~986~~540	)		(1,~~357~~441	)		~~(5,824~~131	)		1(4,~~818~~171	)		~~(248~~1,758	)		2(1,~~209~~657	)
Benefit (provision) for income taxes		982			~~(54~~157	)		9768			(~~172~~31	)		~~1,854~~103			~~(639~~12	)		~~(157~~89	)		(~~1,875~~235	)
Income (loss) from discontinued operations		~~297~~5,695			(32,~~924~~304	)		6(5,~~083~~472	)		(1,~~529~~472	)		~~(3,970~~234	)		1(4,~~179~~159	)		~~(405~~1,847	)		~~334~~(1,892	)
Net (loss) income	$	(42,~~650~~713	)	$	(636,~~183~~790	)	$	6(7,~~367~~317	)	$	(7,~~518~~082	)	$	(84,~~073~~650	)	$	47(6,183	)	$	~~(263~~6,367	)	$	(~~157~~7,518	)
Less: Net loss attributable to noncontrolling interest		446			589			342			160			—			—			—			—
Net (loss) income attributable to common stock		(2,267	)		(36,201	)		(6,975	)		(6,922	)		(4,650	)		(6,183	)		6,367			(7,518	)
Net (loss) income from continuing operations
Basic	$	(0.23	)	$	(0.11	)	$	0.01		$	(0.26	)	$	(0.17	)	$	(0.05	)	$	0.01		$	(0.02	)
Basic and diluted	$	(0.11	)	$	(1.70	)	$	(0.33	)	$	(0.32	)	$	(0.22	)	$	(0.29	)	$	0.29		$	(0.33	)
Diluted	$	(0.23	)	$	(0.11	)	$	0.01		$	(0.26	)	$	(0.17	)	$	(0.05	)	$	0.01		$	(0.02	)

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. 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, capital expenditures and share repurchases. Currently, our principal sources of liquidity consist of cash flows from operations, proceeds from the sale of assets, and existing cash balances.

Cash flows from operations may be adversely affected by factors such as the ~~current severe~~ economic recession, which is causing a reduction in demand for lodging, and displacement from 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~~collectability of our accounts receivable, and hence our liquidity. At December 31, ~~2008~~2009, our consolidated airline receivables represented approximately 2631% of our consolidated gross accounts receivable. A further downturn in the airline industry could ~~also~~ also affect our revenues by decreasing the aggregate levels of demand for travel. Cash flows from operations may also be adversely affected if we are unable to extend or refinance our ~~maturing~~ maturing mortgage debt, as discussed below. If we are unable to extend or refinance our maturing mortgage debt, we could trigger a default under the terms of the applicable mortgage debt agreement, forcing us to surrender the encumbered assets to the lender or be subject to a foreclosure action. This would, in turn, result in a decrease in our cash flows from operations. In addition, if we are able to extend or refinance our maturing mortgage debt, the terms ~~of the extension~~ could result in significantly higher debt service payments. We expect that the sale of certain assets will provide additional cash to pay down outstanding debt, fund a portion of our capital expenditures and provide additional working capital. As of March 1, 2009, we had 6 hotels held for sale. However, because of the deteriorating economic conditions, the proceeds from the sale of these assets could be lower than currently anticipated.

Our ability to make scheduled debt service payments and fund operations and capital expenditures depends on our future performance and financial results, the successful implementation of our business strategy, as well as the general condition of the lodging industry and the general economic, political, financial, competitive, legislative and regulatory environment. In addition, our ability to refinance or extend our maturing mortgage debt depends to a certain extent on these factors. Many factors affecting our future performance and financial results, including the severity and duration of macro-economic downturns, are beyond our control. See “Item 1A. Risk Factors.”

44 Assuming we are able to extend or refinance the mortgage debt that matures in July 2009, we intend to continue to use our cash flow to fund operations, scheduled debt service payments, and capital expenditures. At this point in time, we do not intend to pay dividends on our common stock.

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

AtTo ~~December 31,~~strengthen ~~2008~~our balance sheet, we ~~had~~conducted a ~~working~~portfolio ~~capital~~analysis ~~deficit (current~~in ~~assets less current liabilities) of ($80~~2009.~~2) million~~ ~~compared~~Based toon ~~working capital of~~that ~~$54.7 million at December 31~~analysis, ~~2007.~~we ~~Approximately $128 million~~believed ofthat ~~our~~the ~~outstanding~~eight ~~mortgage~~hotels ~~debt~~which isserve ~~scheduled to~~as ~~mature~~collateral infor ~~July~~three ~~2009,~~of ~~without~~our ~~contractual~~loans ~~extension options~~were ~~available~~worth tosubstantially ~~us.~~less Inthan ~~addition,~~ the ~~current~~mortgage ~~severe~~debt ~~economic recession~~encumbering ~~has~~the ~~negatively impacted our operating results, which~~hotels ~~affects~~and ~~operating~~that ~~cash~~it ~~flows~~was asunlikely ~~well~~that asthe ~~our~~value ~~ability~~of ~~to refinance~~ the ~~maturing~~hotels ~~indebtedness.~~would Inincrease in the ~~absence~~near ofor anintermediate term. ~~extension~~Accordingly, ~~refinancing~~ orin ~~repayment of the~~ July 2009 ~~debt~~, ~~there~~we ~~is substantial~~surrendered ~~doubt~~control asof tothe ~~our~~Holiday ~~ability~~Inn toPhoenix, ~~continue~~AZ asto a ~~going~~ ~~concern~~court-appointed receiver. WeIn ~~have~~November 2009, ~~engaged~~we ~~mortgage~~surrendered ~~bankers~~control toof ~~facilitate~~ the ~~refinancing~~ ~~process~~Crowne ~~and~~Plaza Worcester, MA to ~~assist~~a incourt-appointed ~~negotiations with prospective lenders~~receiver. The ~~terms~~hotels ofwere ~~any~~deconsolidated ~~refinancing~~upon orsurrender ~~new borrowing~~of ~~would~~control beand, ~~determined by then-current market conditions~~as ~~and~~a ~~other factors~~result, ~~and could impose significant burdens on~~ the ~~Company’s~~ ~~financial~~assets ~~condition~~ and ~~operating flexibility. In addition~~liabilities, including the ~~cost~~related ofloan ~~such~~balances ~~new~~were ~~financing~~excluded isfrom ~~likely to be higher~~our ~~than~~balance ~~the~~sheet ~~cost~~as of ~~the~~December 31, ~~existing financing due to the current unfavorable condition of the current markets~~2009. ~~Management~~We is also ~~negotiating~~ ~~with~~surrendered ~~the~~control ~~servicers~~ of the ~~loans~~six tohotels ~~extend~~which ~~the terms.~~secure ~~However,~~Pool ~~management~~3 ~~can provide no assurance that we will be able~~ to ~~refinance~~a orcourt-appointed ~~extend~~receiver ~~the~~in ~~debt~~February 2010, ~~based~~as ondescribed ~~the~~in ~~state~~further ofdetail ~~the credit market during, or preceding, July, 2009~~below.

~~Certain~~At ~~other~~December 31, ~~mortgage debt will mature in~~ 2009, ~~but~~we ~~each~~had ~~has extension~~a ~~options~~working ~~available~~capital todeficit us(current ~~based~~assets ~~upon~~less ~~certain~~current ~~conditions. Specifically, the loan with IXIS Real Estate Capital Inc. (“IXIS”~~liabilities) ~~secured by the Holiday Inn in Hilton Head~~of ~~Island,~~$76.6 million SCcompared ~~was scheduled~~ to ~~mature~~a ondeficit ~~December 9,~~of ~~2007~~$80. ~~However,~~2 million weat ~~exercised the first and second one-year extension options, which extended the maturity to~~ December 931, ~~2009~~2008. In ~~order~~The toworking ~~exercise the remaining one-year extension option,~~capital ~~there~~deficit ~~must not be an existing event of default under the loan documents, we must purchase an interest rate protection agreement capping LIBOR~~ at ~~6.05% and we must pay an extension fee equal to 0.25% of the outstanding principal. The outstanding loan balance at~~ December 31, ~~2008~~2009 was ~~$18.5 million. We~~related ~~have~~to ~~classified~~four ~~this~~mortgage ~~loan~~loans asthat ~~long-term~~have inmatured ~~the~~or ~~Consolidated~~will mature in ~~Balance~~2010 ~~Sheet~~with asno ofavailable ~~December 31,~~extension ~~2008.~~options:

~~Additionally~~• Pool 1, wewith a balance of $34.5 million at December 31, 2009, is scheduled to mature on July 1, 2010. We are apursuing ~~party~~opportunities to ~~another~~extend or refinance the loan. ~~agreement~~• ~~with~~Pool ~~IXIS secured~~3, bywith ~~the~~a ~~Radisson~~balance ~~and~~of ~~Crowne~~$45.5 ~~Plaza~~million ~~hotels~~at ~~located~~December ~~in Phoenix~~31, AZ2009, ~~and~~matured ~~the~~on ~~Crowne~~October ~~Plaza~~1, ~~Pittsburgh~~2009, ~~Airport~~following ~~hotel~~two short-term extensions. The ~~original~~ ~~term~~extensions ofwere intended to provide time for us to reach an agreement with the ~~loan~~special ~~expired~~servicer onto ~~March 9,~~modify ~~2008~~the loan. ~~However,~~ Since we ~~exercised~~were ~~the~~unable ~~first~~to ofreach ~~three~~a ~~one-year~~modification ~~extension options~~agreement, ~~which~~we ~~extended~~surrendered control of the ~~maturity~~six ~~date~~hotels ofthat ~~the~~secure ~~loan~~Pool 3 to ~~March 9,~~ ~~2009.~~a Incourt-appointed ~~March~~receiver ~~2009,~~in February 2010 as we ~~exercised~~determined that the ~~second extension~~cash ~~option,~~flow ~~which~~generated ~~extended~~by the ~~loan~~hotels ~~maturity~~that secure Pool 3 was not sufficient to ~~March 9,~~ ~~2010.~~fund Wethe ~~contemporaneously~~debt ~~entered~~service ~~into~~requirements. ~~an interest~~The ~~rate~~Pool ~~cap~~3 ~~agreement~~loan is non-recourse, except in certain limited circumstances (which ~~effectively~~we ~~caps~~believe ~~the~~are ~~interest rate~~remote) atand 7are not cross-collateralized with any other mortgage debt.~~45%.~~ ~~This~~• A loan ~~has~~agreement ~~one~~with ~~remaining~~IXIS ~~extension~~Real ~~option that,~~Estate ifCapital ~~exercised,~~Inc. ~~would~~(“IXIS”) ~~extend~~secured by the ~~loan~~Holiday ~~maturity~~Inn in Hilton Head Island, SC was originally scheduled to ~~March~~ mature on December 9, ~~2011~~2007. InHowever, ~~order~~we toexercised ~~successfully~~all ~~extend~~three ~~the~~one-year ~~loan~~extension options, ~~there~~ ~~must~~which beextended nothe ~~existing~~maturity ~~event~~to ofDecember ~~default~~9, ~~under~~2010. ~~the~~The outstanding loan ~~documents~~ balance at December 31, ~~the~~2009 ~~Company~~was ~~must~~$18.3 ~~purchase~~million. an• ~~interest~~A ~~rate~~loan ~~protection~~ agreement ~~capping~~with ~~LIBOR~~Wachovia atsecured ~~6.00%,~~by ~~and~~ the ~~Company~~SpringHill ~~must~~Suites ~~pay~~Pinehurst, ~~an extension~~NC ~~fee~~is ~~equal~~scheduled to ~~0.25%~~mature ofon ~~the~~June ~~outstanding~~10, ~~principal~~2010. The outstanding loan balance at December 31, ~~2008~~2009 was $212.0 9 million. We ~~have~~are ~~classified~~pursuing ~~this~~opportunities ~~loan~~to asextend ~~long-term~~or in refinance the ~~Consolidated Balance Sheet as of December 31, 2008~~loan.

WeCertain ~~are~~other ~~also~~mortgage adebt ~~party~~will tomature ain ~~loan agreement with Goldman Sachs Commercial Mortgage Capital~~2010, ~~L.P~~but ~~which is secured by 10 hotels. The initial term of this loan matures on May 1, 2009. However, three extensions of one year~~ each ~~are~~has available ~~to us. In order to exercise the first~~ extension, ~~which~~options ~~will extend the~~based ~~maturity~~upon ~~date~~certain toconditions. ~~May 1~~Specifically, ~~2010,~~the ~~there~~loan ~~must~~agreement ~~not~~with beIXIS ansecured ~~existing event~~by ~~of default under~~ the ~~loan~~Radisson ~~documents~~ and ~~we must purchase~~ anCrowne ~~interest~~Plaza ~~rate~~hotels ~~protection~~located ~~agreement~~in ~~capping~~Phoenix, ~~LIBOR~~AZ atand ~~7.00%.~~the ~~No extension~~Crowne ~~fee~~Plaza isPittsburgh ~~payable~~Airport inhotel ~~connection~~initially matured ~~with~~on ~~the~~March 9, ~~first extension option~~2008. InWe ~~addition~~exercised toall ~~the~~three ~~requirements~~available ~~above~~extension options, anwhich ~~extension~~extended ~~fee~~the ofmaturity ~~0.125%~~date of the ~~principal~~loan ~~balance~~to isMarch 9, ~~payable in connection with the second and third extension options~~2011. The outstanding loan balance at December 31, ~~2008~~2009 was $~~130~~20.07 million. We have classified this loan as long-term in the Consolidated Balance Sheet as of December 31, ~~2008~~2009.

We are also a party to a loan agreement which was originated by Goldman Sachs Commercial Mortgage ~~While~~Capital, weL.P ~~believe~~and ~~that~~is wesecured ~~will~~by be10 ~~able~~hotels. The initial term of this loan matured on May 1, 2009. Three one-year extensions were available and the first extension was exercised to extend the maturity ~~mortgage~~date to May 1, 2010. In order to exercise the second extension, which will extend the ~~loans~~maturity ~~that~~date ~~contain~~to May 1, 2011, there must not be an existing event of default under the loan documents. In addition, an extension fee of 0.125% of the principal balance is payable in connection with the second and third extension options. asThe ~~described~~outstanding ~~above~~loan balance at December 31, ~~there~~2009 was $130.0 million. We have classified this loan as long-term in the Consolidated Balance ~~can~~Sheet beas noof ~~assurance~~December 31, ~~that~~2009 since we ~~will~~have bethe ~~able~~intent and ability to doexercise sothe second extension option. The loan was amended on January 22, 2010. Refer to “Planned Merger and Loan Amendment” under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information.

~~For~~We ~~the~~believe ~~year~~that ~~ended December 31, 2008,~~ we ~~expended $47.2 million~~will inbe ~~cash~~able ~~related~~ to ~~capital~~extend ~~expenditures. During~~the ~~2009,~~mortgage weloans ~~expect~~that tocontain ~~spend~~extension ~~between $22 and $27 million~~options. ~~in capital expenditures, depending on the determined~~

For the year ended December 31, 2009, we expended $21.6 million in cash related to capital expenditures. During 2010, we expect to spend between $8 and $11 million in capital expenditures, 47depending on the determined courses of action following our ongoing diligence and analysis. The planned capital expenditures relate largely to the completion of renovations associated with our recent franchise license renewals and other necessary projects including brand-mandated enhancements. We intend to use operating cash flows, when available, proceeds from asset sales and capital expenditure reserves with our lenders to fund these capital expenditures.

Our ability to meet our short-term and long-term cash needs is dependent on a number of factors, including the economic recession and our ability to extend or refinance our maturing mortgage indebtedness. As discussed above, approximately $55.7 million of

our mortgage debt is scheduled to ~~courses~~mature in 2010 (excluding Pool 3, since we surrendered control of ~~action~~the ~~following~~six ~~our~~hotels ~~ongoing~~securing ~~diligence~~the debt to a court-appointed receiver in February 2010) and ~~analysis.~~cannot be extended without the approval of the ~~The~~loan ~~planned~~servicers. ~~capital~~To ~~expenditures~~address ~~relate~~the ~~largely~~pending maturities in 2010, we are also pursuing opportunities to extend or refinance the maturing mortgage debt. To date, we have been unable to secure refinancing ~~completion~~and, in light of ~~renovations~~the ~~associated~~current ~~with~~credit ~~our~~markets ~~recent~~generally ~~franchise~~and the real estate credit markets ~~license~~specifically, ~~renewals~~we ~~and~~expect ~~other~~it ~~necessary~~will ~~projects~~remain ~~including~~difficult to refinance the mortgage debt prior to the 2010 ~~brand-mandated~~maturity ~~enhancements~~dates. WeAs ~~intend~~a result, our ability to ~~use~~meet ~~operating~~our cash needs over the next 12 months and to ~~flows~~operate as a going concern is dependent upon our ability to extend, ~~when~~refinance ~~available~~or repay our 2010 mortgage debt prior to or upon its maturity. Moreover, ~~proceeds~~our ~~from~~ability ~~asset~~to ~~sales~~extend ~~and~~or ~~capital~~refinance our ~~expenditure~~other ~~reserves~~mortgage ~~with~~debt ~~our~~in ~~lenders~~the future and to fund ~~these~~our long-term financial needs and sources of working capital are similarly subject to uncertainty. We can provide no assurance that we will have sufficient liquidity to be able to meet our operating expenses, debt service and principal payments, and planned capital expenditures over the next 12 months.

~~Our~~In ~~ability~~the ~~to meet our~~ short~~-term~~ ~~and long-~~term ~~cash needs is dependent on a number of factors~~, ~~including~~we ~~the~~continue ~~current severe economic recession, but most immediately our ability~~ to ~~extend or~~diligently ~~refinance~~monitor our ~~maturing~~costs ~~mortgage~~in ~~indebtedness.~~response ~~As discussed above, approximately $128 million of our mortgage debt is scheduled~~ to ~~mature in July 2009 and cannot be extended without~~ the ~~approval of the loan servicers, which extension has been~~economic ~~requested~~recession ~~but~~and ~~not~~pursue ~~yet~~our ~~granted.~~plan ~~To address the pending maturities in July 2009, we are also pursuing opportunities~~ to refinance ~~the~~ ~~maturing mortgage debt~~ or toextend ~~acquire~~the ~~new~~maturing mortgage debt ~~using currently~~as ~~unencumbered~~described ~~properties~~above. ~~To date, we have been unable~~ toWe ~~secure~~believe ~~refinancing~~that ~~and, in light of~~ the ~~current~~planned ~~credit markets~~merger ~~generally~~is ~~and~~ the ~~real~~best ~~estate~~strategic ~~credit~~alternative ~~markets specifically,~~for ~~we expect it will remain difficult to refinance the mortgage debt prior to the July 2009 maturity date~~us. AsAbsent a ~~result~~merger, our ~~ability~~strategic toinitiatives ~~meet~~include ~~our~~surrendering ~~cash~~certain ~~needs~~underperforming ~~over~~hotels ~~the next 12 months and~~ to ~~operate as a going concern is dependent~~the ~~upon our ability to extend~~lenders, ~~refinance~~improving orthe ~~repay~~operations of our ~~July~~remaining ~~2009 mortgage~~core ~~debt prior to or upon its maturity. Moreover~~hotels, ~~our ability~~ceasing to ~~extend~~be ora ~~refinance~~public ~~our~~company ~~other mortgage debt in the future~~ and ~~to fund our long-term financial needs and sources of~~ ~~working~~continuing ~~capital are similarly subject~~ to ~~uncertainty.~~reduce ~~We can provide no assurance that we will have sufficient liquidity to be able to meet~~ our ~~operating~~corporate ~~expenses,~~overhead ~~debt service and principal payments, and planned capital expenditures over the next 12 months~~costs.

InOther the short term, we continue to diligently monitor our costs in response to the economic recession and will pursue our plan to refinance or extend the maturing mortgage debt as described above. Additionally, other factors will impact our ability to meet short-term and long-term cash needs. These factors ~~include~~ include the ~~severe~~economic ~~global~~ recession, market conditions in the lodging industry, improving our operating results, the successful implementation of our portfolio improvement strategy, our ability to extend the maturity dates of our other mortgage debt as it matures and our ability to obtain third party sources of capital on favorable terms as needed.

If we default on our mortgage debt, our lenders could seek to foreclose on the properties securing the debt, which could cause our loss of any anticipated income and cash flow from, and our ~~invested~~ invested capital in, the hotels. Similarly, weif ~~could~~one ~~lose~~of ~~the~~our franchise agreements is terminated and we are ~~right~~unable to operate ~~hotels~~the affected hotel under another nationally recognized brand ~~names~~name, such ~~and~~termination ~~one or more of our franchise agreements~~ could belead ~~terminated leading~~ to additional defaults and acceleration under other loan agreements as well as obligations to pay liquidated damages if we do not find a suitable replacement franchisor. In addition, we could be required to utilize an increasing percentage of our cash flow to service any remaining debt or any new debt incurred with a refinancing, which would further limit our cash flow available to fund business operations and our strategic plan, particularly in light of continued hotel dispositions. If we are unable to refinance or extend the maturity of our mortgage debt and maintain sufficient cash flow to fund our operations, we may be forced to restructure or ~~significantly~~ significantly curtail our operations or to seek protection from our lenders. See “Item 1A. Risk Factors” for further discussion of conditions that could adversely affect our estimates of future liquidity needs and sources of working capital.

We intend to continue to use our cash flow to fund operations, scheduled debt service payments, and capital expenditures. At this point in time, we do not intend to pay dividends on our common stock.

Cash Flow

Discontinued operations were not segregated in the consolidated statements of cash flows. Therefore, amounts for certain captions will not agree with respective data in the balance sheets and related statements of operations

Operating activities

Operating activities generated cash of $2720.42 million in ~~2008~~ 2009 and $3627.94 million in ~~2007~~2008. The decrease in cash generated by operations iswas attributable to lower revenues and operating margins, driven by the economic recession as well as asset sales. Operating activities generated cash of $3536.69 million in ~~2006~~2007.

Investing activities

Investing activities used $135.64 million of cash in ~~2008, but~~2009 ~~generated~~compared to $3013.56 million in ~~2007~~2008. We ~~expended~~ expended $4721.26 million in capital improvements in ~~2008~~2009 compared to $4147.52 million in ~~2007~~2008. Net proceeds from the sale of assets were $14.6 million in 2009 and $24.1 million in 2008. ~~and~~Withdrawals from capital expenditure reserves with our lenders totaled $785.01 million in ~~2007~~2009 and $5.2 million in 2008. In ~~2007~~2008, we ~~paid~~received $~~16.~~4.1 million toof ~~acquire~~net ~~the~~insurance ~~minority~~proceeds for property damage claims ~~partners’~~primarily ~~interests~~related to one hotel damaged by fire, offset in ~~two~~part ofby ~~our~~casualty ~~hotels~~costs at a hotel that was damaged by Hurricane Ike. ~~Withdrawals~~Restricted ~~from~~cash increased $3.2 million in 2009 compared to a ~~capital~~decrease ~~expenditure~~of ~~reserves~~$0.2 million ~~with~~in ~~our~~2008 ~~lenders~~primarily ~~totaled~~due to the timing of the release of certain restricted funds.

46 48

~~$5.2 million~~Investing inactivities ~~2008~~provided ~~and~~ $430.95 million of cash in 2007. ~~In 2008,~~We weexpended ~~received~~ $441.15 million ~~of net insurance proceeds~~ for ~~property damage claims primarily related to one hotel~~capital ~~damaged~~improvements byand ~~fire,~~withdrew ~~offset~~$4.9 million infrom ~~part~~capital byexpenditure ~~casualty~~reserves ~~costs~~with atour ~~a hotel that was damaged by Hurricane Ike~~lenders. ~~In 2007, we received~~We received $078.10 million in ~~advances (~~net ofproceeds ~~related~~from ~~expenditures)~~the ~~for property~~sale ~~damage~~of ~~claims~~assets. ~~primarily~~We ~~related~~spent $16.4 million to ~~one~~acquire a ~~hotel~~noncontrolling ~~damaged~~interest ~~by fire~~in 2007. Restricted cash decreased $~~0.2 million in 2008 compared to $~~5.4 million in 2007.

Investing activities provided $0.8 million of cash in 2006. We expended $35.8 million for capital improvements and withdrew $9.4 million from capital expenditure reserves with our lenders. We received $22.9 million in net proceeds from the sale of assets and were advanced $3.2 million (net of related expenditures) for property damage claims primarily related to one hotel damaged by fire and three of our hurricane-damaged hotels. Restricted cash decreased $1.2 million in 2006.

Financing activities

Financing activities used cash of $4714.69 million in ~~2008~~ 2009 compared with $6147.56 million in ~~2007~~2008. In ~~2008~~ 2009, we ~~purchased~~made principal payments of $14.9 million, including $6.8 million to partially defease one of our mortgage loans. We purchased $19.9 million of treasury stock ~~and~~in 2008. In 2008, we made principal payments of $26.8 million, including $16.9 million to partially defease two of ~~the~~our ~~Company’s~~ mortgage loans and a $5.5 million payment to release one hotel as collateral in order to sell the hotel.

In 2007, we received $130.0 million in gross proceeds associated with the April 2007 refinancing~~, which is described~~ ~~below,~~ and used the net proceeds to pay off existing debt. We made principal payments of $169.4 million, including the payoff of five loans which had reached their scheduled maturity dates and the payoff of existing debt in conjunction with the refinancing and/or the sale of encumbered assets. In addition, we purchased $16.8 million of treasury stock and paid defeasance costs of $4.2 million.

In 2006, we refinanced mortgages on the Holiday Inn Express Palm Desert, Crowne Plaza Worcester, Radisson Phoenix, Crowne Plaza Pittsburgh and the Crowne Plaza Phoenix Airport, resulting in gross proceeds of $45.0 million. Additionally, we made $49.8 million in principal payments and purchased $2.7 million of treasury stock.

Debt and contractual obligations

The following table provides information about our debt and certain other long-term contractual obligations:. See “debt and Contractual Obligations” below for further information.

	Debt Obligations		Maturities
	December 31, 2008		2009		2010		2011		2012		2013		Thereafter
	December 31, 2009		2010		2011		2012		2013		2014		Thereafter
	($ in thousands)				~~($ in thousands)~~
DEBT OBLIGATIONS
Mortgage Debt(1) :
Mortgage Debt :
Merrill Lynch Mortgage Lending, Inc. — Fixed	$	128,387	$	128,387	$	—	$	—	$	—	$	—	$	—
Goldman Sachs (1)	$	130,000	$	—	$	130,000	$	—	$	—	$	—	$	—
Goldman Sachs(2)		130,000		—		130,000		—		—		—		—
Merrill Lynch Fixed Rate Pool 1		34,471		34,471		—		—		—		—		—
Wachovia		34,734		740		3,633		30,361		—		—		—
Merrill Lynch Fixed Rate Pool 3 (2)		45,500		45,500		—		—		—		—		—
IXIS(3)		39,507		534		38,973		—		—		—		—
Merrill Lynch Fixed Rate Pool 4		34,648		914		977		32,757		—		—		—
Total — Mortgage Debt		332,628		129,661		172,606		30,361		—		—		—
IXIS (3)		20,679		299		20,380		—		—		—		—
Other Long-term Liabilities(4) :
IXIS — Holiday Inn Hilton Head, SC (4)		18,294		18,294		—		—		—		—		—
Tax Notes Issued Pursuant to our Joint Plan of Reorganization		42		42		—		—		—		—		—
Wachovia — Holiday Inn Express Palm Desert, CA		5,645		129		5,516		—		—		—		—
Other Long-term Liabilities		1,342		228		206		172		153		125		458
Wachovia — SpringHill Suites by Marriott Pinehurst, NC		2,920		2,920		—		—		—		—		—
		1,384		270		206		172		153		125		458
Total — Mortgage Debt		292,157		102,527		156,873		32,757		—		—		—
Total Debt Obligations		334,012		129,931		172,812		30,533		153		125		458
Other Long-term Liabilities:
Less: Debt Obligations — Held for Sale		14,257		4,976		218		9,063		—		—		—
Other Long-term Liabilities		1,236		218		309		126		125		125		333
Total Debt Obligations — Held for Use	$	319,755	$	124,955	$	172,594	$	21,470	$	153	$	125	$	458
		1,236		218		309		126		125		125		333
Total Debt Obligations		293,393		102,745		157,182		32,883		125		125		333
Less: Debt Obligations — Held for Sale		5,645		129		5,516		—		—		—		—
Total Debt Obligations — Held for Use	$	287,748	$	102,616	$	151,666	$	32,883	$	125	$	125	$	333
OTHER OBLIGATIONS
Interest Expense(5)		19,244	$	13,842	$	5,134	$	268	$	—	$	—	$	—
Interest Expense (5)		14,822	$	7,321	$	4,699	$	2,802	$	—	$	—	$	—
Ground, Parking and Other Lease Obligations		8378,~~745~~648		3,~~519~~352		3,~~546~~004		32,~~166~~882		32,~~038~~654		2,~~810~~198		6764,~~666~~558
Total Other Obligations		~~102~~93,~~989~~470		1710,~~361~~673		87,~~680~~703		35,~~434~~685		32,~~038~~654		2,~~810~~198		6764,~~666~~558
Less: Other Obligations — Held for Sale		~~4,733~~—	$	~~938~~—	$	~~746~~—	$	~~232~~—	$	~~185~~—	$	~~185~~—	$	~~2,447~~—
Total Other Obligations — Held for Use	$	9893,~~256~~470	$	1610,~~423~~673	$	7,~~934~~703	$	35,~~202~~685	$	2,~~853~~654	$	2,~~625~~198	$	6564,~~219~~558
TOTAL OBLIGATIONS
Total Debt and Other Obligations		~~437~~386,~~001~~863		~~147~~113,~~292~~418		~~181~~164,~~492~~885		3338,~~967~~568		32,~~191~~779		2,~~935~~323		6864,~~124~~891
Less: Debt and Other Obligations — Held for Sale		185,~~990~~645		~~5,914~~129		~~964~~5,516		~~9,295~~—		~~185~~—		~~185~~—		~~2,447~~—
Total Debt and Other Obligations — Held for Use	$	~~418~~381,~~011~~218	$	~~141~~113,~~378~~289	$	~~180~~159,~~528~~369	$	2438,~~672~~568	$	32,~~006~~779	$	2,~~750~~323	$	6564,~~677~~891

(1)		~~Discussed~~As discussed in ~~Note~~“Debt 9and Contractual Obligations” below, the Goldman Sachs loan matured in 2009, with the ~~notes~~option to ~~our~~extend ~~consolidated~~the ~~financial~~loan ~~statements~~for three additional one-year periods. The first extension option was exercised, which extended the maturity to May 1, 2010. Management has the intent and ability to exercise the second option, which would extend the maturity to May 2, 2011.
(2)		As discussed in ~~Note~~“Debt 9and inContractual ~~the~~Obligations” ~~notes to our consolidated financial statements~~below, ~~the~~this ~~Goldman~~loan ~~Sachs~~matured ~~loan~~on ~~matures~~October in1, 2009, ~~with~~following ~~the~~two ~~option to extend the loan for three additional one~~short-~~year~~term ~~periods~~extensions. ~~Management~~The ~~has~~Company ~~the~~surrendered ~~intent~~control ~~and~~of ~~ability to exercise~~ the ~~first~~six ~~extension~~hotels ~~option,~~ which ~~will~~secured ~~extend~~this ~~the~~loan ~~maturity~~ to ~~2010.~~a ~~Two further one~~court-~~year~~appointed ~~extension~~receiver ~~options~~in ~~remain~~February 2010.
(3)		As discussed in ~~Note~~“Debt ~~9 in the notes to our consolidated financial statements, one IXIS loan matured in December 2007. The Company exercised the first~~ and ~~second~~Contractual ~~one-year~~Obligations” ~~extension options~~below, ~~which~~this ~~extended the maturity to December 2009. The table assumes the remaining extension option will be exercised, which will extend the maturity to December 2010. The second IXIS~~ loan matured in March 2008~~. As of December 31~~, ~~2008,~~with ~~the~~3 ~~Company~~available ~~had exercised the first of three~~ one-year ~~extension options, which extended the maturity to March 2009~~extensions. The ~~table~~Company ~~assumes the second extension option (which was subsequently~~ exercised inall ~~March 2009) will be exercised~~options, which ~~will~~extended ~~extend~~ the ~~maturity~~loan to March ~~2010~~2011. ~~One further one-year extension option remains.~~
(4)		~~Comprised~~As ofdiscussed ~~unsecured~~in ~~notes~~“Debt ~~payable~~and ofContractual ~~$42~~Obligations” below,~~000~~ ~~for~~this ~~pre-petition~~loan ~~bankruptcy~~matured ~~related~~in ~~tax~~December ~~obligations~~2007, ~~and~~with ~~$1.~~3 ~~million~~available ofone-year ~~other~~extensions. ~~obligations~~The Company exercised all options, which extended the maturity to December 2010.
(5)		The computation of interest expense related to our variable rate debt assumes a LIBOR of 40.6025% for all future periods.

As discussed in further detail below, we surrendered control of the six hotels which secured Pool 3 to a court-appointed receiver in February 2010. Excluding Pool 3, Total Debt and Other 50Obligations at December 31, 2009 were $341.4 million, of which $67.9 million was due in 2010.

We did not include franchise fees in the table above because substantially all of our franchise fees vary with revenues. Franchise fees for 2009 related to continuing operations are shown under the caption “Franchise Agreements and Capital Expenditures” Below.

We did not include franchise fees in the table above because substantially all of our franchise fees vary with revenues. Franchise fees for 2008 related to continuing operations are shown under the caption “Franchise Agreements and Capital Expenditures” Below.

Debt and Contractual Obligations

OnThe ~~June 25,~~mortgage ~~2004,~~notes wesubject ~~entered~~the ~~into~~Company ~~four~~to ~~fixed~~certain ~~rate~~financial ~~loans with Merrill Lynch Mortgage Lending, Inc~~covenants. ~~(“Merrill Lynch”).~~As ~~The~~of ~~four loans~~December 31, ~~which totaled $260 million at inception~~2009, the ~~bear~~Company awas ~~fixed~~in ~~interest~~compliance ~~rate~~with ofits ~~6.58%.~~financial ~~Except~~debt ~~for certain defeasance provisions~~covenants, ~~we may not prepay the loans~~ except ~~during~~for the ~~60 days~~financial ~~prior~~ratios related to ~~maturity. One of~~ the ~~loans~~ ~~was~~Merrill ~~defeased~~Lynch inFixed ~~2007.~~Pools ~~The~~3 ~~remaining~~and ~~three~~4, ~~loans~~with ~~are currently~~outstanding ~~secured~~principal bybalances 17of ~~hotels~~$45.5 million ~~The~~and ~~loans are not cross-collateralized~~$34.6 million, ~~Each loan is non-recourse; however~~respectively, ~~we have~~and ~~agreed~~the toGoldman ~~indemnify~~Sachs ~~Merrill Lynch in certain situations~~loan, ~~such~~ aswith ~~fraud,~~an ~~waste,~~outstanding ~~misappropriation of funds, certain~~principal ~~environmental~~balance ~~matters, asset transfers in violation~~ of ~~the~~$130 million. ~~loan agreements,~~The orbreach ~~violation~~ of ~~certain~~these ~~single-purpose entity~~ covenants~~. In addition~~, ~~each~~if ~~loan~~not ~~will~~cured ~~become~~or ~~full~~waived ~~recourse~~by inthe lenders, ~~certain~~could ~~limited~~lead ~~cases~~to ~~such~~the asdeclaration ~~bankruptcy~~ of a ~~borrower~~“cash ~~or Lodgian.~~trap” ~~The~~by ~~Merrill~~the ~~Lynch~~lenders ~~loans,~~whereby ~~which~~excess ~~totaled~~cash ~~approximately $128 million~~flows atproduced ~~December 31, 2008, are scheduled to~~by ~~mature~~the inmortgaged ~~July~~hotels ~~2009~~securing ~~and~~the ~~cannot~~applicable beloans ~~extended~~(after ~~without~~funding ~~the approval~~ of ~~the~~required ~~loan servicers~~reserves, ~~which extension has been requested but~~principal ~~not~~and ~~yet~~interest, ~~granted.~~operating ~~To address the pending maturities in July 2009~~expenses, we ~~are~~management ~~also~~fees ~~pursuing~~and ~~opportunities~~servicing tofees) ~~refinance~~could ~~the maturing~~be ~~mortgage~~held ~~debt~~in ora torestricted ~~acquire~~cash ~~new mortgage debt using currently unencumbered properties~~account. ToWith ~~date,~~respect weto ~~have~~the ~~been~~Merrill ~~unable~~Lynch toFixed ~~secure refinancing~~Rate ~~and~~loans, ~~in light of~~ the ~~current credit markets~~funds ~~generally~~held ~~and~~in the ~~real~~restricted ~~estate~~cash ~~credit~~account ~~markets~~may ~~specifically,~~be ~~we expect~~used itfor tocapital ~~remain~~expenditures ~~difficult~~reasonably toapproved ~~refinance~~by the ~~mortgage debt~~ ~~prior~~loan ~~to the July 2009 maturity date~~servicer. WeThe ~~cannot~~cash ~~currently predict~~trap ~~whether~~provisions ~~these~~under ~~efforts~~the ~~will~~Goldman beSachs ~~successful. The outstanding~~ loan ~~balance~~were iswaived ~~classified as current~~ in ~~the~~conjunction ~~Consolidated~~with ~~Balance~~the ~~Sheet~~loan asamendment ofdated ~~December~~January 3122, ~~2008~~2010.

OnAs ~~November~~of December 1031, ~~2005~~2009, wePool ~~entered~~4 ~~into~~was aoperating ~~$19.0 million loan~~under ~~agreement with IXIS Real Estate Capital Inc. (“IXIS”), which is secured by~~ the ~~Holiday~~provisions ~~Inn~~of ~~Hilton Head, SC. The loan agreement has~~ a ~~two-year~~cash ~~initial~~trap ~~term~~and ~~with~~approximately ~~three~~$0.8 million ~~one-year~~was ~~extension~~held ~~options which are exercisable provided the loan is not~~ in ~~default. The loan bears~~ a ~~floating~~restricted ~~interest rate~~cash ~~of 290 basis points above LIBOR~~account. InWe ~~December~~surrendered ~~2008,~~control ~~we exercised~~of the ~~second~~six ~~extension~~hotels ~~option,~~ which secure ~~extended~~Pool ~~the maturity~~3 to ~~December 2009. We contemporaneously entered into~~ a ~~24-month interest~~ ~~rate cap agreement, which effectively caps the interest rate at 7.90%. The loan agreement is non~~court-~~recourse~~appointed toreceiver ~~Lodgian, Inc., except~~ in ~~certain limited circumstances as set forth in the loan agreement. The loan is classified as long-term in the Consolidated Balance Sheet as of December~~February ~~31, 2008 since management has the intent and ability to exercise the third extension option~~2010.

OnOur ~~February 1,~~continued ~~2006,~~compliance ~~we entered into a $17.4 million loan agreement~~ with ~~Wachovia~~the ~~Bank,~~financial ~~National~~covenants ~~Association (“Wachovia”),~~for ~~which is secured by~~ the ~~Crowne~~remaining ~~Plaza Worcester,~~loans ~~MA.~~depends ~~The loan agreement has a five year term and bears~~substantially aupon ~~fixed~~the ~~rate~~financial ofresults ~~interest~~ of 6our hotels.~~04%.~~ ~~The~~Given ~~loan~~the ~~agreement~~economic ~~is non-recourse to Lodgian~~recession, ~~Inc.,~~we ~~except~~could inbreach certain ~~limited~~of ~~circumstances~~our asfinancial ~~set~~covenants ~~forth~~during ~~in the loan agreement~~2010.

On ~~February~~June 125, ~~2006~~2004, we entered into afour $6fixed rate loans with Merrill Lynch Mortgage Lending, Inc.1 (“Merrill Lynch”). The four loans, which totaled $260 million at inception, bear a fixed interest ~~loan~~rate ~~agreement~~of ~~with~~6.58%. ~~Wachovia~~Except for certain defeasance provisions, ~~which~~we ismay ~~secured~~not byprepay the ~~Holiday~~loans except during ~~Inn~~the ~~Palm~~60 days ~~Desert,~~prior CAto maturity. ~~The~~One ~~loan~~of ~~agreement~~the ~~has~~loans awas ~~five~~defeased ~~year~~in ~~term~~2007. ~~and~~The remaining three loans ~~bears~~were asecured ~~fixed~~by ~~rate~~16 ofhotels ~~interest~~as of 6December 31, 2009.~~04%.~~ The ~~loan~~loans ~~agreement~~are isnot cross-collateralized. Each loan is non-recourse; however, we have agreed to ~~Lodgian,~~guarantee ~~Inc.,~~the ~~except~~debt in certain ~~limited circumstances~~situations, such as fraud, ~~set~~waste, ~~forth~~misappropriation of funds, certain environmental matters, asset transfers in violation of the loan ~~agreement~~agreements, or violation of certain single-purpose entity covenants. In addition, each loan will become full recourse in certain limited cases such as bankruptcy of a borrower or Lodgian.

OnThe ~~March 1,~~Merrill ~~2006,~~Lynch weloans ~~entered~~had ~~into~~an aaggregate principal balance of $21114.56 million ~~loan agreement~~as ~~with~~of ~~IXIS~~December 31, 2009 ~~which~~and isoriginally ~~secured~~matured byon ~~the~~July 1, ~~Radisson~~2009. ~~Phoenix and~~We ~~Crowne~~negotiated ~~Plaza~~with ~~Phoenix~~the ~~Airport~~special ~~hotels~~servicer ~~located~~for inPool ~~Phoenix,~~1 AZand ~~along~~agreed ~~with~~to two six-month extensions of the ~~Crowne~~maturity ~~Plaza~~date ~~Pittsburgh~~for ~~Airport~~this ~~hotel~~indebtedness. ~~located~~The inprincipal ~~Coraopolis,~~balance PAof Pool 1 was $34.5 million ~~The~~as ~~loan~~of ~~agreement~~December 31, ~~has~~2009 aand ~~two-year~~we ~~initial~~exercised ~~term with~~the ~~three~~second ~~one~~six-~~year~~ month extension, ~~options~~extending ~~which~~the maturity date of Pool 1 to July 1, 2010. We are ~~exercisable~~pursuing opportunities to ~~provided~~extend ~~the~~or ~~loan~~refinance isPool ~~not~~1 in ~~default~~anticipation of the 2010 maturity date. The ~~loan~~interest ~~bears~~rate aon ~~floating~~Pool 1 ~~rate~~remains offixed ~~interest~~at ~~which~~6.58% isduring ~~295 basis~~the ~~points~~term ~~above~~of ~~LIBOR~~the extension. In ~~March~~ ~~2008~~July 2009, we ~~exercised~~paid the ~~first~~special servicer an extension fee of ~~three~~approximately ~~one-year~~$0.2 million. ~~extension options~~Additionally, ~~which~~in ~~extended~~July 2009, ~~the~~we ~~maturity~~made toa ~~March~~principal reduction ~~2009~~payment of $2.0 million. In ~~March~~ December 2009, we ~~exercised~~paid the ~~second~~special ~~extension~~servicer ~~option,~~an ~~which~~extension ~~extended~~fee ~~the~~of ~~loan~~approximately ~~maturity~~$0.3 million. toAdditionally, ~~March~~in December 92009, ~~2010.~~we Wemade ~~contemporaneously entered~~a ~~into~~principal areduction ~~24-month interest~~payment ~~rate~~of ~~cap~~$1.0 million. ~~agreement~~To date, ~~which~~we ~~effectively~~have ~~caps~~been ~~the~~unable ~~interest~~to secure refinancing and, in light of the ~~rate~~current atcredit ~~7.45%.~~markets ~~The~~generally ~~loan~~and ~~agreement~~the isreal ~~non-recourse~~estate tocredit ~~Lodgian~~markets specifically, we expect it to ~~Inc.,~~remain ~~except~~difficult into ~~certain~~refinance ~~limited~~the ~~circumstances~~mortgage asdebt ~~set~~prior ~~forth~~to in the ~~loan~~July 2010 ~~agreement~~maturity date. ~~The~~We ~~loan~~cannot currently ispredict whether these efforts will be successful. We have classified asthis ~~long-term~~loan as current in the Consolidated Balance Sheet as of December 31, ~~2008~~2009. ~~since management~~Pool ~~has~~1 ~~the~~is ~~intent~~secured ~~and ability to exercise the remaining~~by ~~extension~~four ~~option~~hotels.

Pool 3, with a principal balance of $45.5 million as of December 31, 2009, matured on October 1, 2009, following two short-term extensions. The extensions were intended to provide time for us to 51reach an agreement with the special servicer to modify Pool 3. No agreement was reached and Pool 3 was in default as of December 31, 2009. We believe that the anticipated cash flow from the hotels securing Pool 3 will not be sufficient to meet the related debt service obligations in the near-term. Since a modification agreement was not reached, we surrendered control of the six hotels securing Pool 3 to a court-appointed receiver in February 2010. Pool 3 is non-recourse to us, except in limited circumstances which we believe are remote and is not cross-collateralized with any other mortgage debt. We have classified Pool 3 as current in the Consolidated Balance Sheet as of December 31, 2009. In accordance with the terms of the franchise agreements associated with the Pool 3 hotels, we could be required to pay liquidated damages to the franchisors upon surrender of control. The estimated potential liquidated damages totaled $5.9 million as of December 31, 2009. This amount is not reflected in our consolidated financial statements since the recognition criteria for contingencies as established by U.S. GAAP had not been met.

Pool 4, with a principal balance of $34.6 million as of December 31, 2009, was successfully extended to a maturity date of July 1, 2012. The interest rate on Pool 4 will remain fixed at 6.58%. In connection with this agreement, we paid an extension fee of approximately $0.2 million and made a principal reduction payment of $0.5 million in July 2009. The parties also have agreed to revise the allocated loan amounts for each property serving as collateral for Pool 4 and to allow partial prepayments of the indebtedness. Pursuant to this agreement, we may release individual assets from Pool 4 by paying the lender specified amounts (in excess of the allocated loan amounts) in connection with a property sale or refinancing. We also agreed to pay the lender an “exit fee” upon a full or partial repayment of Pool 4. The amount of this fee will increase each year but, assuming Pool 4 is held for the full three year term, the fee will effectively increase the current interest rate by 100 basis points per annum. We also have issued a

Infull ~~April 2007, we entered into a $130 million loan~~recourse ~~agreement~~guaranty ~~(the~~of ~~“Goldman~~Pool ~~Loan”)~~4 ~~with~~in ~~Goldman~~connection ~~Sachs Commercial Mortgage Capital, L.P. The Goldman Loan is secured by ten hotels and has an initial term of two years,~~ with ~~the~~this ~~option to extend the loan for three additional one-year periods~~amendment. ~~The loan bears interest at LIBOR plus 150 basis points.~~ We ~~purchased~~ anhave ~~interest~~classified ~~rate~~Pool ~~protection~~4 ~~agreement which caps the maximum interest rate at 8.5%. The loan is classified~~ as long-term in the Consolidated Balance Sheet as of December 31, ~~2008~~2009. ~~since~~Pool ~~management~~4 ~~has~~is ~~the~~secured ~~intent~~by ~~and ability~~six ~~to exercise the first extension option~~hotels.

InOn ~~June~~November 10, ~~2008~~2005, we ~~paid~~entered into a $519.50 million onloan agreement with IXIS Real Estate Capital Inc. (“IXIS”), which is secured by the Holiday Inn Hilton Head, SC. The loan agreement has a two-year initial term with three one-year ofextension options which are exercisable provided the ~~Merrill~~loan ~~Lynch~~is ~~fixed~~not in default. The loan bears a floating interest rate ~~loans~~of 290 basis points above LIBOR. In December 2009, we exercised the third extension option, which extended the maturity to ~~release~~December 2010. asTo ~~collateral~~mitigate the ~~former~~risk of rising interest rates, we acquired an interest rate cap agreement, ~~Holiday~~which ~~Inn~~effectively ~~Marietta~~caps the interest rate at 7.90%. The loan agreement is non-recourse to Lodgian, GAInc., ~~which~~except in certain limited circumstances as set forth in the loan agreement. The loan balance of $18.3 million was ~~subsequently~~classified ~~sold~~as current in the Consolidated Balance Sheet as of December 31, 2009.

InOn ~~September~~May 17, ~~2008~~2005, we ~~defeased~~entered ~~$9.4 million~~into ofa ~~the~~ $453.62 million ~~balance~~loan ofagreement ~~one~~with ofWachovia ~~the Merrill Lynch fixed rate loans,~~ which ~~was~~is secured by ~~seven hotels. We purchased~~ ~~$9.7 million of US Government treasury securities (“Treasury Securities”) to cover~~ the ~~monthly~~SpringHill ~~debt service~~Suites ~~payments~~Pinehurst, ~~under~~NC the terms of the loan agreement. The Treasury Securities were then substituted for the hotel that originally served as collateral for the defeased portion of the loan. The hotel was classified as held for sale. The Treasury Securities and ~~the~~is ~~debt~~scheduled ~~were assigned~~ to anmature ~~unaffiliated~~on ~~entity~~June 10, ~~which~~ ~~became liable for all obligations under the partially defeased portion of the original debt~~2010. The ~~transaction was~~outstanding ~~deemed~~loan abalance ~~partial~~at ~~defeasance~~December 31, ~~because~~2009 ~~we continue to be liable for the remaining (undefeased) portion~~ of ~~the debt~~$2.9 million ~~The~~was ~~defeased portion~~classified ofas ~~the~~current ~~debt is no longer reflected~~ in the Consolidated Balance Sheet. Asas ~~a result~~ of ~~the defeasance~~December 31, we2009. ~~recorded~~We ~~a $0.5 million~~are ~~Loss~~pursuing onopportunities ~~Debt~~to ~~Extinguishment~~extend inor ~~the~~refinance ~~statement~~this ofmortgage ~~operations~~loan.

InCertain ~~October~~other ~~2008,~~mortgage wedebt ~~defeased~~will ~~$7.5 million~~mature ofin ~~the $60.7 million balance of one of the Merrill Lynch fixed rate loans~~2010, ~~which~~but ~~was~~each ~~secured~~has byextension ~~eight~~options ~~hotels.~~available ~~We purchased $7.8 million of Treasury Securities~~ to ~~cover the monthly~~us ~~debt~~based ~~service~~upon ~~payments~~certain ~~under~~conditions. ~~the~~Specifically, ~~terms of~~ the loan agreement. ~~The Treasury~~with ~~Securities~~IXIS ~~were~~secured ~~then~~by ~~substituted for~~ the ~~hotel that~~Radisson ~~originally~~and ~~served~~Crowne asPlaza ~~collateral~~hotels ~~for~~located ~~the~~in ~~defeased~~Phoenix, ~~portion~~AZ ofand the ~~loan.~~ ~~The~~Crowne ~~hotel~~Plaza ~~was~~Pittsburgh ~~classified~~Airport ashotel initially ~~held~~matured ~~for~~on ~~sale~~March 9, ~~and~~2008. ~~has~~We ~~since been~~exercised ~~sold.~~all ~~The~~three ~~Treasury~~available ~~Securities~~extension ~~and~~options, which extended the ~~debt~~loan ~~were~~maturity ~~assigned~~ to an ~~unaffiliated entity~~March 9, ~~which~~2011. ~~became~~To ~~liable~~mitigate ~~for all obligations under~~ the ~~partially~~risk ~~defeased portion~~ of ~~the~~rising ~~original~~interest ~~debt.~~rates, ~~The~~we ~~transaction~~entered ~~was~~into ~~deemed~~an ainterest ~~partial~~rate ~~defeasance~~cap ~~because~~agreement, wewhich ~~continue to~~effectively becaps ~~liable for~~ the ~~remaining~~interest ~~(undefeased)~~rate ~~portion~~at ~~of the debt~~7.45%. The ~~defeased~~outstanding ~~portion~~loan ofbalance ~~the~~at ~~debt~~December 31, is2009 nowas ~~longer~~$20.7 million. ~~reflected~~We have classified this loan as long-term in the Consolidated Balance Sheet. Asas ~~a result~~ of ~~the defeasance~~December 31, ~~we recorded~~2009 asince ~~$0.4 million~~the ~~Loss~~Company onhas ~~Debt Extinguishment in~~ the ~~statement~~intent ofand ~~operations.~~ability ~~The~~to ~~entire~~exercise ~~amount~~the ~~was~~remaining ~~recorded~~extension ~~in discontinued operations~~option.

We are also a party to a loan agreement which was originated by Goldman Sachs Commercial Mortgage Capital, L.P and is secured by 10 hotels. The initial term of this loan matured on May 1, 2009. 52However, three extensions of one year each were available to us and the first extension was exercised to extend the maturity date to May 1, 2010. To mitigate the risk of rising interest rates, we acquired an interest rate cap agreement capping LIBOR at 5.00%. In order to exercise the second extension, which will extend the maturity date to May 1, 2011, there must not be an existing event of default under the loan documents. No extension fee was payable in connection with the first extension option. In addition to the requirements above, an extension fee of 0.125% of the principal balance is payable in connection with the second and third extension options. The outstanding loan balance at December 31, 2009 was $130.0 million. We have classified this loan as long-term in the Consolidated Balance Sheet as of December 31, 2009 since the Company has the intent and ability to exercise the second extension option. The loan was amended on January 22, 2010. Refer to “Planned Merger and Loan Amendment” under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information.

On February 1, 2006, we entered into a $6.1 million loan agreement with Wachovia, which is secured by the Holiday Inn Express Palm Desert, CA. The loan agreement matures February 1, 2011 and bears a fixed rate of interest of 6.04%. The loan agreement is non-recourse to Lodgian, Inc., except in certain limited circumstances as set forth in the loan agreement. The outstanding balance at December 31, 2009 was $5.6 million.

In July 2009, we surrendered control of the Holiday Inn Phoenix, AZ to a court-appointed receiver. In November 2009, we surrendered control of the Crowne Plaza Worcester, MA to a court-appointed receiver. We believed that the hotels were worth substantially less than the mortgage debt encumbering the hotels and that it was unlikely that the value of the hotels would increase in the near or intermediate term. The hotels were deconsolidated upon surrender of control and, as a result, the assets and liabilities, including the related loan balances were excluded from our balance sheet as of December 31, 2009. In accordance with the terms of the franchise agreement associated with the Crowne Plaza Worcester, we could be required to pay liquidated damages to the franchisor as a result of the surrender of control. The estimated potential liquidated damages totaled $1.3 million as of December 31, 2009. This amount is not reflected in our consolidated financial statements since the recognition criteria for contingencies as established by U.S. GAAP had not been met.

In May 2009, we defeased $6.7 million of the $52.7 million balance of one of the Merrill Lynch fixed rate loans, which was secured by seven hotels. We purchased $6.8 million of US Government treasury securities (“Treasury Securities”) to cover the monthly debt service payments under the terms of the loan agreement. The Treasury Securities were then substituted for the hotel that originally served as collateral for the defeased portion of the loan. The hotel was then sold. The Treasury Securities and the debt were assigned to an unaffiliated entity, which became liable for all obligations under the partially defeased portion of the original debt. The transaction was deemed a partial defeasance because we continue to be liable for the remaining (undefeased) portion of the debt. The defeased portion of the debt is no longer reflected in the Consolidated Balance Sheet. As a result of the defeasance, the Company recorded a $0.2 million Loss on Debt Extinguishment in discontinued operations.

Summary of Long-term Debt

Set forth below, by debt pool, is a summary of our long-term debt (including current portion) with the applicable interest rates and the carrying values of the property and equipment which collateralize the long-term debt:

	December 31, 2008												December 31, 2007
	December 31, 2009										December 31, 2008
	Number		Property, plant		~~Property, Plant~~		Long-term		~~Long-Term~~		Long-term		~~Long-Term~~			~~Interest Rates at December 31,~~
	of Hotels		and equipment, net		~~and Equipment, Net~~		obligations		~~Obligations~~		obligations		~~Obligations~~		Interest rates at December 31, 2009	~~2008~~
	~~($ in thousands)~~						($ in thousands)
Mortgage Debt
Goldman Sachs		10			$	120,362			$	130,000			$	130,000		LIBOR plus 1.50%; capped at 8.50%
Goldman Sachs (1)	10		$	120,553			$	130,000			$	130,000			LIBOR plus 1.50%; capped at 6.50%
Merrill Lynch Mortgage Lending, Inc. Fixed Pool 1		4				68,490				39,372				45,986		6.58%
Merrill Lynch Fixed Rate Pool 1 (2)	4			63,405				34,471				39,372			6.58%
Merrill Lynch Mortgage Lending, Inc. Fixed Pool 3		7				81,064				53,031				61,686		6.58%
Merrill Lynch Fixed Rate Pool 3 (3)	6			45,799				45,500				53,031			6.58%
Merrill Lynch Mortgage Lending, Inc. Fixed Pool 4		6				84,680				35,984				46,268		6.58%
Merrill Lynch Fixed Rate Pool 4 (4)	6			78,604				34,648				35,984			6.58%
IXIS		3				19,635				20,977				21,276		LIBOR plus 2.95%; capped at 8.45%
IXIS (5)	3			17,415				20,679				20,977			LIBOR plus 2.95%; capped at 7.45%
IXIS		1				16,392				18,530				18,765		LIBOR plus 2.90%; capped at 7.90%
IXIS — Holiday Inn Hilton Head, SC	1			16,063				18,294				18,530			LIBOR plus 2.90%; capped at 7.90%
Wachovia		1				12,423				16,501				16,826		6.04%
Wachovia — Holiday Inn Crowne Plaza Worcester, MA (6)	—			—				—				16,501			n/a
Wachovia		1				7,705				9,478				9,666		6.03%
Wachovia — Holiday Inn Phoenix, AZ (7)	—			—				—				9,478			n/a
Wachovia		1				5,718				5,767				5,880		6.04%
Wachovia — Holiday Inn Express Palm Desert, CA	1			5,306				5,645				5,767			6.04%
Wachovia		1				5,909				2,988				3,053		5.78%
Wachovia — SpringHill Suites by Marriott Pinehurst, NC	1			5,623				2,920				2,988			5.78%
Total	32	35		352,768		~~422,378~~		292,157		~~332,628~~		332,628		~~359,406~~	3.96% (8)	~~4.71% (1)~~
Long-term liabilities — other
Tax notes issued pursuant to our Joint Plan of Reorganization	—	—		—		—		—		42		42		~~633~~
Other	—	—		—		—		1,236		~~1,342~~		1,342		~~781~~
	—	—		—		—		1,236		~~1,384~~		1,384		~~1,414~~
Property, plant and equipment — Unencumbered		6		35,201		~~56,339~~		—		—		—		—
		41				478,717				334,012				360,820
	32			387,969				293,393				334,012
Held for sale	(1)	(6	)	(5,306	)	~~(31,351~~	)	(5,645	)	~~(14,257~~	)	(14,257	)	—
Held for use(2)		35			$	447,366			$	319,755			$	360,820
Held for use (9)	31		$	382,663			$	287,748			$	319,755

(1)		The ~~rate~~hotels ~~represents~~that ~~the~~secure ~~annual~~this ~~effective~~debt ~~weighted~~are: ~~average~~Crowne ~~cost~~Plaza ofAlbany, ~~debt~~NY; atHoliday ~~December~~Inn 31BWI Baltimore, ~~2008~~MD; Residence Inn Dedham, MA; Hilton Ft. Wayne, IN; Radisson Kenner, LA; Courtyard by Marriott Lafayette, LA; Holiday Inn Meadow Lands Pittsburgh, PA; Holiday Inn Santa Fe, NM; Crowne Plaza Silver Spring, MD; and Courtyard by Marriott Tulsa, OK.
(2)		~~Long-term~~The ~~debt~~hotels ~~obligations~~that atsecure ~~December~~this ~~31,~~debt ~~2008~~are: ~~and~~Courtyard ~~December~~by 31Marriott Atlanta-Buckhead, ~~2007~~GA; ~~include~~Marriott ~~the~~Denver, ~~current~~CO; ~~portion~~Four ofPoints ~~$125.0~~by ~~million~~Sheraton Philadelphia, PA; and ~~$5.1~~Holiday ~~million~~Inn Strongsville, ~~respectively~~OH.
(3)		The hotels that secure this debt are: Courtyard by Marriott Abilene, TX; Courtyard by Marriott Bentonville, AR; Courtyard by Marriott Florence, KY; Holiday Inn Inner Harbor Baltimore, MD; Crowne Plaza Houston, TX; and Fairfield Inn by Marriott Merrimack, NH. This loan matured on October 1, 2009, following two short-term extensions. The Company surrrendered control of the six hotels which secured this loan to a court-appointed receiver in February 2010.
(4)		The hotels that secure this debt are: Hilton Columbia, MD; Wyndham DFW Dallas, TX; Residence Inn by Marriott Little Rock, AR; Holiday Inn Myrtle Beach, SC; Courtyard by Marriott Paducah, KY; and Crowne Plaza West Palm Beach, FL.
(5)		The hotels that secure this debt are: Crowne Plaza Phoenix, AZ; Radisson Phoenix, AZ; and Crowne Plaza Pittsburgh, PA.
(6)		The Company surrendered control of the Crowne Plaza Worcester, MA in November 2009. The assets and liabilities, including the related debt, were deconsolidated from the Company’s balance sheet upon surrender of control.
(7)		The Company surrendered control of the Holiday Inn Phoenix, AZ in July 2009. The assets and liabilities, including the related debt, were deconsolidated from the Company’s balance sheet upon surrender of control.
(8)		The rate represents the annual effective weighted average cost of debt at December 31, 2009.
(9)		Long-term debt obligations at December 31, 2009 and December 31, 2008 include the current portion of $102.6 million and $125.0 million, respectively.

Franchise Agreements and Capital Expenditures

We benefit from the superior brand qualities of Crowne Plaza, Holiday Inn, Marriott, Hilton and other brands. Included in the benefits of these brands are their reputation for quality and service, revenue generation through their central reservation systems, access to revenue through the global distribution systems, guest loyalty programs and brand Internet booking sites.

To obtain these franchise affiliations, we enter into franchise agreements with hotel franchisors that generally have terms of 10 to 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 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~~ certain other ancillary charges. Royalty fees range from 43.05% to 6.0% of gross room revenues, advertising/marketing fees range from 1.0% to 2.5%, reservation system fees range from 1.0.4% to 3.23%, and club and restaurant fees from 0.16% to 3.20%. In the aggregate, royalty fees, advertising/marketing fees, reservation fees and other ancillary fees for the various brands under which we operate our hotels range from 6.5% to 10.0% of gross room revenues. In ~~2008~~addition, ~~franchise~~we are charged club fees on a per-stay basis. In 2009, franchise fees for our continuing operations were 910.62% of room revenues.

50 53

These costs vary with revenues and are not fixed commitments. Franchise fees incurred (which are reported in other hotel operating costs on our Consolidated Statement of Operations) for the years ended December 31, ~~2008~~2009, ~~2007~~2008, and ~~2006~~2007 were as follows:

	2008		2007		2006
	For the Years Ended December 31,
			($ in thousands)
	2009		2008		2007
Continuing operations	$	17,145	$	16,967	$	15,879
	($ in thousands)
Discontinued operations		2,441		5,669		9,664
Continuing operations	$	14,255	$	16,372	$	16,157
	$	19,586	$	22,636	$	25,543
Discontinued operations		1,218		3,214		6,479
	$	15,473	$	19,586	$	22,636

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~~ various times and have differing remaining terms. For example, the terms of ~~four~~two, (three ~~of which are held for sale~~ and one ~~of which is~~ ~~held for use as of March 1, 2009), three~~ (all of which are ~~held~~ ~~for use), and two (all of which are~~ held for use) of the franchise agreements for our hotels are scheduled to expire in ~~2009,~~in 2010, 2011, and ~~2011~~2012, respectively. As franchise agreements expire, we may apply for a franchise renewal or request a franchise extension. 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 not to renew the franchise. The costs incurred in connection with these agreements (excluding capital expenditures) are primarily ~~monthly~~ 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, and 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, operate the hotel without a franchise affiliation or sell the hotel. However, terminating or changing the franchise affiliation of a hotel could require us to incur significant expenses, including liquidated damages, and capital expenditures. Our loan agreements generally prohibit a hotel from operating without a franchise.

Refer to “Item 1. Business, Franchise Affiliations” for the current status of our franchise agreements.

Off Balance Sheet Arrangements

We have no off balance sheet arrangements.

New Accounting Pronouncements

InRecently ~~September~~Adopted ~~2006, the FASB issued SFAS No. 157,~~Pronouncements “Fair Value Measurements” (“SFAS No. 157”). This Statement defines fair value, establishes a framework for measuring fair value and expands disclosure of fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements and accordingly, does not require any new fair value measurements. SFAS No. 157 was effective in financial statements issued for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued FASB Staff Position FAS 157-2, which delayed the effective date of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis, to fiscal years beginning after November 15, 2008. On January 1, 2008, the Company adopted the provisions of SFAS No. 157 for financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements at least annually. Since the Company’s existing fair value measurements are consistent with the provisions of SFAS No. 157, and are not significant, the partial adoption did not have a material impact on the Company’s financial statements. We have not applied the provisions of SFAS No. 157 to non-financial assets, such as property and equipment, which are measured at fair value for

In September 2009, the Company adopted FASB ASC 105, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, which establishes the Accounting Standards Codification (the “Codification”) as the sole source for authoritative U.S. GAAP and supersedes all accounting standards in U.S. GAAP, aside from those issued by the SEC. FASB ASC 105 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of the Codification did not have a material impact on the Company’s results of operations and financial condition. In accordance with the Codification, references to previously issued accounting standards have been replaced by FASB ASC references.

In January 2008, the Company adopted the provisions of FASB ASC 820, Fair Value Measurements and Disclosures (formerly referenced as SFAS No. 157, Fair Value Measurements) for financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements at least annually. In January 2009, the Company adopted the deferred portion of the fair value guidance for nonfinancial assets and nonfinancial liabilities. FASB ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosure of fair value measurements. The fair value guidance does not require any new fair value measurements. The adoption did not have a material impact on the Company’s financial statements.

The three-level fair value hierarchy for disclosure of fair value measurements defined by the FASB is as follows:


Level 1		Quoted prices for identical instruments in active markets at the measurement date.

Level 2		Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets at the measurement date and for the anticipated term of the instrument.

Level 3		Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.

In January 2009, the Company adopted the updated provisions of FASB ASC 805, Business Combinations (formerly referenced as SFAS No. 141(R) Business Combinations). Under FASB ASC 805, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. Additionally, FASB ASC 850 includes a substantial number of new disclosure requirements. FASB ASC 805 applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The adoption did not have a material impact on the results of operations and financial condition. As discussed in Note 11, the Company has $84.9 million of deferred tax assets fully offset by a valuation allowance. The balance of the $84.9 million is primarily attributable to pre-emergence deferred tax assets. If the reduction of the valuation allowance attributable to pre-emergence deferred tax assets occurs subsequent to the effective date for the business combination guidance, such reduction will affect the income tax provision in the period of release.

In January 2009, the Company adopted the updated provisions of FASB ASC 810, Consolidation (formerly referenced as SFAS No. 160 Noncontrolling Interest in Consolidated Financial Statements — An Amendment of ARB No. 51). FASB ASC 810 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, FASB ASC 810 requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the parent’s equity. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement. The FASB ASC 810 clarifies that changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, this statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the noncontrolling equity investment on the deconsolidation date. FASB ASC 810 also included expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. FASB ASC 810 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. As a result of the adoption, the Company recorded noncontrolling interest as a component of equity in the Consolidated Balance Sheets and Consolidated Statements of Total Equity, and the net loss attributable to noncontrolling interests has been separately recorded in the Consolidated Statement of Operations.

The following table illustrates the effect on net income and earnings per share for the twelve months ended December 31, 2008 and 2007 as if the provisions of the noncontrolling interest guidance were applied:


	Twelve Months Ended December 31,
	2008			2007
	($ in thousands, except per share data)
Loss from continuing operations	$	(8,014	)	$	(5,236	)
Less: Net loss attributable to noncontrolling interest		718			620

Loss from continuing operations attributable to common stock		(7,296	)		(4,616	)
Loss from discontinued operations		(3,970	)		(2,789	)

Net loss attributable to common stock	$	(11,266	)	$	(7,405	)


Denominator
Basic and diluted weighted average shares		21,774			24,292


Basic and diluted loss per common share:
Loss from continuing operations attributable to common stock	$	(0.34	)	$	(0.19	)
Loss from discontinued operations		(0.18	)		(0.11	)

Net loss attributable to common stock	$	(0.52	)	$	(0.30	)

In January 2009, the Company adopted the updated provisions of FASB ASC 815, Derivatives and Hedging (formerly referenced as SFAS No. 161 Disclosures about Derivative Instruments and Hedging Activities, an amendment to SFAS No. 133). FASB ASC 815 requires enhanced disclosures about an entity’s derivative and hedging activities. FASB ASC 815 is effective for fiscal years and interim periods beginning after November 15, 2008. The adoption did not have a material impact on the results of operations and financial condition.

In January 2009, the Company adopted the updated provisions of FASB ASC 260, Earnings per Share (formerly referenced as FASB Staff Position “FSP” EITF 03-6-1 Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities). FASB ASC 260 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share under the two-class method as specified by the FASB. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years. The adoption did not have a material impact on its results of operations and financial condition.

In January 2009, the Company adopted the updated provisions of FASB ASC 815, Derivatives and Hedging (formerly referenced as FSP FAS 133-1 Disclosures about Credit Derivatives and Certain Guarantees — An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161). The updated provisions of FASB ASC 815 require disclosures by sellers of credit derivatives, including credit derivatives embedded in a hybrid instrument. FASB ASC 815 clarifies the FASB’s intent that the disclosures required by the guidance should be provided for any reporting period (annual or quarterly interim) beginning after November 15, 2008. The guidance is effective for financial statements issued for fiscal years ending after November 15, 2008. The adoption did not have a material impact on its disclosures, results of operations and financial condition.

In January 2009, the Company adopted the updated provisions of FASB ASC 805, Business Combinations (formerly referenced as FSP FAS 141(R)-1 Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies). The updated provisions of FASB ASC 805 require that assets acquired and liabilities assumed in a business combination that arise from contingencies be recognized at fair value if fair value can be reasonably estimated. If fair value of such an asset or liability cannot be reasonably estimated, the asset or liability would generally be recognized in accordance with FASB guidelines. FASB ASC 805 is effective for assets or liabilities arising from contingencies in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The adoption did not have a material impact on its results of operations and financial condition.

In April 2009, the Company adopted the updated provisions of FASB ASC 820, Fair Value Measurements and Disclosures (formerly referenced as FSP FAS 157-4 Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly). The updated provisions of FASB ASC 825 provide additional guidance for estimating fair value in accordance with previously issued fair value guidance, when the volume and level of activity for the asset or liability have significantly decreased. FASB ASC 825 emphasizes that even if there has been a significant decrease in the volume and level of activity for the asset or liability and regardless of the valuation technique used, the objective of a fair value measurement remains the same. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. FASB ASC 825 is effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The adoption did not have a material impact on its results of operations and financial condition.

In April 2009, the Company adopted the updated provisions of FASB ASC 320, Investments — Debt and Equity Securities (formerly referenced as FSP FAS 115-2 and FSP FAS 124-2 Recognition and Presentation of Other-Than-Temporary Impairments). The updated provisions of FASB ASC 320 change existing guidance for determining whether an impairment is other than temporary to debt securities. FASB ASC 320 amends the other-than-temporary impairment guidance in U.S. GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. FASB ASC 320 does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. FASB ASC 320 is effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The adoption did not have a material impact on its results of operations and financial condition.

In April 2009, the Company adopted the updated provisions of FASB ASC 825, Financial Instruments (formerly referenced as FSP FAS 107-1 and FSP APB 28-1 Interim Disclosures about Fair Value of Financial Instruments). The updated provisions of FASB ASC 820 amends previously issued guidance to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. FASB ASC 820 also amends guidance related to interim financial reporting to require those disclosures in summarized financial information at interim reporting periods. FASB ASC 820 is effective for interim periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The adoption did not have a material impact on its results of operations and financial condition.

In June 2009, the Company adopted FASB ASC 855, Subsequent Events (formerly referenced as SFAS No. 165 Subsequent Events). FASB ASC 855 establishes general standards of accounting for, and disclosure of, events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The guidance is effective for interim or annual financial periods after June 15, 2009. The adoption did not have a material impact on its results of operations and financial condition.

Recently Issued Pronouncements

In June 2009, the FASB updated the provisions of FASB ASC 860, Transfers and Servicing (formerly referenced as SFAS No. 166 Accounting for Transfers of Financial Assets) to require more information about transfers of financial assets, including securitization transactions, and where entities have continuing exposure to the risks related to transferred financial assets. The updated provisions of FASB ASC 860 eliminate the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets, and require additional disclosures. The updated provisions of FASB ASC 860 are effective at the start of a reporting entity’s first fiscal year beginning after November 15, 2009. Early application is not permitted. The Company is in the process of evaluating the impact that the adoption of the updated provisions of FASB ASC 860 will have on its results of operations and financial condition.

In June 2009, the FASB updated the provisions of FASB ASC 810, Consolidation (formerly referenced as SFAS No. 167 Amendments to FASB Interpretation No. 46(R)) to change how a reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The updated provisions of FASB ASC 810 will require a reporting entity to provide additional disclosures about its involvement with variable interest entities and any significant changes in risk exposure due to that involvement. A reporting entity will be required to disclose how its involvement with a variable interest entity affects the reporting entity’s financial statements. The updated provisions of FASB ASC 810 are effective at the start of a reporting entity’s first fiscal year beginning after November 15, 2009. Early application is not permitted. The Company is in the process of evaluating the impact that the adoption of the updated provisions of FASB ASC 810 will have on its results of operations and financial condition.

In August 2009, the FASB updated the provisions of FASB ASC 820, Value Measurements and Disclosures to amend the guidance surrounding the fair value measurement of liabilities. The updated provisions of FASB ASC 820 provide clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using the following alternative valuation techniques: a valuation technique that uses the quoted price of either the identical or similar liability when traded as an asset, or another valuation technique that is consistent with the principles of U.S. GAAP guidance on fair value. Two examples would be an income approach or a market approach. The updated provisions of FASB ASC 820 are effective for the first reporting period beginning after issuance (the fourth quarter of 2009 for the Company). The Company is in the process of evaluating the impact that the adoption of the updated provisions of FASB ASC 820 will have on its results of operations and financial condition.

In October 2009, the FASB updated the provisions of FASB ASC 605, Revenue Recognition to address the accounting for multiple-deliverable arrangements to enable vendors to account for products or services separately rather than as a combined unit. The updated provisions of FASB ASC 605 establish a selling price hierarchy for determining the selling price of a deliverable, which is based on: (a) vendor-specific objective evidence; (b) third-party evidence; or (c) estimates. The updated provisions of FASB ASC 605 also eliminates the residual method of allocation and requires that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method. In addition, the updated provisions of FASB ASC 605 significantly expand required disclosures related to a vendor’s multiple-deliverable revenue arrangements. The updated provisions of FASB ASC 605 are effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. The Company is in the process of evaluating the impact that the adoption of the updated provisions of FASB ASC 605 will have on its results of operations and financial condition.


Item 7A.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to interest rate risks on our variable rate debt. At December 31, 2009 and December 31, 2008, we had outstanding consolidated variable rate debt including debt related to assets held for sale of approximately $169.0 million and $169.5 million, respectively.

On November 10, 2005, we entered into a $19.0 million loan agreement with IXIS Real Estate Capital Inc. (“IXIS”), which is secured by the Holiday Inn Hilton Head, SC. The loan agreement has a two-year initial term with three one-year extension options which are exercisable provided the loan is not in default. The loan bears a floating interest rate of 290 basis points above LIBOR. In December 2009, we exercised the third extension option, which extended the maturity to December 2010. To mitigate the risk of rising interest rates, we acquired an interest rate cap agreement, which effectively caps the interest rate at 7.90%. The loan agreement is non-recourse to Lodgian, Inc., except in certain limited circumstances as set forth in the loan agreement. The loan

balance ~~impairment~~of ~~assessment~~$18.3 million ~~The~~was ~~adoption~~classified ofas current in the ~~deferred~~Consolidated ~~portion~~Balance ~~of SFAS No. 157~~Sheet onas ~~January~~of December 131, 2009. isWe ~~not~~are ~~expected to~~pursuing ~~have~~opportunities ato ~~material~~extend ~~impact~~or onrefinance ~~our~~this ~~financial~~mortgage ~~statements~~loan.

InOn ~~February~~March 1, ~~2007~~2006, ~~the~~we ~~FASB~~entered ~~issued~~into ~~SFAS No~~a $21.5 ~~159, “The~~million ~~Fair~~loan ~~Value~~agreement ~~Option~~with ~~for~~IXIS ~~Financial~~secured ~~Assets~~by ~~and~~the ~~Financial~~Radisson ~~Liabilities —~~and ~~including~~Crowne anPlaza ~~amendment~~hotels oflocated ~~FASB~~in ~~Statement No. 115”~~Phoenix, ~~(“SFAS No~~AZ and the Crowne Plaza Pittsburgh Airport hotel. ~~159”).~~ ~~This~~The ~~Statement~~original ~~provides~~term anof ~~opportunity~~the toloan ~~improve~~expired ~~financial~~on ~~reporting~~March 9, 2008. However, we exercised all three available byextension ~~providing~~options, ~~entities~~which ~~with~~extended the ~~opportunity~~loan maturity to March 9, 2011. To mitigate the risk of ~~volatility~~rising ininterest ~~reported~~rates, ~~earnings~~we ~~caused~~entered byinto ~~measuring~~an ~~related assets~~interest ~~and~~rate ~~liabilities~~cap ~~differently~~agreement, ~~without~~which ~~having~~effectively tocaps ~~apply~~the ~~complex~~interest ~~hedge~~rate ~~accounting~~at ~~provisions~~7.45%. The ~~SFAS~~outstanding loan balance at December No31, 2009 was $20.7 ~~159~~million. ~~is effective~~We ~~for~~have ~~financial~~classified ~~statements~~this ~~issued~~loan ~~for~~as ~~fiscal~~long-term ~~years beginning~~in ~~after~~the ~~November~~Consolidated Balance Sheet as of December 1531, ~~2007.~~2009 Wesince ~~did~~the ~~not~~Company ~~elect~~has the ~~fair~~ ~~value~~intent ~~option~~and ~~for~~ability ~~the~~to ~~measurement~~exercise ofthe ~~financial~~remaining ~~assets and~~extension ~~financial liabilities~~option.

InWe ~~December~~are ~~2007,~~also ~~the~~a ~~FASB~~party ~~issued~~to ~~SFAS No. 141(R).~~a loan agreement which was originated by Goldman Sachs Commercial Mortgage ~~SFAS No~~Capital, L. ~~141(R)~~P ~~significantly~~and ~~changes~~is ~~the~~secured ~~accounting for~~by ~~business~~10 ~~combinations~~hotels. ~~Under~~The initial term of this ~~statement,~~loan anmatured ~~acquiring~~on May 1, 2009. ~~entity~~However, ~~will~~three beextensions ~~required~~of toone ~~recognize~~year ~~all~~each ~~the~~were ~~assets~~available ~~acquired~~to us and ~~liabilities~~ ~~assumed~~the infirst aextension ~~transaction~~was exercised atto extend the ~~acquisition-~~maturity date ~~fair~~ ~~value~~to ~~with~~May 1, ~~limited exceptions~~2010. ~~Additionally, SFAS No. 141(R)~~To ~~includes~~mitigate athe ~~substantial~~risk ~~number~~ of ~~new~~rising interest ~~disclosure~~rates, ~~requirements.~~we ~~SFAS No~~acquired an interest rate cap agreement capping LIBOR at 5. ~~141(R)~~00%. ~~applies prospectively~~In order to ~~business~~exercise ~~combinations~~the second ~~for~~extension, which will extend the ~~acquisition~~ maturity date isto onMay 1, or2011, ~~after~~there ~~the~~must ~~beginning~~not be an existing event of default under the ~~first~~loan ~~annual~~documents. ~~reporting period~~No ~~beginning~~extension onfee oris ~~after~~payable ~~December 15,~~in ~~2008.~~connection Wewith ~~have~~the ~~$64~~first extension option.~~1 million~~ ofIn ~~deferred~~addition ~~tax~~to ~~assets~~the ~~fully~~requirements ~~offset~~above, byan ~~a valuation~~extension ~~allowance.~~fee ~~The~~of ~~balance~~0.125% of the principal ~~$64.1 million~~balance is ~~primarily~~ ~~attributable~~payable toin ~~pre-emergence~~connection ~~deferred~~with ~~tax~~the ~~assets~~second and third extension options. IfThe ~~the~~outstanding ~~reduction~~loan ofbalance ~~the~~at ~~valuation~~December 31, ~~allowance~~2009 ~~attributable~~was ~~to pre-emergence~~$130.0 million. ~~deferred~~We ~~tax~~have ~~assets~~classified ~~occurs~~this ~~subsequent~~loan toas long-term in the ~~effective~~ ~~date~~Consolidated ~~for~~Balance ~~SFAS~~Sheet as of December ~~No. 141(R)~~31, ~~such~~2009 ~~release~~since ~~will affect~~the Company has the intent ~~income~~and ~~tax~~ability ~~provision~~to inexercise the ~~period~~second ofextension ~~release~~option.

InConcurrently ~~December~~with ~~2007,~~ the ~~FASB~~execution ~~issued~~of ~~FASB~~the ~~Statement~~Merger ~~No. 160~~Agreement, ~~“Noncontrolling~~ ~~Interests~~on ~~in Consolidated Financial Statements~~January —22, An2010, ~~Amendment of ARB No. 51” (“SFAS No. 160”)~~Hospitality, ~~which~~and is an ~~amendment to~~ ~~ARB~~affiliate No. 51 “Consolidated Financial Statements”. SFAS No. 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of ~~a subsidiary. Specifically~~Purchaser, ~~this statement~~purchased ~~requires~~ the ~~recognition~~lender’s ~~of a noncontrolling~~ interest ~~(minority~~ ~~interest) as equity~~ in ~~the consolidated financial statements and separate from the parent~~Lodgian’s ~~equity.~~$130 million ~~The amount~~mortgage ~~of net income attributable to the noncontrolling interest~~loan ~~will~~facility beoriginally ~~included~~made inby ~~consolidated~~Goldman ~~net~~Sachs ~~income~~Commercial onMortgage ~~the~~Capital, ~~face of the income statement~~L. ~~SFAS No~~P. ~~160~~ ~~clarifies~~An ~~that~~amendment ~~changes in~~to ~~a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if~~ the ~~parent~~loan ~~retains~~was ~~its~~also ~~controlling~~concurrently ~~financial~~entered ~~interest.~~into Inby ~~addition, this~~Hospitality ~~statement~~and ~~requires~~Lodgian’s ~~that a parent recognize a gain or loss in net income when a~~ subsidiary isborrowing ~~deconsolidated. Such gain or~~entities ~~loss~~which ~~will~~own ~~be measured using~~ the ~~fair~~hotels ~~value~~securing of the ~~noncontrolling equity investment on the deconsolidation date~~loan. ~~SFAS No. 160~~ ~~also~~The ~~includes~~material ~~expanded~~terms ~~disclosure requirements regarding the interests~~ of the ~~parent~~loan ~~and~~amendment its noncontrolling interest. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. We are insummarized ~~the process of evaluating the impact~~as ~~that the adoption of SFAS No. 160 will have on our~~follows: ~~results of operations and financial condition.~~

In• ~~March~~Effective ~~2008~~immediately, the ~~FASB~~cash ~~issued~~lockbox ~~SFAS No. 161, “Disclosures~~provisions ~~about~~of ~~Derivative~~the ~~Instruments~~loan were amended to provide that excess cash flow from the mortgaged properties after debt service, reserves and ~~Hedging Activities~~operating expenses, will not be retained by the lender in an ~~amendment~~excess cash flow reserve account, but will instead be released to ~~SFAS No. 133.”~~the ~~The Statement~~borrowers ~~requires~~on ~~enhanced~~a ~~disclosures~~monthly ~~about~~basis, aneven ~~entity~~if the properties do not meet a previously required financial covenant test. • The deadline for Lodgian’s ~~derivative~~ ~~and~~subsidiary ~~hedging~~which ~~activities~~owns the Crowne Plaza Albany, New York, to complete certain renovation work was extended to May 1, 2010. • The ~~Statement~~allocated isloan ~~effective~~ amounts for ~~fiscal~~each ~~years~~of ~~and~~the ~~interim~~properties ~~periods~~securing ~~beginning~~the ~~after November 15~~loan were readjusted. • Effective July 1, ~~2008~~2010, the margin over LIBOR used to determine the interest rate on the loan will be increased from 1.50% Weto ~~are~~4.25%. • If the Merger Agreement is validly terminated for any reason other than as a result of a breach by Purchaser of any of its representations, warranties, covenants or agreements contained in the ~~process~~Merger Agreement such that certain of ~~evaluating~~Lodgian’s closing conditions set forth in the ~~additional~~ ~~disclosures~~Merger Agreement would not be met, Lodgian’s subsidiary borrowing entities on the loan will be required, in their sole discretion, to either pay down the principal balance of the loan by ~~SFAS No~~$5 million, or to cause the Holiday Inn Monroeville, Pennsylvania property to be pledged as additional security for the loan. ~~161~~ If the Holiday Inn Monroeville, Pennsylvania property is pledged as additional security for the loan, it may be subsequently released from the loan upon payment of a cash release price of $5 million.

InAs ~~June~~a ~~2008,~~result ~~the~~of ~~FASB~~having ~~issued~~these ~~FASB~~interest ~~Staff~~rate ~~Position No. EITF 03-6-1 “Determining~~caps, ~~Whether~~we ~~Instruments~~believe ~~Granted~~that inour ~~Share-Based Payment~~interest ~~Transactions~~rate ~~Are~~risk ~~Participating~~at ~~Securities”~~December ~~(“FSP EITF 03-6-1”) to~~31, ~~address~~2009 ~~whether~~and ~~instruments~~December 31, ~~granted~~2008 inwas ~~share-based~~minimal. ~~payment transactions~~The ~~are~~impact ~~participating~~on ~~securities~~annual ~~prior~~results toof ~~vesting~~operations ~~and,~~of a ~~therefore,~~hypothetical ~~need~~one-point tointerest berate ~~included~~reduction inas ~~the~~of ~~earnings~~December 31, ~~allocation~~2009 ~~in computing~~would ~~earnings~~be ~~per~~an ~~share~~immaterial ~~under~~effect ~~the~~on ~~two-class~~net ~~method as~~income. ~~specified~~These inderivative ~~FASB~~financial ~~Statement~~instruments ~~No. 128,~~are ~~“Earnings~~viewed ~~per~~as risk management ~~Share”~~tools. ~~FSP EITF 03-6-1 is~~We ~~effective~~do ~~for~~not ~~financial~~use ~~statements~~derivative ~~issued~~financial instruments for ~~fiscal~~trading ~~years beginning~~or ~~after~~speculative ~~December 15,~~purposes. ~~2008~~However, ~~and interim periods~~ ~~within~~we ~~those~~have ~~years. We do~~ not ~~expect~~elected the ~~adoption~~hedging provisions of ~~FSP EITF 03-6-1 to~~FASB ~~have~~ASC a815 ~~material~~Derivatives ~~impact~~(formerly onreferenced ~~our~~as ~~results~~SFAS No. 133 ofAccounting ~~operations~~for Derivative Instruments and ~~financial~~ ~~condition~~Hedging Activities).

InThe ~~June~~aggregate ~~2008,~~fair value of the ~~FASB~~interest ~~issued~~rate ~~FASB~~caps ~~Staff~~as ~~Position No.~~of December ~~FAS 133-1 and FIN 45-4 “Disclosures~~31, ~~about~~2009 ~~Credit~~was ~~Derivatives~~approximately ~~and Certain~~nil. ~~Guarantees —~~The Anfair ~~Amendment~~values of ~~FASB~~the ~~Statement No. 133~~interest ~~and~~rate ~~FASB~~caps ~~Interpretation~~are ~~No. 45;~~recognized ~~and Clarification~~in of the ~~Effective~~accompanying ~~Date~~balance ofsheet ~~FASB~~in ~~Statement~~other Noassets. ~~161”~~ ~~(“FSP No. FAS 133-1”)~~ Adjustments to ~~require~~the ~~disclosures~~carrying byvalues ~~sellers~~ of ~~credit~~the ~~derivatives, including~~interest ~~credit~~rate ~~derivatives~~caps ~~embedded~~are reflected in ~~a hybrid instrument~~interest expense. ~~This FSP~~

~~also~~Without ~~clarifies~~regard ~~the~~to ~~FASB’s~~additional ~~intent~~borrowings ~~about~~under ~~the~~our ~~effective~~variable ~~date of~~rate ~~SFAS No. 161.~~debt ~~This~~or ~~FSP~~scheduled ~~clarifies~~amortization, the ~~FASB’s~~ ~~intent~~annualized ~~that~~effect ~~the~~of ~~disclosures~~a ~~required~~twenty byfive ~~Statement~~basis ~~161~~point ~~should~~increase ~~be provided~~in ~~for~~LIBOR ~~any~~would ~~reporting~~be ~~period~~a ~~(annual~~reduction orin ~~quarterly interim)~~income ~~beginning~~before ~~after~~income ~~November 15,~~taxes ~~2008.~~of ~~FSP No~~approximately $0.4 ~~FAS 133-1 is~~million. ~~effective~~The ~~for~~fair ~~financial~~value ~~statements~~of ~~issued~~the ~~for~~fixed ~~fiscal~~rate ~~years~~mortgage debt ~~ending~~(book ~~after~~value ~~November 15, 2008. The adoption~~ of ~~FSP No~~$123.2 ~~FAS 133-1 did~~million) ~~not~~at ~~have a material impact on our disclosures~~December 31, ~~results~~2009 ~~of operations~~is ~~and~~estimated ~~financial~~at ~~condition~~$124.9 million.

~~Item~~The 7Anature of our fixed rate obligations does not expose us to fluctuations in interest payments. The ~~Quantitative~~impact ~~and~~on ~~Qualitative~~the ~~Disclosures~~fair ~~About~~value ~~Market~~of ~~Risk~~our fixed rate obligations of a hypothetical one-point interest rate increase on the outstanding fixed-rate debt as of December 31, 2009 would be a reduction of approximately $1.1 million.

WeItem ~~are exposed to interest rate risks on our variable rate debt~~8. At ~~December 31,~~FINANCIAL ~~2008~~STATEMENTS ~~and~~AND ~~December 31,~~SUPPLEMENTARY ~~2007, we had outstanding consolidated variable rate debt including debt related to assets held for sale of approximately $169.5 million and $170.0 million, respectively.~~ DATA

On November 10, 2005, we refinanced the mortgage on our Holiday Inn Hilton Head, SC property for $19.0 million. In December 2008, we exercised the second of three one year extension options associated with this loan. We contemporaneously entered into a 24-month interest rate cap agreement which allowed us to effectively cap the interest rate at LIBOR of 5.00% plus 2.9%. When LIBOR is below 5.00% there is no settlement from the interest rate cap. We are exposed to interest rate risks on this loan for increases in LIBOR up to 5.00%, but we are not exposed to increases in LIBOR above 5.00% because settlements from the interest rate caps would offset the incremental interest expense. The notional principle amount of the interest rate cap outstanding was $18.8 million at December 31, 2008.

On March 1, 2006, we entered into a $21.5 million loan agreement with IXIS. In March 2008, we exercised the first of three one-year extension options. We contemporaneously entered into a 12-month interest rate cap agreement, which effectively caps the interest rate at LIBOR of 5.50% plus 2.95%. When LIBOR is below 5.50% there is no settlement from the interest rate cap. We are exposed to interest rate risks on this loan for increases in LIBOR up to 5.50%, but we are not exposed to increases in LIBOR above 5.50% because settlements from the interest rate caps would offset the incremental interest expense. The notional principal amount of the interest rate cap outstanding was $21.3 million at December 31, 2008.

In April 2007, we entered into a $130.0 million loan agreement with Goldman Sachs Commercial Mortgage Capital, L.P. In order to manage our exposure to fluctuations in interest rates with this loan, we entered into a 24-month interest rate cap agreement, which allowed us to obtain the financing at a floating rate and effectively cap the interest at LIBOR of 7.00% plus 1.50%. When LIBOR is below 7.00% there is no settlement from the interest rate cap. We are exposed to interest rate risks on this loan for increases in LIBOR up to 7.00%, but we are not exposed to increases in LIBOR above 7.00% because settlements from the interest rate caps would offset the incremental interest expense. The notional principal amount of the interest rate cap outstanding was $130.0 million at December 31, 2008.

The aggregate fair value of the interest rate caps as of December 31, 2008 was approximately nil. 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.

As a result of having these interest rate caps, we believe that our interest rate risk at December 31, 2008 and December 31, 2007 was minimal. The impact on annual results of operations of a hypothetical one-point interest rate reduction as of December 31, 2008 would be a reduction in net income of less than $0.1 million. These derivative financial instruments are viewed as risk management tools. We do not use derivative financial instruments for trading or speculative purposes. However, we have not elected the hedging requirements of SFAS No. 133.

At December 31, 2008, approximately $169.5 million of our outstanding debt instruments were subject to changes in LIBOR. Without regard to additional borrowings under those instruments or scheduled amortization, the annualized effect of a twenty five basis point increase in LIBOR would be a reduction in income before income taxes of approximately $0.4 million. The fair value of the fixed rate mortgage debt (book value of $163.1 million) at December 31, 2008 is estimated at $166.4 million.

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 December 31, 2008 would be a reduction of approximately $1.4 million.

Item 8. Financial Statements and Supplementary Data

The Consolidated Financial Statements are included as a separate section of this report commencing on page F-1.

Item 9. ~~Changes~~CHANGES inIN ~~and~~AND ~~Disagreements~~DISAGREEMENTS ~~with~~WITH ~~Accountants~~ACCOUNTANTS onON ~~Accounting~~ACCOUNTING ~~and~~AND ~~Financial~~FINANCIAL ~~Disclosure~~DISCLOSURE

There were no disagreements with accountants during the periods covered by this report on Form 10-K.

Item 9A. ~~Controls~~CONTROLS ~~and~~AND ~~Procedures~~PROCEDURES

Evaluation of Disclosure, Controls and Procedures. We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods required by the Securities and Exchange Commission. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to management, including its chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

As of December 31, ~~2008~~2009, an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures was carried out under the supervision and with the ~~participation~~ participation of our management team, including our chief executive officer and our chief financial officer. Based upon that evaluation, our chief executive officer and our chief financial officer concluded that our disclosure controls and procedures ~~are~~were effective.

~~Management’s~~Changes ~~Report~~in on Internal Control ~~over~~Over Financial Reporting. ~~Management~~ ofThere ~~the~~were ~~Company~~no ~~is responsible~~changes ~~for establishing and maintaining adequate internal control over financial reporting (as defined~~ in ~~Rule 13a-15(f) under~~ ~~the Securities Exchange Act of 1934, as amended). In order to evaluate the effectiveness of~~ internal control over financial reporting, asthat ~~required~~occurred byduring ~~Section 404 of~~ the ~~Sarbanes-Oxley Act,~~quarter ~~management~~ended ~~conducted an assessment, including testing, using the criteria in Internal Control—~~December ~~Integrated Framework~~31, ~~issued~~2009 bythat ~~the Committee of Sponsoring~~have ~~Organizations~~materially ~~of the Treadway Commission (COSO). Because of its inherent limitations~~affected, ~~internal control over financial reporting may not prevent~~ or ~~detect~~are ~~misstatements.~~reasonably ~~Also,~~likely ~~projections of any evaluation of effectiveness~~ to ~~future~~materially periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. Nonethelessaffect, ~~as of the end of the period covered by this report, management, including~~ our ~~chief executive officer and chief financial officer, concluded, as of the date of the evaluation, that our~~ internal control over financial reporting ~~was effective based on the criteria in the COSO Framework~~. ~~The Company’s independent registered public~~ accounting firm, Deloitte & Touche LLP, has issued an attestation report on the effectiveness of the company’s internal control over financial reporting as of December 31, 2008 which is included herein.

~~Changes~~Management’s inReport on Internal Control ~~Over~~over Financial Reporting. ~~There~~ ~~were~~Management noof ~~changes~~the inCompany ~~internal~~is responsible for establishing and maintaining adequate internal control over financial reporting ~~that~~(as defined ~~occurred~~in ~~during~~Rule13a-15(f) under the Securities Exchange Act of 1934, as amended). In order to ~~quarter~~evaluate ~~ended~~the ~~December~~effectiveness of internal control over financial reporting, as required by Section 31404 of the Sarbanes-Oxley Act, ~~2008~~management ~~that~~conducted ~~have~~an ~~materially~~assessment, including testing, using the ~~affected~~criteria in Internal Control— Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Because of its inherent limitations, internal control over financial reporting may not prevent or ~~are~~detect ~~reasonably~~misstatements. ~~likely~~Also, projections of any evaluation of effectiveness to ~~materially~~future ~~affect~~periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. Nonetheless, as of the end of the period covered by this report, management, including our chief executive officer and chief financial officer, concluded, as of the date of the evaluation, that our internal control over financial reporting was effective based on the criteria in the COSO Framework. The Company’s independent registered public accounting firm, Deloitte & Touche LLP, has issued an attestation report on the effectiveness of the company’s internal control over financial reporting as of December 31, 2009 which is included herein.

Lodgian, Inc. March 16, 2010 57

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Lodgian, Inc. Atlanta, Georgia

We have audited the internal control over financial reporting of Lodgian, Inc. and its subsidiaries (the “Company”) as of December 31, 2009, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

Atlanta, Georgia

We have audited the internal control over financial reporting of Lodgian, Inc. and its subsidiaries (the “Company”) as of December 31, 2008, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit 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 effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, ~~2008~~2009, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Lodgian, Inc. and its subsidiaries as of December 31, ~~2008~~2009, and the related consolidated statements of operations, ~~stockholders’~~total equity, ~~and~~comprehensive ~~cash~~loss and cash flows for the year ended December 31, ~~2008~~2009, and our report dated March 11 16, ~~2009~~2010, expressed an unqualified opinion on those financial statements and included an explanatory ~~paragraph regarding~~paragraphs regarding the Company’s ability to continue as a going concern and the adoption of a new accounting standard.

/s/ Deloitte & Touche LLP

Atlanta, Georgia March 16, 2010

57 ~~March 11, 2009~~


Item 9B.		Other Information

Not applicable.

PART III

Item 10. ~~Directors~~DIRECTORS, ~~Executive~~EXECUTIVE ~~Officers~~OFFICERS ~~and~~AND ~~Corporate~~CORPORATE ~~Governance~~GOVERNANCE

Information ~~about~~About ~~our~~ Directors and Executive Officers is ~~incorporated by reference from the discussion in our proxy statement for the 2009 Annual Meeting of Shareholders.~~

~~Item~~The 11table below sets forth the names and ages (as of March 16, 2010) of each of the Company’s directors and our other executive officers, as well as the positions and offices currently held by such persons with the Company. ~~Executive~~A ~~Compensation~~summary of the experience, qualifications, attributes or skills of each of these individuals that led the Board to conclude that the person should serve as a Director is set forth after the table. Directors are elected for a one-year term and hold office until the next annual meeting of stockholders or until their successors are elected and qualified. Our executive officers serve at the discretion of the Board of Directors. In addition, there are no family relationships between any of our directors or executive officers.

Information about Executive Compensation is incorporated by reference from the discussion in our proxy statement for the 2009 Annual Meeting of Shareholders.


Name	Age		Position
W. Blair Allen (1)		40	Director
John W. Allison		63	Director
Stewart J. Brown (2)(3)(4)		62	Director
Daniel E. Ellis (1)		41	President, Chief Executive Officer, General Counsel,
			Secretary and Director
Paul J. Garity (3)		57	Director
Michael J. Grondahl (2)(3)		41	Director
Alex R. Lieblong (1)(4)		59	Director
Mark S. Oei (1)(2)(4)		41	Director

Other Executive Officers:

James A. MacLennan		50	Executive Vice President and Chief Financial Officer
Donna B. Cohen		38	Vice President and Controller
Joseph F. Kelly		53	Vice President of Hotel Operations

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters


(1)		Member of the Executive Committee

(2)		Member of the Compensation Committee

(3)		Member of the Audit Committee

(4)		Member of the Nominating Committee

Biographical Information ~~about security ownership of certain beneficial owners~~ and ~~management~~Business ~~is incorporated by reference from the~~Experience ~~discussion in our proxy statement for the 2009 Annual Meeting of Shareholders.~~

~~Item~~W. 13Blair Allen, 40, has been a director of Lodgian since January 2008 and is a member of the Executive Committee. ~~Certain~~Mr. Allen ~~Relationships~~also has been the President of Robert M. Goff & Associates, a real estate development and ~~Related~~management ~~Transactions~~company in Little Rock, Arkansas with an emphasis on the hospitality industry, since 2004. Prior to his service as president, he served as Chief Financial Officer of Robert M. Goff & Associates from 1996 until 2004. Mr. Allen holds a Bachelor of Arts degree from Washington & Lee University and ~~Director~~received ~~Independence~~his MBA from the University of Arkansas. Mr. Allen is on the Board of Directors of Centennial Bank, a local private bank based in Little Rock, Arkansas.

~~Information~~Mr. Allen ~~about~~has ~~certain~~extensive ~~relationships~~experience in the ownership and ~~transactions~~operation of hotels. Mr. Allen’s company currently operates hotels under franchise affiliations with InterContinential Hotels Group and ~~related~~Hilton ~~parties~~Hotels, istwo ~~incorporated~~of byLodgian’s ~~reference~~franchise ~~from~~partners. ~~the~~The ~~discussion~~Board believes Mr. Allen’s skills and experience in ~~our~~owning ~~proxy~~and ~~statement~~operating ~~for~~hotels, ~~the~~together ~~2009~~with ~~Annual~~his ~~Meeting~~contacts ofwithin the industry, assist ~~Shareholders~~the Company in its business pursuits.

~~Item~~John 14W. ~~Principal~~Allison, ~~Accountant~~63, ~~Fees~~has been a director of Lodgian since August 2008. He is the founder of Home BancShares, a banking service provider, and ~~Services~~has been its Chairman since 1998. He also serves on the Asset Quality Committee and Asset/Liability Committee of Home BancShares. Mr. Allison has more than 24 years of banking experience, including service as Chairman of First National Bank of Conway from 1983 until 1998, and as a director of First Commercial Corporation from 1985 (when First

58 ~~Information about principal accountant fees and services is incorporated by reference from the discussion in our proxy statement for the 2009 Annual Meeting of Shareholders.~~

Commercial acquired First National Bank of Conway) until 1998. At various times during his tenure on First Commercial’s Board, Mr. Allison served as the Chairman of its Executive Committee and as Chairman of its Asset Quality Committee. Prior to the sale of First Commercial to Regions Financial Corporation in 1998, First Commercial was a publicly traded company and the largest bank holding company headquartered in Arkansas, with approximately $7.3 billion in assets.

Mr. Allison has broad experience in the banking industry, as well as a track record of integrity, judgment and perspective, as demonstrated by his experience as Chairman, President, Chief Executive Officer and a Director of Home Bancshares. Mr. Allison’s service with Home Bancshares provides him with broad experience on governance issues facing public companies. Mr. Allison has significant insight into the credit markets, which are critical to our business.

Stewart J. Brown, 62, has been a director of Lodgian since November 2002 and is a member of the Compensation, Nominating and Audit Committees. Since December 2002, he has been serving as a consultant with Booz Allen Hamilton, a global strategy and technology consulting firm. He was recalled to active duty as a Colonel in the United States Army on September 11, 2001 and served as Chief of the Crisis Action Team in the Army Operation Center at the Pentagon until he joined Booz Allen Hamilton in December 2002. COL Brown was commissioned in 1970 in the US Army Reserve and served in a variety of command and staff positions including as Director of Training and Education for the Army’s Strategic Management System. In his civilian life, Mr. Brown was involved in the commercial real estate business as a lender, portfolio manager, remedial real estate specialist and consultant. Mr. Brown has held senior executive positions with both private and public corporations including Citibank and has extensive experience in strategic and tactical planning, operational implementation, crisis management and turnaround situations. Mr. Brown is also on the board of directors of Community & Southern Bank, a private bank headquartered in Carrollton, Georgia. Mr. Brown is a graduate of the University of California with a BS in Economics and a BA in Political Science and received his MBA from New York University.

Mr. Brown has broad experience in both government and private sector roles. Mr. Brown also possesses significant leadership skills, partially gained from his over 30 year career in the Unites States Army. As an employee of Booze Allen Hamilton, Mr. Brown has experience in strategic consulting for large private and public corporations and organizations as well as governmental agencies.

Daniel E. Ellis, 41, joined Lodgian in July 1999 as Senior Counsel. In March 2002, he was promoted to Senior Vice President, General Counsel and Secretary. On June 11, 2009, Mr. Ellis was named President and Chief Executive Officer of Lodgian and was appointed to the Board of Directors and its Executive Committee. Mr. Ellis retained his titles of General Counsel and Secretary. Prior to joining Lodgian, Mr. Ellis served as an Assistant District Attorney for the State of Georgia where he was the lead attorney in over thirty jury trials. From 1997 to 1999, he worked in private practice, where he focused on representing hotel owners. Mr. Ellis received his law degree from the University of Mississippi and an MBA from Mercer University.

In deciding to elect Mr. Ellis to the Board of Directors in 2009, the Board considered the fact that he has been with Lodgian for over 10 years and is familiar with virtually every aspect of the organization. The Board also considered his leadership position within the Company over the past 10 years and his significant knowledge of the hospitality industry.

Paul J. Garity, 57, has been a director of Lodgian since April 2007 and is a member of the Audit Committee. Mr. Garity has been President of Real Estate Consulting Solutions, Inc., a company he established to provide consulting services to corporate real estate departments of Fortune 200 companies, and an Executive Director of REH Capital Partners, LLC, a consulting and transaction advisory firm specializing in hotels and resorts, for over five years. Previously, he was with the Real Estate and Hospitality Consulting Practice at Peat Marwick Mitchell, KPMG, KPMG Consulting and later Bearing Point (all successor firms to Peat Marwick) in Los Angeles for 22 years, where he was responsible for the Western Region practice after becoming a principal in 1984. Mr. Garity received his MBA from the Amos Tuck School of Business at Dartmouth College and a bachelor of business administration degree from the University of Massachusetts.

Mr. Garity brings to the Board over 25 years of experience in the real estate business. Mr. Garity also has significant experience in analyzing real estate transactions. As a former partner with KMPG, Mr. Garity has a track record of sound judgment and experience, as well as significant contacts within the real estate and hospitality industry.

Michael J. Grondahl, 41, has been a director of Lodgian since April 2007 and is a member of the Compensation and Audit Committees. Mr. Grondahl has been a Senior Equity Analyst with Northland Securities, a broker-dealer in Minneapolis, Minnesota since May, 2009. Prior to joining Northland Securities, Mr. Grondahl was a partner and analyst with Key Colony Fund, a hedge fund in Little Rock, Arkansas, from April 2005. Prior to joining Key Colony Fund, Mr. Grondahl was a partner and analyst at RedSky Partners, a hedge fund firm in Minneapolis, Minnesota. Before joining RedSky Partners, Mr. Grondahl was a principal at US Bancorp Piper Jaffray, where he was a senior research analyst covering financial services and related stocks for five years. Mr. Grondahl was also an audit manager with Ernst & Young in Moscow, Russia for three years.

Mr. Grondahl brings significant analytical, accounting and audit related experience to the Board. As an analyst with several firms, Mr. Grondahl is experienced in evaluating the valuation, prospects and growth potential for companies. Additionally, his training

as a Certified Public Accountant and tenure with Ernst & Young provide him with broad experience in the review and analysis of financial statements.

Alex R. Lieblong, 59, has been a director of Lodgian since February 2006 and is a member of the Nominating and Executive Committees. Mr. Lieblong began his investment career in 1977. In November 1998, Mr. Lieblong founded Key Colony Fund, a hedge fund, and is also a principal of Lieblong & Associates, a financial advisory firm and broker/dealer, which he formed in 1997. Prior to starting Lieblong & Associates, Mr. Lieblong was a Vice President and Branch Manager of the Little Rock, Arkansas office for Paine Webber for over nine years. Prior to joining Paine Webber, Mr. Lieblong worked in investment advisory roles for Merrill Lynch and E.F. Hutton for five years. Mr. Lieblong is on the Board of Directors of Home Bancshares (NASDAQ: HOMB), and Ballard Petroleum, a private company in the energy industry.

Mr. Lieblong possesses significant experience in financial advisory services gained from his career at Merrill Lynch, E.F. Hutton and Paine Webber. Additionally, Mr. Lieblong runs a hedge fund that invests in numerous types of businesses and serves on the board of directors of a publicly traded bank holding company. Mr. Lieblong therefore possesses extensive management, financial and banking experience. In addition, his directorships at other public companies provide him with broad experience on governance and other issues facing public companies.

Mark S. Oei, 41, has been a director of Lodgian since August 2007 and is a member of the Compensation, Nominating and Executive Committees. Mr. Oei has been a Managing Director of Oaktree Capital Management, LP, an investment company based in Los Angeles, California, since 2003. Prior to Oaktree, Mr. Oei was a Vice President at Morgan Stanley, where he was an acquisitions officer of the Morgan Stanley Real Estate Funds. Mr. Oei received his MBA from the Kellogg Graduate School of Management at Northwestern University and a bachelor of science in business administration from the Haas School of Business at the University of California at Berkeley.

Mr. Oei possesses significant financial and real estate related investment banking experience, as demonstrated by his tenure as a Vice President with Morgan Stanley and a Managing Director of Oaktree Capital Management, L.P.

Executive Officers

James A. MacLennan, 50, was appointed Executive Vice President and Chief Financial Officer of Lodgian on March 15, 2006. Prior to joining Lodgian, Mr. MacLennan was Chief Financial Officer and Treasurer of Theragenics Corporation, a New York Stock Exchange-listed company that manufactures medical devices. Previously, Mr. MacLennan was Executive Vice President and Chief Financial Officer with Lanier Worldwide, Inc., a publicly held technical products company, where he was responsible for all corporate finance activities. He played a major role in taking Lanier public and listing it on the New York Stock Exchange, then later in finding a longer-term strategic solution for Lanier. Mr. MacLennan spent much of his early career in financial positions of increasing scope and responsibility in the oil and gas industry, most notably with Exxon Corporation and later with Noble Corporation. He received both graduate and post-graduate degrees from the University of the Witwatersrand in Johannesburg, South Africa.

Donna B. Cohen, 38, joined Lodgian in September 2005 and was appointed Vice President and Controller in January 2007. Prior to that, Ms. Cohen was Vice President and Assistant Corporate Controller for Certegy Inc., where she served in positions of increasing responsibility in accounting, financial reporting and financial analysis from 2001 through 2005. Ms. Cohen also held managerial positions in financial reporting and analysis at other publicly traded companies and served as an audit manager at Deloitte & Touche LLP, a public accounting firm. Ms. Cohen is a Certified Public Accountant and is a graduate of North Carolina A&T State University, where she earned a Bachelor of Science degree in accounting.

Joseph F. Kelly, 53, was appointed Vice President of Hotel Operations in December 2008. Mr. Kelly has over 25 years of experience in the hospitality industry and has been employed by Lodgian since 2002. Prior to his promotion, Mr. Kelly served in roles of increasing responsibility with Lodgian as Regional Director of Sales and Marketing from November 2002 to September 2004, Regional Operations Manager from September 2004 to January 2008 and as Regional Vice President of Operations since January 2008. Mr. Kelly has a degree in business administration from the State University of New York at Buffalo and served as an Adjunct Professor in the Hotel and Restaurant Management program at Tompkins Cortland Community College from 1997 to 2001.

Section 16(A) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors, executive officers and 10% stockholders to file reports of ownership and reports of changes in ownership of the common stock and other equity securities with the Securities and Exchange Commission. Directors, executive officers and 10% stockholders are required to furnish us with copies of all Section 16(a) forms they file. Based on a review of the copies of such reports furnished to us, we believe that during 2009, all applicable directors, executive officers and 10% stockholders filed all required Section 16(a) forms on a timely basis.

Code of Ethics

Our Board of Directors has adopted a code of ethics entitled “Lodgian’s Policy on Business Ethics” that is applicable to all of our directors, executive officers and employees. We have posted the policy in the Investor Relations section of our website, at www.lodgian.com. Lodgian will provide our Policy on Business Ethics to any person, without charge, upon request in writing directed to our General Counsel.

Director Nominations

The Nominating Committee of the Board of Directors is responsible under its charter for identifying qualified candidates for election to the Board prior to each annual meeting of the stockholders. Stockholders who wish to recommend a candidate for election to the Board may submit such recommendation to our secretary at the address provided in this annual report. The Nominating Committee may consider stockholder recommendations when it evaluates and recommends nominees to the Board of Directors for submission to the stockholders at each annual meeting.

Although the Nominating Committee is willing to consider candidates recommended by stockholders, it has not adopted a formal policy with regard to the consideration of any director candidates recommended by security holders. The Nominating Committee believes that a formal policy is not necessary because of our concentrated stockholder base.

The Nominating Committee has not prescribed any specific minimum qualifications that must be met by a candidate for election to the Board of Directors in order to be considered for nomination by the committee. The Nominating Committee considers candidates identified by the Nominating Committee, other directors, our executive officers and stockholders, and, if applicable, it may engage a third party search firm. In identifying and evaluating nominees for director, the Nominating Committee considers each candidate’s qualities, experience, background, skills and other qualifications, as well as any other factors that the candidate may be able to bring to the Board, and although we have not adopted a formal policy with respect to diversity, we also consider diversity in identifying and evaluating nominees for director. The process is the same whether the candidate is recommended by a stockholder, another director, management or otherwise.

Audit Committee

The Audit Committee consists of Michael J. Grondahl (Chairman), Stewart J. Brown and Paul J. Garity. The Audit Committee met four times during 2009. 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 the 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 Lodgian’s 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 Policy on Business Ethics;

	•		Considering changes in accounting practices;

	•		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. Grondahl, qualifies as an audit committee financial expert and that all members of the Audit Committee are independent under the AMEX corporate governance rules and applicable law. The Audit Committee Charter is posted in the Investor Relations section of our website, www.lodgian.com.

Item 11. EXECUTIVE COMPENSATION

Director Compensation

For 2009, we paid the non-employee members of the Board of Directors a combination of quarterly retainers and fees for each meeting. Prior to February 12, 2009, we paid each non-employee director a $6,000 quarterly retainer in advance of each quarter. On February 12, 2009, the Board of Directors voted to reduce the cash retainer by 20% to $4,800 per quarter. These reduced quarterly retainer payments began in the second quarter of 2009. Additionally, prior to February 12, 2009, directors were paid meeting fees in accordance with the following schedule:

	•		$1,500 per in person Board of Director meeting

	•		$1,000 per in person Board Committee meeting

	•		$500 per telephonic Board or Board Committee meeting

On February 12, 2009, the Board of Directors also voted to reduce all meeting fees payable for Board and Board Committee meetings by 20% from that date forward. 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.

Additionally, each non-employee director is entitled to receive an annual award of 2,000 shares of restricted stock that vests over a three year period. Members serving on the Audit and Compensation Committees receive an additional award of 2,000 and 1,000 shares of restricted stock, respectively, that vest over a three year period. The stock awards to our non-employee directors are made on February 12 (or the next preceding business day) of each year. However, the Company does not expect to make such a stock grant in 2010 at the present time as it is prohibited from doing so under the provisions of the merger agreement dated January 22, 2010 by and among Lodgian, Inc., LSREF Lodging Investments, LLC and LSREF Lodging Merger Co., Inc.

The following table sets forth certain information with respect to our non-employee director compensation during the fiscal year ended December 31, 2009 for all persons that served as non-employee directors during any part of 2009.


	Fees Earned or Paid				All Other
Name	in Cash ($)		Stock Awards ($) (1)		Compensation		Total ($)
Stewart J. Brown		30,400		11,900		—		42,300
Paul J. Garity		31,200		9,520		—		40,720
Michael J. Grondahl		34,000		11,900		—		45,900
John W. Allison		26,800		4,760		—		31,560
Alex R. Lieblong		29,600		4,760		—		34,360
Mark S. Oei (2)		30,800		—		—		30,800
W. Blair Allen		32,800		4,760		—		37,560


(1)		The amounts reported represent the grant date fair value of awards granted in 2009 computed in accordance with ASC 718 and is based upon the closing price on February 12, 2009 of $2.38 per share. See note 2 to our consolidated financial statements herein for information regarding the assumptions underlying the valuation of these awards.

(2)		Mr. Oei declined the stock award as rules of his employer prohibit his acceptance of such equity awards.

A breakdown of the awards granted to the directors during 2009 is as follows:


					Compensation		Total Grant -
	2009 Regular Grant		Audit Committee		Committee		February 12, 2009		Grant Date Fair
Director	(#)		(#)		(#)		(#)		Value (1)
Stewart J. Brown		2,000		2,000		1,000		5,000	$	11,900
Paul J. Garity		2,000		2,000		—		4,000	$	9,520
Michael J. Grondahl		2,000		2,000		1,000		5,000	$	11,900
John W. Allison		2,000		—		—		2,000	$	4,760
Alex R. Lieblong		2,000		—		—		2,000	$	4,760
Mark S. Oei (2)		—		—		—		—		—
W. Blair Allen		2,000		—		—		2,000	$	4,760
					Total Grant			20,000


(1)		Based upon the closing price on February 12, 2009 of $2.38 per share.

(2)		Mr. Oei declined the stock award as rules of his employer prohibit his acceptance of such equity awards.

Mr. Brown held 6,666 exercisable options as of December 31, 2009. The number of shares of restricted stock held by the non-employee directors as of December 31, 2009 is as follows: Mr. Allen, 4,000; Mr. Brown, 11,668; Mr. Garity, 6,667; Mr. Grondahl, 9,667; Mr. Allison, 2,000; and Mr. Lieblong, 5,334.

EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

Overview

This compensation discussion and analysis describes the material elements of compensation awarded to, earned by, or paid to each of our named executive officers, who are listed below (“NEOs”), during 2009 as well as certain aspects of executive compensation for 2010. We also discuss certain key decisions and issues that our Compensation Committee has addressed over the past several years that impact the current compensation of the NEOs.

We provide what we believe is a competitive total compensation package to our NEOs through a combination of base salary, annual cash bonuses, equity incentive compensation and benefits programs. Our compensation policies are designed to provide competitive levels of compensation that integrate remuneration with our short-term and long-term performance goals, to reward corporate performance and recognize individual initiative and achievement. However, in 2009, recognizing the difficult state of the U.S. economy and the severe effects the recession was having on the hotel industry in general and Lodgian specifically, each of our NEOs agreed to waive any cash bonus that would be earned for 2009. In addition, in early 2010, each of our NEOs waived entitlement to equity awards earned under our incentive plan in exchange for a reduced cash payment compared to the equity award actually earned under our incentive plan for NEOs. Additional information concerning the amounts of cash and equity actually earned, and subsequently waived, by our NEOs for 2009 performance is contained herein.

Named Executive Officers for 2009

The NEOs for 2009 include our former interim chief executive officer, who resigned on June 9, 2009, our current chief executive officer, our chief financial officer, and our two other executive officers. The NEOs individuals constitute all of our executive officers.

	•		Daniel E. Ellis, President, Chief Executive Officer, General Counsel and Secretary;

	•		Peter T. Cyrus, Former Interim President and Chief Executive Officer;

	•		James A. MacLennan, Executive Vice President and Chief Financial Officer;

	•		Donna B. Cohen, Vice President and Controller;

	•		Joseph F. Kelly, Vice President of Hotel Operations

Key Compensation Actions for 2009

Below are the key compensation actions taken by the Compensation Committee in 2009 and 2010. Each are described in more detail in this compensation discussion and analysis.

	•		The Compensation Committee generally approved a 4% base salary increase for 2009 for the NEOs, and approved larger increases only in connection with the promotion of the NEO. Salaries have been frozen for 2010.

	•		The Compensation Committee set performance goals for cash incentive awards based on metrics of net operating income, achievement of corporate overhead and market penetration. The NEOs earned a payout under the market penetration performance goal. However, at the request of Mr. Ellis, each of the NEOs agreed to forgo the incentive award earned for 2009. Therefore, no amounts were paid in connection with achievement of the performance goal.

	•		The Compensation Committee set performance goals for equity incentive awards based on metrics of net operating income, achievement of corporate overhead, stock price performance and an employment retention goal. The NEOs achieved a payout under the corporate overhead performance goal and the employment retention goal. However, at the request of Mr. Ellis, each of the NEOs agreed to waive their right to receive the equity awards in exchange for a cash payment that was substantially less than the value of the equity awards earned for 2009. The cash payments were made in early 2010.

	•		The Compensation Committee has suspended our cash and equity incentive program for 2010.

Objectives and Philosophy of Compensation Program

General

Our Compensation Committee is responsible for establishing and administering our policies governing the compensation of our NEOs. The Compensation Committee is composed entirely of independent, non-employee directors.

Our executive compensation programs are designed to achieve the following objectives:

	•		attract and retain talented and experienced executive officers;

	•		motivate and reward executives whose knowledge, skills and perfor

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Filing Compare · LODGIAN INC