<PAGE>   1

                                                                   Exhibit 10.7


                              SEVERANCE AGREEMENT


         THIS SEVERANCE AGREEMENT (the "Agreement") is entered into this 28th
day of February, 1999, by and between LODGIAN, INC. and the LODGIAN, INC. 401K
PLAN (collectively, the "Company") and WARREN M. KNIGHT ("Knight").

         WHEREAS, Knight is employed by the Company and serves as Vice
President of Finance and Chief Financial Officer of the Company and Trustee of
the Company's 401K Plan; and

         WHEREAS, Knight and the Company desire to terminate Knight's
employment by the Company and to set forth their agreement with respect to such
termination and certain other matters.

         NOW, THEREFORE, in consideration of the agreements and covenants
hereinafter set forth, the parties agree as follows:

         1.       TERMINATION OF EMPLOYMENT.

         Effective as of March 5, 1999 (the "Severance Date"), the employment
of Knight by the Company will terminate and Knight shall not have any further
rights, whether to employment, compensation or benefits except as provided in
this Agreement.

         2.       COMPENSATION.

                  (a)      NORMAL COMPENSATION. The Company will continue to 
         pay Knight his salary at an annual rate of $215,000 until the
         Severance Date.

                  (b)      BONUS FOR 1998. In compensation for services 
         rendered during 1998, the Company will pay Knight a $60,000 bonus, one
         half of which will be paid upon execution of this Agreement, and the
         remainder will be paid upon the earlier of May 1, 1999 or the date on
         which other employees of the Company receive their 1998 bonuses.

                  (c)      SEVERANCE PAY. The Company shall pay to Knight an
         aggregate severance pay equal to $350,000 payable in two equal
         installments, one upon execution of this Agreement, the other on or
         before May 1, 1999 ("Severance Pay"); provided, however, that the
         second installment of Knight's Severance Pay will be paid only upon
         Knight's reasonable compliance with Section 4(a) of this Agreement to
         the reasonable satisfaction of the undersigned.

                  (d)      EARNED BUT NOT USED VACATION DAYS. The Company shall
         pay Knight for any earned but not used vacation days, up to a maximum
         payment of $32,250. This payment will be based on a daily rate of pay
         computed on an annual compensation rate of $215,000 and will be paid
         upon execution of this Agreement.



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                  (e)      HEALTH INSURANCE BENEFITS. For a period of one year
         after the Severance Date, Knight shall be entitled to continue to
         participate, at the Company's expense, in the Company's health
         insurance program. Such benefit will be in full satisfaction of any
         rights which Knight may have to health insurance continuation under
         the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended
         ("COBRA") for this initial one year period. Benefits otherwise
         receivable by Knight pursuant to this Subparagraph (e) shall be
         reduced to the extent comparable benefits are actually received by
         Knight from a subsequent employer during the period during which the
         Company is required to provide such benefits, and Knight shall report
         any such benefits actually received by him to the Company.

                  (f)      OTHER BENEFITS. Provided that there are no adverse
         tax consequences, the Company shall continue coverage for Knight, on
         the same terms and conditions as would be applicable if Knight were an
         active employee, under the Company's life insurance, group disability
         benefits and similar welfare benefit plans for a period of one year.
         Benefits otherwise receivable by Knight pursuant to this Subparagraph
         (f) shall be reduced to the extent comparable benefits are actually
         received by Knight from a subsequent employer during the period during
         which the Company is required to provide such benefits, and Knight
         shall report any such benefits actually received by him to the
         Company. In the event that adverse tax consequences would result from
         the continuation of benefits under this Subparagraph (f), the Company
         may pay to Knight an amount equal to the annual cost to the Company
         (based on premium rates) of providing such coverage; provided,
         however, that such amount shall be reduced to the extent comparable
         benefits are actually received by Knight from a subsequent employer
         during the period during which the Company is required to provide such
         benefits, and Knight shall report any such benefits actually received
         by him to the Company, and provided further that such payments
         provided for in this Subparagraph (f) shall be made not later than the
         30th day following the Severance Date. At the time that payments are
         made under this Subparagraph (f), the Company shall provide Knight
         with a written statement setting forth the manner in which such
         payments were calculated and the basis for such calculations.

                  3.       STOCK OPTIONS AND STOCK APPRECIATION RIGHTS.

                  Knight acknowledges that he holds currently exercisable stock
options to purchase 173,500 shares of the Company's Common Stock which were
granted to him pursuant to the Company's Stock Option Plan and 12,500 stock
appreciation rights. To the extent any stock options or stock appreciation
rights are not currently vested, they will vest upon the Severance Date
(therefore all of Knight's stock options and stock appreciation rights will be
fully vested on the Severance Date) and be exercisable through the expiration
date of the exercise period, notwithstanding the termination of Knight's
employment, in accordance with this Severance Agreement. A schedule of such
options and stock appreciation rights are included on Schedule A.



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                  4.       COVENANTS.

                  (a)      COOPERATION WITH THE COMPANY. In consideration for
         Knight's agreement to fully cooperate with respect to any reasonable
         request from the Company on an ongoing basis, the Company shall
         provide to Knight the rights and benefits set forth in this Agreement.
         Such cooperation shall include assisting the Company in the
         preparation of its 1998 annual report on Form 10-K and its 1999 proxy
         statement as reasonably requested by the Company.

                  (b)      CONFIDENTIALITY. Knight agrees not to directly or
         indirectly disclose to any person or entity, or cause or authorize,
         directly or indirectly, any person or entity, to use any proprietary
         or confidential business information of the Company, except as
         required by law. This paragraph shall not apply, however, to any
         information that is already in the public domain or becomes available
         to the public through any act or failure to take action by Knight.

                  (c)      NON-DISPARAGEMENT AND FUTURE CONDUCT. Knight agrees
         that he will not knowingly engage in any activity which is inimical,
         contrary or harmful to the interests of the Company and shall not make
         any statements about or relating to the Company, its officers,
         directors, shareholders, agents, independent contractors, or counsel
         which are disparaging or likely to cause embarrassment except as may
         be required by lawful process.

                  5.       GENERAL RELEASES.

                  (a)      Knight hereby releases, discharges and acquits the
         Company and its subsidiaries, affiliates, representatives, agents,
         employees, officers, directors, shareholders, counsel, assigns and
         successors (collectively referred to as "Releasees"), of and from all
         claims, demands, sums of money, actions, rights, causes of action,
         obligations and liabilities which Knight has against the Releasees
         relating to or arising out of Knight's employment by the Company,
         including, but not limited to, wrongful discharge, breach of contract,
         tort, the Civil Rights Act, Age Discrimination in Employment Act,
         Employee Retirement Income Security Act or any other federal, state or
         local legislation or common law relating to employment or
         discrimination in employment or otherwise; provided, however, that
         nothing contained herein shall release the Company from its obligation
         to Knight pursuant to this Agreement, including any right he may have
         to corporate indemnification.

                  (b)      The Company hereby releases, discharges, and acquits
         Knight of and from all claims, demands, sums of money, actions,
         rights, causes of action, obligations and liabilities which the
         Company has or which the Company or any successor or assign of the
         Company may have against Knight relating to, arising out of or
         concerning Knight's negligent conduct, if any, in connection with or
         concerning his employment with the Company; provided, however, that
         nothing herein shall release, discharge or acquit Knight from any such
         claims, demands, sums of money, actions, rights, causes of action,
         obligations or liabilities relating to, arising out of or 



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         concerning Knight's conduct which rises to a level more culpable than
         negligence, including, but not limited to, intentional misconduct or
         gross negligence. There are no instances where the Company is aware of
         such matters.

                  6.       INDEMNITY OBLIGATION. The indemnity obligation of 
the Company to Knight, as an officer of the Company and Trustee of the
Company's 401K Plan, shall continue in accordance with the terms and conditions
of Article IX of the Company's Articles of Incorporation and Article VII of the
Company's Bylaws with respect to actions taken or allegedly taken including,
but not limited to, alleged acts, whether intentional or negligent, and whether
active, passive or vicarious in nature, on or prior to the Severance Date
notwithstanding the termination of Knight's employment to the extent permitted
by law and the Company will take no action to diminish or reduce Knight's right
to indemnification thereunder.

                  7.       ADVICE OF COUNSEL. Knight represents and warrants
that he has independently consulted with legal counsel and financial or other
advisors of his choice with respect to this Agreement, that he has entered into
this Agreement of his own free will, that he and such counsel have reviewed
this Agreement, and that Knight has been informed by such counsel that the
terms and provisions of this Agreement and the restrictive covenants contained
herein are reasonable, enforceable and proper in duration, scope and effect.

                  8.       MISCELLANEOUS.

                  (a)      Each party will bear its own costs and expenses in
         connection with the preparation, negotiation and execution of this
         Agreement; provided, however, that the Company will reimburse Knight
         for the attorney's fees actually and reasonably incurred by him in
         connection therewith up to a maximum of $5,000.

                  (b)      This Agreement contains the entire understanding and
         agreement of the parties relating to the subject matter hereof and
         supersedes all prior communications, commitments and understandings,
         and this Severance Agreement may not be amended or modified except in
         a writing signed by both parties hereto.

                  (c)      This Agreement shall be governed by the laws of the
         State of Florida without regard to the conflicts of laws principles
         thereunder.

                  (d)      This Agreement may be executed in counterparts, each
         of which shall be considered an original but which shall constitute
         one and the same agreement.

                  (e)      This Agreement shall be binding upon and inure to 
         the benefit of the parties hereto and their respective successors,
         assigns, heirs, beneficiaries, estates, executors, personal
         representatives and legatees.

                  (f)      Any notice herein required or permitted to be given
         to be effective shall be given in writing and may be personally
         delivered (including delivery by private courier services) or by
         telex, facsimile or telecopy, charges prepaid, to the party 



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         entitled thereto addressed as set forth below (or to such other
         address as may be specified by a party in accordance with this
         subsection), and shall be deemed to be duly given or made when
         delivered by hand, unless such day is not a business day in which case
         such delivery shall be deemed to be made or given as of the next
         succeeding business day or, in the case of telex, facsimile or
         telecopy, when sent, so long as it was received during normal business
         hours on a business day and otherwise such delivery shall be deemed to
         be made or given as of the next succeeding business day:

                  To:      Warren M. Knight
                           2118 Pinehurst Way
                           Coral Springs, FL 33171

                  with a copy to:

                           Duke Mullin & Galloway, P.A.
                           1700 East Las Olas Blvd. PH-1
                           Fort Lauderdale, FL 33301
                           Attention: Davis W. Duke, Jr.

                  To:      Lodgian, Inc.
                           3445 Peachtree Road, Suite 700
                           Atlanta, GA  30326
                           Attention: President

                  with a copy to:

                           Cadwalader, Wickersham & Taft
                           100 Maiden Lane
                           New York, NY 10038
                           Attention: Dennis J. Block, Esq.



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         IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written,

                                 LODGIAN, INC.


                                 /s/ Joseph C. Calabro 
                                 ---------------------------------------------
                                 Joseph C. Calabro,                   Chairman

                                 /s/ Warren M. Knight
                                 ---------------------------------------------
                                 WARREN M. KNIGHT



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                                   SCHEDULE A

                                Warren M. Knight


           Lodgian, Inc. Stock Options and Stock Appreciation Rights


<TABLE>
<CAPTION>
                              OPTIONS
                            GRANTED TO
                            PURCHASE THE                                          EXERCISE PERIOD
    DATE                     FOLLOWING                                         ---------------------
     OF                      NUMBER OF     EXERCISE   EXERCISE  UNEXERCISED    COMMENCE-  EXPIRATION
   GRANT                      SHARES         PRICE    OPTIONS     OPTIONS      MENT DATE     DATE
   -----                    ------------   --------   --------  -----------    ---------  ----------

<S>                         <C>            <C>        <C>       <C>            <C>        <C>
Stock Options

8/5/92                         62,500       $4.00         0        62,500      8/5/93       8/5/02

5/14/93                        30,000        4.00         0        30,000      4/30/94      5/14/03

5/26/95                         5,000        6.125        0         5,000      5/26/96      5/26/05

1/12/96                        13,500        6.125        0        13,500      1/12/97      1/12/06

8/27/97                        62,500        6.125        0        62,500      8/27/97      8/27/07

Stock Appreciation Rights

8/27/97                        12,500        6.125        0        12,500      8/27/97      8/27/07
</TABLE>