<PAGE>

                                                                   EXHIBIT 10.38

                                 LOAN AGREEMENT



     THIS LOAN AGREEMENT (this "Agreement"), made and entered into this 27th day
of September, 2000, by:


                               Jameson Inns, Inc.
                             A Georgia Corporation
                       8 Perimeter Center East Suite 8050
                             Atlanta, Georgia 30346


(the Borrower") and Geneva Leasing Associates, Inc., an Illinois corporation,
having its principal office at One West Illinois Street, Suite 230, Attention:
President, St. Charles, Illinois 60174 and its participants, successors and
assigns (the "Lender").

                                  WITNESSETH:

     WHEREAS, Borrower holds title in fee simple to certain real estate,
buildings, structures and all fixtures and improvements of every kind, character
and nature comprising part of the Mortgaged Premises (as defined herein);

     WHEREAS, Borrower has applied to Lender for a loan and Lender is willing to
make such loan to Borrower secured by the Mortgaged Premises and other described
property and on the condition that Borrower make the prompt payment when due of
the principal of and interest on all present or future indebtedness or
obligations incurred by Borrower to Lender in connection herewith or otherwise.

     NOW THEREFORE, in consideration of these premises and the undertakings of
the parties hereto, Borrower and Lender hereby agree as follows:

     1.   Loan.   Lender shall, subject to the terms and conditions of this
          ----
Agreement, lend to Borrower such amount, not to exceed the principal sum of:

       Two Million Eight Hundred Twenty Five Thousand and 00/100 Dollars
                                ($2,825,000.00)

(the "Loan"), as shall be necessary for the purpose of providing financing of
the Mortgaged Premises, including but not limited to all costs of the fixtures,
structures and equipment thereon. In accordance with the provisions of this
Agreement or the related agreements and instruments identified herein, Borrower
shall timely repay the principal amount of the Loan, pay the accrued interest
and other Liabilities (as defined herein).  The  Loan shall be evidenced by a
promissory note (the "Note") executed by the Borrower

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in form mutually agreed upon by the parties, and secured pursuant to the
provisions of and instrument or instruments each captioned "Mortgage, Assignment
of Rents, Security Agreement and Financing Statement" (the "Mortgage"), each
together with any security agreement incorporated by reference and made a part
of this Agreement. Amounts advanced under the Loan shall bear interest as
provided and adjusted in the Note.

     2.   Certain Defined Terms.  In addition to the terms otherwise defined
          ---------------------
herein, the following terms shall have the following meanings (all terms defined
in this Section 2 or in other provisions of this Agreement in the singular are
to have the same meanings when used in the plural and vice versa):

          (a) "Collateral" shall have the meaning ascribed to it in the
     Mortgage.

          (b) "Default" shall mean an Event of Default as defined in Section 10
     of the Agreement or an event which with notice or lapse of time or both
     would become an Event of Default.

          (c) "Default Rate" shall have the meaning ascribed to it in the Note.

          (d) "Liabilities" shall have the meaning ascribed to it in the
     Mortgage.

          (e) "Mortgaged Premises" shall have the meaning ascribed to it in the
     Mortgage.

          (f) "Permitted Encumbrances" shall have the meaning ascribed to it in
     the Mortgage.

     3.   Interest, Due Dates.  The Loan shall be made to Borrower upon
          -------------------
Borrower's satisfaction of the conditions including the conditions precedent, in
reliance upon the representations and warranties of Borrower and subject to the
terms and other provisions contained herein. Any indebtedness evidenced by the
Note shall bear interest from the date of the Loan until such Loan is repaid in
full. Interest shall accrue at the rate identified in the Note.  Payment of
principal and interest on the Note shall be due and payable commencing on the
same day of the month following such Loan (or next business day if such day is a
Saturday, Sunday or a holiday for the Lender) and of each month thereafter.  Any
interest rate adjustment, the amortization of principal and the term of the Loan
shall be set forth in the Note.

     4.   Security.  The Loan shall be secured by the lien of a first priority
          --------
mortgage on the Mortgaged Premises and the granting of a first priority security
interest in the personal property as described in the Mortgage. The Note, the
Agreement, the Mortgage, any Guaranty and any security agreement given by any
Guarantor or other person, any financing statements, fixture filings, any
extensions, continuations, renewals, amendments and supplements, together with
all related documents, certificates, instruments, agreements and statements are
collectively referred to as the "Loan Documents."

     5.   Conditions Precedent to Loan.  The following conditions shall be
          ----------------------------
conditions precedent to the Loan and shall be satisfied at or prior to (as
indicated below) the closing:

          (a)  Execution and Delivery. In addition to the certificates and other
               items identified below, Borrower shall execute and deliver or
               cause to be executed and delivered to

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               Lender the Agreement, Note, Mortgage, any Guaranty and any other
               Loan Documents.

          (b)  Organizational Instruments. Borrower shall furnish or cause to be
               furnished to Lender: (1) a certificate of good standing or valid
               existence issued by the Secretary of State of the state of
               Borrower's formation as near to the closing as practicable and
               (2) certified complete copies of Borrower's organizational
               instruments, such as articles of organization, operating
               agreement, corporate charter, by-laws, partnership agreement,
               etc., including all amendments through the date of such advance
               duly certified by the secretary of each such organization.

          (c)  Title Insurance.  Borrower shall furnish to Lender a commitment
               for a mortgagee's policy of title insurance in an amount equal to
               the Loan issued by a title insurance company acceptable to
               Lender, insuring to Lender the title of Borrower to the Mortgaged
               Premises and the other Collateral described herein free and clear
               of all liens, claims, encumbrances and defects, except for
               Permitted Encumbrances, the lien of current real estate taxes not
               delinquent, un-filed mechanics' and materialmen's liens and
               easements, other restrictions of record acceptable to Lender.
               Borrower shall deliver to Lender satisfactory evidence from such
               title company acknowledging payment in full of all premiums, cost
               and expenses for issuance of such binder and the final
               mortgagee's policy of title insurance in standard form with only
               exceptions satisfactory to Lender.

          (d)  Surveyor's Certificate.  Borrower shall deliver to Lender a
               survey of the Mortgaged Premises showing the location of the
               improvements thereon prepared and certified by a registered land
               surveyor acceptable to Lender, containing a certification in
               respect to the legal description and otherwise in conformance
               with the requirements of any such title insurance company.

          (e)  Environmental Assessment.  Mortgagor shall cause Lender to be
               furnished prior to closing a report addressed to Lender by a
               qualified, reputable, independent firm engaged as agent of
               Borrower or Mortgagor and not Lender as experts in the business
               of providing environmental assessments for the benefit of secured
               lenders, and acceptable to Lender, certifying that it has
               examined, investigated and reviewed the current and prior use of
               the Mortgaged Premises, has taken as it deems necessary air,
               ground, water and other samples and has conducted any tests that
               are necessary and appropriate certifying that, to the best of its
               knowledge, the Mortgaged Premises does not contain any hazardous,
               infectious or toxic substance or material, not permitted by, and,
               is in full compliance with, all applicable federal, state, county
               or local laws, rules, regulations, ordinances, standards, orders,
               licenses, or permits relating to environmental matters and that
               the condition of the Mortgaged Premises is in full compliance
               with the requirements of Hazardous Materials provision of the
               Mortgage.

          (f)  Counsel's Opinions.  Borrower shall furnish an opinion of its
               counsel addressed to Lender which is acceptable to Lender (in
               form and substance satisfactory to

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               Lender), to the effect that:

               (1)  The Borrower is a corporation and is duly organized, validly
                    existing or in good standing under the laws of the state of
                    Georgia; and the Borrower and any Guarantor have full power
                    to execute, deliver and perform their respective obligations
                    under the Loan Documents.

               (2)  The Loan Documents (A) have been authorized by all necessary
                    and appropriate action of, (B) have been duly executed and
                    delivered by, and (C) are the legal, valid and binding
                    obligations enforceable in accordance with their terms of
                    Borrower, any Guarantor or other party.

               (3)  To the knowledge of counsel, insofar as any Collateral that
                    is not real property is concerned, subject to any Permitted
                    Encumbrances, the Mortgage creates a valid first priority
                    security interest in favor of the Lender.

               (4)  To the knowledge of counsel there is no litigation or
                    proceeding pending or threatened against or otherwise
                    adversely affecting Borrower, any Guarantor or any of their
                    respective properties or assets in any court or before or by
                    any government agency.

               (5)  To the knowledge of counsel, neither the execution or the
                    consummation of the Agreement, the Note and the other Loan
                    Documents nor compliance with the terms and provisions of
                    the Agreement, the Note and the other Loan Documents
                    conflict with, result in a breach of, or constitute a
                    default under, the terms, conditions or provisions of any
                    agreement entered into by Borrower or any Guarantor, of any
                    law, regulation, order, writ, injunction or decree of any
                    court or governmental agency or instrumentality having
                    jurisdiction over Borrower or any Guarantor.

          (g)  Insurance.  Borrower shall furnish to Lender evidence of
               insurance coverage (fire, theft and extended coverage), with a
               standard mortgagee endorsement in favor of Lender, and evidence
               of comprehensive public liability insurance designating Lender as
               an additional named insured, worker's compensation and insurance
               required by laws of the applicable jurisdiction where the
               Mortgaged Premises are located, with insurance companies and in
               amounts acceptable to Lender.

          (h)  Appraisal.  Borrower shall have provided prior to closing a
               Member Appraisal Institute or other acceptable appraisal of the
               Mortgaged Premises addressed to Lender by an appraiser
               satisfactory to Lender showing a value of not less than
               $4,600,000.00.

          (i)  Environmental Disclosures.  Disclosure statements or waivers
               required by any applicable responsible property transfer act or
               similar law, rule or regulation

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               executed and furnished by Borrower in a form satisfactory to
               Lender.

          (j)  Certificate.  Borrower shall furnish or cause to be furnished to
               Lender a secretary's certificate of incumbency, certified copies
               of resolutions of Borrower approving and authorizing this
               Agreement and the borrowings hereunder and the execution and
               delivery of all agreements and documents required in connection
               with this Agreement including the Note, and the other Loan
               Documents.

          (k)  Furniture, Fixtures and Equipment.  Borrower shall furnish
               satisfactory evidence to Lender that a restricted access account
               (the "Furniture, Fixtures and Equipment Reserve") has been opened
               with a Lender or a financial institution of Lender's choice
               indicating a deposit of an amount of not less than $30,600.00 and
               for a cash deposit thereafter on a monthly basis of $2,550, an
               amount equal to $300 per room per year for the purpose of
               reimbursement of replacement expenses of furniture, fixtures and
               equipment on the Mortgaged Premises.

          (l)  Additional Requirements.  The execution and delivery or
               submission by Borrower and any Guarantor to Lender of such other
               documents, instruments, information and materials as may be
               required by Lender in connection with the Loan.

          All documents required to be delivered to Lender under this Section 5
shall be satisfactory in form and substance to Lender and its counsel.  Any of
the foregoing conditions may be waived by Lender at the time of such advance;
however, any such waiver by Lender shall be in writing and subject to the
conditions, qualifications or limitations set forth in such waiver.

     6.   Costs, Fees and Expenses.  In addition to all the other terms and
          ------------------------
conditions to be performed by Borrower under this Agreement, Borrower shall pay
Lender a fee which shall be equal to the greater of:

 Forty Two Thousand Three Hundred Seventy Five and 00/100 Dollars ($42,375.00).


In addition, Borrower shall reimburse Lender and shall save the Lender harmless
from all liability for, any stamp or other taxes which may be payable with
respect to the execution or delivery of any of the Loan Documents and for all
costs and expenses incurred by it in connection with the Loan and any related
proposal or commitment, including but not limited to trip expenses for
inspection of the Mortgaged Premises, preparation and review of loan documents,
premiums and fees of title insurance companies including title searches,
recording, filing and release fees, survey, appraisal, inspection and
environmental assessment fees and expenses, the fees of architects or engineers
and legal fees and expenses of its counsel. The obligations described in this
paragraph shall survive the expiration or other termination of the Agreement.
Lender is authorized to deduct such costs, expenses and fees from the proceeds
of the Loan if not previously paid by Borrower.

     7.   Warranties, Representations and Covenants.
          -----------------------------------------

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          (a)  To induce Lender to make the Loan and enter into the Agreement
               and the Loan Documents, effective at closing Borrower warrants
               and represents to Lender that:

               (1) Existence and Authorization. Borrower is a corporation and is
                         duly organized, validly existing and/or in good
                         standing under the laws of the jurisdiction of its
                         formation. Borrower is qualified to own property and
                         transact business in all jurisdictions where a failure
                         to so qualify would have a material adverse effect on
                         Borrower, and Borrower has full power under its
                         articles of incorporation and by-laws and any
                         amendments thereto and under all applicable provisions
                         of law to purchase, develop, own, lease and operate the
                         Mortgaged Premises and the other Collateral and to
                         enter into, execute and deliver this Agreement, the
                         Note, the Mortgage, any Guaranty and the other Loan
                         Documents and all related documents, instruments,
                         statements, certificates and agreements.

               (2) Title to Assets.  Borrower is the owner and has good and
                         marketable title to all of its assets including
                         ownership in fee simple of the Mortgaged Premises
                         subject only to any Permitted Encumbrances.

               (3) Compliance with Codes, Ordinances.  The Mortgaged Premises
                         and the operation thereon are in compliance with all
                         applicable building codes, zoning ordinances and the
                         requirements of regulatory agencies having
                         jurisdiction.

               (4) Taxes.  All required federal, state and other tax returns
                         have been filed by Borrower and the taxes in connection
                         therewith and any Mortgaged Premises taxes have been
                         paid when due and no additional taxes or assessments
                         with regard thereto have been asserted or are
                         anticipated.

               (5) Litigation.  There is no litigation, or action or proceeding
                         pending or, to the knowledge of Borrower, threatened
                         against or otherwise adversely affecting Borrower, the
                         Collateral or any of its other properties or assets,
                         before any court or before or by a governmental agency,
                         that taken as a whole would materially and adversely
                         affect the operations and financial condition of
                         Borrower.

               (6) Financial Condition.  The financial statements of Borrower
                         have heretofore been delivered to Lender, and such
                         statements fairly and accurately present the condition
                         and results of operations of Borrower at such date and
                         for the period indicated, and each of Borrower has no
                         material liabilities, contingent or otherwise, not
                         reflected on such statements, such statements have been
                         prepared in accordance with generally accepted
                         accounting principles applied on a consistent basis and
                         there has been no material adverse change in the
                         financial condition, operation or prospects of Borrower
                         since the date of such financial statements.

               (7) Use of Proceeds.  The Borrower is not engaged, directly or
                         indirectly, in the

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                         business of extending credit for the purpose of
                         purchasing or carrying any "margin stock" (as defined
                         in Regulation U of the Board of Governors of the
                         Federal Reserve System) and no part of the proceeds of
                         the Loan will be used to purchase or carry any "margin
                         stock" or to extend credit to others for the purpose of
                         purchasing or carrying any "margin stock."

             (8) Conflicting Agreements.  The Borrower and any Guarantor are not
                         parties to or bound by, and the Mortgaged Premises not
                         affected by, any contract made which conflicts with
                         this Agreement, the Note or the other Loan Documents or
                         which materially and adversely affects the properties,
                         business operations or financial condition of any
                         Borrower or any Guarantor.

             (9) Solvency.  After giving effect to the transactions contemplated
                         hereby the Borrower will be solvent, will own property
                         having a value, determined both at fair valuation and
                         at present fair salable value, greater than the amount
                         required to pay all its indebtedness, and will have
                         capital sufficient to carry on its businesses as
                         presently conducted and planned to be conducted. The
                         Borrower has not entered into this Agreement or granted
                         a mortgage or security interest in the Mortgaged
                         Premises or the other Collateral pursuant to the Loan
                         Documents with actual intent to delay or defraud its
                         creditors. The Borrower believes that it has and will
                         receive a fair consideration for the Mortgaged Premises
                         or the other Collateral granted pursuant to the Loan
                         Documents. The Borrower does not believe that it is
                         about to incur or has incurred debts that it will not
                         be able to repay.

             (10) Investment Company.  The Borrower is not an "investment
                         company" within the meaning of the Investment Company
                         Act of 1940, as amended.

             (11) ERISA.  The consummation of the transactions provided for
                         herein and compliance by the Borrower and any Guarantor
                         with the provisions hereof will not involve any
                         prohibited transaction within the meaning of Employee
                         Retirement Income Security Act of 1974, as amended and
                         in effect from time to time ("ERISA") or Section 4975
                         of the Internal Revenue Code of 1986, as amended
                         ("Code"). All employee pension benefit plans, as
                         defined in Section 3 of ERISA ("Plans"), maintained by
                         the Borrower and any Guarantors comply, in all material
                         respects, with all applicable requirements of ERISA and
                         the Code and with all applicable rulings and
                         regulations issued under the provisions of ERISA and
                         the Code setting forth those requirements. No
                         reportable event (as defined in Section 4043(b),
                         subdivisions (5), (6) or (9) of ERISA) has occurred
                         with respect to any Plan without regard to any waiver
                         thereof as set forth in 29 CFR Part 2615. The Borrower
                         and any Guarantors have satisfied, in all material
                         respects, all funding standards applicable to such
                         Plans, and there exists no event or condition which
                         would permit the institution of proceedings to
                         terminate any Plan under Section 4042 of ERISA. The
                         current value of such Plans'

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                         benefits guarantied under Title IV of ERISA does not
                         exceed the current value of the Plans' assets allocable
                         to such benefits.

               (12) Compliance with Law.  The Borrower is not (i) in default
                         with respect to any order, writ, injunction or decree
                         of any court or (ii) in default in any material respect
                         under any law, ordinance, order, regulation, license or
                         demand (including ERISA, the Occupational Safety and
                         Health Act of 1970 and laws and regulations
                         establishing quality criteria and standards for air,
                         water, land and toxic waste) of any federal, state,
                         municipal or other governmental agency, default under
                         which might have consequences which would materially
                         and adversely affect the business or properties of the
                         Borrower or any Guarantor. The Borrower is in
                         compliance in all material respects with all applicable
                         building codes and zoning ordinances relating to the
                         Mortgaged Premises (and have obtained and are in
                         compliance with all building permits necessary for work
                         finished or underway on the Mortgaged Premises) and all
                         applicable state and federal environmental, health and
                         safety statutes and regulations and have not acquired,
                         incurred or assumed, directly or indirectly, any
                         material liability, contingent or otherwise, in
                         connection with the release of any toxic or hazardous
                         waste or substance into the environment.

               (13) Use. The Mortgaged Premises is used solely for commercial
                         purposes and used in accordance with, and if necessary
                         licensed by, all appropriate governmental authorities.

               (14) Environmental Condition.  Borrower represents and warrants
                         that the representations and warranties appearing in
                         the Hazardous Materials provision of the Mortgage are
                         true and correct as though fully set forth herein.

          (b) Continuing Representations and Warranties.  Borrower further
              agrees and covenants that all warranties and representations shall
              remain true during the term of this Agreement and that, at the
              time of such advance by Lender to Borrower, there will be no claim
              for labor, services or materials furnished for the construction of
              improvements.

    8. Loan Covenants.   Borrower agrees and covenants to Lender that so long as
       --------------
any of the Loan or other amounts owing to Lender shall remain unpaid Borrower
shall:

          (a) Revenue.  Apply the revenue derived from the operation of the
                 Mortgaged Premises to the payment of the Liabilities and
                 expenses incurred in the ordinary course of business for the
                 operation of the Mortgaged Premises.

          (b) Prompt Tax Payments.  Promptly pay and discharge, or cause to be
                 paid and discharged, all taxes, assessments, and governmental
                 charges which may be

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                 lawfully levied, imposed, or assessed upon Borrower or the
                 properties, assets, income, or profits of Borrower provided,
                 however, that Borrower shall have the right, upon furnishing
                 security satisfactory to Lender to diligently contest in good
                 faith any such tax, assessment, charge, or levy by appropriate
                 proceedings.

          (c) Borrower's Books, Financial Statements. Keep accurate and complete
                 books of account and records and maintain the same at
                 Borrower's principal offices. Upon request by Lender, Borrower
                 shall furnish, or cause to be furnished, to Lender financial
                 statements and other information including but not limited to
                 tax information regarding the business affairs and financial
                 condition of Borrower and any Guarantor. Borrower shall be
                 required to furnish such information within forty-five (45)
                 days of the end of each and every calendar quarter and ninety
                 (90) days of each and every calendar year and any Guarantor
                 shall be required to furnish such information on an annual
                 basis within ninety (90) days of the end of each and every
                 respective Guarantor's calendar year. The information furnished
                 by Borrower and any Guarantor shall be a complete, true and
                 correct statement of the financial condition of the party
                 furnishing such information on the stated dates. Such
                 information shall in the case of Borrower be prepared in
                 accordance with generally accepted accounting principles,
                 consistently applied, and in the case of any Guarantor shall be
                 prepared in accordance with accounting principles promulgated
                 by the American Institute of Certified Public Accountants for
                 the preparation of personal financial statements for
                 individuals. Borrower's or any Guarantor's submission of each
                 such statement shall be deemed to include a representation and
                 warranty that there have been no material adverse changes since
                 the date of such statements. Borrower shall, and shall cause
                 any Guarantor to, promptly provide Lender with such information
                 concerning their respective business, and in the case of any
                 Guarantor substantiating information and detail regarding such
                 Guarantor's financial statements, as Lender shall request from
                 time to time.

          (d) Third Party Claims. Defend, or cause to be defended, at all times
                 any claim by a third party relating to the possession of or any
                 interest in the Mortgaged Premises.

          (e) Inspection. Permit any authorized representative of Lender to
                 inspect, examine and make copies and abstracts of the books of
                 account and records of Borrower and each Guarantor at
                 reasonable times during normal business hours.

          (f) Notice. Give prompt written notice to Lender immediately upon
                 becoming aware of any Default or Event of Default or of a
                 default under any agreement of Borrower with any other party
                 for money borrowed or property leased, give prompt written
                 notice to Lender and forward copies of all correspondence
                 received from any governmental authority regarding the use or
                 occupation of the Mortgaged Premises and of any process or
                 action taken or pending whereby a third party is claiming
                 failure to comply with any rule or regulation regarding the
                 Mortgaged Premises or any interest in the assets of Borrower
                 which interest exceeds $10,000.

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          (g) Insurance. Maintain comprehensive public liability insurance
                 naming Borrower and Lender (Geneva Leasing Associates, Inc.,
                 its participants, successors and assigns) as an additional
                 named insured, protecting against claims for bodily injury,
                 death, property and economic damage arising out of the use,
                 ownership, operation, maintenance, foreclosure, surrender,
                 possession or condition of the Mortgaged Premises and other
                 Collateral; insure and keep the property and assets of
                 Borrower, including but not limited to the Mortgaged Premises
                 and other Collateral, insured against fire, theft and other
                 losses, damages or hazards as covered under extended coverage,
                 including but not limited to, loss by flood, wind, and other
                 extended coverage risks customarily insured against by
                 companies engaged in similar business, and each such policy of
                 insurance shall designate Lender as a loss payee.

                 Each such policy of insurance shall be in a form and amount
                 with insurance companies acceptable to Lender, and shall
                 provide for not less than thirty (30) days prior written notice
                 to Lender in the event of any renewal or its replacement,
                 cancellation or material alteration and Borrower shall furnish
                 satisfactory evidence of such coverages to Lender at least
                 fifteen (15) days prior to the last date such policy of
                 insurance is in effect.

                 So long as no Default or Event of Default shall have occurred
                 and be continuing, Borrower is made attorney-in-fact to obtain,
                 adjust and, with Lender's prior consent, settle any claim and
                 endorse and negotiate any drafts. If a Default or an Event of
                 Default shall have occurred and be continuing, Lender is hereby
                 made attorney-in-fact for Borrower to obtain, adjust, settle
                 and cancel, in its sole discretion, such insurance and any
                 claim and endorse and negotiate any drafts. In the event of
                 failure to provide insurance as herein provided, Lender may, at
                 Lender's option, provide such insurance at the expense of the
                 Borrower. Borrower assigns to Lender all rights to receive
                 proceeds of such insurance not exceeding the unpaid balance of
                 all Liabilities, costs of collection, including any attorney's
                 fees and obligations of whatever kind of Borrower to Lender,
                 directs any insurer to pay all such proceeds directly to
                 Lender, and authorizes Lender, as Borrower's attorney-in-fact,
                 to obtain such proceeds and to endorse and negotiate any draft
                 for such proceeds. The power of attorney created hereby is a
                 power coupled with an interest with full power of substitution.

                 So long as no Default or Event of Default shall have occurred
                 and be continuing all insurance payments received as the result
                 of any property damage with regard to the Mortgaged Premises or
                 other Collateral shall be applied towards making repairs, or
                 replacements, or to reimburse the Borrower such costs. Whenever
                 the Borrower files an insurance claim, regarding the Mortgaged
                 Premises or other Collateral, which amounts to $25,000 or more,
                 the Borrower shall send a copy to the Lender and no settlement
                 of such claim shall be made without the prior written consent
                 of the Lender.

          (h) Licenses and Governmental Authorities.   Use the Mortgaged
                 Premises solely for

                                       10
<PAGE>

                 commercial purposes and used in accordance with, and if
                 necessary, at all times shall be licensed by, all appropriate
                 government authorities. The licensing and operation of the
                 Mortgaged Premises and other Collateral shall at all times be
                 subject to the inspection of various environmental and health
                 authorities, and meet their respective requirements. Borrower
                 shall comply with all requirements of any governmental
                 authorities including authorities referred to in Section
                 7(a)(12) during the term of the Loan and so long as any
                 Liabilities remain outstanding.

          (i) Environmental Laws, Rules, Regulations, Etc. So long as the Loan
                 or any of the Liabilities remains unpaid, Borrower shall not,
                 and shall not permit any tenant or other occupant to, change
                 the use of the Mortgaged Premises from the uses and purposes
                 represented by Borrower herein. Borrower shall be bound by the
                 Hazardous Materials provision of the Mortgage as though fully
                 set forth in this Agreement.

          (j) Furniture, Fixtures and Equipment Reserve. Immediately upon
                 closing and as additional Collateral, in accordance with the
                 provisions of this Agreement, and for the purpose of replacing
                 furniture, fixtures and equipment on the Mortgaged Premises,
                 Borrower shall deposit an amount of not less than $30,600.00
                 into the Furniture, Fixtures and Equipment Reserve, and
                 thereafter on a monthly basis shall deposit not less than
                 $2,550. Notwithstanding anything to the contrary appearing
                 herein, the amount deposited in the Furniture, Fixtures and
                 Equipment Reserve shall not be less than $300/per unit per year
                 (that is, not less than the product of $300/year times the
                 current number of units, specifically, 102 units). Amounts may
                 be withdrawn from the Furniture, Fixtures and Equipment Reserve
                 upon submission of acceptable documented furniture, fixture and
                 equipment expenditures. Lender shall approve in advance any
                 proposed request for withdrawal of funds from the Furniture,
                 Fixture and Equipment Reserve. Upon receipt of a properly
                 substantiated request for disbursement from Borrower, and if
                 such request is otherwise acceptable to Lender, disbursements
                 from the Furniture, Fixture and Equipment Reserve shall be made
                 no more frequent than quarterly. The Furniture, Fixture and
                 Equipment Reserve shall be solely and exclusively used for the
                 express purpose of covering the furniture, fixtures and
                 equipment expenses incurred in connection with the Mortgaged
                 Premises or to pay Liabilities. Any interest earned or cost
                 incurred on this account shall be for the account of Borrower.
                 Under no circumstances, shall the amount contained in the
                 Furniture, Fixture and Equipment Reserve be less than Twenty
                 Thousand Dollars ($20,000.00). Upon the occurrence and
                 continuance of an event of Default, at the option of the
                 Lender, and notwithstanding anything contained in the foregoing
                 provision to the contrary, Lender may withdraw such amounts, in
                 whole or in part, and apply such withdrawn amounts against
                 Liabilities. In the event that Borrower pays the entire amount
                 outstanding under the Loan and any unpaid Liabilities, any
                 amounts contained in the Furniture, Fixture and Equipment
                 Reserve shall be credited against such outstanding amounts and
                 the balance released to Borrower or upon unconditional receipt
                 of such Loan and other unpaid Liabilities release the account
                 to Borrower.

                                       11
<PAGE>

     9.    Negative Covenants.  In addition, Borrower covenants to Lender that
           ------------------
so long as any Liabilities shall remain unpaid Borrower shall not:

          (a) No Liens. Create or permit to exist any mortgage, pledge,
                security interest, title retention device, or other liens or
                encumbrance on the Collateral except for (i) liens of taxes and
                assessments not delinquent or diligently contested in good
                faith; (ii) the liens held by Lender; (iii) any Permitted
                Encumbrances.

          (b) Relocation of Assets. Without the prior written consent of
                Lender, move any property comprising a part of the Collateral
                unless the cumulative value of such moved property is less than
                Two Thousand Five Hundred and 00/100 Dollars ($2,500.00).

          (c) No Distributions. If an Event of Default shall occur and be
                continuing, Borrower shall not make any payment or distribution
                to any officers or employees of Borrower or the general partner
                of Borrower or to any relative of such officer or employee,
                except wages and salary of employees determined at the rate in
                effect prior to the occurrence of an Event of Default.
                Furthermore, any expense advances to officers and employees
                shall not exceed of Two Thousand Five Hundred Dollars
                ($2,500.00) outstanding at any time (the provision contained in
                the preceding sentences of this subparagraph c shall not be
                construed to limit or restrict dividends distributed on a
                prorata basis to Borrower's shareholders in the ordinary course
                of Borrowers business.)

     10.  Events of Default and Rights of Lender.  The occurrence of any of the
          --------------------------------------
following events shall constitute a default (each, an "Event of Default"):

          (a) Failure to pay within five (5) days of the due date any
                installment of principal and/or interest under the  Note;

          (b) Failure to pay when due any other sums due or failure to pay or
                perform any of the Liabilities or failure or neglect in the
                observance or performance of any term, condition, agreement or
                covenant of Borrower, or if any warranty, representation,
                certification or statement under this Agreement is untrue in any
                material respect, or such failure or breach exists under the
                Mortgage and/or any other agreement connected herewith which is
                not cured within a period of fifteen (15) days after written
                notice by Lender to Borrower;

          (c) Breach by Borrower or any Guarantor of the warranty,
                representation, certification, or statement in any material
                respect; or default under any agreement between Borrower or any
                Guarantor and Lender or  the existence of a default under any
                agreement for money borrowed or property leased from any other
                party;

          (d) Dissolution or liquidation of Borrower or any Guarantor,
                or termination of the business of Borrower or any Guarantor;
                any Guarantor shall die unless and if no

                                       12
<PAGE>

                Event of Default has otherwise occurred and Lender is notified
                within thirty (30) days of such death, Lender determines in its
                sole discretion that satisfactory provisions and arrangements
                have been made for the payment of the Liabilities by the
                decedent's estate so long as such provisions and arrangements
                have been completed within ninety (90) days of such death; or
                any Guarantor shall become incapacitated;

          (e) Borrower or any Guarantor ceases to conduct its business as is
                now conducted, fails generally to pay its debts as they become
                due; or Borrower or any Guarantor makes an assignment for the
                benefit of creditors; or there is an appointment of a receiver,
                liquidator or a trustee for Borrower or any Guarantor which
                appointment is consented to or if not consented to, is not
                removed or discharged within thirty (30) days after such
                appointment; or any bankruptcy, reorganization, arrangement,
                insolvency, receivership or like petition or proceeding is filed
                or instituted by or against Borrower or any Guarantor for all or
                substantially all of Borrower's or Guarantor's property; or

          (f) Failure to obtain the prior written consent of Lender for any
                assignment or transfer, by any member, shareholder, partner or
                other owner of more than fifty (50%) percent, of the total
                equity ownership or voting rights of any equity in connection
                with a tender offer or similar acquisition of the equity
                ownership of Borrower by another entity, constituting Borrower
                of all or any portion of the ownership interest or voting rights
                of such member, shareholder, partner or other owner.

          (g) Lender shall in good faith deem itself insecure.

       If any such Event of Default shall occur, at the option of Lender and
without further notice to or demand upon Borrower, all of the unpaid
indebtedness evidenced by the Note and remaining unpaid Liabilities shall become
immediately due and payable notwithstanding anything  contained herein  or in
such  Note to the contrary.  After the occurrence of an Event of Default, or
when any of the  Liabilities is past due, all outstanding unpaid amounts, costs,
and expenses shall, at the option of Lender, accrue interest at the Default Rate
from the due date or the date of any advance until paid.  Lender may also
without further notice exercise the rights  and  remedies provided in the Loan
Documents.  In the event  that Lender sells,  leases,  collects, realizes on or
disposes of Collateral after default, Lender may, from time to time, apply the
amounts received by Lender less expenses in accordance with the provisions of
the Mortgage. All rights and remedies of Lender herein specified are cumulative,
not exclusive, and are in addition to, not in limitation of, any rights and
remedies which it may have at law or in equity.

     11.  General.
          -------

          (a) Third Party Beneficiaries.  Nothing contained herein shall  be
                deemed or construed to create an obligation on the part of
                Lender to any third party nor shall any third party have a right
                to enforce as against Lender any rights which Borrower may have
                under this Agreement and the Loan Documents.

                                       13
<PAGE>

          (b) United States Dollars. All references herein (including in the
                Note) to monetary amounts shall be deemed to be references to
                United States Dollars.

          (c) Waivers.  No failure on the part of the Lender to exercise, and no
                delay in exercising, any power or right hereunder, shall operate
                as a waiver thereof; nor shall any single or partial exercise of
                any power or right preclude any other or further exercise
                thereof or the exercise of any other power or right.

          (d) Entire Agreement, Modifications.  This Agreement, the Note and the
                other Loan Documents supersede all prior agreements or
                understandings, written or oral, including but not limited to
                the terms, conditions, covenants or other provisions appearing
                in any proposal, commitment or letter, and constitute the entire
                agreement of the parties with regard to the subject matter of
                this Agreement, the Note and the other Loan Documents. No
                amendment, modification, termination or waiver of any provision
                of this Agreement, the Note or the other Loan Documents or
                consent by the Borrower to any departure therefrom shall be
                effective unless the same shall be in writing and signed by the
                Lender and Borrower. Any waiver or consent pursuant hereto shall
                be effective only in the specific instance and for the specific
                purpose for which given. No notice to or demand on the Borrower
                in any case shall entitle the Borrower to any other or further
                notice or demand in similar or other circumstances.

          (e) Notices. Except as otherwise expressly provided herein, all
                notices, requests, demands and other communications provided for
                hereunder shall be in writing and mailed or delivered to the
                applicable party at its address first indicated above or, as to
                each party, at such other address as shall be designated by such
                party in a written notice to the other party complying as to
                delivery with the terms of this Section 11(f). All such notices,
                requests, demands and other communications shall, when mailed,
                be deemed given and effective when deposited in the mails.

          (f) Lender Protection.  Borrower shall fully protect Lender, its
                successors and assigns in connection with negotiating or making
                the Loan, the administration of the Loan, and if an Event of
                Default should occur, the foreclosure of the Mortgaged Premises
                and the repossession and disposition of the Collateral. As a
                further inducement to Lender, Borrower, its successors and
                assigns shall save, indemnify and hold Lender its successors and
                assigns harmless from any and all obligations, losses,
                penalties, actions, damages, liabilities, claims, suits, costs
                and expenses, of whatsoever kind and nature, imposed on,
                incurred by or asserted against Lender in any way arising out of
                or relating to the making of the Loan, the payment of the
                Liabilities or Lender's receipt of such payment or any action
                (or failure to act) by Lender or on account of Borrower's
                failure to perform the obligations or observe the terms,
                conditions and other provisions of the Note, this Agreement or
                the other Loan Documents. The obligations contained in this
                paragraph shall continue in full force and effect
                notwithstanding the expiration or other termination of this
                Agreement.

                                       14
<PAGE>

          (g) Governing Law. This Agreement shall be governed by and construed
                in accordance with the laws of the state where the Mortgaged
                Premises are located.

          (h) Binding Effect. This Agreement shall be binding upon Borrower and
                inure to the benefit of Lender, its successors and assigns;
                without limiting the generality of the forgoing, any right of
                the Borrower to borrow hereunder may not be assigned or
                transferred.

          (i) Survival of Representations and Warranties. All representations
                and warranties contained herein or made in writing by the
                Borrower in connection herewith shall survive the execution and
                delivery of Loan Documents, regardless of any investigation made
                by or on behalf of the Lender.

          (j) Headings. The headings used in the text of this Agreement are
                inserted for reference and convenience only and shall not affect
                its interpretation.

          (k) Severability of Provisions. Whenever possible, each provision of
                Loan Documents shall be interpreted in such manner as to be
                effective and valid under applicable law, but if any provision
                of this Agreement, the Note or the other Loan Documents shall be
                prohibited by or unenforceable or invalid under applicable law,
                such provision shall be ineffective but only to the extent of
                such prohibition, unenforceability or invalidity, without
                invalidating the remainder of such provision or the remaining
                provisions of this Agreement, the Note or the other Loan
                Documents.

          (l) Further Assurances. The Borrower agrees at its expense to do
                such further acts and things and to execute and deliver to the
                Lender such additional assignments, agreements, powers, and
                instruments as the Lender may reasonably require or deem
                advisable, to carry into effect the terms, provisions and
                purposes of the Loan Documents including any Guaranty or to
                better assure, perfect and confirm unto the Lender its rights,
                powers and remedies hereunder and under the Loan Documents.

          (m) Satisfaction Requirement. If any agreement, certificate, or
                other writing, or any action taken or to be taken, is by the
                terms of the Loan Documents required to be satisfactory to the
                Lender, the determination of such satisfaction shall be made by
                the Lender, in its sole and exclusive judgment exercised in good
                faith.

          (n) Loan Advance, Complete Records.  Subject to the provisions of
                this Agreement, Lender shall advance funds to Borrower as
                evidenced by the Note. For all purposes including but not
                limited to making advances under this Agreement, the other Loan
                Documents and any related documents, instruments or
                certificates, the records of Lender for such account shall be
                the full, complete and conclusive record of the transactions
                between Borrower and Lender.

                                       15
<PAGE>

          (o) Liability Joint and Several. If more than one party is named as
                Borrower hereunder, as Mortgagor under the Mortgage, Maker under
                the Note, or named under any guaranty, document, certificate,
                instrument, or agreement, the liability of each such person
                shall be joint and several.

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and in the year first above written.

Borrower

Jameson Inns, Inc.

By:
    --------------------------------------
     Craig R. Kitchin, President



Lender

Geneva Leasing Associates, Inc.


By:
    --------------------------------------
     John F. Slade, Senior Vice President



STATE OF ______________)
                       )ss:
COUNTY OF ___________  )

     Personally appeared before me, the undersigned, a Notary Public in and for
said County and State, Craig R. Kitchin,  known to me to be President of Jameson
Inns, Inc., a Georgia Limited Liability Company, the Borrower above, and for and
on behalf of, Jameson Inns, Inc.

     IN WITNESS WHEREOF, I have hereunto set my hand and Notarial Seal this
___th day of September, 2000.

                                         My Commission Expires:
------------------------                                        --------------
     Notary Public

                                         County of Residence:
------------------------                                      ----------------
     Printed Name

                                       16
<PAGE>

              ATTENTION:  County Recorder of Allen County, Indiana



     --This instrument covers goods that are or are to become fixtures on the
     real property described herein and is to be filed for record in the records
     where mortgages on real estate are recorded. Additionally, this instrument
     should be appropriately indexed, not only as a mortgage, but also as a
     financing statement covering goods that are or are to become fixtures on
     the real property described herein. The Mortgagor is the "Debtor" and its
     name and mailing address are set forth in the preamble of this instrument.
     The "Secured Party" is the Mortgagee and its name and mailing address for
     which information concerning the security interest granted herein may be
     obtained are set forth in the preamble of this instrument.--

                         MORTGAGE, ASSIGNMENT OF RENTS,
                         ------------------------------
                   SECURITY AGREEMENT AND FINANCING STATEMENT
                   ------------------------------------------

THIS MORTGAGE, ASSIGNMENT OF RENTS, SECURITY AGREEMENT AND FINANCING STATEMENT
("Mortgage") made this 27th day of September, 2000, between:

                               Jameson Inns, Inc.
                             A Georgia Corporation
                       8 Perimeter Center East Suite 8050
                             Atlanta, Georgia 30346

("Mortgagor" sometimes referred to as "Borrower") and Geneva Leasing Associates,
Inc., an Illinois corporation, its participants, successors and assigns, One
West Illinois Street, Suite 230, St. Charles, Illinois  60174, Attention:
President ("Mortgagee" sometimes referred to as "Secured Party").

                                  WITNESSETH:

The Mortgage is given to secure the principal payment of up to:

       Two Million Eight Hundred Twenty Five Thousand and 00/100 Dollars
                                ($2,825,000.00)

with interest, due on or before September 27, 2009, according to the terms of
that certain Note (the "Note") issued by Mortgagor to the order of Mortgagee and
to secure the payment and performance of the Liabilities as defined herein and
including the other indebtedness and the covenants herein contained.

     1. Liabilities.  For the purposes of this Mortgage, the Loan Agreement
        -----------
("Agreement") entered into

                                       17
<PAGE>

between Borrower and Lender, the Note, or any Guaranty or any mortgage or
security agreement given by any Guarantor or other person and the other Loan
Documents (as defined in the Agreement), "Liabilities" shall mean and include
all of the following:

       (a) any payment due under the Note and any future modifications,
           extensions or renewals of the Note;

       (b) all indebtedness of any kind arising under, and all amounts of any
           kind which at any time become due or owing under or with respect to
           the Agreement, the Mortgage, or the other Loan Documents;

       (c) all of the covenants, obligations and agreements (and the truth of
           all representations and warranties whether contained in any Loan
           Documents or in any related statement, certificate, document,
           affidavit or other related writing) in, under or pursuant to the Loan
           Documents;

       (d) all advances, including future advances, costs or expenses including,
           but not limited to, such advances, costs or expenses paid or incurred
           to protect any or all of the Collateral (as defined herein) or the
           collateral security defined or described in any of the Loan
           Documents, perform any obligation of the Borrower, Mortgagor or
           Guarantor or collect any amount owing under the Loan Documents;

       (e) any and all other liabilities, obligations, and indebtedness and
           damages, howsoever created, arising or evidenced, direct or indirect,
           absolute or contingent, matured or unmatured, whether Mortgagor is
           liable primarily or secondarily, jointly or severally, recourse or
           nonrecourse, now or hereafter existing or due or to become due, owing
           by the Mortgagor or Borrower; and

       (f) all costs of enforcement and collection of this Mortgage, the
           Agreement, the Note, any Guaranty, or any other Loan Documents and
           otherwise in connection with any of the Liabilities.

"Liabilities" shall also mean and include all future obligations and advances
made by Lender to Borrower, however made, (it being understood that Lender has
no obligation to make any such further advances to Borrower pursuant to the Loan
Documents), up to a maximum amount of two hundred percent (200%) of the original
principal amount of the Note, and such future obligations shall be secured by
this Mortgage to the same extent as if made on the date of execution of this
Mortgage.

     2. Collateral.  To secure the timely payment and performance of the
        ----------
Liabilities, Mortgagor hereby assigns, transfers and conveys to Lender its
interest in the following property (collectively referred to herein as the
"Collateral"):

       (a) Mortgage.  To secure the prompt performance and repayment of
           --------
     principal and payment of interest on the Note and all other Liabilities
     including any other indebtedness, obligations

                                       18
<PAGE>

     and covenants herein contained, Mortgagor hereby mortgages and warrants to
     Mortgagee the tract of land lying in the County of Allen, State of Indiana,
     legally described on Exhibit A hereto (the "Land") together with (all of
     the following, together with the Land, referred to herein as the "Mortgaged
     Premises"):

     (i)   all of the buildings, structures and other improvements now standing
           or at any time thereafter constructed or placed upon the Land;

     (ii)  all building supplies and materials of any kind now or hereafter
           located on the Land suitable for incorporation into the improvements
           located on the Land or intended to be incorporated in such
           improvements;

     (iii) all heating, plumbing and lighting apparatus, motors, engines and
           machinery, electrical equipment, incinerator apparatus, air
           conditioning equipment, water and gas apparatus, pipes, faucets, and
           all other fixtures of every description which are now or may
           hereafter be installed or placed in any building or improvement now
           or hereafter located on the Land;

     (iv)  all carpeting, draperies, furniture, furnishings, maintenance
           equipment, excluding computer equipment and related software, and all
           other personal property of any kind whatsoever that may now or
           hereafter be located in or used in connection with the use,
           operation, and maintenance of any buildings or improvements now or
           hereafter located on the Land;

     (v)   all additions, accessions, increases, parts, fittings, accessories,
           replacements, substitutions, betterments, repairs and proceeds to any
           and all of the foregoing; and

     (vi)  all privileges, hereditaments, easements, appurtenances, estates,
           rents, issues, profits, condemnation awards, insurance proceeds and
           other rights and interests now or hereafter belonging or in any way
           pertaining to the Land or to any building or improvement now or
           hereafter located thereon.

     To have and to hold the Mortgaged Premises unto the Mortgagee, its
     participants, successors and assigns forever. Provided, nevertheless, that
     this Mortgage is upon the express condition that if the principal of and
     interest on the Note and all other indebtedness including the Liabilities,
     shall be paid as and when due, and the Mortgagor shall also keep and
     perform all and singular the covenants herein contained on the part of the
     Mortgagor to be kept and performed, then this Mortgage and the estate
     hereby granted shall cease, become void and shall be released of record at
     the expense of the Mortgagor; otherwise this Mortgage shall remain in full
     force and effect.

     The Mortgagor represents, warrants and covenants to and with the Mortgagee
     that it is lawfully seized of the Mortgaged Premises in fee simple and has
     good right and full power and authority under all applicable provisions of
     law to execute this Mortgage and to mortgage the Mortgaged Premises; that
     the Mortgaged Premises are free from all liens

                                       19
<PAGE>

     and encumbrances except those acceptable to Mortgagee as set forth in
     Exhibit B attached hereto (the "Permitted Encumbrances"); that the
     Mortgagee shall quietly enjoy and possess the Mortgaged Premises; that the
     Mortgagor will warrant and defend the title to the Mortgaged Premises
     against all claims, whether now existing or hereafter arising, not
     hereinbefore expressly excepted; and that all buildings and improvements
     now or hereafter located on the Land are, or will be, located entirely
     within the boundaries of the Land. The covenants of this paragraph shall
     run with the land, survive foreclosure of this Mortgage and be valid
     against Mortgagor or those claiming by, under or through Mortgagor, from
     the date of recording this Mortgage.

       (b) Assignment of Leases and Rents.  Subject to any sale, assignment,
           ------------------------------
     transfer or set over made as a part of any of the Permitted Encumbrances,
     Mortgagor hereby sells, assigns, transfers and sets over to Mortgagee all
     leases now or hereafter affecting the Mortgaged Premises and all rents,
     profits or other income or payments due or to become due (the "Rent
     Assignment") with respect to the Mortgaged Premises, whether before or
     after foreclosure or during any redemption period, including the period of
     deficiency in repayment, during any receivership created hereunder as
     additional security for the repayment of the Note and all other Liabilities
     including any other indebtedness and covenants herein contained, and
     Mortgagor hereby further agrees that Mortgagee shall have the power,
     pursuant to this Mortgage, irrevocably to manage, control and lease the
     Mortgaged Premises  to the fullest extent permitted by law.  Upon the
     occurrence of an Event of Default, Mortgagee shall have the remedies set
     forth herein. The covenants of this paragraph shall run with the land, and
     be valid against Mortgagor or those claiming by, under or through
     Mortgagor, from the date of recording this Mortgage.

     This Rent Assignment shall continue to be operative during the period of
     any foreclosure or other action to enforce this Mortgage, during any
     receivership created hereunder and during the period of redemption
     including the period of deficiency in the repayment of the amounts secured
     hereby. Mortgagor acknowledges that this Rent Assignment is given as
     collateral security only and shall not be construed as obligating Mortgagee
     to perform any of the covenants or undertakings required to be performed by
     Mortgagor that are contained in any such assigned leases. In the event of
     surrender or taking possession of the Mortgaged Premises by Mortgagee upon
     Mortgagor's default, Mortgagee may collect the rents and income therefrom,
     rent or lease the Mortgaged Premises or any portion thereof upon such terms
     and conditions as Mortgagee may deem, in its sole discretion, advisable and
     apply all proceeds derived therefrom to the payment of principal and
     interest on the Note or to other costs and expenses relating to the
     Mortgaged Premises including, but not limited to taxes, insurance premiums,
     repairs and preservation costs and expenses.

       (c) Other Property.  To secure the prompt performance and repayment of
           --------------
     principal and payment of interest on the Note and all other Liabilities
     including any other indebtedness and the covenants  herein contained,
     Mortgagor hereby pledges, sells, assigns, transfers and grants to
     Mortgagee, subject to any Permitted Encumbrances, a first priority security
     interest in the following items of property:

                                       20
<PAGE>

     (i)   all building supplies and materials, equipment (excluding computer
           equipment and related software), fixtures and furnishings (including,
           but not limited to, all motors, engines, boilers, elevators,
           machinery, heating, plumbing, incinerator and lighting apparatus,
           electrical equipment, heating and air conditioning equipment, water
           and gas apparatus, pipes, faucets, and all other fixtures of every
           description, plumbing, communication devices, stoves, refrigerators,
           carpeting, shades, awnings, screens, storm sashes, blinds and
           equipment, drapes, furniture, furnishings, maintenance equipment,
           goods and other personal property) now or hereafter located or
           intended to be located on the Mortgaged Premises of whatsoever type
           or nature whether now owned or hereafter acquired by Mortgagor,
           including all additions, accessions, increases, parts, fittings,
           accessories, replacements, repairs, betterments and substitutions
           thereto and proceeds thereof;

     (ii)  all inventory, accounts, contract rights, instruments, documents,
           general intangibles, chattel paper and products and proceeds
           (including insurance proceeds) thereof arising from or in any way
           related to the use, occupation or operation of Borrower's business
           regarding the Mortgaged Premises or lease of inventory or space
           contained in the Mortgaged Premises or the conduct of Borrower's
           business related thereto, in all of Borrower's related books, records
           (whether in binders, computer disc or tape or otherwise) and general
           intangibles (including but not limited to any license, certificate of
           occupancy or operation that may be issued to or for the benefit of
           Borrower, and products or proceeds whether cash or non-cash thereof
           (including insurance proceeds); and

     (iii) in the case of each of the foregoing, including items whether now
           owned or hereafter acquired by Mortgagor including but not limited to
           all additions, accessions, replacements, repairs, and substitutions
           thereto and proceeds thereof (including insurance and tort claims.)

           Mortgagor hereby covenants and agrees that upon the occurrence of an
           Event of Default hereunder, Mortgagee may, in addition to any equity,
           exercise all rights granted to it under the applicable version of the
           Uniform Commercial Code, or other applicable law. A carbon,
           photograph or other reproduction of this Mortgage may be filed as a
           financing statement.

     3.   Security Agreement.  For the purposes of satisfying any requirements
          ------------------
of law regarding this security agreement:

       (a) The names and addresses of the debtor (that is, the Borrower) and the
           Secured Party are stated on the first page of the Mortgage;

       (b) The name and address of the record owner of the Mortgaged Premises is
           the same as the Mortgagor;

       (c) This document covers goods which are or are to become fixtures;

                                       21
<PAGE>

       (d) Information concerning the security interest evidenced by this
           instrument may be obtained from the Secured Party at its address;

       (e) Mortgagor shall execute and if directed by Mortgagee shall file
           financing statements and do whatever Mortgagee requests to perfect
           and continue the Mortgagee's interest in the Collateral or the
           Mortgaged Premises or to otherwise carry out the intent of the
           Mortgage, all at Mortgagor's expense. No financing statement is now
           or will be on file in any public office with respect to the
           Collateral except the Mortgagee's pursuant to this Mortgage.
           Mortgagee is hereby appointed Mortgagor's attorney-in-fact to do, at
           Mortgagor's expense, all acts and things that Mortgagee may deem
           necessary to perfect and continue the security interest created by
           this Mortgage, and to obtain possession of and protect the
           Collateral; and

       (f) Mortgagee shall have the right, power and authority in its own name
           or in the name of Mortgagor to ask, demand, collect, receive, receipt
           for, sue for, compound and give acquittance for any of the
           Liabilities, including obligations or other amounts due or to become
           due under or with respect to the Mortgaged Premises or other
           Collateral or arising therefrom, with full power to settle, adjust or
           compromise any claim as fully as Mortgagor itself could do, and to
           endorse the name of Mortgagor on all commercial paper given in
           payment or part payment thereof, and in its discretion to file any
           claim or take any action or proceeding either in its own name or in
           the name of Mortgagor or otherwise, which Mortgagee may deem
           necessary or appropriate to collect any and all sums which may be or
           become due or payable under the Collateral, or which may be necessary
           or appropriate to protect and preserve the right, title and interest
           of Mortgagee in and to such sums or security. The power of attorney
           hereby created is a power coupled with an interest with full power of
           substitution.

     4. Covenants.  Mortgagor makes and includes in this Mortgage any covenants
        ---------
or other provisions set forth in Indiana Law, or in any future Law providing for
a statutory form of real estate mortgage, and Mortgagor covenants with Mortgagee
the following covenants:

       (a) To warrant the title to the Mortgaged Premises and that Mortgagor is
           lawfully seized of said Mortgaged Premises and other Collateral in
           fee simple and has good right to convey the same, and the Mortgaged
           Premises and other Collateral are free from all encumbrances except
           Permitted Encumbrances.

       (b) To pay the Liabilities when due.

       (c) To pay all taxes and assessments before penalty attaches for
           nonpayment.

       (d) To maintain insurance as provided in the Agreement.

       (e) To keep the Collateral in good repair and not to commit waste and to
           comply with the

                                       22
<PAGE>

           requirements of all applicable laws, ordinances and regulations and
           private restrictions.

       (f) To perform and observe the terms, conditions, agreements, or
           covenants set forth in the Agreement.

     5. Additional Covenants and Agreements of Mortgagor.  Mortgagor makes the
        -------------------------------------------------
following additional covenants and agreements with Mortgagee:

       (a) Any award of damages under condemnation or payment in lieu hereof for
           injury to, or the taking of all or any part of the Collateral is
           hereby assigned to Mortgagee with authority to apply the proceeds on
           the Note. All such proceeds shall be applied first to accrued
           interest, if any, and then to the principal amount outstanding on the
           Note.

       (b) Any proceeds of any insurance payable by reason of loss or damage to
           the Collateral is hereby assigned and shall be paid to Mortgagee with
           authority to apply the proceeds in accordance with the provisions of
           the Agreement.

       (c) Mortgagor will hold Mortgagee harmless from all costs and expenses
           incurred in connection with establishing the priority of this
           Mortgage, and if Mortgagee becomes a party to any mechanic's lien
           suit or other proceeding relating to the Collateral or to this
           Mortgage, Mortgagor will reimburse Mortgagee for Mortgagee's
           reasonable attorneys' fees, costs and expenses in connection with
           said suit or proceeding.

       (d) Mortgagor will not sell, convey, mortgage, pledge, grant a security
           interest in or otherwise transfer or encumber all or any part of the
           Mortgaged Premises or the other Collateral (except for sale or trade-
           in of obsolete Collateral and replacement with new Collateral of
           comparable quality or sale of inventory in the ordinary course of
           business) or any interest therein except as may be expressly
           permitted (i) under the provisions of the Agreement (including any
           supplement) or (ii) with the prior written consent of Mortgagee.

       (e) Mortgagor will hold and apply tenants' security deposits, if any, as
           required by applicable Law. Mortgagor will keep and perform the
           covenants of lessor under any leases covering the Mortgaged Premises
           and the covenants of a lessor and a licensor pursuant to applicable
           Law.

       (f) Other than as disclosed on the list of Permitted Encumbrances,
           Mortgagor has good title, free from all security interests, liens and
           other encumbrances, to all fixtures and Collateral and other
           Collateral mortgaged and secured hereby. Other than as disclosed on
           the list of Permitted Encumbrances, no other financing statements or
           mortgages covering the Collateral is on file or recorded in any
           office.

       (g) Mortgagor has made and will make no assignment (except to Mortgagee)
           of any leases or rentals from the Collateral.

       (h) Mortgagor will promptly pay when due all charges for utilities or
           other services to the

                                       23
<PAGE>

           Mortgaged Premises and the other Collateral including, but not
           limited to, electricity, water, gas, telephone, sanitary sewer and
           trash and garbage removal, and upon request of Mortgagee, provide
           evidence of such payment.

       (i) If Mortgagor fails to pay taxes or assessments, charges, prior liens
           or encumbrances, expense or attorneys' fees as specified herein, the
           Mortgagee, for itself or its assigns, may pay such taxes,
           assessments, prior liens, expenses, attorneys' fees, and all interest
           thereon, or effect such insurance, and sums so paid shall bear
           interest at the Default Rate from the date of such payment until paid
           by Mortgagor, shall be an additional lien on the Collateral, and
           shall be immediately due and payable from the Mortgagor, and
           repayment thereof shall be secured by this Mortgage.

       (j) Mortgagee shall be entitled to inspect the Collateral at reasonable
           times during normal business hours and at all times during any
           emergency.

       (k) The Mortgaged Premises as improved on the date hereof, and shall so
           long as this Mortgage is in effect, comply with all requirements of
           laws, requirements of any federal, state, county, city or other
           governmental authority having jurisdiction over the Mortgagor, the
           Mortgaged Premises and other Collateral including, but not limited
           to, any applicable zoning, occupational, safety and health, energy
           and environmental laws, ordinances and regulations; and the Mortgagor
           has obtained and will obtain all necessary consents, permits and
           licenses to construct, occupy and operate the Collateral, for its
           intended purposes.

     6. Events of Default/Acceleration of Maturity.  Subject to the Event of
        ------------------------------------------
Default provisions of the Agreement regarding notice and the passage of time
upon the occurrence of an Event of Default, Mortgagor agrees that at the option
of Mortgagee and in addition to Mortgagee's right to accelerate the maturity of
the indebtedness secured hereby, the entire remaining principal balance plus
accrued  interest and all other sums due and payable pursuant to the Loan
Documents shall become immediately due and payable in full upon the occurrence
of any of the following (each of which is hereby referred to as an "Event of
Default"):

       (a) Failure by Borrower to make any payment on the Note when due as
           provided in the Agreement;

       (b) The default by Mortgagor in the performance of any other covenants or
           agreements contained herein;

       (c) The occurrence of an Event of Default under the Agreement, any other
           agreement executed pursuant to the Agreement or the Loan Documents,
           or any agreement for money borrowed or property leased; or

       (d) The voluntary or involuntary bankruptcy, reorganization, or
           insolvency of the Mortgagor.

     7. Remedies.  Upon the occurrence of any Event of Default and without
        --------
regard to waste, adequacy of the security or solvency of Mortgagor, Mortgagee
may, at its option, have and exercise the following

                                       24
<PAGE>

remedies:

       (a) Apply to the Superior or Circuit Court of the county in which the
           Mortgaged Premises (or a part thereof) is located for the appointment
           of a receiver under Indiana Law, it being understood and agreed by
           Mortgagor that Mortgagee shall be entitled to the appointment of a
           receiver upon a showing that an Event of Default has occurred and is
           continuing under the terms of this Mortgage. A receiver so appointed
           shall apply all rents and profits and other income included in the
           Rent Assignment collected first as provided in accordance with the
           provision of the Mortgage and applicable law, and thereafter shall
           apply the rents and profits to the payment of the following items in
           the order indicated unless otherwise provided in the order, judgment
           or decree of any such court or as required by law: first, to any
           expenses related to the collection of such rents and profits, second,
           to the payment of any other Liabilities then due and payable; third,
           to the payment of principal and interest on any prior liens or
           encumbrances; and fourth, to the payment of interest and then
           principal on the Note;

       (b) Collect all rents and profits from the occupants of the Mortgaged
           Premises and apply all rents and profits so collected in the same
           manner as is provided in subparagraph (a) above where the rents are
           collected pursuant to the appointment of a receiver. In the event
           Mortgagee exercises its rights under this subparagraph (b), Mortgagee
           shall not, solely by reason thereof, be deemed to be a mortgagee-in-
           possession of the Mortgaged Premises;

       (c) Upon the occurrence of any Event of Default, at the option of the
           Mortgagee, the entire indebtedness evidenced by the Note and all
           other Liabilities, together with interest thereon at the rate
           applicable provided in the Note shall, notwithstanding any provision
           hereof and without demand or prior notice of any kind to the
           Mortgagor or to any other person, become immediately due and payable;

       (d) The Mortgagor hereby waives all right to the possession, income, and
           rents of the Collateral from and after the occurrence of any Event of
           Default, and the Mortgagee is hereby expressly authorized and
           empowered, at and following any such occurrence, in its sole
           discretion, to enter into and upon and take possession of the
           Collateral or any part thereof, to complete any construction in
           progress thereon at the expense of the Mortgagor, to lease the same,
           to collect and receive all rents and to apply the same, less the
           necessary or appropriate expenses of collection thereof, either for
           the care, operation and preservation of the Collateral or, at the
           election of the Mortgagee in its sole discretion, to a reduction of
           such of the Liabilities in such order as the Mortgagee may elect. The
           Mortgagee, in addition to the rights provided under the Agreement,
           the Note, and the Loan Documents is also hereby granted full and
           complete authority to enter upon the Mortgaged Premises, to continue
           any and all outstanding contracts for the erection and completion of
           improvements to the Mortgaged Premises and other Collateral, to make
           and enter into any contracts and obligations wherever necessary in
           its own name, and to pay and discharge all debts, obligations and
           liabilities incurred thereby, all at the expense of the Mortgagor.
           All such expenditures by the Mortgagee shall be Liabilities. Upon the
           occurrence of any Event of Default, the Mortgagee may also exercise
           any or all rights or remedies under the

                                       25
<PAGE>

           Agreement, the Note and the other Loan Documents; or

       (e) Upon the occurrence of any Event of Default, the Mortgagee shall also
           have the right immediately to foreclose this Mortgage. Upon the
           filing of any complaint for such purpose, the Mortgagor agrees that
           the court in which such complaint is filed shall, upon application of
           the Mortgagee or at any time thereafter, either before or after
           foreclosure sale, and without notice to the Mortgagor, or to any
           party claiming under the Mortgagor and without regard to the solvency
           or insolvency at the time of such application of any person then
           liable for the payment of any of the Liabilities, without regard to
           the then value of the Mortgaged Premises or other Collateral or
           whether the same shall be occupied, in whole or in part, as a
           homestead, by the owner of the equity of redemption, and without
           regarding any bond from the complainant in such proceedings, appoint
           a receiver for the benefit of the Mortgagee, with power to take
           possession, charge, and control of the Collateral, to lease the same,
           to realize on the Collateral, to keep the buildings thereon insured
           and in good repair, and to collect all rents during the pendency of
           such foreclosure suit, and, in case of foreclosure sale and a
           deficiency, during any period of redemption. The court may, from time
           to time, authorize said receiver to apply the net amounts remaining
           in the hands of the receiver, after deducting reasonable compensation
           for the receiver and its counsel as allowed by the court, in payment
           (in whole or in part) of any or all of the Liabilities, including but
           not limited to the following, in such order of application as the
           Mortgagee may elect:

          (i)   amounts due under the Note, this Mortgage, the Agreement, or the
                other Loan Documents;

          (ii)  amounts due upon any decree entered in any suit foreclosing this
                Mortgage;

          (iii) costs and expenses of litigation and foreclosure upon the
                Collateral;

          (iv)  insurance premiums, repairs, taxes, special assessments, water
                charges and interest, penalties and costs, in connection with
                the Collateral;

          (v)   any other lien or charge upon the Collateral that may be or
                become superior to the lien of this Mortgage, or of any decree
                foreclosing the same; and

          (vi)  all monies advanced by the Mortgagee to cure or attempt to cure
                any default by the Mortgagor in the performance of any
                obligation or condition contained in this Mortgage, the
                Agreement, the other Loan Documents, the Note or otherwise, to
                protect the security hereof provided herein, or in the Agreement
                or the other Loan Documents, with interest on such advances at
                the Default Rate.

          The surplus proceeds of sale or other disposition, if any, shall then
          be paid to the Mortgagor or upon reasonable request to any other
          person entitled thereto. This Mortgage may be foreclosed once against
          all, or successively against any portion or portions of the Mortgaged
          Premises or other Collateral, as the Mortgagee may elect, until all of
          the items

                                       26
<PAGE>

          of Collateral have been foreclosed against and sold or otherwise
          disposed of. As part of the foreclosure, Mortgagee in its discretion
          may, with or without entry, personally or by the attorney, sell or
          otherwise dispose of to the highest bidder all or any part of the
          Collateral, and all right, title, interest, claim and demand therein,
          and the right of redemption thereof, as an entirety, or in separate
          lots, as Mortgagee may elect, and in one sale or disposition or in any
          number of separate sales or dispositions held at one time or at any
          number of times, all in any manner upon such notice as provided by
          applicable law. Upon the completion of any such sale or sales or other
          disposition, Mortgagee shall transfer and deliver or cause to be
          transferred and delivered, to the purchaser or purchasers the property
          so sold or otherwise disposed of, in the manner and form as provided
          by applicable law, and Mortgagee is hereby irrevocably appointed the
          true and lawful attorney-in-fact of Mortgagor, in its name and stead,
          to make all necessary transfers of property thus sold or otherwise
          disposed of, and for that purpose Mortgagee may execute and deliver,
          for and in the name of Mortgagor, all necessary instruments of
          assignment and transfer, Mortgagor hereby ratifying and confirming all
          that said attorney-in-fact shall lawfully do by virtue hereof. In the
          case of any sale or other disposition of the Mortgaged Premises or
          other Collateral pursuant to any judgment or decree of any court at
          public auction or otherwise, Mortgagee may become the purchaser, and
          for the purposes of making settlement for or payment of the purchase
          or acquisition price, shall be entitled to deliver over and use the
          Note and any obligations thereunder in order that there may be
          credited as paid on the purchase or acquisition price the amount of
          those liabilities and obligations. In case of any foreclosure of this
          Mortgage (or the commencement of or preparation therefor) in any
          court, all expenses of every kind paid or incurred by the Mortgagee
          for the enforcement, protection or collection of this security,
          including without limitation repossessing, insuring, holding, repair
          and subsequent sale, lease or other disposition, court costs,
          attorneys' fees, stenographers' fees, costs of advertising, and costs
          of abstracts of title, tax histories or title insurance policies and
          any other documentary evidence of title, shall be paid by the
          Mortgagor and may be reimbursed or satisfied from the proceeds derived
          from the disposition of the Collateral. In the event of foreclosure
          the abstracts of title or title insurance shall become the property of
          Mortgagee.

          Mortgagor further understands that upon the occurrence of an Event of
          Default the Mortgagee may take possession of the personal property
          included in the Collateral including but not limited to Collateral
          located on the Mortgaged Premises and dispose of the same by sale or
          otherwise in one or more parcels provided that at least ten days'
          prior notice of the time and place of a public sale or the time after
          which any private sale or other intended disposition is to be made is
          given to the Mortgagor, all as provided for by the Indiana Uniform
          Commercial Code, as the same may hereafter be amended, or by any law
          or statute hereafter enacted in substitution thereof. Mortgagee may by
          notice require Mortgagor to assemble the personal property included in
          the Collateral and make it available to Mortgagee at a place to be
          designated by the Mortgagee which is reasonably convenient to
          Mortgagor and Mortgagee. Mortgagor agrees that for such purposes the
          Mortgaged Premises is such a place.

          Except as expressly stated herein, Mortgagor hereby relinquishes,
          waives and gives up its

                                       27
<PAGE>

          rights, if any, to notice before sale of the personal property
          included in the Collateral, and expressly consents and agrees that
          such Collateral may be disposed of pursuant to the Uniform Commercial
          Code. Each right, power or remedy herein conferred upon the Mortgagee
          is cumulative, non-exclusive and in addition to every other right,
          power or remedy, express or implied, now or hereafter arising,
          available to Mortgagee, at law or in equity, or under any other
          agreement, and each and every right, power and remedy herein set forth
          or otherwise so existing may be exercised from time to time as often
          and in such order as may be deemed expedient by the Mortgagee and
          shall not be a waiver of the right to exercise at any time thereafter
          any other right, power or remedy. No delay or omission by the
          Mortgagee in the exercise of any right, power or remedy arising
          hereunder or arising otherwise shall impair any such right, power or
          remedy or the right of the Mortgagee to resort thereto at a later date
          or be construed to be a waiver of any default or event of default
          under this Mortgage, the Security Agreement, the Agreement or the
          Note. The Mortgagor waives to the full extent lawfully allowed the
          benefit of any homestead, appraisement, evaluation, stay and extension
          laws now or herein in force. Mortgagor waives any rights available
          with respect to marshalling of assets so as to require the separate
          sales of any portion of the Collateral, or as to require the Mortgagee
          to exhaust its remedies against a specific portion of the Collateral
          before proceeding against the other and does hereby expressly consent
          to and authorize the sale or other disposition of the Collateral or
          any part thereof as a single unit or parcel or as separate parcels.
          Mortgagee shall have the right to dispose of all or any of the
          Collateral at public or private sale, including a public auction on
          the Land, to the extent permitted by Indiana law or where the
          Collateral is kept pursuant to the terms of this Mortgage.

       IN THE EVENT THE MORTGAGEE EXERCISES ITS RIGHTS UNDER THE RENT
     ASSIGNMENT, THE MORTGAGOR HEREBY WAIVES ANY RIGHT TO ANY NOTICE OTHER THAN
     THAT PROVIDED FOR SPECIFICALLY BY STATUTE, OR TO ANY JUDICIAL HEARING PRIOR
     TO SUCH SALE OR OTHER EXERCISE OF RIGHTS.

     8. Hazardous Materials.  Mortgagor covenants, represents and warrants to
        -------------------
Mortgagee, its participants, successors and assigns, that the Mortgaged Premises
and the other Collateral and its existing and, other than as expressly provided
below, prior use comply with and have at all times, except as so provided below,
complied with, and Mortgagor is not in violation of, has not violated and will
not violate, in connection with the ownership, use, maintenance or operation of
the  Mortgaged Premises and the other Collateral and the conduct of the business
related thereto, any applicable federal, state, county or local statutes, laws,
regulations, rules, ordinances, codes, standards, orders, licenses and permits
of any governmental authorities relating to environmental matters (being herein
collectively referred to as the "Environmental Laws"), and further covenants,
represents and warrants that:

       (a) the Mortgaged Premises and other Collateral are in full compliance
           with the Clean Air Act, the Federal Water Pollution Control Act of
           1972, the Resource Conservation and Recovery Act of 1976, and the
           Comprehensive Environmental Response, Compensation and Liability Act
           of 1980, and the Toxic Substances Control Act (including any
           amendments or extensions thereof and any rules, regulations,
           standards or guidelines issued pursuant to any of said Environmental
           Laws);

                                       28
<PAGE>

       (b) each of Mortgagor, its agents, employees and independent contractors,
           (i) has and will operate the Mortgaged Premises and the other
           Collateral and has and at all times will receive, handle, use, store,
           treat, transport and dispose of all petroleum products and all other
           toxic, dangerous or hazardous chemicals, materials, substances,
           pollutants and wastes, and any chemical, material or substance
           exposure to which is prohibited, limited or regulated by any federal,
           state, county, regional or local authority or which even if not so
           prohibited, limited or regulated, may or could pose a hazard to the
           health and safety of the occupants of the Mortgaged Premises or the
           occupants and/or owners of property near the Mortgaged Premises (all
           the foregoing being herein collectively referred to as "Hazardous
           Materials") in strict compliance with all applicable environmental,
           health or safety statutes, ordinances, orders, rules, standards,
           regulations or requirements and other Environmental Laws and (ii)
           subject to the provisions of the preceding clause (i), has removed,
           except as disclosed in a written report furnished to Mortgagee within
           thirty (30) days prior to the date hereof ("disclosure document"),
           and will remove, from the Mortgaged Premises all Hazardous Materials;

       (c) there are no existing or pending statutes, orders, standards, rules
           or regulations relating to environmental matters requiring any
           remedial actions or other work, repairs, construction or capital
           expenditures with respect to the Mortgaged Premises or other
           Collateral, nor has Mortgagor received any notice of any of the same;

       (d) except as stated in the disclosure document, no Hazardous Materials
           have been or will be released into the environment, or have been or
           will be deposited, spilled, discharged, placed or disposed of at, on
           or near the Mortgaged Premises, nor has or will the Mortgaged
           Premises or other Collateral be used at any time by any person as a
           landfill or a disposal site for Hazardous Materials or for garbage,
           waste or refuse of any kind;

       (e) there are no electrical transformers or other equipment containing
           dielectric fluid containing polychlorinated biphenyls located in, on
           or under the Mortgaged Premises, nor, except as stated in the
           disclosure document, is there any friable asbestos contained in, on
           or under the Mortgaged Premises, nor will Mortgagor permit the
           installation of same;

       (f) there are no locations off the Mortgaged Premises where Hazardous
           Materials generated by or on the Mortgaged Premises have been
           treated, stored, deposited or disposed of;

       (g) there is no fact pertaining to the physical condition of either the
           Mortgaged Premises or other Collateral or the area surrounding the
           Mortgaged Premises (i) which Mortgagor has not disclosed to Mortgagee
           in writing prior to the date of this Mortgage, and (ii) which
           materially adversely affects or will materially adversely affect the
           Mortgaged Premises or other Collateral or the use or enjoyment or the
           value thereof, or Mortgagor's ability to perform the transactions
           contemplated by this Mortgage;

       (h) the mortgaging of the Mortgaged Premises or transfer of a security
           interest in the other Collateral by Mortgagor to Mortgagee does not
           require notice to or the prior approval,

                                       29
<PAGE>

           consent or permission of any federal, state or local governmental
           agency, body, board of official;

       (i) no notices of any violation of any of the matters referred to in the
           foregoing sections relating to the Mortgaged Premises or other
           Collateral or its use have been received by Mortgagor and there are
           no writs, injunctions, decrees, orders or judgments outstanding, no
           lawsuits, claims, proceedings or investigations pending or
           threatened, relating to the ownership, use, maintenance or operation
           of the Mortgaged Premises or other Collateral, nor is there any basis
           for any such lawsuit, claim, proceeding or investigation being
           instituted or filed;

       (j) the Mortgaged Premises is not listed in the United States
           Environmental Protection Agency's National Priorities List of
           Hazardous Waste Sites nor any other log, list, schedule, inventory or
           record of Hazardous Material or Hazardous Waste sites whether
           maintained by the United States, any state or local governmental
           unit; and

       (k) the Collateral is in full compliance with all other applicable
           environmental standards or requirements.

The Mortgagor agrees to indemnify and reimburse the Mortgagee, its participants,
successors and  assigns, for any breach  of these representations and
warranties, and from any loss, damage, expense or cost arising out of or
incurred by Mortgagee which is the result of a breach of, misstatement of or
misrepresentation of the above covenants, representations and warranties, or for
any loss, damage, expense or cost sustained as a result of there being located
on, in or under on the Mortgaged Premises or other Collateral any Hazardous
Materials or dangerous, toxic or hazardous pollutants, chemicals, wastes or
substances, together with all  attorneys' fees incurred in connection with the
defense of any action against the Mortgagee arising out of the above.  These
covenants, representations, warranties and indemnities shall be deemed
continuing covenants, representations, warranties and indemnities running with
the land for, and inuring to, the benefit of the Mortgagee, and any
participants,  successors and assigns of the Mortgagee including any purchaser
at a mortgage foreclosure sale, and transfer of the title of the Mortgagee or
any subsequent purchase at a foreclosure sale or other disposition, and any
subsequent owner of the Mortgaged Premises or other Collateral claiming through
or under the title of Mortgagee and shall survive any foreclosure of this
Mortgage and any acquisition of title of Mortgagee. The amount of all such
indemnified loss, damage, expense or cost, shall bear interest thereon at the
Default Rate  and shall become additional indebtedness secured hereby and shall
become immediately due and payable in full on demand of the Mortgagee, its
participants,  successors and  assigns.

     9. Miscellaneous.  This Mortgage shall be effective as a fixture filing in
        -------------
accordance with, the Indiana version of the Uniform Commercial Code. This
Mortgage shall be governed by and construed in accordance with the laws of the
State of Indiana and shall inure to the benefit of Mortgagee, its participants,
successors and assigns. Whenever possible, each provision of this Mortgage shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Mortgage shall be prohibited by or unenforceable or
invalid under applicable law, such provision shall be ineffective but only to
the extent of such prohibition, unenforceability or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Mortgage. The captions and headings

                                       30
<PAGE>

of the various sections of this Mortgage are for convenience only and are not to
be construed as confining or limiting in any way the scope or intent of the
provisions hereof. Whenever the context requires or permits the singular shall
include the plural, the plural shall include the singular and the masculine,
feminine and neuter shall be freely interchangeable. Any notice which any party
hereto may desire or may be required to give to any other party shall be in
writing and the mailing thereof by certified mail to their respective addresses
as set forth herein, or to such other places any party hereto may hereafter by
notice in writing designate, shall constitute service of notice hereunder. The
liability of each party named as a Mortgagor under this Mortgage shall be joint
and several.

The provisions of the Agreement shall supplement the provisions of this Mortgage
and in the event of any conflict the provisions of the Agreement shall control.
Unless defined herein capitalized terms used herein shall have the meanings
ascribed to them in the Agreement.

IN WITNESS WHEREOF, the Mortgagor, or its authorized representative, has
executed this Mortgage the day, month and year first appearing above.


"Mortgagor"


Jameson Inns, Inc.



By:
    --------------------------------------
     Craig R. Kitchin, President

                                       31
<PAGE>

STATE OF INDIANA       )
                       )ss:
COUNTY OF ___________  )

     Personally appeared before me, the undersigned, a Notary Public in and for
said County and State, Craig R. Kitchin known to me to be the President of
Jameson Inns, Inc.,  a Georgia Corporation, the Mortgagor above, and for and on
behalf of Jameson Inns, Inc., acknowledged the execution of the above and
foregoing Mortgage, Assignment of Rents, Security Agreement and Financing
Statement.

     IN WITNESS WHEREOF, I have hereunto set my hand and Notarial Seal this ___
day of September, 2000.

                                         My Commission Expires:
----------------------------                                    --------------
       Notary Public

                                         County of Residence:
----------------------------                                  ----------------
    (Printed Signature)

This instrument was prepared by:
James H. Porter
for:
Geneva Leasing Associates, Inc.
One West Illinois Street, Suite 230
St. Charles, IL 60174

                                       32
<PAGE>

                                   Exhibit A
               Mortgage, Assignment of Rents, Security Agreement
                            and Financing Statement
                                    between
                        Jameson Inns, Inc.("Mortgagor")
                                      and
                 Geneva Leasing Associates, Inc. ("Mortgagee")

                               Legal Description

Parcel I

Part of Lot Number 5 and all of Lot Number 6, except that part taken for right-
of-way purposes for Indiana State Highway #3, in Kahn's Suburban Addition to the
City of Fort Wayne, Indiana (Plat Book 16, page 186), lying in the Southeast
quarter of Section 15, Township 31 North, Range 12 East, more particularly
described as follows, to-wit:

BEGINNING at the Southwest corner of said Lot Number 5; thence North 02 degrees
33 minutes West (North 02 degrees 36 minutes West - Deed) on and along the West
lines of said Lots Numbered 5 and 6, a distance of 318.91 feet (319.1 feet -
Deed) to the Northwest corner of said Lot Numbered  6; thence North 88 degrees
35 minutes East (North 88 degrees 40 minutes East - Deed), on and along the
North line of said Lot Number 6, a distance of 388.03 feet (388.1 feet - Deed)
to the West right-of-way line of Indiana State Highway #3; thence Southeasterly
on and along said West right-of-way line, along a regular curve to the left with
a radius of 2,939.79 feet, an arc distance of 59.30 feet (59.58 - Deed)[the
chord of which bears South 13 degrees 20 minutes East (South 13 degrees 19
minutes East - Deed) for a length of 59.30 feet (59.58 feet - Deed)]; thence
South 12 degrees 27 minutes East (South 12 degrees 26 minutes East -Deed) on and
along said right-of-way line 103.29 feet (102.82 feet - Deed); thence
Southeasterly, continuing on said West right-of-way, along a regular curve to
the left with a radius of 2, 944.79 feet, and arc distance of 108.28 feet
(108.57feet - Deed)[the chord of which bears South 18 degrees 27 minutes East
(South 16 degrees 39 minutes East - Deed) for a length of 108.27 feet (108.56
feet - Deed)]; thence South 88 degrees 48 minutes West (South 89 degrees 17
minutes West - Deed) 285.30 feet; thence South 41 degrees 18 minutes West, 52.60
feet; thence South 02 degrees 37 minutes East, 20.00 feet to the South line of
said Lot number 5; thence South 89 degrees 20 minutes West (South 89 degrees 17
minutes West -Deed) on and along said North line, 124.90 feet (125.0 feet -
Deed) to the Point of Beginning.

Parcel II

An Easement for the purpose of ingress and egress for the benefit of Parcel I as
created by Warranty Deed dated November 30, 1973 and recorded December 13, 1973
as Document Number 73-30302 over and across the East 25 feet of the West 280
feet of Lot Number 4, and the East 25 feet of ;the West 280 feet of the South 60
feet of Lot Number 5 in said Kahn's suburban Addition.

                                       33
<PAGE>

                                   Exhibit A
               Mortgage, Assignment of Rents, Security Agreement
                          Legal Description Continued

Parcel III

A non-exclusive easement for sign and parking as set out in Agreement recorded
November 18, 1989 as Document Number 89-044289.

Parcel IV

An easement for drainage created in Agreement recorded December 1, 1988 as
Document Number 88-49302.

                                       34
<PAGE>

                                   Exhibit B
               Mortgage, Assignment of Rents, Security Agreement
                            and Financing Statement
                                   between
                        Jameson Inns, Inc. ("Mortgagor)
                                      and
                 Geneva Leasing Associates, Inc. ("Mortgagee")


Permitted Encumbrances

1.   Real estate taxes assesses for the year 1999 due and payable, taxes for the
     year 2000 are a lien but not yet due and payable and subsequent years,
     which are not a lien.

2.   Rights of public, the State of Indiana, and the municipality, in and to
     that part of the land, if any taken or used for Indiana State Highway #3,
     including utility rights of way.

3.   Easements, conditions, reservations and restrictions of record.

4.   Terms and conditions of Memorandum of Lease dated September 27, 2000
     entered into among Jameson Inns, Inc., as Landlord and Jameson Hospitality,
     LLC as Tenant, recorded as Instrument No. ______________.

                                       35
<PAGE>

                                      NOTE



$2,825,000.00                                           September 27, 2000


     FOR VALUE RECEIVED:

                               Jameson Inns Inc.
                             A Georgia Corporation
                       8 Perimeter Center East Suite 8050
                             Atlanta, Georgia 30346

("Maker"), unconditionally promises to pay to the order of Geneva Leasing
Associates, Inc., an Illinois corporation, its participants, successors and
assigns ("Lender") having its principal offices at One West Illinois Street,
Suite 230, St. Charles, IL  60174, at its principal offices, or to such other
person or at such other place as the holder of this Note ("Note") shall from
time to time designate, the principal amount of:

       Two Million Eight Hundred Twenty Five Thousand and 00/100 Dollars
                                ($2,825,000.00)

or, if less, the aggregate unpaid principal amount of all advances made by the
Lender to the Maker pursuant to that certain Loan Agreement (the "Agreement"),
incorporated herein by the reference, entered into as of even date herewith,
together with interest on the principal balance from time to time remaining
unpaid, at the rate per annum of 9.53% (the "Interest Rate"). Interest will be
computed on the basis of a year of 360 days, which shall consist of twelve
thirty day periods. The principal of and interest on this Note is due and
payable in monthly installments commencing on the same day (as the day indicated
above) of the following month (or next business day if such day is a Saturday,
Sunday or holiday for the Lender) and of each month thereafter and in an amount
equal to the amount set forth on the attached Loan Amortization Schedule.

     The Interest Rate shall be adjusted on each thirty six (36) month
anniversary date throughout the term.  The adjusted rate shall be based on the
average three-year (3 year) treasury constant maturities rate for the week prior
to such anniversary date, as set forth in the Federal Reserve statistical
release H.15 or its successor plus 350 basis points. Notwithstanding the
foregoing, the Interest Rate, as adjusted, in no event shall be lower than 9.00%
per annum throughout the term.

     This Note is for a term of one hundred eight (108) months beginning on the
date first appearing above. If not paid earlier, any unpaid amounts shall be due
and payable on the last day of the term.  The repayment of principal and
interest shall be amortized over a two hundred forty (240) month period. At the
time any reamortization of payments occurs, the amortization period shall be two
hundred forty (240) months  minus the number of  months between the date first
appearing above and the date the revised amortization schedule is to take
effect. Lender is authorized consistent with the provisions set forth above to
revise the Amortization Schedule and Maker agrees to be bound by the payment
amounts and other terms. Maker acknowledges that the Amortization Schedule will
be revised when (i) future advances

                                       36
<PAGE>

occur; (ii) upon the discovery of a mathematical error; (iii) Lender applies a
principal prepayment made on account of a casualty loss; (iv) any adjustment in
the Interest Rate occurs; or (v) upon prepayment of principal as permitted
below.

     In the event that the index referred to above shall cease to be available,
the Lender will select a reasonably equivalent substitute index which is based
on substantially comparable information, and will calculate and adjust the rate
of interest hereunder in the same manner as above provided.  In each case the
Interest Rate shall equal the substituted index plus the applicable percentage
or basis points. The Lender will notify the Maker of any substituted index so
selected.

     Upon receipt of the scheduled monthly payments specified in this Note such
amount shall be applied first to the payment of interest and the second to, the
reduction of principal.

Maker shall have the right to prepay this Note at any time, upon payment of the
following premium, payable in addition to accrued interest and the unpaid
principal amount that Maker intends to prepay (the "Principal Prepayment"),
which premium shall be the premium amount (expressed as a percentage of the
Principal Prepayment) set forth opposite the monthly period during which such
prepayment is made:

             Monthly Period                Premium
             --------------                -------

                 1 - 36                      2.0%
                37 - 72                      1.0%
                73 - 108                     0.0%

The Loan Amortization Schedule shall be revised to reflect such principal
payment upon the next scheduled occurrence of an Interest Rate adjustment.  Any
prepayment shall be in a minimum amount which is the lesser of the unpaid
principal or $25,000 or whole number multiples thereof and shall not be made
more frequently than every twelve months.

     Upon the occurrence of an Event of Default,  the maturity date of any
outstanding principal owing under this Note may be accelerated and together with
accrued interest be declared immediately due and payable.  Maker shall be
obligated for all costs of collection and reasonable attorneys' fees incurred by
the holder in the protection of any security for this Note or the collection of
indebtedness evidenced hereby, all without relief from valuation or appraisement
laws.  Upon the occurrence of an Event of Default such amounts, costs and fees
shall accrue interest at the Default Rate.   The Default Rate shall be equal to
the sum of (i) the Interest Rate and (ii) two percent (2%).

     If any installment is not received within five (5) days after the date such
installment is due, Maker shall pay a late payment charge of five percent (5%)
of the amount of any such  installment or the maximum amount permitted by law,
whichever is less.

     Notwithstanding anything to the contrary appearing herein, any rate of
interest specified or described herein shall be limited by and shall not exceed
the maximum per annum rate allowed by applicable law with respect to business
purpose transactions involving entities of the same type as

                                       37
<PAGE>

Borrower, and if under any circumstance the holder of this Note should receive
as interest an amount which would exceed the highest lawful rate allowable under
applicable law, such amount which would be excessive interest shall be applied
to the reduction of the unpaid principal amount due under this Note and not to
the payment of interest, or if such excess interest exceeds the unpaid amount,
the excess shall be refunded to Borrower.

     This Note is given to evidence a loan made to Maker by Lender pursuant to
the provisions of the Agreement.  This Note is referred to in and is entitled to
the benefits and further security described in the Loan Documents.  Reference is
made to the Agreement as to provisions for acceleration or any prepayment rights
and requirements.

     This Note is negotiable and is payable in immediately available funds.
Presentment, notice of intent to accelerate, notice of acceleration, notice of
dishonor, demand, protest and diligence in collection and bringing suit are
hereby severally waived by Maker and each endorser, surety or guarantor, all of
whom further hereby severally consent that the time for the payment of this
Note, or of any installment of principal or interest hereunder, may be extended
from time to time without notice to any of them.  No waiver of any default or
failure or delay to exercise any right or remedy by the holder of this Note
shall operate as a waiver of any other default or of the same default in the
future or as a waiver of any right or remedy with respect to the same or any
other occurrence.

     The repayment of this Note is secured by collateral and rights thereof as
set forth in the Agreement.

     The liability of each party named as a Maker under the Note shall be joint
and several.

     This Note shall be construed in accordance with and governed by the
internal law of the state of Indiana.

     Unless defined herein, capitalized terms used herein shall have the
meanings ascribed to them in the Agreement. The provisions of the Agreement
shall supplement the provisions of this Note.


                                       38
<PAGE>

     IN WITNESS WHEREOF, the undersigned or its authorized representative has
caused this Note to be executed on the day, month and in the year first above
written.

"Maker"


Jameson Inns, Inc.


By:
    ----------------------------
     Craig R. Kitchin, President

                                       39