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                             BUSINESS LOAN AGREEMENT
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Borrower: JAMESON INNS, INC.                          Lender:   FIRST MIDWEST BANK, NATIONAL
                                                                ASSOCIATION
         8 PERIMETER CENTER EAST, SUITE 8050          MOLINE MAIN
         ATLANTA, GA 30346                                      300 PARK BOULEVARD, SUITE 400
                                                                ITASCA, IL 60143
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THIS BUSINESS LOAN AGREEMENT between JAMESON INNS, INC. ("Borrower") and FIRST
MIDWEST BANK, NATIONAL ASSOCIATION ("Lender") is made and executed on the
following terms and conditions. Borrower has received prior commercial loans
from Lender or has applied to Lender for a commercial loan or loans and other
financial accommodations, including those which may be described on any exhibit
or schedule attached to this Agreement. All such loans and financial
accommodations, together with all future loans and financial accommodations from
Lender to Borrower, are referred to in this Agreement individually as the "Loan"
and collectively as the "Loans." Borrower understands and agrees that: (a) in
granting, renewing, or extending any Loan, Lender is relying upon Borrower's
representations, warranties, and agreements, as set forth in this Agreement; (b)
the granting, renewing, or extending of any Loan by Lender at all times shall be
subject to Lender's sole judgment and discretion; and (c) all such Loans shall
be and shall remain subject to the following terms and conditions of this
Agreement.

TERM. This Agreement shall be effective as of March 30, 2001, and shall continue
thereafter until all Indebtedness of Borrower to Lender has been performed in
full and the parties terminate this Agreement in writing.

DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.

         Agreement. The word "Agreement" means this Business Loan Agreement, as
         this Business Loan Agreement may be amended or modified from time to
         time, together with all exhibits and schedules attached to this
         Business Loan Agreement from time to time.

         Borrower. The word "Borrower" means JAMESON INNS, INC. The word
         "Borrower" also includes, as applicable, all subsidiaries and
         affiliates of Borrower as provided below in the paragraph titled
         "Subsidiaries and Affiliates."

         CERCLA. The word "CERCLA" means the Comprehensive Environmental
         Response, Compensation, and Liability Act of 1980, as amended.

         Cash Flow. The words "Cash Flow" mean net income after taxes, and
         exclusive of extraordinary gains and income, plus depreciation and
         amortization.

         Collateral. The word "Collateral" means and includes without limitation
         all property and assets granted as collateral security for a Loan,
         whether real or personal property, whether granted directly or
         indirectly, whether granted now or in the future, and whether granted
         in the form of a security interest, mortgage, deed of trust,
         assignment, pledge, chattel mortgage, chattel trust, factor's lien,
         equipment trust, conditional sale, trust receipt, lien, charge, lien or
         title retention contract, lease or consignment intended as a security
         device, or any other security or lien interest whatsoever, whether
         created by law, contract, or otherwise.

         Debt. The word "Debt" means all of Borrower's liabilities excluding
         Subordinated Debt.

         ERISA. The word "ERISA" means the Employee Retirement Income Security
         Act of 1974, as amended.

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         Event of Default. The words "Event of Default" mean and include without
         limitation any of the Events of Default set forth below in the section
         titled "EVENTS OF DEFAULT."

         Grantor. The word "Grantor" means and includes without limitation each
         and all of the persons or entities granting a Security Interest in any
         Collateral for the Indebtedness, including without limitation all
         Borrowers granting such a Security Interest.

         Guarantor. The word "Guarantor" means and includes without limitation
         each and all of the guarantors, sureties, and accommodation parties in
         connection with any Indebtedness.

         Indebtedness. The word "Indebtedness" means and includes without
         limitation all Loans, together with all other obligations, debts and
         liabilities of Borrower to Lender, or any one or more of them, as well
         as all, claims by Lender against Borrower, or any one or more of them;
         whether now or hereafter existing, voluntary or involuntary, due or not
         due, absolute or contingent, liquidated or unliquidated; whether
         Borrower may be liable individually or jointly with others; whether
         Borrower may be obligated as a guarantor, surety, or otherwise; whether
         recovery upon such Indebtedness may be or hereafter may become barred
         by any statute of limitations; and whether such Indebtedness may be or
         hereafter may become otherwise unenforceable.

         Lender. The word "Lender" means FIRST MIDWEST BANK, NATIONAL
         ASSOCIATION, its successors and assigns.

         Liquid Assets. The words "Liquid Assets" mean Borrower's cash on hand
         plus Borrower's readily marketable securities.

         Loan. The word "Loan" or "Loans" means and includes without limitation
         any and all commercial loans and financial accommodations from Lender
         to Borrower, whether now or hereafter existing, and however evidenced,
         including without limitation those loans and financial accommodations
         described herein or described on any exhibit or schedule attached to
         this Agreement from time to time.

         Note. The word "Note" means and includes without limitation Borrower's
         promissory note or notes, if any, evidencing Borrower's Loan
         obligations in favor of Lender, as well as any substitute, replacement
         or refinancing note or notes therefor.

         Permitted Liens. The words "Permitted Liens" mean: (a) liens and
         security interests securing Indebtedness owed by Borrower to Lender;
         (b) liens for taxes, assessments, or similar charges either not yet due
         or being contested in goad faith; (c) liens of materialmen, mechanics,
         warehousemen, or carriers, or other like liens arising in the ordinary
         course of business and securing obligations which are not yet
         delinquent; (d) purchase money liens or purchase money security
         interests upon or in any property acquired or held by Borrower in the
         ordinary course of business to secure indebtedness outstanding on the
         date of this Agreement or permitted to be incurred under the paragraph
         of this Agreement titled "Indebtedness and Liens"; (e) liens and
         security interests which, as of the date of this Agreement, have been
         disclosed to and approved by the Lender in writing; and (f) those liens
         and security interests which in the aggregate constitute an immaterial
         and insignificant monetary amount with respect to the net value of
         Borrower's assets.

         Related Documents. The words "Related Documents" mean and include
         without limitation all promissory notes, credit agreements, loan
         agreements, environmental agreements, guaranties, security agreements,
         mortgages, deeds of trust, and all other instruments, agreements and
         documents, whether now or hereafter existing, executed in connection
         with the indebtedness.

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         Security Agreement. The words "Security Agreement" mean and include
         without limitation any agreements, promises, covenants, arrangements,
         understandings or other agreements, whether created by law, contract,
         or otherwise, evidencing, governing, representing, or creating a
         Security Interest.

         Security Interest. The words "Security Interest" mean and include
         without limitation any type of collateral security, whether in the form
         of a lien, charge, mortgage, deed of trust, assignment, pledge, chattel
         mortgage, chattel trust, factor's lien, equipment trust, conditional
         sale, trust receipt, lien or title retention contract, lease or
         consignment intended as a security device, or any other security or
         lien interest whatsoever, whether created by law, contract, or
         otherwise.

         SARA. The word "SARA" means the Superfund Amendments and
         Reauthorization Act of 1986 as now or hereafter amended.

         Subordinated Debt. The words "Subordinated Debt" mean indebtedness and
         liabilities of Borrower which have been subordinated by written
         agreement to indebtedness owed by Borrower to Lender in form and
         substance acceptable to Lender.

         Tangible Net Worth. The words "Tangible Net Worth" mean Borrower's
         total assets excluding all intangible assets (i.e., goodwill,
         trademarks, patents, copyrights, organizational expenses, and similar
         intangible items, but including leaseholds and leasehold improvements)
         less total Debt.

         Working Capital. The words "Working Capital" mean Borrower's current
         assets, excluding prepaid expenses, less Borrower's current
         liabilities.

CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial
Loan Advance and each subsequent Loan Advance under this Agreement shall be
subject to the fulfillment to Lender's satisfaction of all of the conditions set
forth in this Agreement and in the Related Documents.

         Loan Documents. Borrower shall provide to Lender in form satisfactory
         to Lender the following documents for the Loan: (a) the Note, (b)
         Security Agreements granting to Lender security interests in the
         Collateral, (c) Financing Statements perfecting Lender's Security
         Interests; (d) evidence of insurance as required below; and (e) any
         other documents required under this Agreement or by Lender or its
         counsel.

         Borrower's Authorization. Borrower shall have provided in form and
         substance satisfactory to Lender properly certified resolutions, duly
         authorizing the execution and delivery of this Agreement, the Note and
         the Related Documents, and such other authorizations and other
         documents and instruments as Lender or its counsel, in their sole
         discretion, may require.

         Payment of Fees and Expenses. Borrower shall have paid to Lender all
         fees, charges, and other expenses which are then due and payable as
         specified in this Agreement or any Related Document.

         Representations and Warranties. The representations and warranties set
         forth in this Agreement, in the Related Documents, and in any document
         or certificate delivered to Lender under this Agreement are true and
         correct.

         No Event of Default. There shall not exist at the time of any advance a
         condition which would constitute an Event of Default under this
         Agreement.

REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at

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all times any Indebtedness exists:

         Organization. Borrower is a corporation which is duly organized,
         validly existing, and in good standing under the laws of the State of
         Georgia and is validly existing and in good standing in all states in
         which Borrower is doing business. Borrower has the full power and
         authority to own its properties and to transact the businesses in which
         it is presently engaged or presently proposes to engage. Borrower also
         is duly qualified as a foreign corporation and is in good standing in
         all states in which the failure to so qualify would have a material
         adverse effect on its businesses or financial condition.
         Authorization. The execution, delivery, and performance of this
         Agreement and all Related Documents by Borrower, to the extent to be
         executed, delivered or performed by Borrower, have been duly authorized
         by all necessary action by Borrower; do not require the consent or
         approval of any other person, regulatory authority or governmental
         body; and do not conflict with, result in a violation of, or constitute
         a default under (a) any provision of its articles of incorporation or
         organization, or bylaws, or any agreement or other instrument binding
         upon Borrower or (b) any law, governmental regulation, court decree, or
         order applicable to Borrower.

         Financial information. Each financial statement of Borrower supplied to
         Lender truly and completely disclosed Borrower's financial condition as
         of the date of the statement, and there has been no material adverse
         change in Borrower's financial condition subsequent to the date of the
         most recent financial statement supplied to Lender. Borrower has no
         material contingent obligations except as disclosed in such financial
         statements.

         Legal Effect. This Agreement constitutes, and any instrument or
         agreement required hereunder to be given by Borrower when delivered
         will constitute, legal, valid and binding obligations of Borrower
         enforceable against Borrower in accordance with their respective terms.

         Properties. Except as contemplated by this Agreement or as previously
         disclosed in Borrower's financial statements or in writing to Lender
         and as accepted by Lender, and except for property tax liens for taxes
         not presently due and payable, Borrower owns and has good title to all
         of Borrower's properties free and clear of all Security Interests, and
         has not executed any security documents or financing statements
         relating to such properties. All of Borrower's properties are titled in
         Borrower's legal name, and Borrower has not used, or filed a financing
         statement under, any other name for at least the last five (5) years.

         Hazardous Substances. The terms "hazardous waste," "hazardous
         substance," "disposal," "release," and "threatened release," as used in
         this Agreement, shall have the same meanings as set forth in the
         "CERCLA" "SARA," the Hazardous Materials Transportation Act, 49 U.S.C.
         Section 1801, et seq., the Resource Conservation and Recovery Act, 42
         U.S.C. Section 6901, et seq., or other applicable stale or Federal
         laws, rules, or regulations adopted pursuant to any of the foregoing.
         Except as disclosed to and acknowledged by Lender in writing, Borrower
         represents and warrants that: (a) During the period of Borrowers
         ownership of the properties, there has been no use, generation,
         manufacture, storage, treatment, disposal, release or threatened
         release of any hazardous waste or substance by any person on, under,
         about or from any of the properties; (b) Borrower has no knowledge of,
         or reason to believe that there has been (i) any use, generation,
         manufacture, storage, treatment, disposal, release, or threatened
         release of any hazardous waste or substance on, under, about or from
         the properties by any prior owners or occupants of any of the
         properties, or (ii) any actual or threatened litigation or claims of
         any kind by any person relating to such matters; (c) Neither Borrower
         nor any tenant, contractor, agent or other authorized user of any of
         the properties shall use, generate, manufacture, store, treat, dispose
         of, or release any hazardous waste or substance on, under, about or
         from any of the properties; and any such activity shall be conducted in
         compliance with all applicable federal, state, and local laws,
         regulations, and ordinances, including without limitation those laws,
         regulations and ordinances described above. Borrower authorizes Lender
         and its agents to enter upon the properties to make such inspections
         and tests as Lender may deem appropriate to determine compliance of the
         properties with this section of the Agreement. Any inspections or tests
         made by Lender shall be at Borrower's expense and for Lender's purposes
         only and shall not be construed to create any responsibility or
         liability on the part ci Lender to Borrower or to any other person. The

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         representations and warranties contained herein are based on Borrower's
         due diligence in investigating the properties for hazardous waste and
         hazardous substances. Borrower hereby (a) releases and waives any
         future claims against Lender for indemnity or contribution in the event
         Borrower becomes liable for cleanup or other costs under any such laws,
         and (b) agrees to indemnify and hold harmless Lender against any and
         all claims, losses, liabilities, damages, penalties, and expenses which
         Lender may directly or indirectly sustain or suffer resulting from a
         breach of this section of the Agreement or as a consequence of any use,
         generation, manufacture, storage, disposal, release or threatened
         release of a hazardous waste or substance on the properties. The
         provisions of this section of the Agreement, including the obligation
         to indemnify, shall survive the payment of the Indebtedness and the
         termination or expiration of this Agreement and shall not be affected
         by Lender's acquisition of any interest in any at the properties,
         whether by foreclosure or otherwise.

         Litigation and Claims. No litigation, claim, investigation,
         administrative proceeding or similar action (including those for unpaid
         taxes) against Borrower is pending or threatened, and no other event
         has occurred which may materially adversely affect Borrower's financial
         condition or properties, other than litigation, claims, or other
         events, if any, that have been disclosed to and acknowledged by Lender
         in writing.

         Taxes. To the best of Borrower's knowledge, all tax returns and reports
         of Borrower that are or were required to be filed, have been tiled, and
         all taxes, assessments and other governmental charges have been paid in
         full, except those presently being or to be contested by Borrower in
         good faith in the ordinary course of business and for which adequate
         reserves have been provided.

         Lien Priority. Unless otherwise previously disclosed to Lender in
         writing, Borrower has not entered into or granted any Security
         Agreements, or permitted the filing or attachment of any Security
         Interests on or affecting any of the Collateral directly or indirectly
         securing repayment of Borrower's Loan and Note, that would be prior or
         that may in any way be superior to Lender's Security Interests and
         rights in and to such Collateral.

         Binding Effect. This Agreement, the Note, all Security Agreements
         directly or indirectly securing repayment of Borrower's Loan and Note
         and all of the Related Documents are binding upon Borrower as well as
         upon Borrower's successors, representatives and assigns, and are
         legally enforceable in accordance with their respective terms.

         Commercial Purposes. Borrower intends to use the Loan proceeds solely
         for business or commercial related purposes.

         Employee Benefit Plans. Each employee benefit plan as to which Borrower
         may have any liability complies in all material respects with all
         applicable requirements of law and regulations, and (i) no Reportable
         Event nor Prohibited Transaction (as defined in ERISA) has occurred
         with respect to any such plan, (ii) Borrower has not withdrawn from any
         such plan or initiated steps to do so, (iii) no steps have been taken
         to terminate any such plan, and (iv) there are no unfunded liabilities
         other than those previously disclosed to Lender in writing.

         Location of Borrower's Offices and Records. Borrower's place of
         business, or Borrower's Chief Executive Office, if Borrower has more
         than one place of business, is located at 8 PERIMETER CENTER EAST,
         SUITE 8050, ATLANTA, GA 3O346. Unless Borrow has designated otherwise
         in writing this location is also the office or offices where Borrower
         keeps its records pertaining the Collateral.

         Information. All information heretofore or contemporaneously herewith
         furnished by Borrower to Lender for the purposes of or in connection
         with this Agreement or any transaction contemplated hereby is, and all
         information hereafter furnished by or on behalf of Borrower to Lender
         will be, true and accurate in every material respect on the date as of
         which such information is dated or certified; and none of such
         information is or will be incomplete by omitting to state arty material
         fact necessary to make such information not misleading.

         Survival of Representations and Warranties. Borrower understands and
         agrees that Lender, without independent

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         investigation, is relying upon the above representations and warranties
         in making the above referenced Loan to Borrower. Borrower further
         agrees that the foregoing representations and warranties shall be
         continuing in nature and shall remain in full force and effect until
         such time as Borrower's Indebtedness shall be paid in full, or until
         this Agreement shall be terminated in the manner provided above,
         whichever is the last to occur.

AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, white
this Agreement is in effect, Borrower will:

         Litigation. Promptly inform Lender in wnting of (a) all material
         adverse changes in Borrower's financial condition, and. (b) all
         existtrrg and all threatened litigation, Claims, investigations,
         administrative proceedings or similar actions affecting Borrower or any
         Guarantor which could materially affect the financial condition of
         Borrower or the financial condition of any Guarantor.

         Financial Records. Maintain its books and records in accordance with
         generally accepted accounting principles, applied on a consistent
         basis, and permit Lender to examine and audit Borrower's books and
         records at all reasonable times.

         Financial Statements. Furnish Lender with, as soon as available, but in
         no event later than ninety (90) days after the end of each fiscal year.
         Borrower's balance sheet and income statement for the year ended,
         audited by a certified public accountant satisfactory to Lender. All
         financial reports required to be provided under this Agreement shall be
         prepared in accordance with generally accepted accounting principles,
         applied on a consistent basis, and certified by Borrower as being true
         and correct.

         Additional Information. Furnish such additional information and
         statements, lists of assets and liabilities, agings of receivables and
         payables, inventory schedules, budgets, forecasts, tax returns, and
         other reports with respect to Borrower's financial condition and
         business operations as Lender may request from time to time.

         Financial Covenants and Ratios. Comply with the following covenants and
         ratios:

                  Tangible Net Worth. Maintain a minimum Tangible Net Worth of
                  not less than $100,000,000.00.

                  Cash Flow Requirements. Maintain Cash Flow at not less than
                  the following level: Maintain a Debt Service Ratio of no less
                  than 1.25:1.00 for the property commonly known as: 3020 Utica
                  Ridge Road, Bettendorf, Iowa. The Debt Service Ratio shall be
                  calculated annually and shall be made in accordance with
                  generally accepted accounting principles, applied on a
                  consistent basis, and certified by Borrower as being true and
                  correct. As used herein "Debt Service Ratio" shall mean (i)
                  Borrower's cash flow (as defined herein under definitions) for
                  such period divided by (ii) the total sum of Borrower's
                  accrued interest and principal due under the loan for such
                  period. Except as provided above, all computations made to
                  determine compliance with the requirements contained in this
                  paragraph shall be made in accordance with generally accepted
                  accounting principles, applied on a consistent basis, and
                  certified by Borrower as being true and correct.

                  Insurance. Maintain fire and other risk insurance, public
                  liability insurance, and such other insurance as Lender may
                  require with respect to Borrower's properties and operations,
                  in form, amounts, coverages and with insurance companies
                  reasonably acceptable to Lender. Borrower, upon request of
                  Lender, will deliver to Lender from time to time the policies
                  or certificates of insurance in form satisfactory to Lender,
                  including stipulations that coverages will not be canceled or
                  diminished without at least ten (10) days' prior written
                  notice to Lender. Each insurance policy also shall include an
                  endorsement providing that coverage In favor of Lender will
                  not be impaired in any way by any act, omission or default of
                  Borrower or any other person. in connection with all policies
                  covering assets in which Lender holds or is offered a security
                  interest for the Loans, Borrower will provide Lender with such
                  loss payable or other endorsements as Lender may require.

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         Insurance Reports. Furnish to Lender, upon request of Lender, reports
         on each existing insurance policy showing such information as Lender
         may reasonably request, including without limitation the following: (a)
         the name of the insurer; (b) the risks insured; (c) the amount of the
         policy; (d) the properties insured; (e) the then current property
         values on the basis of which Insurance has been obtained, and the
         manner of determining those values; and (f) the expiration date of the
         policy, in addition, upon request of Lender (however not more often
         than annually), Borrower will have an independent appraiser
         satisfactory to Lender determine, as applicable, the actual cash value
         or replacement cost of any Collateral. The cost of such appraisal shall
         be paid by Borrower.

         Other Agreements. Comply with all terms and conditions of all other
         agreements, whether now or hereafter existing, between Borrower and any
         other party and notify Lender immediately in writing of any default in
         connection with any other such agreements.

         Loan Proceeds. Use all Loan proceeds solely for Borrower's business
         operations, unless specifically consented to the contrary by Lender in
         writing.

         Taxes, Charges and Liens. Pay and discharge when due all of its
         indebtedness and obligations, including without limitation all
         assessments, taxes, governmental charges, levies and liens, of every
         kind and nature, imposed upon Borrower or its properties, income, or
         profits, prior to the date on which penalties would attach, and all
         lawful claims that, if unpaid, might become a lien or charge upon any
         of Borrower's properties, income, or profits. Provided however,
         Borrower will not be required to pay and discharge any such assessment,
         tax, charge, levy, lien or claim so long as (a) the legality of the
         same shall be contested in good faith by appropriate proceedings, and
         (b) Borrower shall have established on its books adequate reserves with
         respect to such contested assessment, tax, charge, levy, lien, or claim
         in accordance with generally accepted accounting practices. Borrower,
         upon demand of Lender, will furnish to Lender evidence of payment of
         the assessments, taxes, charges, levies, liens and claims and will
         authorize the appropriate governmental official to deliver to Lender at
         any time a written statement of any assessments, taxes, charges,
         levies, liens and claims against Borrower's properties, income, or
         profits.

         Performance. Perform and comply with all terms, conditions, and
         provisions set forth in this Agreement and in the Related Documents in
         a timely manner, and promptly notify Lender if Borrower learns of the
         occurrence of any event which constitutes an Event of Default under
         this Agreement or under any of the Related Documents.

         Operations. Maintain executive and management personnel with
         substantially the same qualifications and experience as the present
         executive and management personnel; provide written notice to Lender of
         any change in executive and management personnel; conduct its business
         affairs in a reasonable and prudent manner and in compliance with all
         applicable federal, state and municipal laws, ordinances, rules and
         regulations respecting its properties, charters, businesses and
         operations, including without limitation, compliance with the Americans
         With Disabilities Act and with all minimum funding standards and other
         requirements of ERISA and other laws applicable to Borrower's employee
         benefit plans.

         Inspection. Permit employees or agents of Lender at any reasonable time
         to inspect any and all Collateral for the Loan or Loans and Borrower's
         other properties and to examine or audit Borrower's books, accounts,
         and records and to make copies and memoranda of Borrower's books,
         accounts, and records. If Borrower now or at any time hereafter
         maintains any records (including without limitation computer generated
         records and computer software programs for the generation of such
         records) in the possession of a third party, Borrower, upon request of
         Lender, shall notify such party to permit Lender free access to such
         records at all reasonable times and to provide Lender with copies of
         any records it may request, all at Borrower's expense.

         Compliance Certificate. Unless waived in writing by Lender, provide
         Lender at least annually and at the time of each disbursement of Loan
         proceeds with a certificate executed by Borrower's chief financial
         officer, or other officer or

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         person acceptable to Lender, certifying that the representations and
         warranties set forth in this Agreement are true and correct as of the
         date of the certificate and further certifying that, as of the date of
         the certificate, no Event of Default exists under this Agreement.

         Environmental Compliance and Reports. Borrower shall comply in all
         respects with all environmental protection federal, state and local
         laws, statutes, regulations and ordinances; not cause or permit to
         exist, as a result of an intentional or unintentional action or
         omission on its part or on the part of any third party, on property
         owned and/or occupied by Borrower, any environmental activity where
         damage may result to the environment, unless such environmental
         activity is pursuant to and in compliance with the conditions of a
         permit issued by the appropriate federal, state or local governmental
         authorities; shall furnish to Lender promptly and in any event within
         thirty (30) days after receipt thereof a copy of any notice, summons,
         lien, citation, directive, letter or other communication from any
         governmental agency or instrumentality concerning any intentional or
         unintentional action or omission on Borrower's part in connection with
         any environmental activity whether or not there is damage to the
         environment and/or other natural resources.

         Additional Assurances. Make, execute an deliver to Lender such
         promissory notes, mortgages, deeds of trust, security agreements,
         financing statements, instruments, documents and other agreements as
         Lender or its attorneys may reasonably request to evidence and secure
         the Loans and to perfect all Security Interests.

RECOVERY OF ADDITIONAL COSTS. If the imposition of or any change in any law,
rule, regulation or guideline, or the interpretation or application of any
thereof by any court or administrative or governmental authority (including any
request or policy not having the force of law) shall impose, modify or make
applicable any taxes (except U.S. federal, state or local income or franchise
taxes imposed on Lender), reserve requirements, capital adequacy requirements or
other obligations which would (a) increase the cost to Lender for extending or
maintaining the credit facilities to which this Agreement relates, (b) reduce
the amounts payable to Lender under this Agreement or the Related Documents, or
(c) reduce the rate of return on Lender's capital as a consequence of Lender's
obligations with respect to the credit facilities to which this Agreement
relates, then Borrower agrees to pay Lender such additional amounts as will
compensate Lender therefor, within five (5) days after Lender's written demand
for such payment, which demand shall be accompanied by an explanation of such
imposition or charge and a calculation in reasonable detail of the additional
amounts payable by Borrower, which explanation and calculations shall be
conclusive in the absence of manifest error.

NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:

         Indebtedness and Liens. (a) Except for trade debt incurred in the
         normal course of business and indebtedness to Lender contemplated by
         this Agreement, create, incur or assume indebtedness for borrowed
         money, including capital leases, (b) except as allowed as a Permitted
         Lien, sell, transfer, mortgage, assign, pledge, lease, grant a security
         interest in, or encumber any of Borrower's assets, or (c) sell with
         recourse any of Borrower's accounts, except to Lender.

         Continuity of Operations. (a) Engage in any business activities
         substantially different than those in which Borrower is presently
         engaged, (b) cease operations, liquidate, transfer, or consolidate with
         any other entity, change ownership, change its name, dissolve or
         transfer or sell Collateral out of the ordinary course of business,
         provided, however that notwithstanding the foregoing, but only so long
         as no Event of Default has occurred and is continuing or would result
         from the payment of dividends, if Borrower is a "Subchapter S
         Corporation" (as defined in the Internal Revenue Code of 1986, as
         amended). Borrower may pay cash dividends on its stock to its
         shareholders from time to time in amounts necessary to enable the
         shareholders to pay Income taxes and make estimated income tax payments
         to satisfy their liabilities under federal and state law which arise
         solely from their status as Shareholders of a Subchapter S Corporation
         because of their ownership of shares of stock of Borrower, or (d)
         purchase or retire any of Borrower's outstanding shares or alter or
         amend Borrower's capital structure.

<PAGE>

         Loans, Acquisitions and Guaranties. (a) Loan, invest in or advance
         money or assets, (b) purchase, create or acquire any Interest In any
         other enterprise or entity, or (c) incur any obligation as surety or
         guarantor other than in the ordinary course of business.

CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of this Agreement or
any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (b) Borrower or any Guarantor becomes insolvent,
files a petition in bankruptcy or similar proceedings, or is adjudged a
bankrupt; (c) there occurs a material adverse change in Borrower's financial
condition, in the financial condition of any Guarantor, or in the value of any
Collateral securing any Loan; (d) any Guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any
other loan with Lender; or (e) Lender in good faith deems itself insecure, even
though no Event of Default shall have occurred.

OTHER TERMS AND CONDITIONS. Borrower shall provide to Lender an annual Rent Roll
Report accompanied by operating statements for the property commonly known as:
3020 Utica Ridge Road, Bettendorf, Iowa 52722.

ADDITIONAL AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender
that, while this agreement is In effect, Borrower will cause to be furnished to
Lender, as soon as available, but in no event later than thirty (30) days after
the end of each quarter, balance sheet and profit and loss statement of
Bettendorf Signature Inn for the property commonly known as: 3020 Utica Ridge
Road, Bettendorf, Iowa 52722 for the period ended, prepared and certified as
correct to the best knowledge and belief by Borrower's Chief Financial Officer
or other officer or person acceptable to Lender. All financial reports required
to be provided under this agreement shall be prepared in accordance with
generally accepted accounting principles, applied on a consistent basis, and
certified by Borrower as being true and correct.

OPERATING DEPOSIT ACCOUNTS. While any of the Indebtedness remains outstanding,
Borrower shall maintain substantially all of its operating deposit accounts for
the property commonly known as: 3020 Utica Ridge Road, Bettendorf, Iowa with
Lender.

RIGHT OF SETOFF. Borrower grants to Lender a contractual security interest in,
and hereby assigns, conveys, delivers, pledges, and transfers to Lender all
Borrower's right, title and interest in and to, Borrower's accounts with Lender
(whether checking, savings, or some other account), including without limitation
all accounts held jointly with someone else and all accounts Borrower may open
in the future, excluding however all IRA and Keogh accounts, and all trust
accounts for which the grant of a security interest would be prohibited by law.
Borrower authorizes Lender, to the extent permitted by applicable law, to charge
or setoff all sums owing on the indebtedness against any and all such accounts.

EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:

         Default on Indebtedness. Failure of Borrower to make any payment when
         due on the Loans.

         Other Defaults. Failure of Borrower or any Grantor to comply with or to
         perform when due any other term, obligation, covenant or condition
         contained in this Agreement or in any of the Related Documents, or
         failure of Borrower to comply with or to perform any other term,
         obligation, covenant or condition contained in any other agreement
         between Lender and Borrower.

         Environmental Default. Failure of any party to comply with or perform
         when due any term, obligation, covenant or condition contained in any
         environmental agreement executed in connection with any Loan.

         Default In Favor of Third Parties. Should Borrower or any Grantor
         default under any loan, extension of credit,

<PAGE>

         security agreement, purchase or sales agreement, or any other
         agreement, in favor of any other creditor or person that may materially
         affect any of Borrower's property or Borrower's or any Grantor's
         ability to repay the Loans or perform their respective obligations
         under this Agreement or any of the Related Documents.

         False Statements. Any warranty, representation or statement made or
         furnished to Lender by or on behalf of Borrower or any Grantor under
         this Agreement or the Related Documents is false or misleading in any
         material respect at the time made or furnished, or becomes false or
         misleading at any time thereafter.

         Detective Collateralizatlon. This Agreement or any of the Related
         Documents ceases to be in full force and effect (including failure of
         any Security Agreement to create a valid and perfected Security
         Interest) at any time and for any reason.

         Insolvency. The dissolution or termination of Borrower's existence as a
         going business, the insolvency of Borrower, the appointment of a
         receiver for any part of Borrower's property, any assignment for the
         benefit of creditors, any type of creditor workout, or the commencement
         of any proceeding under any bankruptcy or insolvency laws by or against
         Borrower.

         Creditor or Forfeiture Proceedings. Commencement of foreclosure or
         forfeiture proceedings, whether by Judicial proceeding, self-help,
         repossession or any other method, by any creditor of Borrower, any
         creditor of any Grantor against any collateral securing the
         indebtedness, or by any governmental agency. This includes a
         garnishment, attachment, or levy on or of any of Borrower's accounts,
         including deposit accounts, with Lender.

         Events Affecting Guarantor. Any of the preceding events occurs with
         respect to any Guarantor of any of the Indebtedness or any Guarantor
         dies or becomes incompetent, or revokes or disputes the validity of, or
         liability under, any Guaranty of the Indebtedness.

         Change In Ownership. Any change in ownership of twenty-five percent
         (25%) or more of the common stock of Borrower.

         Adverse Change. A material adverse change occurs in Borrower's
         financial condition, or Lender believes the prospect of payment or
         performance of the Indebtedness is impaired.

         Insecurity. Lender, in good faith, deems itself insecure.

EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where
otherwise provided in this Agreement or the Related Documents, all commitments
and obligations of Lender under this Agreement or the Related Documents or any
other agreement immediately will terminate and, at Lender's option, all
Indebtedness immediately will become due and payable, all without notice of any
kind to Borrower, except that in the case of an Event of Default of the type
described in the "insolvency" subsection above, such acceleration shall be
automatic and not optional, in addition, Lender shall have all the rights and
remedies provided in the Related Documents or available at law, in equity, or
otherwise. Except as may be prohibited by applicable law, all of Lender's rights
and remedies shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude pursuit
of any other remedy, and an election to make expenditures or to take action to
perform an obligation of Borrower or of any Grantor shall not affect Lender's
right to declare a default and to exercise its rights and remedies.

MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:

         Amendments. This Agreement, together with any Related Documents,
         constitutes the entire understanding and agreement of the parties as to
         the matters set forth in this Agreement. No alteration of or amendment
         to this Agreement shall be effective unless given in writing and signed
         by the party or parties sought to be charged or bound by the alteration
         or amendment.

<PAGE>

         Applicable Law. This Agreement has been delivered to Lender and
         accepted by Lender In the State of Illinois. If there is a lawsuit,
         Borrower agrees upon Lender's request to submit to the jurisdiction of
         the courts of ROCK ISLAND County, the State of Illinois. This Agreement
         shall be governed by and construed In accordance with the laws of the
         State of Illinois.

         Caption Headings. Caption headings in this Agreement are for
         convenience purposes only and are not to be used to interpret or define
         the provisions of this Agreement.

         Multiple Parties; Corporate Authority. All obligations of Borrower
         under this Agreement shall be joint and several, and all references to
         Borrower shall mean each and every Borrower. This means that each of
         the persons signing below is responsible for all obligations In this
         Agreement.

         Consent to Loan Participation. Borrower agrees and consents to Lender's
         sale or transfer, whether now or later, of one or more participation
         interests In the Loans to one or more purchasers, whether related or
         unrelated to Lender. Lender may provide, without any limitation
         whatsoever, to any one or more purchasers, or potential purchasers, any
         information or knowledge Lender may have about Borrower or about any
         other matter relating to the Loan, and Borrower hereby waives any
         rights to privacy it may have with respect to such matters. Borrower
         additionally waives any and all notices of sale of participation
         interests, as well as all notices of any repurchase of such
         participation interests. Borrower also agrees that the purchasers of
         any such participation interests will be considered as the absolute
         owners of such interests in the Loans and will have all the rights
         granted under the participation agreement or agreements governing the
         sale of such participation interests. Borrower further waives all
         rights of offset or counterclaim that it may have now or later against
         Lender or against any purchaser of such a participation interest and
         unconditionally agrees that either Lender or such purchaser may enforce
         Borrower's obligation under the Loans irrespective of the failure or
         insolvency of any holder of any interest in the Loans. Borrower further
         agrees that the purchaser of any such participation Interests may
         enforce its interests irrespective of any personal claims or defenses
         that Borrower may have against Lender.

         Costs and Expenses. Borrower agrees to pay upon demand all of Lender's
         expenses, including without limitation attorneys' fees, incurred in
         connection with the preparation, execution, enforcement, modification
         and collection of this Agreement or in connection with the Loans made
         pursuant to this Agreement. Lender may pay someone else to help collect
         the Loans and to enforce this Agreement, and Borrower will pay that
         amount. This includes, subject to any limits under applicable law,
         Lender's attorneys' fees and Lender's legal expenses, whether or not
         there is a lawsuit, including attorneys' fees for bankruptcy
         proceedings (including efforts to modify or vacate any automatic stay
         or injunction), appeals, and any anticipated post-judgment collection
         services. Borrower also will pay any court costs, in addition to all
         other sums provided by law.

         Notices. All notices required to be given under this Agreement shall be
         given in writing, may be sent by telefacsimile (unless otherwise
         required by law), and shall be effective when actually delivered or
         when deposited with a nationally recognized overnight courier or
         deposited in the United States mail, first class, postage prepaid,
         addressed to the party to whom the notice is to be given at the address
         shown above. Any party may change its address for notices under this
         Agreement by giving formal written notice to the other parties,
         specifying that the purpose of the notice is to change the party's
         address. To the extent permitted by applicable law, if there is more
         than one Borrower, notice to any Borrower will constitute notice to all
         Borrowers. For notice purposes, Borrower will keep Lender informed at
         all times of Borrower's current address(es).

         Severability. If a court of competent jurisdiction finds any provision
         of this Agreement to be invalid or unenforceable as to any person or
         circumstance, such finding shall not render that provision invalid or
         unenforceable as to any other persons or circumstances. If feasible,
         any such offending provision shall be deemed to be modified to be
         within the limits of enforceability or validity; however, if the
         offending provision cannot be so modified, it shall be stricken and

<PAGE>

         all other provisions of this Agreement in all other respects shall
         remain valid and enforceable.

         Subsidiaries and Affiliates of Borrower. To the extent the context of
         any provisions of this Agreement makes it appropriate, including
         without limitation any representation, warranty or covenant, the word
         "Borrower" as used herein shall include alt subsidiaries and affiliates
         of Borrower. Notwithstanding the foregoing however, under no
         circumstances shall this Agreement be construed to require Lender to
         make any Loan or other financial accommodation to any subsidiary or
         affiliate of Borrower.

         Successors and Assigns. All covenants and agreements contained by or on
         behalf of Borrower shall bind its successors and assigns and shall
         inure to the benefit of Lender, its successors and assigns. Borrower
         shall not, however, have the right to assign its rights under this
         Agreement or any interest therein, without the prior written consent of
         Lender.

         Survival. All warranties, representations, and covenants made by
         Borrower in this Agreement or in any certificate or other instrument
         delivered by Borrower to Lender under this Agreement shall be
         considered to have been relied upon by Lender and will survive the
         making of the Loan and delivery to Lender of the Related Documents,
         regardless of any investigation made by Lender or on Lender's behalf.

         Time Is of the Essence. Time is of the essence in the performance of
         this Agreement.

         Waiver. Lender shall not be deemed to have waived any rights under this
         Agreement unless such waiver is given in writing and signed by Lender.
         No delay or omission on the part of Lender in exercising any right
         shall operate as a waiver of such right or any other right. A waiver by
         Lender of a provision of this Agreement shall not prejudice or
         constitute a waiver of Lender's right otherwise to demand strict
         compliance with that provision or any other provision of this
         Agreement. No prior waiver by Lender, nor any course of dealing between
         Lender and Borrower, or between Lender and any Grantor, shall
         constitute a waiver of any of Lender's rights or of any obligations of
         Borrower or of any Grantor as to any future transactions. Whenever the
         consent of Lender is required under this Agreement, the granting of
         such consent by Lender in any instance shall not constitute continuing
         consent in subsequent instances where such consent is required, and in
         all cases such consent may be granted or withheld in the sole
         discretion of Lender.

         Acknowledgment of Receipt of Copies. Borrower hereby acknowledges the
         receipt of a copy of this Agreement.


BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF MARCH
30, 2001.

BORROWER:

JAMESON INNS, INC.


By: _____________________________
      CRAIG KITCHIN, President


LENDER:

FIRST MIDWEST BANK, NATIONAL ASSOCIATION

<PAGE>

By: ____________________________
      Authorized Officer



<PAGE>

Prepared By: FIRST MIDWEST BANK, N.A., 300 N. HUNT CLUB ROAD, GURNEE, ILLINOIS
60031-2502,


RECORDATION REQUESTED BY:
   FIRST MIDWEST BANK, NATIONAL ASSOCIATION
   300 PARK BOULEVARD, SUITE 400
   ITASCA, IL 60143

WHEN RCORDED MAIL TO:
   First Midwest Bank, N.A.
   P.O. Box 9003
   Gurnee, IL 60031-2502

                                                    SPACE ABOVE THIS LINE IS FOR
                                                    RECORDER'S USE ONLY

                                    MORTGAGE

NOTICE: This Mortgage secures credit in the amount of $9,000,000.00. Loans and
advances up to this amount, together with interest, are senior to indebtedness
to other creditors under subsequently recorded or filed mortgages and liens.

THIS MORTGAGE IS DATED MARCH 30, 2001, between JAMESON INNS, INC., whose address
is 8 PERIMETER CENTER EAST, SUITE 8050, ATLANTA, GA 30346 (referred to below as
"Grantor"); and FIRST MIDWEST BANK, NATIONAL ASSOCIATION, whose address is 300
PARK BOULEVARD, SUITE 400, ITASCA, IL 60143 (referred to below as "Lender").

GRANT OF MORTGAGE. For valuable consideration, Grantor mortgages and conveys to
Lender and grants to Lender a security interest in all of Grantor's right,
title, and interest in and to the following described real property, together
with all existing or subsequently erected or affixed buildings, improvements and
fixtures; rents and profits; all easements, rights of way, and appurtenances;
all water, water rights, watercourses and ditch rights (including stock in
utilities with ditch or irrigation rights); and all other rights, royalties, and
profits relating to the real prope~, including without limitation all minerals,
oil, gas, geothermal and similar matters, located in Scott County, State of Iowa
(the "Real Property ):

     LOT NUMBERED ONE IN THE FINAL PLAT OF SIGNATURE INNS BE1TENDORF NORTH, AN
ADDITION TO THE CITY OF BETTENDORF, IOWA, AS PER PLAT RECORDED NOVEMBER 4, 1988,
AS INSTRUMENT NO. 19878-88; TOGETHER WITH NON-EXCLUSIVE EASEMENT RIGHTS AS
CREATED BY DECLARATION OF ACCESS AND SIGN EASEMENTS AND FILED ON NOVEMBER 13,
1990 AS DOCUMENT NO. 21450-90. The Real Property or its address is commonly
known as 3020 UTICA RIDGE ROAD, BETTENDORF, IA 52722.

The Real Property tax identification number is 841753501.

Grantor presently assigns to Lender all of Grantor's right, title, and interest
in and to all leases of the Property and all Rents from the Property. In
addition, Grantor grants to Lender a Uniform Commercial Code security interest
in the Personal Property and Rents. The lien on the rents granted in this
Mortgage shall be effective from the date of the Mortgage and not just in the
event of default.

DEFINITIONS. The following words shall have the following meanings when used in
this Mortgage. Terms not otherwise defined in this Mortgage shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.

     Grantor. The word "Grantor" means JAMESON INNS, INC. The Grantor is the
     mortgagor under this Mortgage.

     Guarantor. The word "Guarantor" means and includes without limitation each
     and all of the guarantors, sureties, and accommodation parties in
     connection with the Indebtedness.

     Improvements. The word "Improvements" means and includes without limitation
     all existing and future improvements, buildings, structures, mobile homes
     affixed on the Real Property, facilities, additions, replacements and other
     construction on the Real Property.

<PAGE>

     Indebtedness. The word "Indebtedness" means all principal, interest and
     late fees payable under the Note and any amounts expended or advanced by
     Lender to discharge obligations of Grantor or expenses incurred by Lender
     to enforce obligations of Grantor under this Mortgage, together with
     interest on such amounts as provided in this Mortgage. In addition to the
     Note, the word "Indebtedness" includes all obligations, debts and
     liabilities, plus interest thereon, of Grantor to Lender, or any one or
     more of them, as well as all claims by Lender against Grantor, or any one
     or more of them, whether now existing or hereafter arising, whether related
     or unrelated to the purpose of the Note, whether voluntary or otherwise,
     whether due or not due, absolute or contingent, liquidated or unliquidated
     and whether Grantor may be liable individually or jointly with others,
     whether obligated as guarantor or otherwise, and whether recovery upon such
     Indebtedness may be or hereafter may become barred by any statute of
     limitations, and whether such Indebtedness may be or hereafter may become
     otherwise unenforceable. This Mortgage secures, in addition to the amounts
     specified in the Note, future advances in the amount of $9,000,000.00,
     together with all interest thereon, which future advances Lender is
     obligated to make so long as Grantor complies with all the terms and
     conditions of the Note or other loan agreement; however, in no event shall
     such future advances (excluding interest) exceed in the aggregate
     $9,000,000.00.

     Lender. The word "Lender" means FIRST MIDWEST BANK, NATIONAL ASSOCIATION,
     its successors and assigns. The Lender is the mortgagee under this
     Mortgage.

     Mortgage. The word "Mortgage" means this Mortgage between Grantor and
     Lender, and includes without limitation all assignments and security
     interest provisions relating to the Personal Property and Rents.

     Note. The word "Note" means the promissory note or credit agreement dated
     March 30, 2001, in the original principal amount of $3,000,000.00 from
     Grantor to Lender, together with all renewals of, extensions of,
     modifications of, refinancings of, consolidations of, and substitutions for
     the promissory note or agreement. The maturity date of this Mortgage is
     March 31, 2006. NOTICE TO GRANTOR: THE NOTE CONTAINS A VARIABLE INTEREST
     RATE.

     Personal Property. The words "Personal Property" mean all equipment,
     fixtures, and other articles of personal property now or hereafter owned by
     Grantor, and now or hereafter attached or affixed to the Real Property;
     together with all accessions, parts, and additions to, all replacements of,
     and all substitutions for, any of such property; and together with all
     proceeds (including without limitation all insurance proceeds and refunds
     of premiums) from any sale or other disposition of the Property.

     Property. The word "Property" means collectively the Real Property and the
     Personal Property.

     Real Property. The words "Real Property" mean the property, interests and
     rights described above in the "Grant of Mortgage" section.

     Related Documents. The words "Related Documents" mean and include without
     limitation all promissory notes, credit agreements, loan agreements,
     environmental agreements, guaranties, security agreements, mortgages, deeds
     of trust, and all other instruments, agreements and documents, whether now
     or hereafter existing, executed in connection with the Indebtedness.

     Rents. The word "Rents" means all present and future rents, revenues,
     income, issues, royalties, profits, and other benefits derived from the
     Property.

THIS MORTGAGE, INCLUDING THE ASSIGNMENT OF RENTS AND THE SECURITY INTEREST IN
THE RENTS AND PERSONAL PROPERTY, IS GIVEN TO SECURE (1) PAYMENT OF THE
INDEBTEDNESS AND (2) PERFORMANCE OF ALL OBLIGATIONS OF GRANTOR UNDER THIS
MORTGAGE AND THE RELATED DOCUMENTS. THIS MORTGAGE IS GIVEN AND ACCEPTED ON THE
FOLLOWING TERMS:

PAYMENT AND PERFORMANCE. Except as otherwise provided in this Mortgage, Grantor
shall pay to Lender all amounts secured by this Mortgage as they become due, and
shall strictly perform all of Grantor's obligations under this Mortgage.

POSSESSION AND MAINTENANCE OF THE PROPERTY. Grantor agrees that Grantor's
possession and use of the Property shall be governed by the following
provisions:

     Possession and Use. Until in default or until Lender exercises its right to
     collect Rents as provided for in the Assignment of Rents form executed by
     Grantor in connection with the Property, Grantor may remain in possession
     and control of and operate and manage the Property and collect the Rents
     from the Property. None of the collateral for the Indebtedness constitutes,
     and none of the funds represented by the Indebtedness will be used to
     purchase: (a) Agricultural products or property used for an agricultural
     purpose as defined in Iowa Code Section 535.13; (b) Agricultural land as
     defined in Iowa Code Section 172C.1 (5) or 175.2 (1); or (c) Property used
     for an agricultural purpose as defined in Iowa Code Section 570.A.1 (2).
     Grantor represents and warrants that: (a) There are not now and will not be
     any wells situated on the Property; (b) There are not now and will not be
     any solid waste disposal sites on the Property; (C) There are not now and
     there will not be any hazardous wastes on the Property; (d) There are not
     now and there will not be any underground storage tanks on the Property.

     Duty to Maintain. Grantor shall maintain the Property in tenantable
     condition and promptly perform all repairs, replacements, and maintenance
     necessary to preserve its value.

     Hazardous Substances. The terms "hazardous waste," "hazardous substance,"
     "disposal," "release," and "threatened release," as used in this Mortgage,
     shall have the same meanings as set forth in the Comprehensive
     Environmental

<PAGE>

   Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C.
   Section 9601, et seq. ("CERCLA"), the Superfund Amendments and
   Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"), the Hazardous
   Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource
   Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., or other
   applicable state or Federal laws, rules, or regulations adopted pursuant to
   any of the foregoing. The terms "hazardous waste" and "hazardous substance"
   shall also include, without limitation, petroleum and petroleum by--products
   or any fraction thereof and asbestos. Grantor represents and warrants to
   Lender that: (a) During the period of Grantor's ownership of the Property,
   there has been no use, generation, manufacture, storage, treatment, disposal,
   release or threatened release of any hazardous waste or substance by any
   person on, under, about or from the Property; (b) Grantor has no knowledge
   of, or reason to believe that there has been, except as previously disclosed
   to and acknowledged by Lender in writing, (i) any use, generation,
   manufacture, storage, treatment, disposal, release, or threatened release of
   any hazardous waste or substance on, under, about or from the Property by any
   prior owners or occupants of the Property or (ii) any actual or threatened
   litigation or claims of any kind by any person relating to such matters; and
   (C) Except as previously disclosed to and acknowledged by Lender in writing,
   (I) neither Grantor nor any tenant, contractor, agent or other authorized
   user of the Property shall use, generate, manufacture, store, treat, dispose
   of, or release any hazardous waste or substance on, under, about or from the
   Property and (ii) any such activity shall be conducted in compliance with all
   applicable federal, state, and local laws, regulations and ordinances,
   including without limitation those laws, regulations, and ordinances
   described above. Grantor authorizes Lender and its agents to enter upon the
   Property to make such inspections and tests, at Grantor's expense, as Lender
   may deem appropriate to determine compliance of the Property with this
   section of the Mortgage. Any inspections or tests made by-Lender shall be for
   Lender's purposes only and shall not be construed to create any
   responsibility or liability on the part of Lender to Grantor or to any other
   person. The representations and warranties contained herein are based on
   Grantor's due diligence in investigating the Property for hazardous waste and
   hazardous substances. Grantor hereby (a) releases and waives any future
   claims against Lender for indemnity or contribution in the event Grantor
   becomes liable for cleanup or other costs under any such laws, and (b) agrees
   to indemnify and hold harmless Lender against any and all claims, losses,
   liabilities, damages, penalties, and expenses which Lender may directly or
   indirectly sustain or suffer resulting from a breach of this section of the
   Mortgage or as a consequence of any use, generation, manufacture, storage,
   disposal, release or threatened release of a hazardous waste or substance on
   the properties. The provisions of this section of the Mortgage, including the
   obligation to indemnify, shall survive the payment of the Indebtedness and
   the satisfaction and reconveyance of the lien of this Mortgage and shall not
   be affected by Lender's acquisition of any interest in the Property, whether
   by foreclosure or otherwise.

   Nuisance, Waste. Grantor shall not cause, conduct or permit any nuisance nor
   commit, permit, or suffer any stripping of or waste on or to the Property or
   any portion of the Property. Without limiting the generality of the
   foregoing. Grantor will not remove, or grant to any other party the right to
   remove, any timber, minerals (including oil and gas), soil, gravel or rock
   products without the prior written consent of Lender.

   Removal of Improvements. Grantor shall not demolish or remove any
   Improvements from the Real Property without the prior written consent of
   Lender. As a condition to the removal of any Improvements, Lender may require
   Grantor to make arrangements satisfactory to Lender to replace such
   Improvements with Improvements of at least equal value.

   Lender's Right to Enter. Lender and its agents and representatives may enter
   upon the Real Property at all reasonable times to attend to Lender's
   Interests and to inspect the Property for purposes of Grantor's compliance
   with the terms and conditions of this Mortgage.

     Compliance with Governmental Requirements. Grantor shall promptly comply
     with all laws, ordinances, and regulations, now or hereafter ir, effect, of
     all governmental authorities applicable to the use or occupancy of the
     Property, including without limitation, the Americans With Disabilities
     Act. Grantor may contest in good faith any such law, ordinance, or
     regulation and withhold compliance during any proceeding including
     appropriate appeals, so long as Grantor has notified Lender in writing
     prior to doing so and so long as, In Lender's sole opinion. Lender's
     interests in the Property are not jeopardized. Lender may require Grantor
     to post adequate security or a surety bond, reasonab~ satisfactory to
     Lender, to protect Lender's interest.

     Duty to Protect. Grantor agrees neither to abandon nor leave unattended the
     Property. Grantor shall do all other acts, in addition to those acts set
     forth above in this section, which from the character and use of the
     Property are reasonably necessary to protect and preserve the Property.

DUE ON SALE -- CONSENT BY LENDER. Lender may, at its option, declare immediately
due and payable all sums secured by this Mortgage upon the sale or transfer,
without the Lender's prior written consent, of all or any part of the Real
Property, or any Interest in the Real Property. A "sale or transfer" means the
conveyance of Real Property or any right, title or interest therein: whether
legal, beneficial or equitable; whether voluntary or involuntary; whether by
outright sale, deed, installment sale contract, land contract, contract for
deed, leasehold interest with a term greater than ten (10) years, lease-option
contract, or by sale, assignment, or transfer of any beneficial interest in or
to any land trust holding title to the Real Property, or by any other method of
conveyance of Real Property interest. If any Grantor is a corporation,
partnership or limited liability company, partnership interests or limited
liability company interests, as the case may be. of Grantor. However, this
option shall not be exercised by Lender if Such exercise is prohibited by
federal law or by Iowa law.

TAXES AND LIENS. The following provisions relating to the taxes and liens on the
Property are a part of this Mortgage.

     Payment. Grantor shall pay when due (and in all events prior to
     delinquency) all taxes, payroll taxes, special taxes, assessments, water
     charges and sewer service charges levied against or on account of the
     Property, and shall pay when due all claims for work done on or for
     services rendered or material furnished to the Property. Grantor shall
     maintain the Property free of all liens having priority over or equal to
     the interest of Lender under this Mortgage, except for the lien of

<PAGE>

     taxes and assessments not due, and except as otherwise provided in the
     following paragraph

     Right To Contest. Grantor may withhold payment of any tax, assessment, or
     claim in connection with a good faith dispute over the obligation to pay,
     so long as Lender's interest in the Property is not jeopardized. if a lien
     arises or is flied as a result of nonpayment, Grantor shall within fifteen
     (15) days after the lien arises or, if a lien is filed, within fifteen (15)
     days after Grantor has notice of the filing, secure the discharge of the
     lien, or if requested by Lender, deposit with Lender cash or a sufficient
     corporate surety bond or other security satisfactory to Lender in an amount
     sufficient to discharge the lien plus any costs and attorneys' fees or
     other charges that could accrue as a result of a foreclosure or sale under
     the lien. In any contest, Grantor shall defend itself and Lender and shall
     satisfy any adverse judgment before enforcement against the Property.
     Grantor shall name Lender as an additional obligee under any surety bond
     furnished in the contest proceedings.

     Evidence of Payment. Grantor shall upon demand furnish to Lender
     satisfactory evidence of payment of the taxes or assessments and shall
     authorize the appropriate governmental official to deliver to Lender at any
     time a written statement of the taxes and assessments against the Property.

     Notice of Construction. Grantor shall notify Lender at least fifteen (15)
     days before any work is commenced, any services are furnished, or any
     materials are supplied to the Property, if any mechanic's lien,
     materialmen's lien, or other lien could be asserted on account of the work,
     services, or materials. Grantor will upon request of Lender furnish to
     Lender advance assurances satisfactory to Lender that Grantor can and will
     pay the cost of such improvements.

PROPERTY DAMAGE INSURANCE. The following provisions relating to insuring the
Property are a part of this Mortgage.

     Maintenance of Insurance. Grantor shall procure and maintain policies of
     fire insurance with standard extended coverage endorsements on a
     replacement basis for the full insurable value covering all Improvements on
     the Real Property in an amount sufficient to avoid application of any
     coinsurance clause, and with a standard mortgagee clause in favor of
     Lender. Grantor shall also procure and maintain comprehensive general
     liability insurance in such coverage amounts as Lender may request with
     Lender being named as additional insureds in such liability insurance
     policies. Additionally, Grantor shall maintain such other insurance,
     including but not limited to hazard, business interruption and boiler
     insurance as Lender may require. Policies shall be written by such
     insurance companies and In such form as may be reasonably acceptable to
     Lender. Grantor shall deliver to Lender certificates of coverage from each
     Insurer containing a stipulation that coverage will not be cancelled or
     diminished without a minimum often (10) days' prior written notice to
     Lender and not containing any disclaimer of the insurer's liability for
     failure to give such notice. Each insurance policy also shall include an
     endorsement providing that coverage in favor of Lender will not be impaired
     in any way by any act, omission or default of Grantor or any other person.
     Should the Real Property at any time become located in an area designated
     by the Director of the Federal Emergency Management Agency as a special
     flood hazard area, Grantor agrees to obtain and maintain Federal Flood
     insurance for the full unpaid principal balance of the loan and any prior
     liens on the property securing the loan, up to the maximum policy limits
     set under the National Flood Insurance Program, or as otherwise required by
     Lender, and to maintain such insurance for the term of the loan.

     Application of Proceeds. Grantor shall promptly notify Lender of any loss
     or damage to the Property. Lender may make proof of loss if Grantor fails
     to do so within fifteen (15) days of the casualty. Whether or not Lender's
     security is impaired, Lender may, at its election, apply the proceeds to
     the reduction of the Indebtedness, payment of any lien affecting the
     Property, or the restoration and repair of the Property. If Lender elects
     to apply the proceeds to restoration and repair, Grantor shall repair or
     replace the damaged or destroyed Improvements in a manner satisfactory to
     Lender. Lender shall, upon satisfactory proof of such expenditure, pay or
     reimburse Grantor from the proceeds for the reasonable cost of repair or
     restoration if Grantor is not in default under this Mortgage. Any proceeds
     which have not been disbursed within 180 days after their receipt and which
     Lender has not committed to the repair or restoration of the Property shall
     be used first to pay any amount owing to Lender under this Mortgage, then
     to pay accrued interest, and the remainder, it any, shall be applied to the
     principal balance of the Indebtedness. If Lender holds any proceeds after
     payment in full of the Indebtedness, such proceeds shall be paid to
     Grantor.

     Unexpired Insurance at Sale. Any unexpired insurance shall inure to the
     benefit of, and pass to. the purchaser of the Property covered by this
     Mortgage at any trustee's sale or other sale held under the provisions of
     this Mortgage, or at any foreclosure sale of such Property.

     Grantor's Report on Insurance. Upon request of Lender, however not more
     than once a year, Grantor shall furnish to Lender a report on each existing
     policy of insurance showing: (a) the name of the insurer; (b) the risks
     insured; (c) the amount of the policy; (d) the property insured, the then
     current replacement value of such property, and the manner of determining
     that value; and (e) the expiration date of the policy. Grantor shall, upon
     request of Lender, have an independent appraiser satisfactory to Lender
     determine the cash value replacement cost of the Property.

TAX AND INSURANCE RESERVES. Subject to any limitations set by applicable law,
Lender may require Grantor to maintain with Lender reserves for payment of
annual taxes, assessments, and insurance premiums, which reserves shall be
created by monthly payments of a sum estimated by Lender to be sufficient to
produce amounts at least equal to the taxes, assessments, and insurance premiums
to be paid. The reserve funds shall be held by Lender as a general deposit from
Grantor, which Lender may satisfy by payment of the taxes, assessments, and
insurance premiums required to be paid by Grantor as they become due. Lender
shall have the right to draw upon the reserve funds to pay such items, and
Lender shall not be required to determine the validity or accuracy of any item
before paying it. Nothing In the Mortgage shall be construed as requiring Lender

<PAGE>

to advance other monies for such purposes, and Lender shall not incur any
liability for anything it may do or omit to do with respect to the reserve
account. Subject to any limitations set by applicable law, if the reserve funds
disclose a shortage or deficiency, Grantor shall pay such shortage or deficiency
as required by Lender. All amounts in the reserve account are hereby pledged to
further secure the indebtedness, and Lender is hereby authorized to withdraw and
apply such amounts on the Indebtedness upon the occurrence of an Event of
Default. Lender shall not be required to pay any interest or earnings on the
reserve funds unless required by law or agreed to by Lender in writing. Lender
is not Grantor's agent for payment of the taxes and assessments required to be
paid by Grantor.

EXPENDITURES BY LENDER. If Grantor fails to comply with any provision of this
Mortgage, or it any action or proceeding is commenced that would materially
affect Lender's interests in the Property, Lender on Grantor's behalf may, but
shall not be required to, take any action that Lender deems appropriate. Any
amount that Lender expends in so doing will bear interest at the rate provided
for in the Note from the date incurred or paid by Lender to the date of
repayment by Grantor. All such expenses, at Lender's option, will (a) be payable
on demand, (b) be added to the balance of the Note and be apportioned among and
be payable with any installment payments to become due during either (i) the
term of any applicable insurance policy or (ii) the remaining term of the Note,
or (c) be treated as a balloon payment which will be due and payable at the
Note's maturity. Ths Mortgage also will secure payment of these amounts. The
rights provided for in this paragraph shall be in addition to any other rights
or any remedies to which Lender may be entitled on account of the default. Any
such action by Lender shall not be construed as curing the default so as to bar
Lender from any remedy that it otherwise would have had.

WARRANTY; DEFENSE OF TITLE. The following provisions relating to ownership of
the Property are a part of this Mortgage.

     Title. Grantor warrants that: (a) Grantor holds good and marketable title
     of record to the Property in fee simple, free and clear of all liens and
     encumbrances other than those set forth in the Real Property description or
     in any title insurance policy, title report, or final title opinion issued
     in favor of, and accepted by, Lender in connection with this Mortgage. (b)
     Grantor has the full right, power, and authority to execute and deliver
     this Mortgage to Lender, and (c) the liens granted hereby are not the type
     of lien referred to in Chapter 575 of the 1989 Iowa Code Supplement, as now
     enacted or hereafter modified, amended or replaced. Grantor, for itself and
     all persons claiming by, through or under Grantor, agrees that it claims no
     len or right to a lien of the type contemplated by Chapter 575 or any other
     chapter of the Code of Iowa and further waives all notices and rights
     pursuant to said law with respect to the liens hereby granted, and
     represents and warrants that it is the sole party entitled to do so and
     agrees to indemnify and hold harmless Lender from any loss, damage, and
     costs, including reasonable attorney fees, threatened or suffered by Lender
     arising either directly or indirectly as a result of any claim of the
     applicability of said law to the liens hereby granted.

     Defense of Title. Subject to the exception in the paragraph above, Grantor
     warrants and will forever defend the title to the Property against the
     lawful claims of all persons. In the event any action or proceeding is
     commenced that questions Grantor's title or the interest of Lender under
     this Mortgage, Grantor shall defend the action at Grantor's expense.
     Grantor may be the nominal party in such proceeding, but Lender shall be
     entitled to participate in the proceeding and to be represented in the
     proceeding by counsel of Lender's own choice, and Grantor will deliver, or
     cause to be delivered, to Lender such instruments as Lender may request
     from time to time to permit such participation.

     Compliance With Laws. Grantor warrants that the Property and Grantor's use
     of the Property complies with all existing applicable laws, ordinances, and
     regulations of governmental authorities, including without limitation all
     applicable environmental laws, ordinances, and regulations, unless
     otherwise specifically excepted in the environmental agreement executed by
     Grantor and Lender relating to the Property.

CONDEMNATION. The following provisions relating to condemnation of the Property
are a part at this Mortgage.

     Application of Net Proceeds. If all or any part of the Property is
     condemned by eminent domain proceedings or by any proceeding or purchase in
     lieu of condemnation, Lender may at its election require that all or any
     portion of the net proceeds of the award be applied to the Indebtedness or
     the repair or restoration of the Property. The net proceeds of the award
     shall mean the award after payment of all reasonable costs, expenses, and
     attorneys' fees incurred by Lender in connection with the condemnation.

     Proceedings. If any proceeding in condemnation is filed, Grantor shall
     promptly notify Lender in writing, and Grantor shall promptly take such
     steps as may be necessary to defend the action and obtain the award.
     Grantor may be the nominal party in such proceeding, but Lender shall be
     entitled to participate in the proceeding and to be represented in the
     proceeding by counsel of its own choice, and Grantor will deliver or cause
     to be delivered to Lender such instruments as may be requested by it from
     time to time to permit such participation.

IMPOSITION OF TAXES, FEES AND CHARGES BY GOVERNMENTAL AUTHORITIES. The following
provisions relating to governmental taxes, fees and charges are a part of this
Mortgage:

     Current Taxes, Fees and Charges. Upon request by Lender, Grantor shall
     execute such documents in addition to this Mortgage and take whatever other
     action is requested by Lender to perfect and continue Lender's lien on the
     Real Property. Grantor shall reimburse Lender for all taxes, as described
     below, together with all expenses incurred in recording, perfecting or
     continuing this Mortgage, including without limitation all taxes, fees,
     documentary stamps, and other charges for recording or registering this
     Mortgage.

     Taxes. The following shall constitute taxes to which this section applies:
     (a) a specific tax upon this type of Mortgage or

<PAGE>

     upon all or any part of the Indebtedness secured by this Mortgage; (b) a
     specific tax on Grantor which Grantor is authorized or required to deduct
     from payments on the indebtedness secured by this type of Mortgage; (c) a
     tax on this type of Mortgage chargeable against the Lender or the holder of
     the Note; and (d) a specIfic tax on all or any portion of the Indebtedness
     or on payments of principal and interest made by Grantor.

     Subsequent Taxes. If any tax to which this section applies is enacted
     subsequent to the date of this Mortgage, this event shall have the same
     effect as an Event of Default (as defined below), and Lender may exercise
     any or all of its available remedies for an Event of Default as provided
     below unless Grantor either (a) pays the tax before it becomes delinquent,
     or (b) contests the tax as provided above in the Taxes and Liens section
     and deposits with Lender cash or a sufficient corporate surety bond or
     other security satisfactory to Lender.

SECURITY AGREEMENT; FINANCING STATEMENTS. The following provisions relating to
this Mortgage as a security agreement are a part of this Mortgage.

      Security Agreement. This instrument shall constitute a security agreement
      to the extent any of the Property constitutes fixtures or other personal
      property, and Lender shall have all of the rights of a secured party under
      the Uniform Commercial Code as amended from time to time.

     Security Interest. Upon request by Lender, Grantor shall execute financing
     statements and take whatever other action is requested by Lender to perfect
     and continue Lender's security Interest in the Rents and Personal Property.
     In addition to recording this Mortgage in the real property records, Lender
     may, at any time and without further authorization from Grantor, file
     executed counterparts, copies or reproductions of this Mortgage as a
     financing statement. Grantor shall reimburse Lender for all expenses
     incurred in perfecting or continuing this security Interest. Upon default,
     Grantor shall assemble the Personal Property in a manner and at a place
     reasonably convenient to Grantor and Lender and make it available to Lender
     within three (3) days after receipt of written demand from Lender.

     Fixture Filing. its recording, this Mortgage shall be effective as a
     financing statement filed as a fixture filing with respect to the Personal
     Property and for this purpose, the name and address of the debtor is the
     name and address of Grantor as set forlh on the first page of this Mortgage
     and the name and address of the secured party is the name and address of
     Lender as set forth on the first page of this Mortgage.

     Addresses. The mailing addresses of Grantor (debtor) and Lender (secured
     party), from which information concerning the security interest granted by
     this Mortgage may be obtained (each as required by the Uniform Commercial
     Code), are as stated on the first page of this Mortgage.

FURTHER ASSURANCES; ATTORNEY-IN-FACT. The following provisions relating to
further assurances and attorney-in-fact are a part of this Mortgage.

     Further Assurances. At any time, and from time to time, upon request of
     Lender, Grantor will make, execute and deliver, or will cause to be made,
     executed or delivered, to Lender or to Lender's designee, and when
     requested by Lender, cause to be filed, recorded, refiled, or rerecorded,
     as the case may be, at such times and in such offices and places as Lender
     may deem appropriate, any and all such mortgages, deeds of trust, security
     deeds, security agreements, financing statements, continuation statements,
     instruments of further assurance, certificates, and other documents as may,
     in the sole opinion of Lender, be necessary or desirable in order to
     effectuate, complete, perfect, continue, or preserve (a) the obligations of
     Grantor under the Note, this Mortgage, and the Related Documents, and (b)
     the liens and security interests created by this Mortgage as first and
     prior liens on the Property, whether now owned or hereafter acquired by
     Grantor. Unless prohibited by law or agreed to the contrary by Lender in
     writing, Grantor shall reimburse Lender for all costs and expenses incurred
     in connection with the matters referred to in this paragraph.

     Attorney-In-Fact. If Grantor fails to do any of the things referred to in
     the preceding paragraph, Lender may do so for and in the name of Grantor
     and at Grantor's expense. For such purposes, Grantor hereby irrevocably
     appoints Lender as Grantor's attorney-in-fact for the purpose of making,
     executing, delivering, filing, recording, and doing all other things as may
     be necessary or desirable, in Lender's sole opinion, to accomplish the
     matters referred to in the preceding paragraph.

FULL PERFORMANCE. If Grantor pays all the Indebtedness, including without
limitation all future advances, when due, and otherwise performs all the
obligations imposed upon Grantor under this Mortgage, Lender shall execute and
deliver to Grantor a suitable satisfaction of this Mortgage and suitable
statements of termination of any financing statement on file evidencing Lender's
security interest in the Rents and the Personal Property. Grantor will pay, if
permitted by applicable law, any reasonable termination fee as determined by
Lender from time to time.

DEFAULT. Each of the following, at the option of Lender, shall constitute an
event of default ("Event of Default") under this Mortgage:

     Default on Indebtedness. Failure of Grantor to make any payment when due on
     the Indebtedness.

     Default on Other Payments. Failure of Grantor within the time required by
     this Mortgage to make any payment for taxes or insurance, or any other
     payment necessary to prevent filing of or to effect discharge of any lien.

     Environmental Default. Failure of any party to comply with or perform when
     due any term, obligation, covenant or condition contained in any
     environmental agreement executed in connection with the Property.
     Compliance Default. Failure of Grantor to comply with any other term,
     obligation, covenant or condition contained in this

<PAGE>

     Mortgage, the Note or in any of the Related Documents.

     Default In Favor of Third Parties. Should Grantor default under any loan,
     extension of credit, security agreement, purchase or sales agreement, or
     any other agreement, in favor of any other creditor or person that may
     materially affect any of Grantor's property or Grantor's ability to repay
     the Note or Grantor's ability to perform Grantor's obligations under this
     Mortgage or any of the Related Documents.

     False Statements. Any warranty, representation or statement made or
     furnished to Lender by or on behalf of Grantor under this Mortgage, the
     Note or the Related Documents is false or misleading in any material
     respect, either now or at the time made or furnished.

     Defective Collateralization. This Mortgage or any of the Related Documents
     ceases to be in full force and effect (including failure of any collateral
     documents to create a valid and perfected security interest or lien) at any
     time and for any reason.

     Insolvency. The dissolution or termination of Grantor's existence as a
     going business, the insolvency of Grantor, the appointment of a receiver
     for any part of Grantor's property, any assignment for the benefit of
     creditors, any type of creditor workout, or the commencement of any
     proceeding under any bankruptcy or insolvency laws by or against Grantor.

     Foreclosure, Forfeiture, etc. Commencement of foreclosure or forfeiture
     proceedings, whether by judicial proceeding, self-help, repossession or any
     other method, by any creditor of Grantor or by any governmental agency
     against any of the Property. However, this subsection shall not apply in
     the event of a good faith dispute by Grantor as to the validity or
     reasonableness of the claim which is the basis of the foreclosure or
     forfeiture proceeding, provided that Grantor gives Lender written notice of
     such claim and furnishes reserves or a surety bond for the claim
     satisfactory to Lender.

     Breach of Other Agreement. Any breach by Grantor under the terms of any
     other agreement between Grantor and Lender that is not remedied within any
     grace period provided therein, including without limitation any agreement
     concerning any indebtedness or other obligation of Grantor to Lender,
     whether existing now or later.

     Events Affecting Guarantor. Any of the preceding events occurs with respect
     to any Guarantor of any of the Indebtedness or any Guarantor dies or
     becomes incompetent, or revokes or disputes the validity of, or liability
     under, any Guaranty of the Indebtedness.

     Adverse Change. A material adverse change occurs in Grantor's financial
     condition, or Lender believes the prospect of payment or performance of the
     Indebtedness is impaired.

     Insecurity.  Lender in good faith deems itself insecure.

RIGHTS AND REMEDIES ON DEFAULT. Upon the occurrence of any Event of Default and
at any time thereafter, Lender, at its option, may exercise any one or more of
the following rights and remedies, in addition to any other rights or remedies
provided by law:

     Accelerate Indebtedness. Lender shall have the right at its option to
     declare the entire Indebtedness immediately due and payable, including any
     prepayment penalty which Grantor would be required to pay without notice,
     except as may be expressly required by applicable law.

     UCC Remedies. With respect to all or any part of the Personal Property,
     Lender shall have all the rights and remedies of a secured party under the
     Uniform Commercial Code.

     Collect Rents. Lender shall have the right, without notice to Grantor, to
     take possession of the Property and collect the Rents, including amounts
     past due and unpaid, and apply the net proceeds, over and above Lender's
     costs, against the indebtedness. In furtherance of this right, Lender may
     require any tenant or other user of the Property to make payments of rent
     or use fees directly to Lender. If the Rents are collected by Lender, then
     Grantor irrevocably designates Lender as Grantor's attorney--in--fact to
     endorse instruments received in payment thereof in the name of Grantor and
     to negotiate the same and collect the proceeds. Payments by tenants or
     other users to Lender in response to Lender's demand shall satisfy the
     obligations for which the payments are made, whether or not any proper
     grounds for the demand existed. Lender may exercise its rights under this
     subparagraph either in person, by agent, or through a receiver.

     Appoint Receiver. Lender shall have the right to have a receiver appointed
     to take possession of all or any part of the Property, with the power to
     protect and preserve the Property, to operate the Property preceding
     foreclosure or sale, and to collect the Rents from the Property and apply
     the proceeds, over and above the cost of the receivership, against the
     Indebtedness. The receiver may serve without bond if permitted by law.
     Lender's right to the appointment of a receiver shall exist whether or not
     the apparent value of the Property exceeds the Indebtedness by a
     substantial amount. Employment by Lender shall not disqualify a person from
     serving as a receiver.

     Nonjudicial Foreclosure. Lender may exercise the right to nonjudicial
     foreclosure pursuant to Iowa Code Section 654.18 and Chapter 655A as now
     enacted or hereafter modified, amended or replaced.

<PAGE>

     Deficiency Judgment. If permitted by applicable law, Lender may obtain a
     judgment for any deficiency remaining in the Indebtedness due to Lender
     after application of all amounts received from the exercise of the rights
     provided in this section.

     Tenancy at Sufferance. If Grantor remains in possession of the Property
     after the Property is sold as provided above or Lender otherwise becomes
     entitled to possession of the Property upon default of Grantor, Grantor
     shall become a tenant at sufferance of Lender or the purchaser of the
     Property and shall, at Lender's option, either (a) pay a reasonable rental
     for the use of the Property, or (b) vacate the Property immediately upon
     the demand of Lender. This paragraph is subject to any rights of Grantor,
     under Iowa law, to remain in possession of the Property during a redemption
     period.

     Other Remedies. Lender shall have all other rights and remedies provided in
     this Mortgage or the Note or available at law or in equity.

     Sale of the Property. To the extent permitted by applicable law, Grantor
     hereby waives any and all right to have the property marshalled. In
     exercising its rights and remedies, Lender shall be free to sell all or any
     part of the Property together or separately, in one sale or by separate
     sales. Lender shall be entitled to bid at any public sale on all or any
     portion of the Property.

     Notice of Sale. Lender shall give Grantor reasonable notice of the time and
     place of any public sale of the Personal Property or of the time after
     which any private sale or other intended disposition of the Personal
     Property is to be made. Reasonable notice shall mean notice given at least
     ten (10) days before the time of the sale or disposition.

     Shortened Redemption. Grantor hereby agrees that, in the event of
     foreclosure of this Mortgage, Lender may, at its sole option, elect to
     reduce the period of redemption pursuant to Iowa Code Sections 628.26,
     628.27, or 628.28, or any other Iowa Code Section, to such time as may be
     then applicable and provided by law.

     Waiver; Election of. A waiver by any party of a breach of a provision of
     this Mortgage shall not constitute a waiver of or prejudice the party's
     rights otherwise to demand strict compliance with that provision or any
     other provision. Election by Lender to pursue any remedy shall not exclude
     pursuit of any other remedy, and an election to make expenditures or take
     action to perform an obligation of Grantor under this Mortgage after
     failure of Grantor to perform shall not affect Lender's right to declare a
     default and exercise its remedies under this Mortgage.

     Attorneys' Fees; Expenses. If Lender institutes any suit or action to
     enforce any of the terms of this Mortgage, Lender shall be entitled to
     recover such sum as the court may adjudge reasonable as attorneys' fees at
     trial and on any appeal. Whether or not any court action is involved, all
     reasonable expenses incurred by Lender that in Lender's opinion are
     necessary at any time for the protection of its interest or the enforcement
     of its rights shall become a part of the Indebtedness payable on demand and
     shall bear interest from the date of expenditure until repaid at the rate
     provided for in the Note. Expenses covered by this paragraph include,
     without limitation, however subject to any limits under applicable law,
     Lender's attorneys' fees and Lender's legal expenses whether or not there
     is a lawsuit, including attorneys' fees for bankruptcy proceedings
     (including efforts to modify or vacate any automatic stay or injunction),
     appeals and any anticipated post--judgment collection services, the cost of
     searching records, obtaining title reports (including foreclosure reports),
     surveyors' reports, and appraisal fees, and title insurance, to the extent
     permitted by applicable law. Grantor also will pay any court costs, in
     addition to all other sums provided by law.

NOTICES TO GRANTOR AND OTHER PARTIES. Any notice under this Mortgage, including
without limitation any notice of default and any notice of sale to Grantor,
shall be in writing, may be sent by telefacsimile (unless otherwise required by
law), and shall be effective when actually delivered, or when deposited with a
nationally recognized overnight courier, or, if mailed, shall be deemed
effective when deposited in the United States mail first class, certified or
registered mail, postage prepaid, directed to the addresses shown near the
beginning of this Mortgage. Any party may change its address for notices under
this Mortgage by giving formal written notice to the other parties, specifying
that the purpose of the notice is to change the party's address. All copies of
notices of foreclosure from the holder of any lien which has priority over this
Mortgage shall be sent to Lender's address, as shown near the beginning of this
Mortgage. For notice purposes, Grantor agrees to keep Lender informed at all
times of Grantor's current address.

MISCELLANEOUS PROVISIONS.  The following miscellaneous provisions are a part of
this Mortgage:

     Amendments. This Mortgage, together with any Related Documents, constitutes
     the entire understanding and agreement of the parties as to the matters set
     forth in this Mortgage. No alteration of or amendment to this Mortgage
     shall be effective unless given in writing and signed by the party or
     parties sought to be charged or bound by the alteration or amendment.

     Annual Reports. If the Property is used for purposes other than Grantor's
     residence, Grantor shall furnish to Lender, upon request, a certified
     statement of net operating income received from the Property during
     Grantor's previous fiscal year in such form and detail as Lender shall
     require. "Net operating income" shall mean all cash receipts from the
     Property less all cash expenditures made in connection with the operation
     of the Property.

     Applicable Law. This Mortgage has been delivered to Lender and accepted by
     Lender in the State of Illinois. Except as set forth hereinafter, this
     Mortgage shall be governed by, construed and enforced In accordance wIth
     the laws of the State of Illinois, except and only to the extent of
     procedural matters related to the perfection and enforcement by Lender of
     its rights and remedies against the Property, which matters shall be
     governed by the laws of the State of Iowa. However, in the event that the
     enforceability or validity of any provision of this Mortgage Is challenged
     or questioned, such provision shall be governed by whichever applicable
     state or federal law would uphold or would enforce such challenged or
     questioned provision. The loan transaction which is evidenced by the Note
     and this Mortgage (which secures the Note) has been

<PAGE>

     applied for, considered, approved and made in the State of Illinois.

     Caption Headings. Caption headings in this Mortgage are for convenience
     purposes only and are not to be used to interpret or define the provisions
     of this Mortgage.

     Merger. There shall be no merger of the interest or estate created by this
     Mortgage with any other interest or estate in the Property at any time held
     by or for the benefit of Lender in any capacity, without the written
     consent of Lender.

     Multiple Parties; Corporate Authority. All obligations of Grantor under
     this Mortgage shall be joint and several, and all references to Grantor
     shall mean each and every Grantor. This means that each of the persons
     signing below is responsible for all obligations in this Mortgage.

     Severability. If a court of competent jurisdiction finds any provision of
     this Mortgage to be invalid or unenforceable as to any person or
     circumstance, such finding shall not render that provision invalid or
     unenforceable as to any other persons or circumstances, If feasible, any
     such offending provision shall be deemed to be modified to be within the
     limits of enforceability or validity; however, if the offending provision
     cannot be so modified, it shall be stricken and all other provisions of
     this Mortgage in all other respects shall remain valid and enforceable.

     Successors and Assigns. Subject to the limitations stated in this Mortgage
     on transfer of Grantor's interest, this Mortgage shall be binding upon and
     inure to the benefit of the parties, their successors and assigns. If
     ownership of the Property becomes vested in a person other than Grantor,
     Lender, without notice to Grantor, may deal with Grantor's successors with
     reference to this Mortgage and the Indebtedness by way of forbearance or
     extension without releasing Grantor from the obligations of this Mortgage
     or liability under the Indebtedness.

     Time Is of the Essence. Time is of the essence in the performance of this
     Mortgage.

     Release of Rights of Dower, Homestead and Distributive Share. Each of the
     undersigned hereby relinquishes all rights of dower, homestead and
     distributive share in and to the Property and waives all rights of
     exemption as to any of the Property.

     Waivers and Consents. Lender shall not be deemed to have waived any rights
     under this Mortgage (or under the Related Documents) unless such waiver is
     in writing and signed by Lender. No delay or omission on the part of Lender
     in exercising any right shall operate as a waiver of such right or any
     other right. A waiver by any party of a provision of this Mortgage shall
     not constitute a waiver of or prejudice the party's right otherwise to
     demand strict compliance with that provision or any other provision. No
     prior waiver by Lender, nor any course of dealing between Lender and
     Grantor, shall constitute a waiver of any of Lender's rights or any of
     Grantor's obligations as to any future transactions. Whenever consent by
     Lender is required in this Mortgage, the granting of such consent by Lender
     in any instance shall not constitute continuing consent to subsequent
     instances where such consent s required.

     Acknowledgment of Receipt of Copies. Grantor hereby acknowledges the
     receipt of a copy of this Mortgage.

   NEGATIVE COVENANT. Grantor covenants and agrees with Lender that while this
   Mortgage is in effect, Grantor shall not, without the prior written consent
   of Lender, create, grant or permit to exist in favor of any person or entity,
   except Lender, any lien, charge, security interest, encumbrance, cloud on
   title, mortgage, pledge or similar interest in or against the Property,
   including, without limitation, any mechanic's lien claim or materialman's
   lien claim, whether such lien, charge, security interest, encumbrance, cloud
   on title, mortgage, pledge or similar interest is inferior or superior to the
   lien of this Mortgage, and excepting only any such lien, charge, security
   interest, encumbrance, cloud on title, mortgage, pledge or similar interest
   set forth in the Real Property description contained in this Mortgage or in
   any title insurance policy, title report or final title opinion issued in
   favor of, and accepted by, Lender in connection with this Mortgage.

   GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS MORTGAGE, AND
   GRANTOR AGREES TO ITS TERMS.

   GRANTOR:

   JAMESON INNS, INC.

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

<PAGE>

                            CORPORATE ACKNOWLEDGMENT

   STATE OF GEORGIA
                   SS
   COUNTY OF DEKALB

   On this 30/th/ day of March, , A.D., 2001, before me before me a Notary
   Public for said County and State, personally appeared CRAIG KITCHIN,
   President, to me personally known, who, being by me duly sworn did say that
   that person is an authorized signer of said corporation, that no seal has
   been procured by said corporation and that said instrument was signed on
   behalf of the said corporation by authority of its Board of directors and
   that said CRAIG KITCHEN, President acknowledged the execution of said
   instrument to be the voluntary act and deed of said corporation by it
   voluntarily executed.

                                Steven A. Curlee
                                -----------------
                      Notary Public in the state of Georgia

<PAGE>

                          SUBORDINATION, NONDISTURBANCE
                            AND ATTORNMENT AGREEMENT

     THIS SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT ("Agreement")
is made as of MARCH 30, 2001 by and between FIRST MIDWEST BANK, NATIONAL
ASSOCIATION ("Lender"), Jameson Inns, Inc. (Borrower") and Jameson Hospitality
LLC ("Lessee").

                                    RECITALS

     Lender, Borrower and Lessee acknowledge the following:

     A. Lender has made or will make a first mortgage loan in the original
principal amount of $3,000,000.00 to Borrower (the "Loan"), which is evidenced
by a note (the "Note"), and secured by a mortgage (the "Mortgage") which
encumbers or will encumber the real property described on Exhibit A attached to
this Agreement (the "Property").

     B. Lessee entered into a Lease (the "Lease") dated May 7, 1999 and
Amendments dated May 7, 1999 and November 28, 2000 with Borrower, by which
Lessee has leased all of the Property, as described in the Lease (the
"Premises"). A copy of the Lease and all amendments and modifications thereto is
attached as Exhibit B to this Agreement.

     C. As a condition precedent to Lender making the Loan, Lender has required
that Borrower and Lessee enter into this Agreement with Lender.

                                    AGREEMENT

     NOW, THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and sufficiency of which Lender, Borrower
and Lessee acknowledge, LENDER, BORROWER and LESSEE AGREE:

     1. Subordination. In consideration for Lender's agreements set forth in
        -------------
Section 3 of this Agreement, Lessee and Borrower agree that to the extent that
they pertain to the Premises, the Lease, and the rights of Lessee under the
Lease and to the Premises, are and shall remain subject, subordinate and junior
to the lien created by the Mortgage, and to the rights and interests of Lender,
its successors and assigns under the documents providing evidence of and
security for the Loan (collectively, the "Loan Documents").

     2. Purchase Options. Any acquisition of title to the Property made by
        ----------------
Lessee during the term of the Mortgage pursuant to any option or right contained
in the Lease to acquire title to all or a portion of the Property shall be made
subject to the

                                       -1-

<PAGE>

Mortgage.

     3. Nondisturbance. Provided that no event of default by Lessee has occurred
        --------------
under the Lease which remains uncured beyond any applicable cure period, Lender
shall not diminish or interfere with Lessee's possession, use or occupancy of
the Premises, or Lessee's rights and privileges under the Lease, and Lender
shall not disturb Lessee's occupancy of the Premises during the current term of
the Lease.

     4. Lessee not to be Joined in Foreclosure. Lender will not join Lessee as a
        --------------------------------------
named-party in a foreclosure of the Mortgage unless such Joinder is necessary to
foreclose the Mortgage, and then only to foreclose the Mortgage, and not for the
purpose of terminating the Lease unless an event of default by Lessee has
occurred under the Lease and continues beyond any cure period.

     5. Attornment. If Lender forecloses the Mortgage, or obtains Borrower's
        ----------
interest through a proceeding in lieu of foreclosure or pursuant to a
foreclosure, or by any other manner, Lender shall have all of the rights of
Borrower as landlord under the Lease, to the extent they pertain to the
Premises, and may rely on all of the terms, covenants and conditions of the
Lease for the balance of the term of the Lease, and any extension or renewal
periods, with the same force and effect as if Lender were the original landlord
under the Lease. Lessee shall attorn to Lender as its landlord immediately upon
Lender succeeding to the interest of Borrower under the Lease, and such
attornment shall occur without the execution of any further instruments by any
of the parties to this Agreement. However, Lessee shall have no obligation to
pay rent to Lender until Lessee receives written notice from Lender that Lender
has either (i) succeeded to Borrower's interest under the Lease, or (ii) has
exercised its rights under an assignment of leases contained in the Loan
Documents. Lessee shall have all of its rights and obligations under the Lease
during any such period of attornment.

     6. Lender not bound by Acts of Prior Landlords. If Lender succeeds to the
        -------------------------------------------
interest of Borrower under the Lease, Lender shall not be: (a) liable for any
act or omission of any prior landlord, including Borrower; (b) subject to any
offsets or defenses which Lessee might have against any prior landlord,
including Borrower; (c) bound by any rent or additional rents which Lessee might
have paid for any rental period, other than the rental period in effect at the
time of such succession; or (d) bound by any material amendment or material
modification of the Lease made without Lender's consent (which consent will not
be unreasonably withheld or delayed). For purposes of (d), an amendment or
modification will be deemed material if it increases the landlord's obligations
under the lease in any material respect or diminishes, reduces, eliminates or
terminates any

                                       -2-

<PAGE>

obligation of Lessee in any material respect or attempts to terminate or shorten
the term of the Lease. Upon the occurrence of an event of default by Borrower
under the Lease, or any other event or occurrence that would give rise to an
offset against rent or a claim against Borrower under the Lease, Lessee shall;
(x) use its best efforts to set off such default against rents currently due
Borrower if permitted under the Lease; (y) give Lender notice of such default or
occurrence in the manner provided in this Agreement; and (z) give Lender such
time as is reasonable to cure such default or rectify such occurrence, provided
Lender notifies Lessee of its intent to cure such default within 30 days after
receipt of written notice from Lessee of default by Borrower under the Lease,
and proceeds diligently to cure such default. Notwithstanding any provision of
the Lease or any other instrument to the contrary, Lessee may not cancel the
Lease, claim an offset against rent, or exercise any right or remedy, until
Lender has been given notice and an opportunity to cure the default, but Lessee
may seek a personal judgment against

Borrower for damages suffered as a result of such claimed default. Lessee will
not pay any rent under the Lease more than 30 days in advance of its due date,
or materially amend or materially modify the Lease (as provided in subsection
(d) above).

     7. Assignment of Lease. Borrower has, by a separate Assignment of Leases
        -------------------
("Assignment"), assigned its interest in the rents and payments due under the
Lease, to the extent they pertain to the Premises, as security for the repayment
of the Loan. Lessee acknowledges and consents to such Assignment. All rents due
under the Lease, to the extent they pertain to the Premises, shall be paid to
Borrower so long as no event of default has occurred by Borrower under the Loan
Documents. Lender may, at its option, require that Lessee pay all rents and
other payments due under the Lease, to the extent they pertain to the Premises,
directly to Lender. Borrower authorizes and directs Lessee, and Lessee agrees,
to pay any payments due under the terms of the Lease, to the extent they pertain
to the Premises, to Lender upon notification that Lender has exercised such
option. The Assignment does not diminish any obligation of Borrower under the
Lease or impose any such obligation on Lender until Lender succeeds to the
interest of Borrower as described in section 5.

     8. Successor and Assigns. This Agreement shall be binding upon Lender,
        ---------------------
Borrower and Lessee, and each of their heirs, administrators, representatives,
successors and assigns, and all parties having an interest in the Lease, and
shall inure to the benefit of Lender and its successors and assigns.

                                       -3-

<PAGE>


     9. Notices. Any notice which a party to this Agreement may desire, or may
        -------
be required, to give to any other party shall be in writing, and shall be mailed
by certified mail, or its equivalent as follows:

                  If to Lender:        First Midwest Bank, National Association
                                       Attn: Lance Heuer
                                       506 15th Street
                                       Moline, Illinois, 61265

                  If to Borrower:      Jameson Inns, Inc.
                                       8 Perimeter Center East, Suite 8050
                                       Atlanta, GA 30346

                  If to Lessee:        Jameson Hospitality LLC
                                       8 Perimeter Center East, Suite 8050
                                       Atlanta, GA 30346

     Lender, Borrower or Lessee may change its notice address by sending notice
to the other parties in writing designating a new address to which the other
parties may send notice.

     IN WITNESS WHEREOF, this document is made and executed as of the date first
above written.

                                       LESSEE:

                                       Jameson Hospitality LLC

                                       By: Craig R. Kitchin
                                       Title:   Manager and
                                                Vice President Finance

                                       BORROWER:

                                       Jameson Inns, Inc.

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

                                       LENDER:

                                       FIRST MIDWEST BANK, NATIONAL ASSOCIATION

                                       -4-

<PAGE>

                                       Lance Heuer
                                       ---------------------
                                       By: Lance Heuer
                                       Title: Vice President

                                       -5-

<PAGE>

                                    EXHIBIT A

     LOT NUMBERED ONE IN THE FINAL PLAT OF SIGNATURE INNS BETTENDORF NORTH, AN
ADDITION TO THE CITY OF BETTENDORF, IOWA, AS PER PLAT RECORDED NOVEMBER 4, 1988,
AS INSTRUMENT NO. 19878-88; TOGETHER WITH NON-EXCLUSIVE EASEMENT RIGHTS AS
CREATED BY DECLARATION OF ACCESS AND SIGN EASEMENTS AND FILED ON NOVEMBER 13,
1990 AS DOCUMENT NO. 21450-90.

     Commonly known address: 3020 Utica Ridge Road, Bettendorf, Iowa 52722
PIN: 841753501

                                       -6-

<PAGE>

                                    EXHIBIT B

                                     (Lease)

                                       -7-

<PAGE>

Prepared By: FIRST MIDWEST BANK, N.A,, 300 N. HUNT CLUB ROAD, GURNEE, ILLINOIS
     60031-2502,


RECORDATION REQUESTED BY:
     FIRST MIDWEST BANK, NATIONAL ASSOCIATION
     300 PARK BOULEVARD, SUITE 400
     ITASCA, IL 60143

WHEN RECORDED MAIL TO:
     First Midwest Bank, N.A.
     P.O. Box 9003
     Gurnee, IL 60031-2502

                                                   SPACE ABOVE THIS LINE IS FOR
                                                   RECORDER'S USE ONLY


                               ASSIGNMENT OF RENTS

THIS ASSIGNMENT OF RENTS IS DATED MARCH 30, 2001, between JAMESON INNS, INC.,
whose address is 8 PERIMETER CENTER EAST, SUITE 8050, ATLANTA, GA 30346
(referred to below as "Grantor"); and FIRST MIDWEST BANK, NATIONAL ASSOCIATION,
whose address is 300 PARK BOULEVARD, SUITE 400, ITASCA, IL 60143 (referred to
below as "Lender").

ASSIGNMENT. For valuable consideration, Grantor assigns, grants a continuing
security interest in, and conveys to Lender all of Grantor's right, title, and
interest in and to the Rents from the following described Property located in
SCOTT County, State of Iowa:

          LOT NUMBERED ONE IN THE FINAL PLAT OF SIGNATURE INNS BETTENDORF NORTH,
          AN ADDITION TO THE CITY OF BE1TENDORF, IOWA, AS PER PLAT RECORDED
          NOVEMBER 4, 1988, AS INSTRUMENT NO. 19878-88; TOGETHER WITH
          NON-EXCLUSIVE EASEMENT RIGHTS AS CREATED BY DECLARATION OF ACCESS AND
          SIGN EASEMENTS AND FILED ON NOVEMBER 13, 1990 AS DOCUMENT NO.
          21450-90.

The Real Property or its address is commonly known as 3020 UTICA RIDGE ROAD,
BETTENDORF, IA 52722. The Real Property tax identification number is 841753501.

DEFINITIONS. The following words shall have the following meanings when used in
this Assignment. Terms not otherwise defined in this Assignment shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.

     Assignment. The word "Assignment" means this Assignment of Rents between
     Grantor and Lender, and includes without limitation all assignments and
     security interest provisions relating to the Rents.

     Event of Default. The words "Event of Default" mean and include without
     limitation any of the Events of Default set forth below in the section
     titled "Events of Default."

     Grantor. The word "Grantor" means JAMESON INNS, INC

     Indebtedness. The word "Indebtedness" means all principal, interest and
     late fees payable under the Note and any amounts expended or advanced by
     Lender to discharge obligations of Grantor or expenses incurred by Lender
     to enforce obligations of Grantor under this Assignment, together with
     interest on such amounts as provided in this Assignment. In addition to the
     Note, the word "Indebtedness" includes all obligations, debts and
     liabilities, plus interest thereon, of Grantor to Lender, or any one or
     more of them, as well as all claims by Lender against Grantor, or any one
     or more of them, whether now existing or hereafter arising, whether related
     or unrelated to the purpose of the Note, whether voluntary or otherwise,
     whether due or not due, absolute or contingent, liquidated or unliquidated
     and whether Grantor may be liable individually or jointly with others,
     whether obligated as guarantor or otherwise, and whether recovery upon such
     Indebtedness may be or hereafter may become barred by any statute of
     limitations, and whether such Indebtedness may be or hereafter may become
     otherwise unenforceable. This Assignment secures, in addition to the
     amounts specified in the Note, future advances in the amount of
     $9,000,000.00, together with all interest thereon, which future advances
     Lender is obligated to make so long as Grantor complies with all the terms
     and conditions of the Note or other loan agreement; however, in no event
     shall such future advances (excluding interest) exceed in the aggregate
     $9,000,000.00.

     Lender. The word "Lender" means FIRST MIDWEST BANK, NATIONAL ASSOCIATION,
     its successors and assigns.

<PAGE>

     Note. The word "Note" means the promissory note or credit agreement dated
     March 30, 2001, in the original principal amount of $3,000,000.00 from
     Grantor to Lender, together with all renewals of, extensions of,
     modifications of, refinancings of, consolidations of, and substitutions for
     the promissory note or agreement.

     Property. The word "Property" means the real property, and all improvements
     thereon, described above in the "Assignment" section.

     Real Property. The words "Real Property" mean the property, interests and
     rights described above in the "Property Definition" section.

     Related Documents. The words "Related Documents" mean and include without
     limitation all promissory notes, credit agreements, loan agreements,
     environmental agreements, guaranties, security agreements, mortgages, deeds
     of trust, and all other instruments, agreements and documents, whether now
     or hereafter existing, executed in connection with the Indebtedness.

     Rents. The word "Rents" means all rents, revenues, income, issues, profits
     and proceeds from the Property, whether due now or later, including without
     limitation all Rents under that certain lease with JAMESON HOSPITALITY LLC
     (BUT ONLY TO THE EXTENT SUCH RENTS PERTAIN TO THE PROPERTY) which was made
     on the following terms and conditions:

         Date of Lease: 05-07-1999
         Lease Terms: COMMENCING MAY 7, 1999 AND CONTINUING TO AND INCLUDING
         DECEMBER 31, 2012. PERCENTAGE RENT IS PAYABLE QUARTERLY.
         Rental Amount(s): $394.00 PER ROOM PER MONTH

THIS ASSIGNMENT IS GIVEN TO SECURE (1) PAYMENT OF THE INDEBTEDNESS AND (2)
PERFORMANCE OF ANY AND ALL OBLIGATIONS OF GRANTOR UNDER THE NOTE, THIS
ASSIGNMENT, AND THE RELATED DOCUMENTS. THIS ASSIGNMENT IS GIVEN AND ACCEPTED ON
THE FOLLOWING TERMS:

PAYMENT AND PERFORMANCE. Except as otherwise provided in this Assignment or any
Related Document, Grantor shall pay to Lender all amounts secured by this
Assignment as they become due, and shall strictly perform all of Grantor's
obligations under this Assignment. Unless and until Lender exercises its right
to collect the Rents as provided below and so long as there is no default under
this Assignment, Grantor may remain in possession and control of and operate and
manage the Property and collect the Rents, provided that the granting of the
right to collect the Rents shall not constitute Lender's consent to the use of
cash collateral in a bankruptcy proceeding.

GRANTOR'S REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE RENTS. With respect
to the Rents, Grantor represents and warrants to Lender that:

     Ownership.  Grantor is entitled to receive the Rents free and clear of all
     rights, loans, liens, encumbrances, and claims except as disclosed to and
     accepted by Lender in writing.

     Right to Assign. Grantor has the full right, power, and authority to enter
     into this Assignment and to assign and convey the Rents to Lender.

     No Prior Assignment. Grantor has not previously assigned or conveyed the
     Rents to any other person by any instrument now in force.

     No Further Transfer.  Grantor will not sell, assign, encumber, or otherwise
     dispose of any of Grantor's rights in the Rents except as provided in this
     Agreement.

LENDER'S RIGHT TO COLLECT RENTS. Lender shall have the right at any time, and
even though no default shall have occurred under this Assignment, to collect and
receive the Rents. For this purpose, Lender is hereby given and granted the
following rights, powers and authority:

     Notice to Tenants. Lender may send notices to any and all tenants of the
     Property advising them of this Assignment and directing all Rents to be
     paid directly to Lender or Lender's agent.

     Enter the Property. Lender may enter upon and take possession of the
     Property; demand, collect and receive from the tenants or from any other
     persons liable therefor, all of the Rents; institute and carry on all legal
     proceedings necessary for the protection of the Property, including such
     proceedings as may be necessary to recover possession of the Property;
     collect the Rents and remove any tenant or tenants or other persons from
     the Property.

     Maintain the Property. Lender may enter upon the Property to maintain the
     Property and keep the same in repair; to pay the costs thereof and of all
     services of all employees, including their equipment, and of all continuing
     costs and expenses of maintaining the Property in proper repair and
     condition, and also to pay all taxes, assessments and water utilities, and
     the premiums on fire and other insurance effected by Lender on the
     property.

     Compliance with Laws. Lender may do any and all things to execute and
     comply with the laws of the State of Iowa and also all other laws, rules,
     orders, ordinances and requirements of all other governmental agencies
     affecting the Property.

     Lease the Property. Lender may rent or lease the whole or any part of the
     Property for such term or terms and on such conditions as Lender may deem
     appropriate.

     Employ Agents. Lender may engage such agent or agents as Lender may deem
     appropriate, either in Lender's name or in Grantor's name, to rent and
     manage the Property, including the collection and application of Rents.

<PAGE>

     Other Acts. Lender may do all such other things and acts with respect to
     the Property as Lender may deem appropriate and may act exclusively and
     solely in the place and stead of Grantor and to have all of the powers of
     Grantor for the purposes stated above.

     No Requirement to Act. Lender shall not be required to do any of the
     foregoing acts or things, and the fact that Lender shall have performed one
     or more of the foregoing acts or things shall not require Lender to do any
     other specific act or thing.

APPLICATION OF RENTS. All costs and expenses incurred by Lender in connection
with the Property shall be for Grantor's account and Lender may pay such costs
and expenses from the Rents. Lender, in its sole discretion, shall determine the
application of any and all Rents received by it; however, any such Rents
received by Lender which are not applied to such costs and expenses shall be
applied to the Indebtedness. All expenditures made by Lender under this
Assignment and not reimbursed from the Rents shall become a part of the
Indebtedness secured by this Assignment, and shall be payable on demand, with
interest at the Note rate from date of expenditure until paid.

FULL PERFORMANCE. If Grantor pays all of the Indebtedness when due and otherwise
performs all the obligations imposed upon Grantor under this Assignment, the
Note, and the Related Documents, Lender shall execute and deliver to Grantor a
suitable satisfaction of this Assignment and suitable statements of termination
of any financing statement on file evidencing Lender's security interest in the
Rents and the Property. Any termination fee required by law shall be paid by
Grantor, if permitted by applicable law.

EXPENDITURES BY LENDER. If Grantor fails to comply with any provision of this
Assignment, or if any action or proceeding is commenced that would materially
affect Lender's interests in the Property, Lender on Grantor's behalf may, but
shall not be required to, take any action that Lender deems appropriate. Any
amount that Lender expends in so doing will bear interest at the rate provided
for in the Note from the date incurred or paid by Lender to the date of
repayment by Grantor. All such expenses, at Lender's option, will (a) be payable
on demand, (b) be added to the balance of the Note and be apportioned among and
be payable with any installment payments to become due during either (i) the
term of any applicable insurance policy or (ii) the remaining term of the Note,
or (c) be treated as a balloon payment which will be due and payable at the
Note's maturity. This Assignment also will secure payment of these amounts. The
rights provided for in this paragraph shall be in addition to any other rights
or any remedies to which Lender may be entitled on account of the default. Any
such action by Lender shall not be construed as curing the default so as to bar
Lender from any remedy that it otherwise would have had.

DEFAULT.  Each of the following, at the option of Lender, shall constitute an
event of default ("Event of Default") under this Assignment:

     Default on Indebtedness. Failure of Grantor to make any payment when due on
     the Indebtedness.

     Compliance Default. Failure of Grantor to comply with any other term,
     obligation, covenant or condition contained in this Assignment, the Note or
     in any of the Related Documents.

     Default In Favor of Third Parties. Should Borrower or any Grantor default
     under any loan, extension of credit, security agreement, purchase or sales
     agreement, or any other agreement, in favor of any other creditor or person
     that may materially affect any of Borrower's property or Borrower's or any
     Grantor's ability to repay the Loans or perform their respective
     obligations under this Assignment or any of the Related Documents.

     False Statements. Any warranty, representation or statement made or
     furnished to Lender by or on behalf of Grantor under this Assignment, the
     Note or the Related Documents is false or misleading in any material
     respect, either now or at the time made or furnished.

     Defective Collateralization. This Assignment or any of the Related
     Documents ceases to be in full force and effect (including failure of any
     collateral documents to create a valid and perfected security interest or
     lien) at any time and for any reason.

     Other Defaults. Failure of Grantor to comply with any term, obligation,
     covenant, or condition contained in any other agreement between Grantor and
     Lender.

     Insolvency. The dissolution or termination of Grantor's existence as a
     going business, the insolvency of Grantor, the appointment of a receiver
     for any part of Grantor's property, any assignment for the benefit of
     creditors, any type of creditor workout, or the commencement of any
     proceeding under any bankruptcy or insolvency laws by or against Grantor.

     Foreclosure, Forfeiture, etc. Commencement of foreclosure or forfeiture
     proceedings, whether by judicial proceeding, self--help, repossession or
     any other method, by any creditor of Grantor or by any governmental agency
     against any of the Property. However, this subsection shall not apply in
     the event of a good faith dispute by Grantor as to the validity or
     reasonableness of the claim which is the basis of the foreclosure or
     forfeiture proceeding, provided that Grantor gives Lender written notice of
     such claim and furnishes reserves or a surety bond for the claim
     satisfactory to Lender.

     Events Affecting Guarantor. Any of the preceding events occurs with respect
     to any Guarantor of any of the Indebtedness or any Guarantor dies or
     becomes incompetent, or revokes or disputes the validity of, or liability
     under, any Guaranty of the Indebtedness.

     Adverse Change. A material adverse change occurs in Grantor's financial
     condition, or Lender believes the prospect of payment or performance of the
     Indebtedness is impaired.

     Insecurity. Lender in good faith deems itself insecure.

RIGHTS AND REMEDIES ON DEFAULT. Upon the occurrence of any Event of Default and
at any time thereafter, Lender may exercise any one or more of the following
rights and remedies, in addition to any other rights or remedies provided by
law:

<PAGE>

     Accelerate Indebtedness. Lender shall have the right at its option to
     declare the entire Indebtedness immediately due and payable, including any
     prepayment penalty which Grantor would be required to pay without notice,
     except as may be expressly required by applicable law.

     Collect Rents. Lender shall have the right, without notice to Grantor, to
     take possession of the Property and collect the Rents, including amounts
     past due and unpaid, and apply the net proceeds, over and above Lender's
     costs, against the Indebtedness. In furtherance of this right, Lender shall
     have all the rights provided for in the Lender's Right to Collect Section,
     above. If the Rents are collected by Lender, then Grantor irrevocably
     designates Lender as Grantor's attorney-in-fact to endorse instruments
     received in payment thereof in the name of Grantor and to negotiate the
     same and collect the proceeds. Payments by tenants or other users to Lender
     in response to Lender's demand shall satisfy the obligations for which the
     payments are made, whether or not any proper grounds for the demand
     existed. Lender may exercise its rights under this subparagraph either in
     person, by agent, or through a receiver.

     Appoint Receiver. Lender shall have the right to have a receiver appointed
     to take possession of all or any part of the Property, with the power to
     protect and preserve the Property, to operate the Property preceding
     foreclosure or sale, and to collect the Rents from the Properly and apply
     the proceeds, over and above the cost of the receivership, against the
     Indebtedness. The receiver may serve without bond if permitted by law.
     Lender's right to the appointment of a receiver shall exist whether or not
     the apparent value of the Property exceeds the Indebtedness by a
     substantial amount. Employment by Lender shall not disqualify a person from
     serving as a receiver.

     Other Remedies. Lender shall have all other rights and remedies provided in
     this Assignment or the Note or by law.

     Waiver; Election of Remedies. A waiver by any party of a breach of a
     provision of this Assignment shall not constitute a waiver of or prejudice
     the party's rights otherwise to demand strict compliance with that
     provision or any other provision. Election by Lender to pursue any remedy
     shall not exclude pursuit of any other remedy, and an election to make
     expenditures or take action to perform an obligation of Grantor under this
     Assignment after failure of Grantor to perform shall not affect Lender's
     right to declare a default and exercise its remedies under this Assignment.

     Attorneys' Fees; Expenses. If Lender institutes any suit or action to
     enforce any of the terms of this Assignment, Lender shall be entitled to
     recover such sum as the court may adjudge reasonable as attorneys' fees at
     trial and on any appeal. Whether or not any court action is involved, all
     reasonable expenses incurred by Lender that in Lender's opinion are
     necessary at any time for the protection of its interest or the enforcement
     of its rights shall become a part of the Indebtedness payable on demand and
     shall bear interest from the date of expenditure until repaid at the rate
     provided for in the Note. Expenses covered by this paragraph include,
     without limitation, however subject to any limits under applicable law,
     Lender's attorneys' fees and Lender's legal expenses whether or not there
     is a lawsuit, including attorneys' fees for bankruptcy proceedings
     (including efforts to modify or vacate any automatic stay or injunction),
     appeals and any anticipated post--judgment collection services, the cost of
     searching records, obtaining title reports (including foreclosure reports),
     surveyors' reports, and appraisal fees, and title insurance, to the extent
     permitted by applicable law. Grantor also will pay any court costs, in
     addition to all other sums provided by law.

MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Assignment:

     Amendments. This Assignment, together with any Related Documents,
     constitutes the entire understanding and agreement of the parties as to the
     matters set forth in this Assignment. No alteration of or amendment to this
     Assignment shall be effective unless given in writing and signed by the
     party or parties sought to be charged or bound by the alteration or
     amendment.

     Applicable Law. This Assignment has been delivered to Lender and accepted
     by Lender in the State of Illinois. Except as set forth hereinafter, this
     Assignment shall be governed by, construed and enforced in accordance with
     the laws of the State of Illinois, except and only to the extent of
     procedural matters related to the perfection and enforcement by Lender of
     its rights and remedies against the Property, which matters shall be
     governed by the laws of the State of Iowa. However, in the event that the
     enforceability or validity of any provision of this Assignment is
     challenged or questioned, such provision shall be governed by whichever
     applicable state or federal law would uphold or would enforce such
     challenged or questioned provision. The loan transaction which Is evidenced
     by the Note and this Assignment (which secures the Note) has been applied
     for, considered, approved and made in the State of Illinois.

       Merger. There shall be no merger of interest or estate created by this
       assignment with any other interest or estate in the Property at any time
       held by or for the benefit of Lender in any capacity, without the written
       consent of Lender.

       Multiple Parties; Corporate Authority. All obligations of Grantor under
       this Assignment shall be joint and several, and all references to Grantor
       shall mean each and every Grantor. This means that each of the persons
       signing below is responsible for all obligations in this Assignment.

       No Modification. Grantor shall not enter into any agreement with the
       holder of any mortgage, deed of trust, or other security agreement which
       has priority over this Assignment by which that agreement is modified,
       amended, extended, or renewed without the prior written consent of
       Lender. Grantor shall neither request nor accept any future advances
       under any such security agreement without the prior written consent of
       Lender.

       No Obligation of Lender. The assignment and security interest granted in
       this Assignment shall not be deemed or construed to constitute Lender as
       a mortgagee or trustee in possession of the Property, to obligate Lender
       to lease the Property or to attempt to do so, or to take any action,
       incur any expense or perform or discharge any obligation, duty or
       liability whatsoever under any of the leases or otherwise.

       Severability. If a court of competent jurisdiction finds any provision of
       this Assignment to be invalid or unenforceable as to any person or
       circumstance, such finding shall not render that provision invalid or
       unenforceable as to any other persons or circumstances. If feasible, any
       such offending provision shall be deemed to be modified to be within the
       limits of enforceability or validity; however, if the offending provision
       cannot be so modified, it shall be stricken and all other provisions of
       this Assignment in all other respects shall remain valid and enforceable.

<PAGE>

       Successors and Assigns. Subject to the limitations stated in this
       Assignment on transfer of Grantor's interest, this Assignment shall be
       binding upon and inure to the benefit of the parties, their successors
       and assigns. If ownership of the Property becomes vested in a person
       other than Grantor, Lender, without notice to Grantor, may deal with
       Grantor's successors with reference to this Assignment and the
       Indebtedness by way of forbearance or extension without releasing Grantor
       from the obligations of this Assignment or liability under the
       Indebtedness.

       Time Is of the Essence. Time is of the essence in the performance of this
       Assignment.

       Release of Rights of Dower, Homestead and Distributive Share. Each of the
       undersigned hereby relinquishes all rights of dower, homestead and
       distributive share in and to the Property and waives all rights of
       exemption as to any of the Property.

       Waivers and Consents. Lender shall not be deemed to have waived any
       rights under this Assignment (or under the Related Documents) unless such
       waiver is in writing and signed by Lender. No delay or omission on the
       part of Lender in exercising any right shall operate as a waiver of such
       right or any other right. A waiver by any party of a provision of this
       Assignment shall not constitute a waiver of or prejudice the party's
       right otherwise to demand strict compliance with that provision or any
       other provision. No prior waiver by Lender, nor any course of dealing
       between Lender and Grantor, shall constitute a waiver of any of Lender's
       rights or any of Grantor's obligations as to any future transactions.
       Whenever consent by Lender is required in this Assignment, the granting
       of such consent by Lender in any instance shall not constitute continuing
       consent to subsequent instances where such consent is required.

       Acknowledgment of Receipt of Copies. Grantor hereby acknowledges the
       receipt of a copy of this Assignment.

   GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS ASSIGNMENT OF
   RENTS, AND GRANTOR AGREES TO ITS

   TERMS.

   GRANTOR:

   JAMESON INNS. INC.

   By:  /s/ Craig R. Ktichin
       ---------------------

       CRAIG KITCHIN, President

                            CORPORATE ACKNOWLEDGMENT

   STATE OF GEORGIA

                    SS

   COUNTY OF DeKALB

   On this 30/th/ day of March_ , A.D., 2002, before me before me a Notary
   Public in and for said County and State, personally appeared CRAIG KITCHIN,
   President, to me personally known, who, being by me duly sworn did say that
   that person is an authorized signer of said corporation, that no seal has
   been procured by said corporation and that said instrument was signed on
   behalf of the said corporation by authority of its Board of directors and
   that said CRAIG KITCHIN, President, acknowledged the execution of said
   instrument to be the voluntary act and deed of said corporation by it
   voluntarily executed.

                                              Steven A. Curlee
                                          --------------------------------------
                                          Notary Public in the State of Georgia

<PAGE>

                                 PROMISSORY NOTE
Borrower: JAMESON INNS, INC.                       Lender: FIRST MIDWEST BANK,
                                                   NATIONAL ASSOCIATION
         8 PERIMETER CENTER EAST, SUITE 8050       MOLINE MAIN
         ATLANTA, GA 30346                         300 PARK BOULEVARD, SUITE 400
                                                   ITASCA, IL 60143

         Principal Amount: $3,000,000.00           Date of Note: March 30, 2001
         Initial Rate: 8.000%

PROMISE TO PAY. JAMESON INNS, INC. ("Borrower") promises to pay to FIRST MIDWEST
BANK, NATIONAL ASSOCIATION ("Lender"), or order, In lawful money of the United
States of America, the principal amount of Three Million & 00,100 Dollars
($3,000,000.00), together with interest on the unpaid principal balance from
March 30, 2001, until paid In full.

PAYMENT. Subject to any payment changes resulting from changes In the Index,
Borrower will pay this loan In 59 regular payments of $25,318.29 each and one
irregular last payment estimated at $2,655,796.91. Borrower's first payment is
due April 30, 2001, and all subsequent payments are due on the last day of each
month after that. Borrower's final payment, due March 31, 2006, will be for all
principal and all accrued Interest not yet paid. Payments Include principal and
Interest. The annual interest rate for this Note is computed on a 365/360 basis;
that is, by applying the ratio of the annual interest rate over a year of 360
days, multiplied by the outstanding principal balance, multiplied by the actual
number of days the principal balance is outstanding. Borrower will pay Lender at
Lender's address shown above or at such other place as Lender may designate in
writing. Unless otherwise agreed or required by applicable law, payments will be
applied first to accrued unpaid interest, then to principal, and any remaining
amount to any unpaid collection costs and late charges.

VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time t lime based on changes in an independent index which is the Prime rate as
published in the Wall Street Journal (the "Index"). The Index is not necessarily
the lowest rate charged by Lender on its loans. If the Index becomes unavailable
during the term of this loan, Lender may designate a substitute index after
notice to Borrower. Lender will tell Borrower the current Index rate upon
Borrower's request. Borrower understands that Lender may make loans based on
other rates as well. The Interest rate change will not occur more often than
once each month. The Index currently is 8.000% per annum. The Interest rate to
be applied to the unpaid principal balance or this Note will be at a rate equal
to the Index, resulting in an Initial rate of 8.000% per annum. NOTICE: Under no
circumstances will the Interest rate on this Note be more than the maximum rate
allowed by applicable law. Whenever Increases occur in the interest rate,
Lender, at its option, may do one or more of the following: (a) increase
Borrower's payments to ensure Borrower's loan will pay off by its original final
maturity date, (b) increase Borrower's payments to cover accruing interest. (c)
increase the number of Borrower's payments, and (d) continue Borrower's payments
at the same amount and increase Borrower's final payment.

PREPAYMENT PENALTY. Upon prepayment of this Note, Lender Is entitled to the
following prepayment penalty: BORROWER MAY FROM TIME TO TIME, UPON AT LEAST FIVE
(5) DAYS' PRIOR WRITTEN NOTICE TO LENDER, PREPAY THE OUTSTANDING PRINCIPAL
BALANCE OF THIS NOTE IN WHOLE OR IN PART; PROVIDED HOWEVER, (I) BORROWER SHALL
PAY TO LENDER AT THE TIME OF ANY SUCH PREPAYMENT, IF SUCH PREPAYMENT IS FUNDED
DIRECTLY OR INDIRECTLY BY FUNDS RECEIVED FROM A REFINANCING WITH A FINANCIAL
INSTITUTION OTHER THAN LENDER, A PREPAYMENT PREMIUM IN AN AMOUNT EQUAL TO (A)
THREE PERCENT (3%) OF THE AMOUNT OF SUCH PREPAYMENT FOR ANY PREPAYMENT MADE
DURING THE PERIOD FROM THE DATE OF THIS NOTE TO AND INCLUDING MARCH 29, 2002,
(B) TWO PERCENT (2%) OF THE AMOUNT OF SUCH PREPAYMENT FOR ANY PREPAYMENT MADE
DURING THE PERIOD FROM MARCH 30, 2002 TO AND INCLUDING MARCH 29, 2003, AND (C)
ONE PERCENT (1%) OF THE AMOUNT OF SUCH PREPAYMENT FOR ANY PREPAYMENT MADE DURING
THE PERIOD FROM MARCH 30, 2003 TO AND INCLUDING SEPTEMBER 30, 2005 (II) ANY
PARTIAL PREPAYMENT OF PRINCIPAL SHALL BE APPLIED TO THE UNPAID PRINCIPAL
INSTALLMENTS OF THIS NOTE IN THE INVERSE ORDER OF THEIR MATURITIES. Except for
the foregoing, Borrower may pay all or a portion of the amount owed earlier than
it is due. Early

<PAGE>

payments will not, unless agreed to by Lender in writing, relieve Borrower of
Borrower's obligation to continue to make payments under the payment schedule.
Rather, they will reduce the principal balance due and may result in Borrower
making fewer payments.

LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged
5.000% of the regularly scheduled payment.

DEFAULT. Borrower will be in default If any of the following happens: (a)
Borrower falls to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender. (c) Borrower defaults under any loan, extension of credit,
security agreement, purchase or sales agreement, or any other agreement, in
favor of any other creditor or person that may materially affect any of
Borrower's property or Borrower's ability to repay this Note or perform
Borrower's obligations under this Note or any of the Related Documents. (d) Any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf Is false or misleading in any material respect either now or
at the time made or furnished. (e) Borrower becomes Insolvent, a receiver is
appointed for any part of Borrower's property, Borrower makes an assignment for
the benefit of creditors, or any proceeding is commenced either by Borrower or
against Borrower under any bankruptcy or insolvency laws. (f) Any creditor tries
to take any of Borrower's property on or in which Lender has a lien or security
interest. This includes a garnishment of any of Borrower's accounts, including
deposit accounts, with Lender. (g) Any guarantor dies or any of the other events
described in this default section occurs with respect to any guarantor of this
Note. (h) A material adverse change occurs in Borrower's financial condition, or
Lender believes the prospect of payment or performance of the indebtedness Is
impaired. (i) Lender in good faith deems itself insecure.

LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest Immediately due, without
notice, and then Borrower will pay that amount. Upon default, including failure
to pay upon final maturity, Lender, at its option, may also, if permitted under
applicable law, increase the variable interest rate on this Note to 4.000
percentage points over the Index. The interest rate will not exceed the maximum
rate permitted by applicable law. Lender may hire or pay someone else to help
collect this Note if Borrower does not pay. Borrower also will pay Lender that
amount. This includes, subject to any limits under applicable law, Lender's
attorneys' fees and Lender's legal expenses whether or not there is a lawsuit,
including attorneys' fees and legal expenses for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collection services. If not
prohibited by applicable law, Borrower also will pay any court costs, in
addition to alt other sums provided bylaw. This Note has been delivered to
Lender and accepted by Lender in the State of-Illinois. If there is a lawsuit,
Borrower agrees upon Lender's request to submit to the jurisdiction of the
courts of ROCK ISLAND County, the State of Illinois. This Note shall be governed
by and construed in accordance with the laws of the State of Illinois.

CONFESSION OF JUDGMENT. Borrower hereby irrevocably authorizes and empowers any
attorney-at-law to appear in any court of record and to confess judgment against
Borrower for the unpaid amount of this Note as evidenced by an affidavit signed
by an officer of Lender setting forth the amount then due, plus attorneys' fees
as provided in this Note, plus costs of suit, and to release all errors, and
waive all rights of appeal. If a copy of this Note, verified by an affidavit,
shall have been filed in the proceeding, it will not be necessary to file the
original as a warrant of attorney. Borrower waives the right to any stay of
execution and the benefit of all exemption laws now or hereafter in effect. No
single exercise of the foregoing warrant and power to confess judgment will be
deemed to exhaust the power, whether or not any such exercise shall be held by
any court to be Invalid, voidable, or void; but the power will continue
undiminished and may be exercised from time to time as Lender may elect until
all amounts owing on this Note have been paid in full.

RIGHT OF SETOFF. Borrower grants to Lender a contractual security interest in,
and hereby assigns, conveys, delivers, pledges, and transfers to Lender all
Borrower's right, title and interest in and to, Borrower's accounts with Lender
(whether checking, savings, or some other account), including without limitation
all accounts held jointly with someone else and all accounts Borrower may open
In the future, excluding however all IRA and Keogh accounts, and all trust
accounts for which the grant of a security interest would be prohibited by law.
Borrower authorizes Lender, to the extent permitted by applicable law, to charge
or setoff all sums owing on this Note against

<PAGE>

any and all such accounts.

COLLATERAL. This Note Is secured by VARIOUS COLLATERAL INCLUDING, WITHOUT
LIMITATION, A MORTGAGE AND AN ASSIGNMENT OF RENTS DATED MARCH 30, 2001 ON
PROPERTY COMMONLY KNOWN AS 3020 UTICA RIDGE ROAD, BE1TENDORF, IOWA 52722.

FINANCIAL INFORMATION. Furnish such additional information and statements, lists
of assets and liabilities, agings of receivables and payables, inventory
schedules, budgets, forecasts, tax returns, and other reports with respect to
Borrower's financial condition and business operations as Lender may request
from time to time.

ADDITIONAL GENERAL PROVISIONS. The term "Borrower" as used herein, shall mean
all parties signing this Note and each of them and all such parties shall be
jointly and severally obligated hereunder.

OTHER TERMS AND CONDITIONS. This Note is issued pursuant to the terms and
conditions set forth in a Business Loan Agreement dated March 30, 2001 between
Borrower and Lender.

GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest and notice of dishonor. Upon any change
in the terms of this Note, and unless otherwise expressly stated in writing, no
party who signs this Note, whether as maker, guarantor, accommodation maker or
endorser, shall be released from liability. All such parties agree that Lender
may renew or extend (repeatedly and for any length of time) this loan, or
release any party or guarantor or collateral; or Impair, fail to realize upon or
perfect Lender's Security Interest in the collateral; and take any other action
deemed necessary by Lender without the consent of or notice to anyone. All such
parties also agree that Lender may modify this loan without the consent of or
notice to anyone other than the party with whom the modification Is made.

ILLINOIS INSURANCE NOTICE. Unless Borrower provides Lender with evidence of the
insurance coverage required by Borrower's agreement with Lender, Lender may
purchase Insurance at Borrower's expense to protect Lender's interests in the
collateral. This insurance may, but need not, protect Borrower's interests. The
coverage that Lender purchases may not pay any claim that Borrower makes or any
claim that Is made against Borrower in connection with the collateral. Borrower
may later cancel any insurance purchased by Lender, but only after providing
Lender with evidence that Borrower has obtained insurance as required by their
agreement. If Lender purchases insurance for the collateral, Borrower will be
responsible for the costs of that insurance, including interest and any other
charges Lender may impose in connection with the placement of the insurance,
until the effective date of the cancellation or expiration of the insurance. The
costs of the insurance may be added to Borrower's total outstanding balance or
obligation. The costs of the insurance may be more than the cost of insurance
Borrower may be able to obtain on Borrower's own.

PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.

BORROWER:
JAMESON INNS, 0INC.


By:__________________________
    CRAIG KITCHIN, President