Document:

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                                                                   EXHIBIT 10.38

                                 LOAN AGREEMENT

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

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

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

                                  WITNESSETH:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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               Lender), to the effect that:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                                       11
<PAGE>

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

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

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

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

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

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

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

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

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

                                       12
<PAGE>

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

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

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

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

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

     11.  General.
          -------

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

                                       13
<PAGE>

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

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

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

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

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

                                       14
<PAGE>

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

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

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

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

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

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

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

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

                                       15
<PAGE>

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

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

Borrower

Jameson Inns, Inc.

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

Lender

Geneva Leasing Associates, Inc.

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

STATE OF ______________)
                       )ss:
COUNTY OF ___________  )

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

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

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

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

                                       16
<PAGE>

              ATTENTION:  County Recorder of Allen County, Indiana

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

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

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

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

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

                                  WITNESSETH:

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

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

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

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

                                       17
<PAGE>

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

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

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

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

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

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

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

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

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

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

                                       18
<PAGE>

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

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

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

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

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

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

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

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

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

                                       19
<PAGE>

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

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

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

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

                                       20
<PAGE>

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

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

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

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

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

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

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

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

                                       21
<PAGE>

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

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

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

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

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

       (b) To pay the Liabilities when due.

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

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

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

                                       22
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

                                       23
<PAGE>

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

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

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

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

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

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

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

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

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

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

                                       24
<PAGE>

remedies:

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

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

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

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

                                       25
<PAGE>

           Agreement, the Note and the other Loan Documents; or

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

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

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

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

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

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

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

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

                                       26
<PAGE>

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

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

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

                                       27
<PAGE>

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

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

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

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

                                       28
<PAGE>

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

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

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

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

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

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

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

                                       29
<PAGE>

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

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

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

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

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

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

                                       30
<PAGE>

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

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

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

"Mortgagor"

Jameson Inns, Inc.

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

                                       31
<PAGE>

STATE OF INDIANA       )
                       )ss:
COUNTY OF ___________  )

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

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

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

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

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

                                       32
<PAGE>

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

                               Legal Description

Parcel I

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

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

Parcel II

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

                                       33
<PAGE>

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

Parcel III

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

Parcel IV

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

                                       34
<PAGE>

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

Permitted Encumbrances

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

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

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

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

                                       35
<PAGE>

                                      NOTE

$2,825,000.00                                           September 27, 2000

     FOR VALUE RECEIVED:

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

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

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

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

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

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

                                       36
<PAGE>

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

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

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

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

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

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

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

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

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

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

                                       37
<PAGE>

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

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

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

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

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

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

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

                                       38
<PAGE>

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

"Maker"

Jameson Inns, Inc.

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

                                       39<PAGE>

                                                                   EXHIBIT 10.39
                                 LOAN AGREEMENT

     THIS AGREEMENT, made and entered effective as of the ___ day of September,
2000, by and between JAMESON INNS, INC., a Georgia corporation, having a mailing
address of 8 Perimeter Center East, Suite 8050, Atlanta, GA 30346 (hereinafter
referred to as "Borrower"), and REPUBLIC BANK, a Michigan Commercial Bank,
having a banking office at 201 S. Capitol Avenue, Suite 650, Indianapolis, IN
46225 (hereinafter referred to as "Lender"),

                              W I T N E S S E T H:

     WHEREAS, Borrower owns in fee simple absolute certain real estate located
in Marion County, Indiana, more particularly described in Exhibit "A" attached
hereto and by reference made a part of this Agreement (hereinafter referred to
as the "Real Estate"), and upon which it owns certain improvements (the
"Improvements"), including a building in which Borrower operates a limited
service hotel containing 101 rooms, commonly known and operated as a Signature
Inn; and

     WHEREAS, Borrower has applied to Lender for a permanent loan in the maximum
principal amount of Four Million Seven Hundred Forty-Five Thousand and no/100
Dollars ($4,745,000.00) and Lender is willing to make such loan to Borrower.

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

         1. Loan. Lender shall, upon the satisfaction (or waiver by Lender) of
all conditions precedent set forth in Paragraph 3 of this Agreement, advance
loan proceeds in the maximum amount of Four Million Seven Hundred Forty-Five
Thousand and no/100 Dollars ($4,745,000.00) (such loan as from time to time
amended or modified is hereinafter referred to as the "Loan"), for the purpose
of providing financing of the Real Estate and the Improvements thereon. The Loan
shall be
<PAGE>

advanced at closing, shall have a maturity date of one hundred twenty (120)
months from the date hereof, shall have an amortization of twenty (20) years
from the date hereof, shall bear interest and shall be payable in the manner
specified in the promissory note of Borrower evidencing the Loan in the
principal sum of Four Million Seven Hundred Forty-Five Thousand and no/100
Dollars ($4,745,000.00) (such promissory note as may be modified or amended from
time to time and/or any promissory note which is a direct or remote renewal,
extension, restatement or replacement of such promissory note is hereinafter
referred to as the "Note").

         2. Collateral and Assignments. The indebtedness and obligations of
Borrower to Lender under this Agreement, the Loan and under any other agreement,
instrument or document executed in connection herewith shall be secured by: (a)
the lien of a first mortgage covering the Real Estate and the Improvements, a
first assignment of all rents and leases and a first security interest in all
inventory, accounts, accounts receivable, rents, deposits, general intangibles,
contract rights, instruments, documents, securities, equipment, furnishings and
fixtures owned by Borrower and located on the Real Estate, incorporated in the
Improvements or used in connection with the operation of the Improvements, all
granted under the terms of a certain Mortgage, Security Agreement and Fixture
Filing executed or to be executed by Borrower to Lender and containing such
terms and conditions as Lender may require (such Mortgage, Security Agreement
and Fixture Filing as may be modified or amended from time to time is
hereinafter referred to as the "Mortgage"), (b) a first assignment of all rents
and leases granted under the terms of a certain Assignment of Room Deposits,
Leases and Rents executed or to be executed by Borrower to Lender and containing
such terms and conditions as Lender may require (such Assignment of Room
Deposits, Leases and Rents as may be modified or amended from time to time is
hereinafter referred to as the "Assignment of

                                        2
<PAGE>

Leases"), (c) an Environmental Certificate and Indemnity Agreement executed or
to be executed by Borrower and containing such terms and conditions as Lender
may require (such Environmental Certificate and Indemnity Agreement as may be
modified or amended from time to time is hereinafter referred to as the
"Indemnity Agreement"), (d) an Assignment of Lease with Subordination of Fees
executed or to be executed by Borrower, Jameson Hospitality, LLC, a Georgia
limited liability company ("Manager") and Lender and containing such terms and
conditions as Lender may require (such Assignment of Lease with Subordination of
Fees as may be modified or amended from time to time is hereinafter referred to
as the "Lease Assignment"); and (e) such other security as reasonably determined
by Lender. The Note, Mortgage, Indemnity Agreement, Assignment of Leases, Lease
Assignment and all other documents in connection with the Loan (collectively the
"Loan Documents") and the terms and conditions thereof are hereby incorporated
by reference and made a part of this Agreement.

         3. Conditions Precedent to Disbursement of the Loan. Each of the
following conditions shall be a condition precedent to the disbursement of the
Loan by Lender pursuant to this Agreement, provided, however, that any condition
not satisfied at the time of the disbursement of the Loan shall not be deemed
waived but shall be satisfied as Lender may later require (unless such condition
is expressly waived by Lender in writing):

                  (a) Borrower shall execute and deliver the Note, Mortgage,
          Indemnity Agreement, Lease Assignment and Assignment of Leases to
          Lender.

                  (b) Borrower shall cause the Lease Assignment to be executed
          by the Manager and both delivered to Lender.

                                        3
<PAGE>

                  (c) Borrower shall furnish to Lender a commitment for a
          mortgagee's policy of title insurance in an amount equal to the Loan
          issued by a title insurance company acceptable to Lender, insuring to
          Lender the title of (i) Borrower to the Real Estate and the
          Improvements together with any easements for parking and ingress and
          egress which benefit the Real Estate, free and clear of all liens,
          claims, encumbrances, easements, encroachments and defects, except for
          the lien of current real estate taxes not delinquent and other
          restrictions of record acceptable to Lender. Said commitment shall
          include a 3.1 zoning endorsement insuring against violation of
          existing zoning ordinances and regulations by the Improvements on the
          Real Estate and the operation of the business thereon. Such commitment
          shall contain such special coverage endorsements as Lender may
          require. Upon request by Lender, Borrower shall deliver to Lender
          satisfactory evidence from such title company acknowledging payment in
          full for all premiums, costs and expenses for issuance of such binder
          and the final policy of insurance to be issued pursuant thereto and
          obligating it to issue a continued commitment after recordation of the
          Mortgage and the filing of financing statements pursuant to the
          Mortgage which shows the Mortgage as a first lien upon the Real
          Estate, subject to the above conditions and the security interest
          pursuant to the Mortgage as having first priority, and to issue, upon
          demand by Lender, a final mortgagee's policy of title insurance in
          standard form with only exceptions satisfactory to Lender which
          insures the Mortgage, and the security interest granted pursuant to
          the Mortgage.

                  (d) Borrower shall furnish to Lender two (2) copies of an
          as-built survey of the Real Estate and insured easements prepared in
          accordance with the American Land Title Association's or Indiana Land
          Title Association's minimum standards for surveys, showing

                                        4
<PAGE>

         by stakes or foundation lines the location of the Improvements thereon
         prepared and certified to Lender by a registered land surveyor
         acceptable to Lender and containing a certification in respect to the
         legal description, compliance with applicable zoning ordinances and
         that the Real Estate is not in an area designated as a "wetlands" under
         any state or federal statute, regulation or ruling.

                  (e) Borrower shall furnish to Lender evidence of hazard
         insurance coverage for the Improvements (all risk coverage), with a
         standard mortgagee endorsement and loss payee endorsement in favor of
         Lender, and public liability insurance with Lender named as an
         additional insured, all in such amounts and in form and with insurers
         acceptable to Lender.

                  (f) Borrower shall either furnish to Lender evidence that the
         Real Estate is not located in a flood hazard area as defined under the
         Flood Disaster Protection Act of 1973 and the National Flood Insurance
         Act of 1968 or furnish to Lender evidence of flood insurance coverage,
         with a standard mortgagee endorsement in favor of Lender, such
         insurance to be with a company and in an amount acceptable to Lender.

                  (g) Borrower shall furnish or cause to be furnished to Lender
         resolutions of Borrower authorizing the making of the loan and the
         execution and delivery of all documents and instruments in connection
         therewith and a certificate of incumbency showing all officers of
         Borrower.

                  (h) Borrower shall furnish or cause to be furnished to Lender
         a copy of the Articles of Incorporation and By-Laws of Borrower and all
         amendments thereto, a Certificate of Good Standing from the State of
         Georgia and a Certificate of Authority to transact business in the
         State of Indiana.

                                        5
<PAGE>

                  (i) Borrower shall furnish or cause to be furnished to Lender
         resolutions of Manager authorizing the execution of the Lease and the
         Lease Assignment and a certificate of incumbency showing all members of
         Manager.

                  (j) Borrower shall furnish or cause to be furnished to Lender
         a copy of the Articles of Organization and Operating Agreement of
         Manager and all amendments thereto, a Certificate of Good Standing from
         the State of Georgia and a Certificate of Authority to transact
         business in the State of Indiana.

                  (k) Borrower shall furnish or cause to be furnished to Lender
         an opinion of Borrower's counsel and Manager's counsel which is
         acceptable to Lender and Lender's counsel;

                  (l) Borrower shall furnish to Lender evidence satisfactory to
         Lender that the Real Estate is in compliance with current zoning use
         and restrictions and is adequately zoned for Borrower's intended use
         and that all appropriate or necessary governmental approvals and
         permits have been obtained in connection with the use and operation of
         the Improvements and Borrower's intended use of the Real Estate, if
         available.

                  (m) Borrower shall furnish to Lender copies of all applicable
         building and construction permits for the Improvements and Certificates
         of Occupancy, if any.

                  (n) Borrower shall furnish to Lender a copy of an
         environmental inspection report in form and substance acceptable to
         Lender, prepared and certified by an environmental consultant
         acceptable to Lender, stating that there are not present on, under, in
         or about the Real Estate or Improvements any asbestos, polychlorinated
         biphenyls or any other hazardous or contaminated or toxic materials,
         waste or substances and that the condition of the Real

                                        6
<PAGE>

         Estate currently complies with all applicable state and federal
         environmental protection laws. For purposes hereof "hazardous,
         contaminated or toxic materials, waste or substances" will include but
         not be limited to substances defined as "hazardous substances,"
         "hazardous waste," "hazardous materials," or "toxic substances" in the
         Comprehensive Environmental Response Compensation and Liability Act of
         1980, as amended, 42 U.S.C. Sec. 9601 et. seq. or any similar federal,
         state or local laws, and/or in the regulations adopted in publications
         promulgated pursuant to such laws, or as such laws or regulations may
         be further amended, modified or supplemented.

                  (o) Borrower shall cause to be furnished to Lender an
         appraisal of the Real Estate and Improvements stating a market value of
         not less than Seven Million Three Hundred Thousand Dollars
         ($7,300,000.00). Such appraisal shall be certified to Lender by an
         appraiser licensed in the State of Indiana and shall be in form and
         substance acceptable to Lender.

                  (p) Borrower shall cause to be furnished to Lender a
         certification from the architect involved in the construction and
         design of the Improvements which certifies the existence of such
         conditions as Lender may require, if available.

                  (q) Borrower shall furnish to Lender a set of the Plans and
         Specifications sealed by a responsible professional architect which
         shall contain the original approval of the appropriate building
         authority, if available.
                  (r) Borrower shall furnish to Lender copies of all warranties
         for materials or for the work for the Improvements, if available.

                                        7
<PAGE>

                  (s) Borrower shall furnish to Lender a copy of the Lease and
         estoppel certificate, subordination and attornment agreement, all
         signed by Manager, which shall be in form and substance acceptable to
         Lender.

                  (t) Borrower shall execute and deliver to Lender such other
         documents, instruments, information and materials as may be required by
         Lender in connection with the Loan.

         All documents required to be delivered to Lender under this paragraph
shall be satisfactory in form and substance to Lender and its counsel. Any of
the foregoing conditions may be waived by Lender at the time of disbursement. In
the event Lender, in its sole discretion, shall require further evidence of the
occurrence of any condition precedent or in the event circumstances occur
whereby any condition precedent is no longer wholly satisfied, Lender may at any
time require Borrower to provide further evidence of the occurrence of any
condition precedent set forth in this paragraph.

         4. Prepayment Fee. Borrower shall have the right to prepay in whole (or
in part) the outstanding principal balance of the Note upon thirty (30) days'
prior written notice to Lender and payment of all accrued interest, any fees or
other sums due Lender and a fee of one percent (1%) of the principal balance
being prepaid. Notwithstanding the foregoing, Borrower shall have the right to
prepay in full, or in part, without any fee, the outstanding principal balance
of the Note on any date which is within thirty (30) days prior to the Rate
Adjustment Date (as defined in the Note) upon thirty (30) days' prior written
notice to Lender and payment of all accrued interest, any fees or other sums due
Lender.

         5. Additional Duties of Borrower. In addition to all of the terms and
conditions to be performed by Borrower under this Agreement, Borrower shall pay
to Lender at the time of the

                                        8
<PAGE>

closing of the loan, if Borrower has not previously paid, the remaining balance
of the commitment fee of Forty-Seven Thousand Four Hundred Fifty Dollars
($47,450.00), and shall reimburse Lender for all costs and expenses incurred by
it in connection with the Loan, including but not limited to premiums and fees
of title insurance companies, recording fees, lien search fees, survey expenses,
the fees of inspecting architects or engineers and legal fees and expenses of
its counsel, all of which may be deducted by Lender from the loan proceeds, and
shall deliver to Lender such other documents as it may require to carry out the
terms and provisions of this Agreement.

         6. Warranties and Representations. Borrower warrants and represents to
Lender that:

                  (a) Borrower is a corporation under the laws of the State of
         Georgia and authorized to transact business in the State of Indiana,
         and has full power and authority under its Articles of Incorporation,
         By-laws and any amendments thereto, and under all applicable provisions
         of law to own, manage and operate the Real Estate and the Improvements;

                  (b) Manager is a limited liability company under the laws of
         the State of Georgia and authorized to transact business in the State
         of Indiana, and has full power and authority under this Articles of
         Organization, Operating Agreement and any amendments thereto, and under
         all applicable provisions of law, to lease, manage and operate the Real
         Estate and the Improvements;

                  (c) Borrower is the owner in fee simple of the Real Estate
         subject only to the lien of current real estate taxes not delinquent,
         and easements, rights of way and other restrictions of record;

                  (d) The Improvements were constructed and are operated in
         full compliance with all applicable building codes, zoning ordinances
         and the requirements of regulatory agencies

                                        9
<PAGE>

         having jurisdiction and the Board of Fire Underwriters, or similar
         body, entirely on the Real Estate without any encroachments, within the
         building restriction lines, however established, and without any
         violation of any applicable use restrictions or other restrictions;

                  (e) All required federal, state and other tax returns have
         been filed by or on behalf of Borrower and the taxes in connection
         therewith paid to date and no additional taxes or assessments have been
         asserted or are anticipated;

                  (f) All required federal, state and other tax returns have
         been filed by or on behalf of Manager and the taxes in connection
         therewith paid to date and no additional taxes or assessments have been
         asserted or are anticipated;

                  (g) There is no litigation, or proceeding pending or, to the
         knowledge of Borrower, threatened against or otherwise affecting
         Borrower, or any of its properties or assets, before any court or
         before or by any governmental agency, except as previously disclosed in
         writing to Lender;

                  (h) There is no litigation, or proceeding pending or, to the
         knowledge of Borrower, threatened against or otherwise affecting
         Manager, or any of its properties or assets, before any court or before
         or by any governmental agency, except for those matters which have been
         disclosed in writing to Lender;

                  (i) None of the Borrower's representations or warranties set
         forth in this Agreement or in any document or certificate taken
         together with any related document or certificate furnished pursuant to
         this Agreement or in connection with the transactions contemplated
         hereby contains or will contain any untrue statements of a material
         fact or

                                       10
<PAGE>

         omits or will omit to state a financial fact necessary to make any
         statement of fact contained herein or therein, in light of the
         circumstances under which it was made, not misleading;

                  (j) Upon the execution and delivery of this Agreement and the
         consummation of any transactions contemplated herein, (i) Borrower will
         be able to pay its debts as they become due, (ii) Borrower will have
         funds and capital sufficient to carry on its business, and (iii) the
         assets of Borrower, valued on a fair saleable basis, will be equal to
         or greater than the sum of all liabilities and contingent liabilities
         of Borrower, including for this purpose, unliquidated and disputed
         claims;

                  (k) The execution of this Agreement and all other agreements,
         instruments and documents executed by Borrower and Manager in
         connection herewith, the consummation of all transactions connected
         herewith, have been duly authorized by all necessary action required on
         the part of Borrower and Manager, respectively;

                  (l) Manager has provided true and accurate copies of all
         documents and agreements relating to Manager and its members and there
         are no other agreements existing between Manager and its members;

                  (m) Neither the execution of this Agreement (or the
         consummation of the transactions contemplated hereby) nor compliance
         with the terms and provisions hereof or of any agreements, documents
         and instruments required of Borrower hereunder conflict with, result in
         a breach of or constitute a default under the terms, conditions or
         provisions of the Articles of Incorporation of Borrower, or any
         amendments thereto, any agreement to which Borrower is a party or by
         which Borrower is bound or any law, regulation, order, writ,

                                       11
<PAGE>

         injunction or decree of any court or governmental agency or
         instrumentality having jurisdiction;

                  (n) Borrower is in full compliance with all federal, state
         and local health, safety, building, zoning, environmental and other
         statutes, regulations and ordinances;

                  (o) Any and all employee pension plans of Borrower are in full
         compliance with the terms and provisions of the Employee Retirement
         Income Security Act of 1974 and all other federal, state and local
         statutes, regulations and ordinances governing the establishment and
         administration of pension plans; and

                  (p) All governmental authorizations, permits, certificates,
         licenses, filings, registrations, approvals or consents have been
         obtained, received or made by Borrower and Manager for each of them, as
         applicable, lawfully to (i) make, execute and deliver this Agreement,
         (ii) perform all of its obligations under this Agreement, and (iii) to
         construct, operate and manage the Real Estate and Improvements.

                  (q) (i) Borrower is not now engaged principally, or as one of
         its important activities, in the business of extending credit for the
         purpose of purchasing or carrying any margin stock (within the meaning
         of Regulation U of the Board of Governors of the Federal Reserve
         System); (ii) no part of the proceeds of any credit hereunder has been
         or will be used to purchase or carry any such margin stock or to extend
         credit to others for the purpose of purchasing or carrying any such
         margin stock; and (iii) no part of the proceeds of any credit hereunder
         has been or will be used for any purpose that violates or which is
         inconsistent with the provisions of Regulations G, U or X of said Board
         of Governors.

                                       12
<PAGE>

         Borrower further warrants, represents and covenants that (i) all
warranties and representations shall remain true so long as Borrower has any
liability to Lender hereunder or under or with respect to the Loan or any
agreement, instrument or document executed in connection herewith and (ii) at
the time of closing of the Loan by Lender to Borrower, there will be no claim
for labor, services or materials furnished for the construction of the
Improvements and all withholding and other payroll taxes withheld or owed by
Borrower in connection with the construction of the Improvements have been or
paid.

         7. Covenants of Borrower. Borrower agrees and covenants that so long as
Borrower has any liability to Lender hereunder or under or with respect to the
Loan or any agreement, instrument or document executed in connection herewith or
so long as Lender may be obligated to make any advancement to Borrower, Borrower
shall:
                  (a) Promptly pay and discharge all taxes, assessments and
         governmental charges which may be lawfully levied, assessed or imposed
         upon it or its properties, or upon its income or profits, and all
         lawful claims for labor, material and services which, if unpaid, might
         become a lien or charge against the Real Estate or the Improvements
         located thereon; provided, however, that Borrower shall have the right
         to contest in good faith any such tax, assessment, charge, levy or
         claim by appropriate proceedings without the prior payment thereof
         unless payment is required to contest or to avoid any tax sale;

                  (b) Keep accurate and complete books and records, and
         maintain the same, together with all valuable papers and records at
         Borrower's principal offices;

                  (c) Defend, or cause to be defended, at all times any adverse
         claim by a third party relating to the possession of or any interest
         in the assets of Borrower;

                                       13
<PAGE>

                  (d) Furnish, or cause to be furnished, to Lender, at
         Borrower's expense, the following financial statements and other
         information of Borrower:

                           (1) As soon as available and in any event within
                  thirty (30) days following filing, copies of the federal
                  income tax returns of Borrower;

                           (2) Within ninety (90) days following the end of each
                  calendar year, audited operating and financial statements of
                  Borrower, including a balance sheet and annual statements of
                  income and surplus accounts (certified by a certified public
                  accountant acceptable to Lender), all prepared in accordance
                  with generally accepted accounting principles applied on a
                  consistent basis throughout the periods involved;

                           (3) At such times as Lender may require, such further
                  information regarding the business affairs and financial
                  conditions of Borrower as Lender may require;

                  (e) Permit any authorized representative of Lender and its
         attorneys and accountants to inspect, examine and make copies and
         extracts of the books of account and records of Borrower at reasonable
         times during normal business hours;

                  (f) Permit any authorized representative of Lender, including
         but not limited to its attorneys and inspectors, to enter upon and
         inspect and examine the Real Estate and Improvements at reasonable
         times during normal business hours;

                  (g) Give prompt written notice to Lender of any process or
         action taken or pending whereby a third party is asserting a claim
         against Borrower or any of its assets, which would have a material
         affect on Borrower or its ability to pay the Loan;

                                       14
<PAGE>

                  (h) Pay when due all liabilities, including trade accounts, in
         accordance with regular terms, except for claims contested in good
         faith by appropriate proceedings;

                  (i) Maintain the insurance required by this Agreement and,
         upon request by Lender, furnish to Lender evidence of such insurance
         coverage and payment of premiums therefor;

                  (j) Comply with all applicable federal, state and local
         statutes, regulations and ordinances;

                  (k) Comply with all room agreements and leases for the Real
         Estate and Improvements;

                  (l) Pay to Lender all proceeds (not to exceed the balance due
         under the Note and other expenses due Lender) received from casualty
         and business interruption insurance or condemnation proceedings to be
         held and disbursed in accordance with this Agreement and the Loan
         Documents;

                  (m) Indemnify and hold Lender harmless from and against any
         and all claims, losses, damages, setoffs, counterclaims or expenses
         (including attorneys' fees and costs) which Lender may sustain as a
         result of the transactions evidenced by this Agreement or because of
         the breach of or inaccuracy in any of the representations and
         warranties contained in this Agreement or in any other document
         executed in connection herewith or in any other written communication
         of Borrower to Lender in connection with the transactions secured
         hereby whether or not any such inaccuracy was known by Borrower to be
         incorrect;

                  (n) Indemnify, defend and hold Lender harmless from and
         against any claim, loss or damage to which Lender is subjected as a
         result of the presence of any material or

                                       15
<PAGE>

         substance which may be considered hazardous or toxic (including but not
         limited to asbestos, ureaformaldehyde foamed in place insulation,
         polychlorinated biphenyls, and all materials termed hazardous wastes or
         hazardous substances as defined in the Solid Waste Disposal Act of
         1985, as from time to time amended) or the use, handling, storage,
         transportation or disposal thereof within or upon any real estate owned
         by Borrower or violation of the covenants, representations and
         warranties contained in this Agreement;

                  (o) Maintain a Debt Service Coverage Ratio (as hereinafter
         defined) of not less than 1.50 for the operation of the Real Estate and
         Improvements. Debt Service Coverage Ratio shall mean a number in which
         (i) the numerator is the sum of pre-tax aggregate rent, receipts and
         other revenues accrued for the preceding calendar year from normal
         operations of the Real Estate and Improvements (excluding insurance
         proceeds or condemnation awards or sales of any part of the Real
         Estate) less the sum of all operating expenses, maintenance costs,
         insurance premiums, real estate taxes and assessments and other costs,
         expenses and expenditures attributable to the ownership and management
         of the Real Estate and Improvements paid or accrued during such period,
         calculated in accordance with generally accepted accounting principles
         but excluding any payments of principal or interest on the Loan and on
         any secondary financing approved by Lender, if any, depreciation or
         other non-cash charges and income taxes, and (ii) the denominator is
         the annual aggregate amount of principal and interest payments on the
         Loan; and

                  (p) Notify Lender immediately in writing of the initiation of
         any criminal investigation or proceeding initiated by any federal,
         state or local agency, department, or instrumentality against (i)
         Borrower, (ii) Manager, or (iii) any employee of Borrower or

                                       16
<PAGE>

         Manager, if such investigation or proceeding could have a material
         adverse effect on the financial condition, business operations or
         assets of Borrower or result in the Collateral being seized pursuant
         to 18 U.S.C. Sec. 1963,21 U.S.C. Sec. 853,21 U.S.C. Sec. 881, 46
         U.S.C. App. Sec. 1904, I.C. 34-4-30.1-1 et. seq. or any similar
         federal, state or local law and/or regulation adopted in publications
         promulgated pursuant to such laws, or as such laws or regulations may
         be further amended, modified or supplemented.

         In addition, Borrower covenants to Lender that so long as Borrower has
any liability to Lender hereunder or under or with respect to the Loan or any
agreement, instrument or document executed in connection herewith, Borrower
shall not, without the prior written consent of Lender:

                           (1) Create or permit to exist any mortgage, pledge,
                  security interest, title retention device or other encumbrance
                  on any interest of Borrower in the Real Estate and
                  Improvements, except for any mortgage or security interest
                  held by Lender and those liens and encumbrances as shall be
                  approved in writing by Lender in its sole discretion;

                           (2) Dispose of any of its assets or properties other
                  than in the ordinary course of business for fair value;

                           (3) Directly or indirectly make (i) any loan, gift,
                  distribution, transfer or advance of cash or other real,
                  personal or intangible property, (ii) any transfer of any
                  other benefit or thing of value to any person except for fair
                  value received by Borrower; it is intended that this paragraph
                  prohibit, by way of example and not by way of limitation, any
                  payment by Borrower characterized as a commission or referral
                  fee, and any payments by Borrower characterized as the
                  consideration for a purchase to the extent that such payment
                  is not bona fide or exceeds the real value received by the
                  Borrower; or (iii) make any distribution or payment to any
                  shareholders of Borrower if such payment would violate the
                  terms of the Debt Service Coverage Ratio required under this
                  Agreement.

                           (4) Incur, assume, guarantee or otherwise become
                  liable for any obligation or the obligation of any person or
                  entity except in connection with the endorsement of checks for
                  deposit in the ordinary course of business and other similar
                  collection transactions in the ordinary course of business;

                                       17
<PAGE>

                           (5) Make any financial arrangements for borrowed
                  money or otherwise through any other financial institution
                  entity or party which is secured by the Real Estate or the
                  Improvements;

                           (6) Take any action, allow any event to occur or
                  permit a condition to exist which could materially and
                  adversely affect Borrower's ability to complete its
                  obligations under the terms of this Agreement, the Note,
                  Mortgage or any other instruments, agreements or documents
                  required of Borrower hereunder;

                           (7) Change the nature of Borrower's current business;

                           (8) Make any change in the key management of
                  Borrower, which key management is currently Thomas W. Kitchin
                  and Craig R. Kitchin;

                           (9) Make any change in the key management of
                  Manager, which key management is currently Thomas W. Kitchin
                  and Craig R. Kitchin; or

                           (10) Permit the control or ownership of Manager to
                  be vested in anyone other than Thomas W. Kitchin.

         8. Events of Default and Rights of Lender. Any one (1) or more of the
following shall constitute an Event of Default hereunder:

                  (a) Failure to make any payment when due of principal or
         interest required by the Note or any other obligation of Borrower or
         any entity related to or affiliated with Borrower to Lender;

                  (b) A failure to pay or cause to be paid when due any other
         amounts due under the Note, Mortgage, Lease Assignment, Indemnity
         Agreement or this Agreement or any of the other Loan Documents;

                  (c) Failure to observe or perform any agreement or covenant
         contained herein or in any of the Loan Documents after thirty (30)
         days' written notice to Borrower;

                                       18
<PAGE>

               (d) A breach of any warranty, representation, certification or
          statement contained in this Agreement or in any certification or other
          agreement or document executed or delivered in connection herewith
          including, without limitation, any of the Loan Documents;

               (e) Dissolution, liquidation or termination of the business of
          Borrower or Manager;

               (f) Assignment by Borrower or Manager for the benefit of their
          creditors;

               (g) Appointment of a receiver or a trustee for Borrower or
          Manager or any of its or their assets;

               (h) The filing of a petition against Borrower or Manager for
          relief under the United States Bankruptcy Code;

               (i) A breach of any covenant or agreement under the Franchise
          Assignment which is not cured within any applicable grace period
          provided therein.

               (j) A determination by Lender, in its sole discretion, that any
          action, inaction, commission, omission or circumstance has occurred or
          may occur which may subject any assets of Borrower or Manager,
          including but not limited to the Real Estate and Improvements, to be
          seized by any federal, state or local governmental department, agency
          or instrumentality pursuant to 18 U.S.C. Sec. 1963, 21 U.S.C. Sec.
          853, 21 U.S.C. Sec. 881, 46 U.S.C. App. Sec. 1904, I.C. 34-4-30.1-1
          et. seq. or any similar federal, state or local laws and/or
          regulations adopted in publications promulgated pursuant to such laws,
          or as such laws or regulations may be amended, modified or
          supplemented from time to time;

                                       19
<PAGE>

                  (k) Default by Borrower, Manager or any entity related to or
         affiliated with Borrower or Manager under any agreement with or
         undertaking to Lender, whether or not related to the Loan; or

               (l) Any material adverse change in the financial, operating or
          other condition of Borrower or Manager or any entity related to or
          affiliated with Borrower or Manager.

         Upon an Event of Default hereunder, at the option of Lender, all of the
indebtedness evidenced by the Note and remaining unpaid shall become immediately
due and payable, anything contained herein or in the Note to the contrary
notwithstanding, and Lender, at its option and upon demand, shall have the right
to perform all acts necessary for the performance, sale, collection and
enforcement of the collateral covered by the Mortgage and/or any other agreement
or document executed in connection herewith. Upon an Event of Default hereunder,
at the option of Lender and without further notice or demand to Borrower, Lender
may order an appraisal of the Real Estate and Improvements, to be in such form
and scope and to be performed by an appraiser as Lender may choose in its sole
discretion. All costs and expenses of such appraisal shall be immediately paid
by Borrower upon demand by Lender and such amounts shall be added to the
indebtedness evidenced by the Loan and secured by the Mortgage. Furthermore,
upon an Event of Default hereunder, Borrower, immediately upon demand by Lender,
shall assemble the collateral and make it available to Lender at a place or
places to be designated by Lender which are reasonably convenient to Lender and
Borrower. Borrower recognizes that in the event Borrower fails to perform,
observe or discharge any of its obligations under this Agreement or any other
documents executed in connection herewith, Lender shall be entitled to temporary
and permanent injunctive relief in any such case without the necessity of
proving actual damages. All rights and remedies of Lender herein specified are

                                       20
<PAGE>

cumulative and in addition to, not in limitation of, any rights and remedies
which it may have by law or at equity.

         9. Additional Rights of Lender. Pursuant to the powers herein granted,
Lender shall also have the power to prosecute and to defend all actions or
proceedings in connection with the Real Estate and the modification of the
Improvements thereon and to take such action and require such performance as
Lender may deem necessary or advisable, and Borrower hereby assigns and
quitclaims to Lender all sums at any time on deposit with Lender for the payment
of amounts due to Lender. All rights or remedies of Lender hereunder are
cumulative and are in addition to, not in limitation of, any rights or remedies
which it may have by law.

        10. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the successors and assigns of Lender and Borrower. This
Agreement is entered into by Lender with Borrower in reliance upon Borrower and
the current shareholders of Borrower and no assignment or alienation (except to
Lender) of any rights or obligations of Borrower or the current shareholders of
Borrower, hereunder shall be effective without the prior written consent of
Lender.

        11. No Third-Party Beneficiaries. Nothing contained herein shall be
deemed or construed to create an obligation on the part of Lender to any third
party nor shall any third party have a right to enforce against Lender any
rights which Borrower may have under this Agreement.

        12. No Waiver. No waiver by Lender of the breach of any term, condition,
warranty, representation, covenant or agreement contained herein or in the
agreements, instruments, guaranties or documents delivered pursuant thereto
shall be considered as a waiver of the same default in the future or any other
default and no delay or omission by Lender in exercising any right or remedy
hereunder shall impair any such right or remedy or be construed as a waiver of
any default. The

                                       21
<PAGE>

inclusion of deadlines and the references to dates later than the maturity of
any obligation shall not by implication or otherwise obligate Lender to renew or
extend any maturity.

        13. Amendments. Any modification of or amendment to this Agreement shall
be ineffective unless in writing and signed by the duly authorized
representatives of Borrower and Lender.

        14. Rights of Lender. Upon and during the pendency of an Event of
Default, each payment to Lender shall be applied to the payment of accrued and
unpaid interest and to the reduction of the principal balance in such order and
in such amounts as Lender shall determine, in its sole discretion; otherwise,
such payments shall be applied first to accrued and unpaid interest and then to
principal. Lender may from time to time with notice to Borrower (a) release any
collateral or substitute or exchange any collateral, (b) release, modify or
compromise any liability of Borrower or any other obligor, or the terms thereof
and (c) apply any amounts paid to Lender with such marshalling of security as
Lender may, in its sole discretion, determine appropriate; all without the
consent of Borrower. The liability of Borrower shall not be released in part or
in whole by reason of the foregoing, the addition of co-makers, endorsers,
guarantors or sureties, or a failure to perfect any security interest or lien in
any collateral or a failure to proceed in any particular manner with respect to
any collateral.

        15. Notices. Any notice required or permitted to Lender or Borrower
hereunder shall be deemed effective when mailed by certified or registered
United States mail, postage prepaid, or when sent by an overnight carrier which
provides for a return receipt if to Borrower, at 8 Perimeter Center East, Suite
8050, Atlanta, GA 30346, or if to Lender, at 201 South Capitol Avenue, Suite
650, Indianapolis, IN 46225, Attention: E. Christian Barham, or at such other
address within the State

                                       22
<PAGE>

of Indiana as either Borrower or Lender may from time to time specify by notice
hereunder. Any notice required to be given by Lender of a sale, lease, other
disposition of the collateral, deposited in the United States Mail postage
prepaid duly addressed as specified above no less than ten (10) days' prior to
such proposed action, or if sent by overnight carrier no less than five (5)
days' prior to such proposed action, shall constitute commercially reasonable
and fair notice to Borrower of same.

        16. Prior Agreements. This Agreement replaces and supersedes any
inconsistent provisions of any agreements heretofore made by Lender and
Borrower. This Agreement, the Note and Mortgage and all other documents executed
in connection with this Agreement are intended to be complementary and
supplementary to one another. In the event of any conflict between the terms of
one or more thereof, such terms shall, to the fullest extent reasonably
possible, be construed to be complementary. However, if such terms cannot be
construed as complementary, then the terms of this Agreement shall govern.

        17. No Partnership/Joint Venture. It is hereby acknowledged by Lender
and Borrower that the relationship between them created hereby and by any other
document executed in connection with the Loan is that of creditor and debtor and
is not intended to be and shall not in any way be construed to be that of a
partnership, a joint venture or that of principal and agent; and it is hereby
further acknowledged that any control of or supervision over the construction of
the Improvements by Lender or disbursement of the Loan to any one other than
Borrower shall not be deemed to make Lender a partner, joint venturer or
principal or agent of Borrower, but rather shall be deemed to be solely for the
purpose of protecting Lender's security for the indebtedness evidenced by the
Note and other indebtedness of Borrower to Lender.

                                       23
<PAGE>

        18. Governing Law. This Agreement has been entered into and shall be
governed by and construed in accordance with the laws of the State of Indiana.

        19. Survival of Indemnities. All indemnities from Borrower and Manager
to Lender shall survive this Agreement.

        20. Invalidity of any Provision. If any provision of this Agreement or
of any other documents executed in connection herewith is held invalid or
unenforceable, the remainder of this Agreement or such other documents and the
application of such provisions to other persons or circumstances will not be
affected hereby and the provisions of this Agreement and such other documents
will be severable in such instance.

        21. Captions. The captions or headings herein have been inserted solely
for the convenience of reference and in no way define, limit or describe the
scope or substance of any provision of this Agreement.

        22. CONSENT TO JURISDICTION. BORROWER HEREBY AGREES THAT ALL ACTIONS OR
PROCEEDINGS INITIATED BY BORROWER AND ARISING DIRECTLY OR INDIRECTLY OUT OF THIS
LOAN AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS SHALL BE LITIGATED IN THE
CIRCUIT OR SUPERIOR COURT OF MARION COUNTY, INDIANA, OR THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF INDIANA OR, IF LENDER INITIATES SUCH
ACTION, ANY COURT IN WHICH LENDER SHALL INITIATE SUCH ACTION AND WHICH HAS
JURISDICTION. BORROWER HEREBY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED BY LENDER IN ANY OF SUCH
COURTS, AND HEREBY

                                       24
<PAGE>

WAIVES PERSONAL SERVICE OF THE SUMMONS AND COMPLAINT, OR OTHER PROCESS OR PAPERS
ISSUED THEREIN, AND AGREES THAT SERVICE OF SUCH SUMMONS AND COMPLAINT OR OTHER
PROCESS OR PAPERS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO
BORROWER AT THE ADDRESS TO WHICH NOTICES ARE TO BE SENT PURSUANT TO THE
MORTGAGE. BORROWER WAIVES ANY CLAIM THAT MARION COUNTY, INDIANA OR THE SOUTHERN
DISTRICT OF INDIANA IS AN INCONVENIENT FORUM OR AN IMPROPER FORUM BASED ON LACK
OF VENUE. SHOULD BORROWER, AFTER BEING SO SERVED, FAIL TO APPEAR OR ANSWER TO
ANY SUMMONS, COMPLAINT, PROCESS OR PAPERS SO SERVED WITHIN THE NUMBER OF DAYS
PRESCRIBED BY LAW AFTER THE MAILING THEREOF, BORROWER SHALL BE DEEMED IN DEFAULT
AND AN ORDER AND/OR JUDGMENT MAY BE ENTERED BY LENDER AGAINST BORROWER AS
DEMANDED OR PRAYED FOR IN SUCH SUMMONS, COMPLAINT, PROCESS OR PAPERS. THE
EXCLUSIVE CHOICE OF FORUM FOR BORROWER SET FORTH IN THIS SECTION SHALL NOT BE
DEEMED TO PRECLUDE THE ENFORCEMENT, BY LENDER, OF ANY JUDGMENT OBTAINED IN ANY
OTHER FORUM OR THE TAKING, BY LENDER, OF ANY ACTION TO ENFORCE THE SAME IN ANY
OTHER APPROPRIATE JURISDICTION, AND BORROWER HEREBY WAIVES THE RIGHT, IF ANY, TO
COLLATERALLY ATTACK ANY SUCH JUDGMENT OR ACTION.

        23. WAIVER OF JURY TRIAL. THE BORROWER AND THE LENDER, AFTER CONSULTING
OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL,

                                       25
<PAGE>

KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT EITHER OR THEM MAY HAVE
TO A TRIAL BY A JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF THIS
AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, OR ANY
COURSE OF CONDUCT, DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF
EITHER OF THEM. NEITHER THE BORROWER NOR THE LENDER SHALL SEEK TO CONSOLIDATE,
BY COUNTERCLAIM OR OTHERWISE, ANY SUCH ACTION IN WHICH A JURY TRIAL HAS BEEN
WAIVED WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN
WAIVED. THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE BEEN MODIFIED IN ANY
RESPECT OR RELINQUISHED BY EITHER THE BORROWER OR THE LENDER EXCEPT BY A WRITTEN
INSTRUMENT EXECUTED BY BOTH OF THEM.

        24. Sole Discretion of Lender. Except as may otherwise be expressly
provided to the contrary, whenever pursuant to this Agreement or any of the Loan
Documents, Lender exercises any right given to it to consent or not consent,
approve or not approve, or any arrangement or term is to be satisfactory to
Lender, the decision of Lender to consent or not consent, or to approve or not
to approve, or to decide the arrangements or terms are satisfactory or not
satisfactory shall be in the sole and absolute discretion of Lender and shall be
final and conclusive. If at any time Borrower believes that Lender has not acted
reasonably in granting or withholding any approval or consent under this
Agreement or any other Loan Document, as to which approval or consent either
Lender has expressly agreed to act reasonably, or absent such agreement, a court
of law having jurisdiction over the subject matter would require Lender to act
reasonably, then Borrower's sole remedy shall be to seek

                                       26
<PAGE>

injunctive relief or specific performance and no action for monetary damages or
punitive damages shall in any event or under any circumstance be maintained by
Borrower against Lender.

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

                                          BORROWER:

                                          JAMESON INNS, INC.,
                                          a Georgia corporation

                                          By:________________________________
                                             Craig R. Kitchin, President

                                          LENDER:

                                          REPUBLIC BANK,
                                          a Michigan Commercial Bank

                                          By:________________________________
                                             E. Christian Barham, Senior Vice
                                             President

                                       27
<PAGE>

STATE OF GEORGIA                            )
                                            ) SS:
COUNTY OF DEKALB                            )

         Before me, a Notary Public in and for said County and State, personally
appeared Craig R. Kitchin, the President of Jameson Inns, Inc., a Georgia
corporation, who, after having been duly sworn, acknowledged the execution of
the foregoing Loan Agreement on behalf of said corporation.

         WITNESS, my hand and Notarial Seal this ___ day of September, 2000.

                                        _______________________________________

                                        ________________________, Notary Public

My Commission Expires:

_________________________

My County of Residence:

_________________________

STATE OF INDIANA                            )
                                            ) SS:
COUNTY OF MARION                            )

         Before me, a Notary Public in and for said County and State, personally
appeared E. Christian Barham, a Senior Vice President of Republic Bank, a
Michigan Commercial Bank, who, after having been duly sworn, acknowledged the
execution of the foregoing Loan Agreement on behalf of said bank.

         WITNESS, my hand and Notarial Seal this ___ day of September, 2000.

                                        _______________________________________
                                        Jeffrey A. Abrams, Notary Public

My Commission Expires:

     9/20/08

My County of Residence:

     Hamilton

                                       28
<PAGE>

                 MORTGAGE, SECURITY AGREEMENT AND FIXTURE FILING

     THIS MORTGAGE, SECURITY AGREEMENT AND FIXTURE FILING (the "Instrument") is
made this ___ day of September, 2000, between JAMESON INNS, INC., a Georgia
corporation, having a mailing address of 8 Perimeter Center East, Suite 8050,
Atlanta, GA 30346 ("Borrower"), and REPUBLIC BANK, whose address is 201 S.
Capitol Avenue, Suite 650, Indianapolis, IN 46225 ("Lender").

     WHEREAS, Borrower is indebted to Lender in the principal sum of Four
Million Seven Hundred Forty-Five Thousand Dollars ($4,745,000.00), which
indebtedness is evidenced by Borrower's Promissory Note of even date, together
with any and all substitutions, renewals, replacements or modifications which,
in each instance, shall be payable to the order of Lender (the "Note"), on or
before the 1st day of October, 2010 (the "Maturity Date"), bearing interest at
the rate of interest set forth in the Note providing for the payment of
principal and interest, together with all future obligations and advances, which
obligations and advances shall (upon Borrower's compliance with all applicable
terms, conditions and requirements therefor and so long as Borrower is not in
default hereunder) be deemed obligatory under this Instrument. The loan from
Lender to Borrower, as evidenced by the Note, has been made in accordance with a
certain Loan Agreement of even date herewith (the "Loan Agreement") between
Borrower and Lender;

     TO SECURE TO LENDER (i) the repayment of the indebtedness evidenced by the
Note and the Loan Agreement, together with interest thereon, and all renewals,
extensions and modifications thereof, (ii) the performance of all covenants,
agreements and obligations of Borrower under the Loan Agreement, and all
renewals, extensions and modifications thereof, (iii) the payment of all sums
advanced in connection with the Note, together with the payment of all other
sums, plus interest thereon, advanced in accordance herewith to protect the
security of this Instrument, (iv) the performance of the covenants, agreements
and obligations of Borrower herein contained, and all renewals, extensions and
modifications hereof, and (v) the performance of all obligations of Borrower
under any and all other instruments and documents given to evidence or further
secure the obligations provided for herein, and all renewals, extensions and
modifications thereof, and on account of all of the foregoing, Borrower hereby
MORTGAGES and WARRANTS to Lender, its

                                       29
<PAGE>

successors and assigns, all of the estate, right, title and interest of Borrower
in, to and under the following described property whether now owned or hereafter
held or acquired:

     a. That certain parcel of real property described in Exhibit "A" attached
hereto and made a part hereof (the "Land");

     b. All buildings, improvements, structures and tenements now situated or
hereafter erected on said Land, all rights to heretofore or hereafter vacated
alleys and streets abutting the Land, all easements, rights, appurtenances,
rents, royalties, mineral, oil and gas rights and profits, water, water rights
and water stock appurtenant to the Land (all such property and the Land,
collectively the "Property");

     c. All fixtures and all machinery, equipment and inventory which are now
fixtures, including but not limited to, the heating, cooling and ventilating
systems, lighting and electrical systems and fixtures, floor coverings, wall
coverings, window coverings, ceiling tile and systems, windows, doors, locks,
plumbing systems and fixtures and any and all replacements thereof, now or at
any time acquired by Borrower and located in, on or about the Property and used
or intended to be used in connection therewith, except the computers and
software to be financed by Compaq Financial;

     d. All rentals, accounts, revenues, payments, repayments, deposits, income,
charges and moneys derived from the use, lease, sublease, rental or other
disposition of the Property and the proceeds from any cause of action, tort
claim, insurance or condemnation award pertaining thereto;

     e. All permits and licenses of all governmental or regulatory authorities
or of any persons, corporations, partnerships, trusts or other entities, used or
intended to be used in connection with the Property; and

     f. All personal property and other documents used at or for the benefit of
the Property, including, without limitation, inventory, equipment, tools,
supplies, materials, books, records, contracts, leases, warranties, maintenance
schedules and invoices.

     All of the property described in the foregoing subparagraphs, including all
proceeds and products thereof, and all replacements, additions and accessions
therefor and thereto, shall be deemed to be and remain a part of the property
covered by this Instrument; and all of the foregoing, together with said
Property, are herein collectively referred to as the "Mortgaged Property."

     This Instrument shall also secure the unpaid balances of future and
additional loan advances not to exceed Eight Million Thousand Dollars
($8,000,000) made at any time while this Instrument remains unreleased of record
pursuant to the Loan Documents as defined in the Loan Agreement. Such loan
advances are or will be evidenced by the Note and the Loan Agreement. In
addition to any other debt or obligation secured hereby, this Instrument shall
secure unpaid balances of advances made for the payment of taxes, assessments,
insurance premiums, and other costs incurred for the

                                       30
<PAGE>

maintenance and protection of the Mortgaged Property including, without
limitation, any costs incurred in connection with any appropriate environmental
tests, inspections and, if necessary, remediation.

     Borrower covenants, warrants, represents and agrees as follows:

     1. PAYMENT OF OBLIGATIONS. Borrower shall promptly pay when due the
principal and interest on the indebtedness evidenced by the Note, any late
charges, prepayment premiums or other sums required to be paid by the Note, and
all other sums secured by this Instrument, all without relief from valuation and
appraisement laws.

          (ii) WARRANTY OF TITLE. Borrower warrants that it is lawfully seized
     of a fee simple estate in the Land, and has the right to mortgage, convey,
     grant and assign the Mortgaged Property, that the Property is subject in
     all cases to no lien, charge or encumbrance other than those approved by
     Lender as set forth on Exhibit "B" hereto, that this Instrument is and will
     remain a valid and enforceable first lien on the Property, and that
     Borrower shall cooperate to preserve such title, and will forever warrant
     and defend the title, validity and priority of the lien hereof against the
     claims of all persons and parties whomsoever.

          (iii) APPLICATION OF PAYMENTS. Unless applicable law provides
     otherwise, all payments received by Lender from Borrower under the Note,
     the Loan Agreement or this Instrument shall be applied by Lender in the
     following order of priority: (i) interest payable on advances made pursuant
     to paragraph 24 hereof, (ii) principal of advances made pursuant to
     paragraph 24 hereof, (iii) amounts payable to Lender by Borrower under
     paragraph 5 hereof, (iv) interest payable on the Note, (v) principal of the
     Note, and (vi) any other sums secured by this Instrument.

          (iv) TAXES AND IMPOSITIONS. Borrower agrees to pay prior to
     delinquency all real property taxes and assessments, general and special,
     and all other taxes and assessments of any kind or nature whatsoever,
     including without limitation, service payments in lieu of real property
     taxes, non-governmental levies or assessments such as maintenance charges,
     sewer user charges, owner association dues or charges or fees, levies or
     charges resulting from covenants, conditions and restrictions affecting the
     Property, which are assessed or imposed upon the Property, or become due
     and payable, and which create a lien upon the Property, or any part thereof
     (all of which taxes, assessments and other charges of like nature are
     hereinafter referred to as "Impositions"); provided, however, that if, by
     law, any such Imposition is payable, or may at the option of Borrower be
     paid, in installments, Borrower may pay the same together with any accrued
     interest on the unpaid balance of such Imposition in installments as the
     same become due and before any fine, penalty, interest or cost may be added
     thereto for the nonpayment of any such installment and interest. Upon
     Lender's written request, Borrower shall promptly furnish to Lender
     receipts evidencing such payments. Notwithstanding the foregoing, Borrower
     shall have the right to contest in good faith by appropriate legal or other
     proceedings the validity or amount of any such tax, assessment or charge,
     provided that (a) Borrower gives Lender prior written notice of its intent
     to contest the same, and (b) Borrower, upon request of Lender, demonstrates
     to the reasonable
                                       31
<PAGE>

     satisfaction of Lender that such legal or other proceedings shall operate
     to prevent the sale of the Mortgaged Property (or any portion thereof) to
     satisfy the payment of the tax, assessment, or charge in question prior to
     final determination of such proceedings.

          (v) FUNDS FOR IMPOSITIONS, INSURANCE AND OTHER CHARGES. In the Event
     of Default by Borrower hereunder, Borrower shall pay to Lender on the day
     monthly installments are payable under the Note (or on another day
     designated in writing by Lender), until the Note is paid in full, a sum
     (herein "Funds") equal to one-twelfth (1/12) of (i) the annual Impositions,
     and (ii) the yearly premium installments for the insurance required to be
     carried pursuant to paragraph 6 below, all as reasonably estimated by
     Lender. Lender shall not be required to pay Borrower any interest, earnings
     or profits on the Funds and shall have the right to commingle the Funds
     with the general funds of Lender.

     If the amount of the Funds held by Lender shall exceed the amount
reasonably deemed necessary by Lender to provide for the payment of such
Impositions, insurance premiums and other charges, as they fall due, such excess
shall be credited to Borrower on the next monthly installment or installments of
Funds due. If at any time the amount of the Funds held by Lender shall be less
than the amount reasonably deemed necessary by Lender to pay Impositions,
insurance premiums and other charges as they fall due, Borrower shall pay to
Lender an amount necessary to make up the deficiency within thirty (30) days
after notice from Lender to Borrower requesting payment thereof. Upon an Event
of Default, Lender may, at its option, apply any Funds held by Lender at the
time of application (i) to pay Impositions, insurance premiums and other
charges, (ii) to pay principal or interest under the Note, or (iii) as a credit
against sums secured by this Instrument.

     6. INSURANCE.

     A. Borrower shall at all times keep all buildings, improvements, fixtures
and articles of personal property now or hereafter situated on the Land insured
against loss or damage by fire and such other hazards as may reasonably be
required by Lender, including without limitation: (i) all-risk fire and extended
coverage insurance, with vandalism and malicious mischief endorsements, for the
full replacement value of the Property, with agreed upon amount and inflation
protection endorsements; (ii) if there are tenants under leases at the Property,
rent and rental value or business loss insurance for the same perils described
in clause (i) above payable at the rate per month and for the period specified
from time to time by Lender; (iii) broad form boiler and sprinkler damage
insurance in an amount reasonably satisfactory to Lender, if and so long as the
Property shall contain a boiler and/or sprinkler system, respectively; (iv) if
the Property is located in a flood hazard area, flood insurance in the maximum
amount obtainable up to the amount of the indebtedness hereby secured; and (v)
such other insurance as Lender may from time to time reasonably require.
Borrower also shall at all times maintain comprehensive public liability,
property damage and workmen's compensation insurance covering the Property and
any employees thereof, with such limits for personal injury, death and property
damage as Lender may require. Borrower shall be the named insured under such
policies and Lender shall be identified as an additional insured party. All
policies of insurance to be furnished hereunder shall be in forms, with
companies, in amounts and

                                       32
<PAGE>

with deductibles reasonably satisfactory to Lender, with mortgagee clauses
attached to all policies in favor of and in form satisfactory to Lender,
including a provision requiring that the coverage evidenced thereby shall not be
terminated or modified without thirty days prior written notice to Lender and
shall contain endorsements that no act or negligence of the insured or any
occupant and no occupancy or use of the Property for purposes more hazardous
than permitted by the terms of the policies will affect the validity or
enforceability of such policies as against Lender. Borrower shall deliver
certificates of insurance, and upon Lender's request, all policies, including
additional and renewal policies, to Lender, and, in the case of insurance about
to expire, shall deliver renewal certificates and upon Lender's request,
policies not less than thirty days prior to their respective dates of
expiration.

     B. Borrower shall not take out separate insurance concurrent in form or
contributing in the event of loss with that required to be maintained hereunder
unless Lender is included thereon as the loss payee or an additional insured as
applicable, under a standard mortgage clause acceptable to Lender and such
separate insurance is otherwise acceptable to Lender.

     C. In the event of loss, Borrower shall give immediate notice thereof to
Lender, who shall have the sole and absolute right to make proof of loss, and
each insurance company concerned is hereby authorized and directed to make
payment for such loss directly to Lender (rather than to Borrower and Lender
jointly). Lender shall have the right, at its option and in its sole discretion,
to apply any insurance proceeds so received after the payment of all of Lender's
expenses, either (i) on account of the unpaid principal balance of the Note,
irrespective of whether such principal balance is then due and payable,
whereupon Lender may declare the whole of the balance of indebtedness hereby
secured to be due and payable, or (ii) to the restoration or repair of the
property damaged as provided herein. If insurance proceeds are delivered to
Borrower by Lender as herein provided, Borrower shall repair, restore or rebuild
the damaged or destroyed portion of the Property so that the condition and value
of the Property is substantially the same as the condition and value of the
Property prior to being damaged or destroyed. In the event Lender permits the
application of such insurance proceeds to the cost of restoration and repair of
the Property, any surplus which may remain out of said insurance proceeds after
payment of such costs shall be applied on account of the unpaid principal
balance of the Note, irrespective of whether such principal balance is then due
and payable. In the event of foreclosure of this Mortgage, all right, title and
interest of Borrower in and to any insurance policies then in force shall pass
to the purchaser at the foreclosure sale. At the request of Lender, from time to
time, Borrower shall furnish Lender, without cost to Lender, evidence of the
replacement value of the Property.

     7. RECEIVERSHIP. Upon an Event of Default (hereafter defined) hereunder or
abandonment of the Property, Lender shall be entitled to have and Borrower
consents to a receiver appointed by a court to enter upon, take possession of
and manage the Property and to collect the rents of the Property including those
past due. All rents, collected by the receiver shall be applied first to payment
of the costs of management of the Property and collection of income, including,
but not limited to receiver's fees, premiums on receiver's bonds and reasonable
attorneys'

                                       33
<PAGE>

fees, and then to the sums secured by this Instrument. The receiver shall be
liable to account only for such income actually received.

     8. CONDEMNATION. Borrower shall immediately notify Lender of any action or
proceeding relating to any condemnation or other taking, whether direct or
indirect, of the Property, or any part thereof. Borrower hereby authorizes and
empowers Lender as attorney-in-fact for Borrower to commence, appear in and
prosecute, in the name of Lender or Borrower any action or proceeding relating
to any condemnation or other taking of the Property, whether direct or indirect,
and to settle or compromise any claim in connection with such condemnation or
other taking; provided, however, that nothing contained in this paragraph 8
shall require Lender to incur any expense or take any action hereunder. Borrower
hereby assigns to Lender all rights of Borrower in and to the proceeds of any
award, payment or claim for damages, direct or consequential, in connection with
any such condemnation or other taking, whether direct or indirect, of the
Property, or any part thereof, or for conveyances in lieu of condemnation.

     Any such awards, payments, proceeds or damages, or portion thereof to which
Borrower is entitled (the "Award"), shall, after the deduction of Lender's
expenses incurred in the collection of such Award, be applied by Lender to
reduce the amount of the Note or Lender may permit Borrower in Lender's sole
discretion to use the Award for the reconstruction, restoration or repair of the
Property in compliance with all applicable legal requirements and the
requirements of advances under the Loan under the Loan Agreement. If the Award
exceeds the cost of reconstruction, restoration or repair, the excess Award,
shall, after the deduction of Lender's expenses incurred in the collection of
such Award, be applied to the payment of the sums secured by this Instrument,
whether or not then due, in the order of application set forth in paragraph 3
hereof, with the balance, if any, to Borrower. Unless Borrower and Lender
otherwise agree in writing, any application of proceeds to principal shall not
extend or postpone the due date, modify the release prices set forth in the Loan
Agreement or change the amount of the monthly installments required by the Note.
Borrower agrees to execute such further evidence of assignment of any awards,
proceeds, damages or claims arising in connection with such condemnation or
taking as Lender may require.

     9. PRESERVATION AND MAINTENANCE OF PROPERTY. Borrower (i) shall not commit
waste or permit impairment or deterioration of the Property and shall not
abandon the Property, (ii) shall reconstruct, restore or repair promptly and in
a good and workmanlike manner all or any part of the Property to the equivalent
of its original condition, or such other condition as Lender may approve in
writing, in the event of any damage, injury or loss thereto, whether or not
insurance proceeds or condemnation awards or damages are available or adequate
to cover, in whole or in part, the costs of such reconstruction, restoration or
repair, (iii) shall keep the Property in good order, condition and repair and
shall replace fixtures, equipment, machinery and appliances on the Property when
necessary to keep such items in good repair, and will make or cause to be made,
as and when the same shall become necessary, all structural and nonstructural,
interior and exterior, ordinary and extraordinary, foreseen and unforeseen
repairs, replacements and renewals necessary to that end, (iv) shall comply with
all zoning, building, health and environmental laws, ordinances and regulations,
and all other laws, regulations and requirements of any governmental

                                       34
<PAGE>

body or agency having jurisdiction over the Property, or the use and occupancy
thereof by Borrower, and (v) shall comply with all covenants and agreements of
record affecting the Property. Neither Borrower nor any other person shall
remove, demolish or alter any improvement now existing or hereafter erected on
the Property without the prior written consent of Lender.

     10. USE OF PROPERTY. Unless Lender has otherwise agreed in writing,
Borrower shall not allow changes in the use for which all or any part of the
Property was used at the time this Instrument was executed. Borrower shall not
initiate, approve, participate in or acquiesce to any change in or modification
to the zoning in effect for the Property or any portion thereof unless Lender
shall consent to such action.

     11. LIENS. Borrower shall promptly discharge any lien which has, or may
have, priority over or equality with the lien of this Instrument, and Borrower
shall pay, when due, the claims of all persons supplying labor or materials to
or in connection with the Property. In the event a mechanic's lien shall be
filed against the Property, Borrower shall cause same to be satisfied or bonded
off within thirty (30) days after the filing thereof. Without Lender's prior
written consent, Borrower shall not create, suffer, permit or allow any
statutory lien or other lien or encumbrance inferior or superior to or having
parity with this Instrument to be created or perfected against the Property.
Borrower hereby covenants and agrees that Lender shall be subrogated to the lien
of any mortgage or other lien discharged, in whole or in part, by the
indebtedness secured hereby.

     12. INSPECTION AND ADDITIONAL DOCUMENTATION. Lender, at reasonable times
during business hours may make or cause to be made reasonable entries upon and
inspections of the Property to assure compliance with the terms hereof.

     13. BOOKS AND RECORDS. Borrower shall keep and maintain at all times in
Atlanta, Georgia, or at such other place as Lender approves in writing, complete
and accurate books of accounts and records adequate to reflect correctly the
results of the operation of the Property and copies of all written contracts,
leases and other instruments which affect the Property. Such books, records,
contracts, leases and other instruments shall be subject to examination and
inspection at any reasonable time by Lender.

     14. TRANSFERS OF THE PROPERTY OR BENEFICIAL INTERESTS IN BORROWER. Borrower
shall not, directly or indirectly, sell, transfer, assign, convey, mortgage, or
otherwise dispose of the Property, or any part or parts thereof, or any legal or
equitable interest therein, including disposition by land installment contract,
except as provided in the Loan Agreement, nor shall Borrower create or permit to
occur any changes, direct or indirect, in the ownership or control of Borrower
without Lender's consent.

     15. ASSIGNMENT OF ACCOUNTS, RENTS AND LEASES. As part of the consideration
for the indebtedness evidenced by the Note, Borrower hereby absolutely and
unconditionally assigns and transfers to Lender all of the occupancy agreements
and leases now existing or hereafter entered into with respect to the Property,
and all modifications, renewals and

                                       35
<PAGE>

extensions thereof (collectively the "Leases") and all the rents, accounts and
revenues, which shall include all deposits, of the Property, including those now
due, past due, or to become due by virtue of any of the Leases or any other
agreement for the occupancy or use of all or any part of the Property,
regardless as to whom the rents, accounts and revenues of the Property are
payable; provided, however, that prior to an Event of Default under this
Instrument, Borrower shall exercise all of its rights under the Leases and shall
collect and receive all of the rents, accounts and revenues of the Property, and
Borrower shall apply the rents, accounts and revenues so collected to current
operating expenses of the Property and current amounts due Lender with the
balance, so long as no such Event of Default has occurred, to the account of
Borrower. Upon an Event of Default hereunder, and without the necessity of
Lender entering upon and taking and maintaining full control of the Property in
person, by agent or by a court-appointed receiver, Lender shall immediately (i)
be entitled to exercise all of the rights of Borrower under the Leases, and (ii)
be entitled to possession of all rents, accounts and revenues of the Property as
specified in this paragraph 15 as the same become due and payable, including but
not limited to rents, accounts and revenues then due and unpaid. At the time of
any such Event of Default, any such rents, accounts and revenues then held by
Borrower shall immediately be held by Borrower as trustee for the benefit of
Lender only. Borrower agrees that commencing upon an Event of Default, each
occupant of the Property shall make such rents, accounts and revenues payable to
and pay such rents, accounts and revenues to Lender or Lender's agents on
Lender's written demand to each occupant therefor, delivered to each occupant
personally, by mail or by delivering such demand to each rental unit, without
any liability on the part of said occupant to inquire further as to the
existence of a default by Borrower. Unless Lender takes possession of the
property or exercises control over it, Lender shall not be liable for any loss
sustained by the Borrower resulting from any failure by Lender either to collect
the rents, accounts and revenues of the Property or in exercising or failing to
exercise any of the rights of Borrower under the Leases. Lender shall have no
liability to any occupant under any of the Leases for the performance or
observance of any of the terms, conditions or obligations contained therein
unless Lender takes possession of the Property.

     16. UNIFORM COMMERCIAL CODE SECURITY AGREEMENT. In addition to being a
mortgage, this Instrument is intended to be a security agreement pursuant to the
Uniform Commercial Code as enacted in the state wherein the Property is located,
for any of the items specified above as part of the Property which, under
applicable law, may be subject to a security interest pursuant to the Uniform
Commercial Code, and Borrower hereby grants to Lender a security interest in
said items. Borrower agrees that Lender may file this Instrument, or a
reproduction thereof, in the real estate records or other appropriate index, as
a financing statement filed as a fixture filing with respect to all items
constituting a part of the collateral which are or are to become fixtures
related to the Property, in accordance with I.C. Section 26-1-9-402(6). The
information required under I.C. Section 26-1-9-402 is set forth in other
provisions of this Instrument. Borrower is the record owner of the Property. Any
reproduction of this Instrument or of any other security agreement or financing
statement shall be sufficient as a financing statement. In addition, Borrower
agrees to execute and deliver to Lender, upon Lender's request, any financing
statements, as well as extensions, renewals and amendments thereof, and
reproductions of this Instrument in such form as Lender may require to perfect a
security interest with respect to said items. Borrower shall pay all

                                       36
<PAGE>

costs of filing such financial statements and any extensions, renewals,
amendments and releases thereof, and shall pay all reasonable costs and expenses
of any record searches for financing statements which Lender may require.
Without the prior written consent of Lender, Borrower shall not create or suffer
to be created pursuant to the Uniform Commercial Code any other security
interest in said items, including replacements and additions thereto. Upon an
Event of Default, Lender shall have the remedies of a secured party under the
Uniform Commercial Code and, at Lender's option, may also invoke the remedies
provided in this Instrument as to such items. In exercising any of said
remedies, Lender may proceed against the items of real property and any items of
personal property specified above as part of the Property, separately or
together and in any order whatsoever, without in any way affecting the
availability of Lender's remedies under the Uniform Commercial Code or of the
remedies provided in this Instrument.

     17. LEASE AND SUBLEASES. Borrower shall comply with and observe Borrower's
obligations as landlord under all Leases of the Property or any part thereof.
All Leases now or hereafter entered into by Borrower will be in form and
substance subject to the reasonable approval of Lender. All Leases of the
Property to which Borrower is a party shall specifically provide that (i) such
Leases are and shall remain subordinate to this Instrument, (ii) that the
occupant thereof shall attorn to Lender, such attornment to be effective upon
Lender's acquisition of title to Borrower's interest in the Property, (iii) that
the occupant agrees to execute such further evidence of attornment and/or
subordination as Lender may from time to time request, and (iv) that the
attornment of the occupant shall not, in any event, be terminated by
foreclosure. Borrower shall not, without Lender's written consent, modify,
amend, surrender or terminate, either orally or in writing, any of the Leases
now existing or hereafter made by Borrower with respect to all or any part of
the Property except for an extension of the Lease with Jameson Hospitality, LLC
or in the ordinary course of business. Borrower shall not, without Lender's
written consent, permit an assignment or sublease of any such Leases or request
or consent to the subordination of any such Leases to which Borrower is a party
to any lien subordinate to this Instrument. If Borrower becomes aware that any
occupant proposes to do, or is doing, any act or thing which may give rise to
any right of set-off against rent, accounts or revenues, Borrower shall (i) take
such steps as shall be reasonably calculated to prevent the accrual of any right
to a set-off against rent, accounts or revenues (ii) notify Lender thereof and
of the amount of such set-off, and (iii) within ten (10) days after such
accrual, take such other steps as shall effectively discharge such set-off and
as shall assure that rents, accounts or revenues thereafter due shall continue
to be payable without set-off or deduction.

     18. ENVIRONMENTAL COMPLIANCE. Borrower represents, to the best of its
knowledge, that the Property is in compliance with all applicable Environmental
Laws (as hereinafter defined) and that the Property does not contain any
Hazardous Materials (as hereinafter defined) except as previously disclosed in
writing to Lender. Upon the request of Lender, Borrower covenants and agrees
that Borrower, at Lender's request, shall deliver and pay for an environmental
audit prepared by an engineer acceptable to Lender which discloses no evidence
of the existence of any other Hazardous Materials on or in the Property.
Borrower covenants and agrees that such environmental audit does not relieve
Borrower from performing its own environmental audit or complying with
Environmental Laws. Borrower represents and warrants that it has not caused or

                                       37
<PAGE>

permitted any Hazardous Material to be placed on or in the Property in violation
of any Environmental Laws and that to the best of its knowledge, there are no
conditions currently existing or with the passage of time which would require or
are likely to require clean-up, removal, remedial action, or other response
pursuant to the Environmental Laws except as previously disclosed in writing to
Lender. Borrower represents and warrants that to the best of its knowledge the
Property has not been used as a dump site or storage site for Hazardous
Materials, and Borrower will not cause or permit the use of the Property or
cause the use of any parcel adjacent thereto as a dump site or storage site for
Hazardous Materials other than in compliance with applicable Environmental Laws,
nor will Borrower cause or permit any contamination on any part of the Property
or cause the contamination of any adjacent parcel. Borrower represents and
warrants that all Hazardous Materials (other than cleaning materials and other
products customarily utilized in the maintenance and operation of hotels) which
have been or may be used by any person for any purpose upon the Property have
been and will be disclosed in writing to Lender and have been and shall be used
and stored thereon only in a safe manner, and in accordance with all industrial
standards and Environmental Laws. Borrower represents and warrants that Borrower
is not a party to any litigation or administrative proceeding, nor, to the best
of its knowledge, is any litigation or administrative proceeding threatened
against it, which asserts or alleges that there is any violation of
Environmental Laws with respect to the Property, nor is the Property subject to
any judgment, decree, order or citation relating to or arising out of
Environmental Laws and no permits or licenses are required under Environmental
Laws relating to the Property. Borrower covenants and agrees to provide to
Lender, immediately upon receipt by Borrower, copies of any correspondence,
notice, pleading, citation, indictment, complaint, order, decree or other
document from any source asserting or alleging a circumstance or condition which
requires or may require a clean-up, removal, remedial action, or other response
by or on the part of Borrower under the Environmental Laws or which seeks
criminal or punitive penalties from Borrower for an alleged violation of
Environmental Laws. Borrower further covenants and agrees to advise Lender as
soon as Borrower becomes aware of any condition or circumstance which makes the
covenants and warranties contained herein or in any other loan document
incomplete or inaccurate. Borrower represents and warrants that the Property is
not "property" as defined and described in the Indiana Responsible Property
Transfer Law (IRPTL) (I.C. Section 13-25-3-1 et. seq.).

     For purposes of this Instrument, the term "Environmental Laws" shall mean
and refer to all federal, state and local laws relating to environmental
matters, including, without limitation, those relating to fines, orders,
injunctions, penalties, damages, contribution, permits, cost recovery
compensation, losses or injuries resulting from the release or threatened
release of hazardous materials and the generation, use, storage, transportation
or disposal of hazardous materials in any manner applicable to Borrower or the
Property, including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 and the Super Fund Amendments
and Reauthorization Act (42 USC Section 9601 et. seq.), the Hazardous Materials
Transportation Act (49 USC Section 1801 et. seq.), the Resource Conservation and
Recovery Act of 1976 (42 USC Section 6901 et. seq.), the Federal Water Pollution
Control Act (33 USC Section 1251 et. seq.), the Clean Air Act (42 USC Section
7401 et. seq.), the Toxic Substances Control Act of 1976 (15 USC Section 2601
et. seq.), the Safe Drinking Water Act (42 USC Section 300F-300J-11 et. seq.),
the Occupational Safety and Health Act of

                                       38
<PAGE>

1970 (29 USC Section 651 et. seq.) and the Emergency Planning and Community
Right to Know Act (42 USC Section 11001 et. seq.), each as heretofore and
hereafter amended or supplemented, and any analogous future or present local,
state or federal statues, rules and regulations promulgated thereunder or
pursuant thereto, and any other present or future law, ordinance, rule,
regulation, permit or permit condition, order or directive addressing
environmental, health, or safety issues of or by the federal government, any
state or any political subdivision thereof, or any agency, court, or body of the
federal government, any state or any political subdivision thereof, exercising
executive, legislative, judicial, regulatory or administrative functions which
are applicable to the Property.

     In addition, for purposes of this Instrument, the term "Hazardous
Materials" shall mean and refer to (a) any chemical, material or substance
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials," "extremely hazardous waste," "restricted
hazardous waste," "toxic pollutants," "contaminants," "pollutants," "toxic
substances" or words of similar import under any applicable local, state or
federal law or under the regulations adopted or publications promulgated
pursuant thereto, including, without limitation, Environmental Laws, (b) any
oil, petroleum or petroleum derived substance, any drilling fluids, produced
waters or other wastes associated with the exploration, development or
production of crude oil, any flammable substances or explosives, any radioactive
materials, any hazardous wastes or substances, any toxic wastes or substances or
any other materials or pollutants which (i) pose a hazard to the Property or to
persons on or about the Property, or (ii) cause the Property to be in violation
of any Environmental Laws, (c) asbestos and asbestos-containing-materials, radon
gas, urea formaldehyde, or transformers or other electrical equipment which
contain any oil or dielectric fluid containing polychlorinated biphenyls, and
(d) any other chemical, material or substance, exposure to which is prohibited,
limited or regulated by any governmental authority.

     19. ACCELERATION. Any of the following shall be an Event of Default
hereunder: (a) any Event of Default (as therein defined) under the Loan
Agreement, or (b) a default under Section 15 hereof, upon which Lender, at
Lender's option, may declare all of the sums secured by this Instrument to be
immediately due and payable without notice to or further demand of Borrower.

     20. FORECLOSURE; EXPENSE OF LITIGATION.

     A. When all or any part of the indebtedness hereby secured shall become
due, whether by acceleration or otherwise, Lender shall have the right to
foreclose the lien hereof for such indebtedness or part thereof and/or exercise
any right, power or remedy provided in this Mortgage or any of the other Loan
Documents. It is further agreed that if default be made in the payment of any
part of the secured indebtedness, as an alternative to the right of foreclosure
for the full secured indebtedness after acceleration thereof, Lender shall have
the right to institute partial foreclosure proceedings with respect to the
portion of said indebtedness so in default, as if under a full foreclosure, and
without declaring the entire secured indebtedness due (such proceeding being
hereinafter referred to as a "partial foreclosure"), and provided that if
foreclosure sale is made because of default of a part of the secured
indebtedness, such sale may be made subject to the

                                       39
<PAGE>

continuing lien of this Mortgage for the unmatured part of the secured
indebtedness. It is further agreed that such sale pursuant to a partial
foreclosure shall not in any manner affect the unmatured part of the secured
indebtedness, but as to such unmatured part, the lien hereof shall remain in
full force and effect just as though no foreclosure sale had been made under the
provisions of this Paragraph. Notwithstanding the filing of any partial
foreclosure or entry of a decree of sale in connection therewith, Lender may
elect at any time prior to a foreclosure sale pursuant to such decree to
discontinue such partial foreclosure and to accelerate the entire secured
indebtedness by reason of any uncured Event of Default upon which such partial
foreclosure was predicated or by reason of any other Event of Default and
proceed with full foreclosure proceedings. It is further agreed that several
foreclosure sales may be made pursuant to partial foreclosures without
exhausting the right of full or partial foreclosure sale for any unmatured part
of the secured indebtedness. In the event of a foreclosure sale, Lender is
hereby authorized, without the consent of Borrower, to assign any and all
insurance policies to the purchaser at such sale or to take such other steps as
Lender may deem advisable to cause the interest of such purchaser to be
protected by any of such insurance policies.

     B. In any suit to foreclose or partially foreclose the lien hereof, there
shall be allowed and included as additional indebtedness in the decree for sale
all expenditures and expenses which may be paid or incurred by or on behalf of
Lender for reasonable attorneys' fees, appraisers' fees, outlays for documentary
and expert evidence, stenographers' charges, publication costs, and costs (which
may be estimated as to items to be expended after entry of the decree) of
procuring all such abstracts of title, title searches and examinations, title
insurance policies, and similar data and assurances with respect to the title as
Lender may deem reasonably necessary either to prosecute such suit or to
evidence to bidders at any sale which may be had pursuant to such decree the
true condition of the title to or the value of the Property. All expenditures
and expenses of the nature mentioned in this paragraph and such other expenses
and fees as may be incurred in the enforcement of Borrower's obligations
hereunder, the protection of said Property and the maintenance of the lien of
this Mortgage, including the reasonable fees of any attorney employed by Lender
in any litigation or proceeding affecting this Mortgage, the Note, or the
Property, including probate and bankruptcy proceedings, or in preparations for
the commencement or defense of any proceeding or threatened suit or proceeding
shall be immediately due and payable by Borrower, with interest thereon at the
Default Rate and shall be secured by this Mortgage.

     21. APPLICATION OF PROCEEDS OF FORECLOSURE SALE. The proceeds of any
foreclosure (or partial foreclosure) sale of the Property shall be distributed
and applied in the following order of priority: first, to all costs and expenses
incident to the foreclosure proceedings, including all such items as are
mentioned in paragraph 15 above; second, to all other items which may under the
terms hereof constitute secured indebtedness additional to that evidenced by the
Note, with interest thereon as provided herein or in the other Loan Documents;
third, to all principal and interest remaining unpaid on the Note; and fourth,
any surplus to Borrower, its successors or assigns, as their rights may appear
or to any other party legally entitled thereto. Notwithstanding anything in this
paragraph 21 to the contrary, the proceeds of any foreclosure sale shall be
applied in accordance with all applicable laws.

                                       40
<PAGE>

     22. APPOINTMENT OF RECEIVER. Upon or at any time after the filing of a
complaint to foreclose (or partially foreclose) this Mortgage, the court in
which such complaint is filed shall, upon petition by Lender, appoint a receiver
for the Property. Such appointment may be made either before or after sale,
without notice, without regard to the solvency or insolvency of Borrower at the
time of application for such receiver and without regard to the value of the
Property or whether the same shall be then occupied as a homestead or not and
Lender hereunder or any other holder of the Note may be appointed as such
receiver. Such receiver shall have power to collect the rents, issues and
profits of the Property (i) during the pendency of such foreclosure suit, (ii)
in case of a sale and a deficiency, during the full statutory period of
redemption, whether there be redemption or not, and (iii) during any further
times when Borrower, but for the intervention of such receiver, would be
entitled to collect such rents, issues and profits. Such receiver also shall
have all other powers and rights that may be necessary or are usual in such
cases for the protection, possession, control, management and operation of the
Property during said period, including, to the extent permitted by law, the
right to lease all or any portion of the Property for a term that extends beyond
the time of such receiver's possession without obtaining prior court approval of
such lease. The court from time to time may authorize the application of the net
income received by the receiver in payment of (a) the indebtedness secured
hereby, or by any decree foreclosing this Mortgage, or any tax, special
assessment or other lien which may be or become superior to the lien hereof or
of such decree, provided such application is made prior to foreclosure sale, and
(b) any deficiency upon a sale and deficiency.

     23. LENDER'S RIGHT OF POSSESSION IN CASE OF DEFAULT. At any time after an
Event of Default has occurred, Borrower shall, upon demand of Lender, surrender
to Lender possession of the Property. Lender, in its discretion, may, with or
without process of law, enter upon and take and maintain possession of all or
any part of the Property, together with all documents, books, records, papers
and accounts relating thereto, and may exclude Borrower and its employees,
agents or servants therefrom, and Lender may then hold, operate, manage and
control the Property, either personally or by its agents. Lender shall have full
power to use such measures, legal or equitable, as in its discretion may be
deemed proper or necessary to enforce the payment or security of the avails,
rents, issues, and profits of the Property, including actions for the recovery
of rent, actions in forcible detainer and actions in distress for rent. Without
limiting the generality of the foregoing, Lender shall have full power to:

     A. make any repairs, renewals, replacements, alterations, additions,
     betterments and improvements to the Property as Lender deems are necessary;

     B. insure and reinsure the Property and all risks incidental to Lender's
     possession, operation and management thereof; and

     C. receive all of such avails, rents, issues and profits.

                                       41
<PAGE>

     24. PROTECTION OF LENDER'S SECURITY. If Borrower fails to perform the
covenants and agreements contained in this Instrument or if any action or
proceeding is commenced which affects the Property or title thereto or the
interest of Lender therein, including, but not limited to, eminent domain,
insolvency, code enforcement, or arrangements or proceedings involving a
bankrupt or decedent, then, at Lender's option, Lender may make such
appearances, disburse such sums and take such actions as Lender reasonably deems
necessary, in its sole discretion, to protect Lender's interest herein,
including, but not limited to, (i) disbursement of reasonable attorney fees,
(ii) entry upon the Property to make reasonable repairs or to conduct any
reasonably appropriate environmental tests and inspections or to perform any
necessary remediation, (iii) procurement of satisfactory insurance, and (iv)
payment of Impositions.

     Any amounts disbursed by Lender pursuant to this paragraph 24, together
with interest thereon, shall become additional indebtedness of Borrower secured
by this Instrument. Unless Borrower and Lender agree to other terms of payment,
such amounts shall be immediately due and payable and shall bear interest from
the date of disbursement at a rate equal to the Default Rate of interest set
forth in the Note. Nothing contained in this paragraph 20 shall require Lender
to incur any expense or take any action hereunder.

     25. BORROWER AND LIEN NOT RELEASED. From time to time, Lender may, at
Lender's option, after giving twenty-four (24) hours' notice but without
obtaining the consent of Borrower, or its successors or assigns, without
liability on Lender's part and notwithstanding the breach of any covenant or
agreement of Borrower in this Instrument, extend the time for payment of the
indebtedness evidenced by the Note or any part thereof, reduce the payments
thereon, release anyone liable on any of said indebtedness, accept a renewal
note or notes therefor, agree with Borrower, in writing, to modify the terms and
time of payment of said indebtedness, release from the lien of this Instrument
any part of the Mortgaged Property, take or release other or additional
security, reconvey any part of the Mortgaged Property, consent to any map or
plan of the Property, consent to the granting of any easement, join in any
extension or subordination agreement, and agree in writing with Borrower to
modify the rate of interest or period of amortization of the Note. Any actions
taken by Lender pursuant to the terms of this paragraph 25 shall not affect the
obligation of Borrower, or Borrower's successors or assigns, to pay the sums
secured by this Instrument and to observe the covenants of Borrower contained
herein, shall not affect the guaranty of any person, corporation, partnership or
other entity for payment of the indebtedness secured hereby, and shall not
affect the lien or priority of the lien hereof on the Mortgaged Property.
Borrower shall pay Lender a reasonable service charge, together with such title
insurance premiums and attorney fees as may be incurred, at Lender's option, for
any such action if taken at Borrower's request.

     26. FORBEARANCE BY LENDER NOT A WAIVER. Any forbearance by Lender in
exercising any right or remedy hereunder, or otherwise afforded by applicable
law, shall not be a waiver of or preclude the exercise of any such right or
remedy. The acceptance by Lender of payment of any sum secured by this
Instrument after the due date of such payment shall not be a

                                       42
<PAGE>

waiver of Lender's right to either require prompt payment when due of all other
sums so secured or to declare a default for failure to make prompt payment.

     27. ESTOPPEL CERTIFICATE. Borrower shall, within ten (10) days of written
request from Lender, furnish Lender with a written statement, duly acknowledged,
setting forth the sums secured by this Instrument and any right of set-off,
counterclaim or other defense which exists against such sums and the obligations
of Borrower under the Note and this Instrument.

     28. NOTICE. Except for any notice required under applicable law to be given
in another manner, any notice to Borrower provided for in this Instrument shall
be given by personal delivery or by mailing such notice by registered or
certified mail, return receipt requested, addressed to Borrower at Borrower's
address set forth in the original paragraph hereof, or at such other address as
Borrower may designate by notice to Lender as provided herein, and any notice to
Lender shall be given by personal delivery or by mailing such notice by
registered or certified mail, return receipt requested, to Lender's address
stated herein or to such other address as Lender may designate by notice to
Borrower as provided herein, with a copy to Jeffrey A. Abrams, Dann Pecar Newman
& Kleiman, 2300 One American Square, Indianapolis, Indiana 46282. Any notice
provided for in this Instrument and sent by registered or certified mail shall
be deemed to have been given two (2) days following the proper mailing of such
notice.

     29. SUCCESSORS AND ASSIGNS BOUND; JOINT AND SEVERAL LIABILITY; AGENTS;
CAPTIONS. The covenants and agreements herein contained shall bind, and the
rights hereunder shall inure to, the respective successors and assigns of Lender
and Borrower, subject to the provisions of paragraph 14 hereof. This Instrument,
and any instrument or documents made in connection herewith may be assigned by
the Lender without the consent of Borrower. All covenants and agreements of
Borrower shall be joint and several. In exercising any rights hereunder or
taking any actions provided for herein, Lender may act through its employees,
agents or independent contractors as authorized by Lender. The captions and
headings of the paragraphs of this Instrument are for convenience only and are
not to be used to interpret or define the provisions hereof.

     30. GOVERNING LAW; SEVERABILITY. This Instrument shall be construed under
and governed by the laws of the state of Indiana. In the event that any
provision of this Instrument or the Note conflicts with applicable law, such
conflict shall not affect any other provisions of this Instrument or the Note
which can be given effect without the conflicting provisions, and to this end
the provisions of this Instrument and the Note are declared to be severable.

     31. WAIVER OF STATUTE OF LIMITATIONS. Borrower hereby waives the right to
assert any statute of limitation as a bar to the enforcement of the lien of this
Instrument or to any action brought to enforce the Note or any other obligation
secured by this Instrument. Notwithstanding the foregoing, nothing in this
paragraph is intended to constitute a

                                       43
<PAGE>

waiver of the rights of Borrower and Lender under I.C. 32-8-16-1.5, it being
agreed that the parties may mutually consent to such waiver in a separate
subsequent writing.

     32. WAIVER OF MARSHALLING. Notwithstanding the existence of any other
security interests in the Mortgaged Property held by Lender or by any other
party, Lender shall have the right to determine the order in which any or all of
the Mortgaged Property shall be subjected to the remedies provided herein.
Lender shall have the right to determine the order in which any or all portions
of the indebtedness secured hereby are satisfied from the proceeds realized upon
the exercise of the remedies provided herein. Borrower, any party who consents
to this Instrument and any party who now or hereafter acquires a security
interest in the Mortgaged Property and who has actual or constructive notice
hereof, hereby waives any and all right to require the marshalling of assets in
connection with the exercise of any of the remedies permitted by applicable law
or provided herein.

     33. FUTURE ADVANCES. Lender, prior to release of this Instrument, may make
one or more future advances to Borrower not to exceed a total indebtedness of
Eight Million Dollars ($8,000,000), which future advances shall, in each
instance, be secured by this Mortgage in accordance with I.C. Section 32-8-11-9.
Such future advances, with interest thereon, shall be secured by this
Instrument, whether made (i) under the Note, or (ii) under any substitution,
renewal, replacement or modification of the Note, when evidenced by
substitution, renewal, replacement or modification agreements or notes stating
that such agreements or notes are secured by this Instrument. Borrower shall be
entitled to future advances, if any, in accordance with the Note, or any
substitution, renewal, replacement or modification thereof in accordance with
all applicable terms, conditions, and requirements for such future advances and,
so long as Borrower is not in default hereunder or Borrower is not in default
thereunder, such future advances shall be deemed obligatory advances under this
Instrument.

     34. CHANGES IN LAW REGARDING TAXATION. In the event of the passage after
the date of this Instrument of any law of the State of Indiana deducting from
the value of real property for the purpose of taxation, any lien or encumbrance
thereon or changing in any way the laws of the taxation of mortgages or debts
secured by mortgages for state or local purposes or the manner of the collection
of any such taxes, and imposing a tax, either directly or indirectly, on this
Instrument, the Note or the indebtedness, the Borrower shall, if permitted by
law, pay any tax imposed as a result of any such law within the statutory period
or within fifteen (15) days after demand by Lender, whichever is less, provided,
however, that if in the opinion of the attorneys for Lender, the Borrower is not
permitted by law to pay such taxes, the Lender, at Lender's option, may declare
all of the sums secured by this Instrument to be immediately due and payable
without notice to or further demand of Borrower and pursue all remedies provided
hereunder.

     35. CONSENT TO JURISDICTION. BORROWER HEREBY AGREES THAT ALL ACTIONS OR
PROCEEDINGS INITIATED BY BORROWER AND ARISING DIRECTLY OR INDIRECTLY OUT OF THIS
INSTRUMENT OR ANY OF THE OTHER LOAN DOCUMENTS SHALL BE LITIGATED IN THE CIRCUIT
OR SUPERIOR

                                       44
<PAGE>

COURT OF MARION COUNTY, INDIANA, OR THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF INDIANA OR, IF LENDER INITIATES SUCH ACTION, ANY
COURT IN WHICH LENDER SHALL INITIATE SUCH ACTION AND WHICH HAS JURISDICTION.
BORROWER HEREBY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION
IN ANY ACTION OR PROCEEDING COMMENCED BY LENDER IN ANY OF SUCH COURTS, AND
HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS AND COMPLAINT, OR OTHER PROCESS OR
PAPERS ISSUED THEREIN, AND AGREES THAT SERVICE OF SUCH SUMMONS AND COMPLAINT OR
OTHER PROCESS OR PAPERS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO
BORROWER AT THE ADDRESS TO WHICH NOTICES ARE TO BE SENT PURSUANT TO THIS
INSTRUMENT. BORROWER WAIVES ANY CLAIM THAT MARION COUNTY, INDIANA OR THE
SOUTHERN DISTRICT OF INDIANA IS AN INCONVENIENT FORUM OR AN IMPROPER FORUM BASED
ON LACK OF VENUE. SHOULD BORROWER, AFTER BEING SO SERVED, FAIL TO APPEAR OR
ANSWER TO ANY SUMMONS, COMPLAINT, PROCESS OR PAPERS SO SERVED WITHIN THE NUMBER
OF DAYS PRESCRIBED BY LAW AFTER THE MAILING THEREOF, BORROWER SHALL BE DEEMED IN
DEFAULT AND AN ORDER AND/OR JUDGMENT MAY BE ENTERED BY LENDER AGAINST BORROWER
AS DEMANDED OR PRAYED FOR IN SUCH SUMMONS, COMPLAINT, PROCESS OR PAPERS. THE
EXCLUSIVE CHOICE OF FORUM FOR BORROWER SET FORTH IN THIS SECTION SHALL NOT BE
DEEMED TO PRECLUDE THE ENFORCEMENT, BY LENDER, OF ANY JUDGMENT OBTAINED IN ANY
OTHER FORUM OR THE TAKING, BY LENDER, OF ANY ACTION TO ENFORCE THE SAME IN ANY
OTHER APPROPRIATE JURISDICTION, AND BORROWER HEREBY WAIVES THE RIGHT, IF ANY, TO
COLLATERALLY ATTACK ANY SUCH JUDGMENT OR ACTION.

     36. WAIVER OF TRIAL BY JURY. BORROWER HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES, AND LENDER BY ITS ACCEPTANCE OF THE NOTE AND THIS
INSTRUMENT IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY AND ALL RIGHTS TO TRIAL BY
JURY IN ANY ACTION, SUIT OR COUNTERCLAIM ARISING IN CONNECTION WITH, OUT OF OR
OTHERWISE RELATING TO THE NOTE, THIS INSTRUMENT OR ANY OTHER DOCUMENT OR
INSTRUMENT HERETOFORE, NOW OR HEREAFTER EXECUTED AND/OR DELIVERED IN CONNECTION
THEREWITH, THE LOAN SECURED BY THIS INSTRUMENT OR IN ANY WAY RELATED TO THIS
TRANSACTION OR OTHERWISE WITH RESPECT TO THE PROPERTY.

     IN WITNESS WHEREOF, the said Borrower hereunder duly authorized, has caused
this Instrument to be executed.

                                           JAMESON INNS, INC.,
                                           a Georgia corporation

                                           By:___________________________
                                              Craig R. Kitchin, President

                                       45
<PAGE>

STATE OF GEORGIA                            )
                                            ) SS:
COUNTY OF DEKALB                            )

         Before me, a Notary Public in and for said County and State, personally
appeared Craig R. Kitchin, the President of Jameson Inns, Inc., a Georgia
corporation, who, after having been duly sworn, acknowledged the execution of
the foregoing Mortgage, Security Agreement and Fixture Filing on behalf of said
corporation.

         WITNESS, my hand and Notarial Seal this ___ day of September, 2000.

                                        _______________________________________

                                        ________________________, Notary Public

My Commission Expires:

_________________________

My County of Residence:

_________________________

This instrument prepared by and after recording return to:  Jeffrey A. Abrams,
---------------------------------------------------------
Esq., DANN PECAR NEWMAN & KLEIMAN, P.C., 2300 One American Square, Box 82008,
Indianapolis, IN  46282, 317-632-3232.

                                       46
<PAGE>

                                    EXHIBIT B

                              Permitted Exceptions

General real estate taxes for the year 2000 and each year thereafter not yet due
and payable.

Exception Nos. _________________ reflected by the preliminary title binder dated
________, 2000, Commitment No. _________, issued by ___________________.

                                       47
<PAGE>

                    ASSIGNMENT OF DEPOSITS, LEASES AND RENTS

     THIS ASSIGNMENT, executed to be effective as of the ___ day of September,
2000 by JAMESON INNS, INC., a Georgia corporation, having a mailing address of 8
Perimeter Center East, Suite 8050, Atlanta, GA 30346 (hereinafter referred to as
the "Assignor"), to REPUBLIC BANK, a Michigan Commercial Bank, having a banking
office at 201 South Capitol Avenue, Suite 650, Indianapolis, IN 46225
(hereinafter referred to as the "Assignee"),

                              W I T N E S S E T H:

     FOR VALUE RECEIVED, Assignor hereby grants, transfers and assigns to the
Assignee all of the right, title and interest of Assignor in and to all leases,
room agreements or deposits, now or hereafter entered into whether oral or
written, including any occupancy agreements, or the leases with the occupants or
the tenants described in Exhibit "B" attached hereto, which demise any portion
of the real estate located in Marion County, Indiana, described in Exhibit "A"
attached hereto and by reference made a part hereof (hereinafter referred to as
the "Premises"), together with any and all extensions and renewals thereof (all
such occupancy agreements and leases being hereinafter collectively referred to
as the "Leases"), together with any guaranty of any occupants' or tenants'
obligations (all such occupants' or tenants' guaranties being hereinafter
collectively referred to as the "Guaranties"), together with the immediate and
continuing right to collect and receive all rents, income, payments and profits
arising out of said Leases, Guaranties or out of the Premises or any part
thereof, including but not limited to all rents, income, payments and profits
arising from the operation of any business on the Premises (hereinafter referred
to as the "Rents"), together with the right to proceeds payable to Assignor
pursuant to any purchase options on the part of the occupants or the tenants
under the Leases, together with all payments derived therefrom including but not
limited to claims for the recovery of damages done to the Premises or for the
abatement of any nuisance existing thereon, claims for damages resulting from
default under said Leases whether resulting from acts of insolvency or acts of
bankruptcy or otherwise, and lump sum payments for the cancellation of said
Leases or the waiver of any obligation or term thereof prior to the expiration
date and the return of any insurance premiums or ad valorem tax payments made in
advance and subsequently refunded.

                                       48
<PAGE>

             AND THE ASSIGNOR FURTHER AGREES, ASSIGNS AND COVENANTS:

     1. Indebtedness and Obligations Secured. This Assignment is given as
security for the performance and observance of the covenants and agreements
herein contained and any other agreement executed by Assignor to Assignee in
connection with the indebtedness secured hereby and to secure the payment when
due of the principal of and interest on all present and future indebtedness and
obligations of Assignor, individually or with others, in accordance with the
terms and conditions of such indebtedness and obligations, whether direct or
indirect, absolute of contingent and whether evidenced by promissory notes,
agreements, checks, drafts, letters of credit, bills, overdrafts, open accounts
or otherwise, including but not limited to the indebtedness evidenced by a
certain promissory note executed by Assignor of even date and concurrently with
this Assignment and payable to the order of Assignee in the principal sum of
Four Million Seven Hundred Forty-Five Thousand Dollars ($4,745,000.00) or any
notes in renewal thereof (such promissory note, and/or any promissory note which
is a direct or remote renewal, extension, modification, amendment, restatement,
or replacement of such promissory note, as may be from time to time modified or
amended is hereinafter referred to as the "Note"), with interest thereon at the
rate and payable in a manner described in the Note, and including any and all
extensions, renewals, increases, modifications, amendments, restatements and
replacements of any of the foregoing. In addition to any other indebtedness and
obligations secured by this Assignment, this Assignment secures any and all
future advances, together with any interest thereon, which are made by Assignee
to or for the benefit of Assignor.

     2. Performance of Leases. Assignor will, at its own cost and expense
perform, comply with and discharge all of the obligations of Assignor under any
Leases and use its best efforts to enforce or secure the performance of each
obligation and undertaking of the respective occupants or tenants under any such
Leases and will appear in and defend, at its own cost and expense, any action or
proceedings arising out of or in any manner connected with Assignor's interest
in any Leases of the Premises. Assignor will not borrow against, pledge or
assign any rentals due under the Leases nor consent to a subordination or
assignment of the interest of the occupants or the tenants thereunder to any
party other than Assignee, nor anticipate the rents thereunder for more than one
(1) month in advance or reduce the amount of rents and other payments
thereunder, nor incur any indebtedness to the occupants or tenants under such
Leases without the prior written consent of Assignee. With respect to all Leases
of the Premises, Assignor agrees that it will not execute new Leases or modify,
extend, renew, terminate accept a surrender of or in any way alter the terms of
the Leases nor waive, excuse, condone or in any manner release or discharge the
occupants or tenants of or from their obligations, covenants and agreements to
be performed without the prior written consent of Assignee. Assignor will
deliver copies of all lease amendments and new leases to Assignee within ten
(10) days prior to execution.

     3. Guaranties. Assignor will use its best efforts to enforce or secure the
performance of each obligation and undertaking of any guarantor under the
Guaranties. Assignor agrees that it will not modify, extend, renew, terminate,
accept a surrender of or in any way alter the terms of any of the Guaranties,
nor waive, excuse, condone or in any manner release or discharge occupant's or

                                       49
<PAGE>

tenant's or any other guarantor of or from their obligations, covenants and
agreements to be performed without the prior written consent of Assignee.

     4. Protect Security. Assignor shall, at Assignor's sole cost and expense,
appear in and defend any action or proceeding arising under, growing out of or
in any manner connected with the Leases or the obligations, duties or
liabilities of the lessor thereunder, and shall pay all costs and expenses of
Assignee, including attorney's fees and expenses, in any such action or
proceeding in which Assignee in its sole discretion may appear.

     5. Present Assignment. This Assignment shall constitute a perfected,
absolute and present assignment, provided, Assignor shall have the right to
collect, but not prior to accrual, all of the Rents and to retain, use and enjoy
the same unless and until an Event of Default (hereafter defined) shall occur
hereunder.

     6. Events of Default. Each of the following events shall constitute an
Event of Default hereunder:

          a. any default in the performance and observance of any of the terms,
     covenants or agreements of this Assignment;

          b. any Event of Default (as defined in the Loan Agreement of even
     date, the "Loan Agreement") shall occur.

     7. Remedies. Upon the occurrence of an Event of Default under this
Assignment, Assignee may declare all indebtedness secured hereby immediately due
and payable, may revoke the privilege granted Assignor hereunder to collect the
Rents, and may, at its option, without further notice, either in person or by
any agent, with or without taking possession of or entering the Premises, with
or without bringing any action or proceeding, or by a receiver to be appointed
by a court, collect all of the Rents payable under the Leases and sums payable
under the Guaranties, enforce the payment thereof and exercise all of the rights
of Assignor under the Leases and the Guaranties and all the rights of Assignee
hereunder, and may enter upon, take possession of, manage and operate the
Premises, or any part thereof; may enforce or reasonably modify the Leases and
the Guaranties, and reasonably fix or modify the Rents, and do any acts which
Assignee deems proper to protect the security hereof with or without taking
possession of the Premises so long as no action of Assignee violates any Lease
or law or damages the Premises, and may apply the same to the costs and expenses
of operation, management and collection, including attorneys' fees, to the
payment of the expenses of any agent appointed by Assignee, to the payment of
taxes, assessments, insurance premiums and expenditures for the upkeep of the
Premises, to the performance of the landlord's obligation under the Leases and
to any indebtedness secured hereby all in such order as Assignee may determine.
The entering upon and taking possession of the Premises, the collection of the
Rents, and the application thereof as aforesaid, shall not cure or waive any
default or waive, modify or affect notice of default under the Loan Agreement or
any other Loan Document (as defined therein) or invalidate any act done pursuant
to such notice nor in any way operate to prevent Assignee from

                                       50
<PAGE>

pursuing any remedy which it now or hereafter may have under the terms or
conditions of the Loan Documents or any other instrument securing the same. The
rights and powers of Assignee hereunder shall in no way be dependent upon and
shall apply without regard to whether the Premises are in danger of being lost,
materially injured or damaged or whether the Premises are adequate to discharge
the indebtedness secured hereby.

     8. No Liability For Assignee. Assignee shall not be obligated to perform or
discharge, nor does it hereby undertake to perform or discharge any obligation,
duty or liability under the Leases nor shall this Assignment operate to place
responsibility for the control, care, management or repair of the Premises upon
Assignee nor for the carrying out of any of the terms and conditions of the
Leases; nor shall it operate to make Assignee responsible or liable for any
waste committed on the Premises, or for any dangerous or defective condition of
the Premises, or for any negligence in the management, upkeep, repair or control
of the Premises resulting in loss or injury or death to any occupant, tenant,
licensee, employee or stranger nor liable for laches or failure to collect the
Rents and Assignee shall be required to account only for such moneys as are
actually received by it. All actions taken by Assignee pursuant to this
Assignment shall be taken for the purposes of protecting Assignee's security and
Assignor hereby agrees that nothing herein contained and no actions taken by
Assignee pursuant to this Assignment, including, but not limited to, Assignee's
approval or rejection of any Lease or Guaranty for any portion of the Premises,
shall in any way alter or impact the obligation of Assignor to pay the
indebtedness secured hereby.

     9. Assignor To Hold Assignee Harmless. Assignor shall and does hereby agree
to indemnify and to hold Assignee harmless of and from any and all liability,
loss or damage which it may or might incur under the Leases, the Guaranties or
under or by reason of this Assignment and of and from any and all claims and
demands whatsoever which may be asserted against it by reason of any alleged
obligations or undertakings on its part to perform or discharge any of the
terms, covenants or agreements contained in the Leases prior to the date that
Assignee or other purchaser at foreclosure sale becomes fee owner of the
Premises. Should Assignee incur any such liability, or any costs or expenses in
the defense of any such claims or demands, the amount thereof, including costs,
expenses, and reasonable attorney's fees, shall be secured hereby, shall be
added to the indebtedness secured hereby and Assignor shall reimburse Assignee
therefor immediately upon demand, and the continuing failure of Assignor so to
do shall constitute an Event of Default hereunder and an Event of Default under
the Loan Agreement.

     10. Security Deposits. Assignor agrees that, upon the occurrence of an
Event of Default hereunder, it shall, upon demand, transfer to Assignee any room
deposits or security deposits held by Assignor under the terms of the Leases.
Assignor agrees that such room deposits and security deposits, if any, may be
held by Assignee without any allowance of interest thereon, except statutory
interest, if any, accruing to the benefit of the occupants or tenants, and shall
become the absolute property of Assignee upon the occurrence of an Event of
Default hereunder to be applied in accordance with the provisions of the Leases.
Until Assignee makes such demand and the deposits are paid over to Assignee,
Assignee assumes no responsibility to the occupants or tenants for any such
occupancy or security deposit.

                                       51
<PAGE>

     11. Authorization to Occupants, Tenants and Guarantors. The occupants and
tenants under the Leases (and any parties to the Guaranties) are hereby
irrevocably authorized and directed to recognize the claims of Assignee or any
receiver appointed by a court without investigating the reason for any action
taken by Assignee or such receiver, or the validity or the amount of
indebtedness owing to Assignee, or the existence of any default under or by
reason of this Assignment, or the application to be made by Assignee or
receiver. Assignor hereby irrevocably directs and authorizes the occupants and
the tenants (and any parties to the Guaranties) to pay to Assignee or such
receiver all sums due under the Leases (or the Guaranties) and consents and
directs that said sums shall be paid to Assignee or any such receiver in
accordance with the terms of its receivership without the necessity for a
judicial determination that an Event of Default has occurred hereunder or that
Assignee is entitled to exercise its rights hereunder, and to the extent such
sums are paid to Assignee or such receiver, Assignor agrees that the occupants
and the tenants (and the parties to the Guaranties) shall have no further
liability to Assignor for the same. The sole signature of Assignee or such
receiver shall be sufficient for the exercise of any rights under this
Assignment and the sole receipt of Assignee or such receiver for any sums
received shall be a full discharge and release therefor to any such tenants or
occupants of the Premises. Checks for all or any part of the Rents collected
under this Assignment shall upon notice from Assignee or such receiver be drawn
to the exclusive order of Assignee or such receiver.

     12. Satisfaction. Upon the payment in full of all indebtedness secured
hereby as evidenced by a recorded satisfaction of the Mortgage, Security
Agreement and Fixture Filing between Assignor and Assignee of even date
("Mortgage") executed by Assignee, or its subsequent assign, this Assignment
shall without the need for any further satisfaction or release become null and
void and be of no further effect, provided that Assignee shall execute a
satisfaction or release if Assignor so requests.

     13. Assignee Creditor Of The Occupants and Tenants. Upon or at any time
during the continuance of an Event of Default under this Assignment, Assignor
agrees that Assignee, and not Assignor, shall be and be deemed to be the
creditor of the occupants and tenants in respect of assignments for the benefit
of creditors and bankruptcy, reorganization, insolvency, dissolution, or
receivership proceedings affecting such occupants or tenants, (without
obligation on the part of Assignee, however, to file or make timely filings of
claims in such proceedings or otherwise to pursue creditor's rights therein, and
reserving the right to Assignor to make such filing in such event) with an
option to Assignee to apply any money received by Assignee as such creditor in
reduction of the indebtedness secured hereby.

     14. Assignee Attorney-in-Fact. Assignor hereby irrevocably appoints
Assignee and its successors and assigns as its agent and attorney in fact, which
appointment is coupled with an interest, to exercise any rights or remedies
hereunder and to execute and deliver during the term of this Assignment such
instruments as this Assignee may deem necessary to make this assignment and any
further assignment effective.

                                       52
<PAGE>

     15. Subsequent Leases. Until the indebtedness secured hereby shall have
been paid in full, Assignor will deliver to Assignee executed copies of any and
all other and future leases (excluding any occupancy agreements for the rental
of rooms) upon all or any part of the Premises and agrees to make, execute and
deliver unto Assignee upon demand and at any time or times, any and all
assignments and other instruments sufficient to assign the leases and the Rents
thereunder to Assignee or that Assignee may deem to be advisable for carrying
out the true purposes and intent of this Assignment. All such future leases must
contain an environmental protection clause which states that the occupant or
tenant shall not handle, release, store or produce hazardous wastes (as defined
by federal law or local law) on the premises demised under such lease. The above
covenant shall not be deemed to prohibit hazardous materials or wastes which are
used in the ordinary course of the operation of businesses on the Premises and
which are stored, used and disposed of in accordance with all applicable laws
and ordinances and for which any necessary permits have been obtained. From time
to time on request of Assignee, Assignor agrees to furnish Assignee with a rent
roll of the Premises disclosing current tenancies, rents payable, and such other
matters as Assignee may reasonably request.

     16. General Assignment of Leases and Rents. The rights contained in this
Assignment are in addition to and shall be cumulative with the rights given and
created in the Mortgage, assigning generally all leases, rents and profits of
the Premises and shall in no way limit the rights created thereunder. The giving
of this Assignment is a condition precedent to the making of the Mortgage loan
secured hereby.

     17. No Mortgagee In Possession. Nothing herein contained and no actions
taken pursuant to this Assignment shall be construed as constituting Assignee a
"Mortgagee in Possession".

     18. Continuing Rights. The rights and powers of Assignee or any receiver
hereunder shall continue and remain in full force and effect until all
indebtedness secured hereby, including any deficiency remaining from a
foreclosure sale, are paid in full, and shall continue after commencement of a
foreclosure action and, if Assignee be the purchaser at the foreclosure sale,
after foreclosure sale and until expiration of the equity of redemption.

     19. Successors And Assigns. This Assignment and each and every covenant,
agreement and provision hereof shall be binding upon Assignor and its successors
and assigns including without limitation each and every from time to time record
owner of the Premises or any other person having an interest therein and shall
inure to the benefit of Assignee and its successors and assigns. As used herein
the words "successors and assigns" shall also be deemed to mean the heirs,
executors, representatives and administrators of any natural person who is or
becomes a party to this Assignment.

     20. Governing Law. This Assignment shall be governed by the laws of the
State of Indiana.

                                       53
<PAGE>

     21. Validity Clause. It is the intent of this Assignment to confer to
Assignee the rights and benefits hereunder to the full extent allowable by law.
The unenforceability or invalidity of any provisions hereof shall not render any
other provision or provisions herein contained unenforceable or invalid. Any
provisions found to be unenforceable shall be severable from this Assignment.

     22. Notices. Any notice which any party hereto may desire or may be
required to give to any other party - shall be in writing and either (a) mailed
by certified mail, return receipt requested, or (b) sent by an overnight carrier
which provides for a return receipt. Any such notice shall be sent to the
respective party's address as set forth on Page 1 of this Assignment or to such
other address within the State of Indiana as such party may, by notice in
writing, designate as its address. Any such notice shall constitute service of
notice hereunder three (3) days after the mailing thereof by certified mail, and
one (1) day after the sending thereof by overnight carrier, pursuant to the
terms hereof.

     23. Costs of Enforcement. Assignor agrees to pay the costs and expenses,
including but not limited to attorneys' fees and legal expenses incurred by
Assignee in the exercise of any right or remedy available to it under this
Assignment, whether or not suit is commenced including, without limitation,
attorneys' fees and legal expenses incurred in connection with any appeal of a
lower court's order or judgment where Assignee is the prevailing party.

     24. Captions. The captions or headings herein have been inserted solely for
the convenience of reference and in no way define, limit or describe the scope
or substance of any provision of this Assignment.

     25. WAIVER OF JURY TRIAL. THE ASSIGNEE AND THE ASSIGNOR, AFTER CONSULTING
OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL, KNOWINGLY, VOLUNTARILY
AND INTENTIONALLY WAIVE ANY RIGHT EITHER OF THEM MAY HAVE TO A TRIAL BY A JURY
IN ANY LITIGATION BASED UPON OR ARISING OUT OF THIS ASSIGNMENT OR THE LOAN
DOCUMENTS, OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS ASSIGNMENT, OR ANY
COURSE OF CONDUCT, DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF
EITHER OF THEM. NEITHER THE ASSIGNEE NOR THE ASSIGNOR SHALL SEEK TO CONSOLIDATE,
BY COUNTERCLAIM OR OTHERWISE, ANY SUCH ACTION IN WHICH A JURY TRIAL HAS BEEN
WAIVED WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN
WAIVED. THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE BEEN MODIFIED IN ANY
RESPECT OR RELINQUISHED BY EITHER THE ASSIGNEE OR THE ASSIGNOR EXCEPT BY A
WRITTEN INSTRUMENT EXECUTED BY BOTH OF THEM.

     26. CONSENT TO JURISDICTION. ASSIGNOR HEREBY AGREES THAT ALL ACTIONS OR
PROCEEDINGS INITIATED BY ASSIGNOR AND ARISING DIRECTLY OR INDIRECTLY OUT OF THIS
ASSIGNMENT OF DEPOSITS, LEASES AND RENTS OR ANY OF THE OTHER LOAN DOCUMENTS
SHALL BE LITIGATED IN THE

                                       54
<PAGE>

CIRCUIT OR SUPERIOR COURT OF MARION COUNTY, INDIANA, OR THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF INDIANA OR, IF ASSIGNEE INITIATES
SUCH ACTION, ANY COURT IN WHICH ASSIGNEE SHALL INITIATE SUCH ACTION AND WHICH
HAS JURISDICTION. ASSIGNOR HEREBY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO
SUCH JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED BY ASSIGNEE IN ANY OF
SUCH COURTS, AND HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS AND COMPLAINT, OR
OTHER PROCESS OR PAPERS ISSUED THEREIN, AND AGREES THAT SERVICE OF SUCH SUMMONS
AND COMPLAINT OR OTHER PROCESS OR PAPERS MAY BE MADE BY REGISTERED OR CERTIFIED
MAIL ADDRESSED TO ASSIGNOR AT THE ADDRESS TO WHICH NOTICES ARE TO BE SENT
PURSUANT TO THIS ASSIGNMENT. ASSIGNOR WAIVES ANY CLAIM THAT MARION COUNTY,
INDIANA OR THE SOUTHERN DISTRICT OF INDIANA IS AN INCONVENIENT FORUM OR AN
IMPROPER FORUM BASED ON LACK OF VENUE. SHOULD ASSIGNOR, AFTER BEING SO SERVED,
FAIL TO APPEAR OR ANSWER TO ANY SUMMONS, COMPLAINT, PROCESS OR PAPERS SO SERVED
WITHIN THE NUMBER OF DAYS PRESCRIBED BY LAW AFTER THE MAILING THEREOF, ASSIGNOR
SHALL BE DEEMED IN DEFAULT AND AN ORDER AND/OR JUDGMENT MAY BE ENTERED BY
ASSIGNEE AGAINST ASSIGNOR AS DEMANDED OR PRAYED FOR IN SUCH SUMMONS, COMPLAINT,
PROCESS OR PAPERS. THE EXCLUSIVE CHOICE OF FORUM FOR ASSIGNOR SET FORTH IN THIS
SECTION SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT, BY ASSIGNEE, OF ANY
JUDGMENT OBTAINED IN ANY OTHER FORUM OR THE TAKING, BY ASSIGNEE, OF ANY ACTION
TO ENFORCE THE SAME IN ANY OTHER APPROPRIATE JURISDICTION, AND ASSIGNOR HEREBY
WAIVES THE RIGHT, IF ANY, TO COLLATERALLY ATTACK ANY SUCH JUDGMENT OR ACTION.

     IN WITNESS WHEREOF, Assignor has caused this Assignment of Leases and Rents
to be executed as of the date first above written.

                                       JAMESON INNS, INC.,
                                       a Georgia corporation

                                       By:___________________________
                                          Craig R. Kitchin, President

                                       55
<PAGE>

STATE OF GEORGIA                    )
                                    ) SS:
COUNTY OF DEKALB                    )

         Before me, a Notary Public in and for said County and State, personally
appeared Craig R. Kitchin, the President of Jameson Inns, Inc., a Georgia
corporation, who, after having been duly sworn, acknowledged the execution of
the foregoing Assignment of Deposits, Leases and Rents for and on behalf of such
corporation.

         WITNESS, my hand and Notarial Seal this ___ day of September, 2000.

                                        _______________________________________

                                        ________________________, Notary Public

My Commission Expires:

_________________________

My County of Residence:

_________________________

This instrument prepared by Jeffrey A. Abrams, Attorney at Law, Dann Pecar
Newman & Kleiman, P.C., One American Square, Suite 2300, Box 82002,
Indianapolis, Indiana 46282.

                                       56
<PAGE>

                              ESTOPPEL CERTIFICATE,
                               SUBORDINATION, AND
                              ATTORNMENT AGREEMENT

     THIS AGREEMENT, made and entered into as of this day of September, 2000, by
and among JAMESON INNS, INC., a Georgia corporation (hereinafter referred to as
"Landlord"), JAMESON HOSPITALITY, LLC, a Georgia limited liability company
(hereinafter referred to as "Tenant"), and REPUBLIC BANK, a Michigan Commercial
Bank (hereinafter referred to as "Lender").

                               W I T N E S S E T H

     WHEREAS, Lender has made or intends to make a loan to Landlord (the "Loan")
relating to a certain hotel located on certain real property in Marion County,
Indiana, and more particularly described in Exhibit AA" attached hereto (the
ALand"); and

     WHEREAS, the Loan is or will be secured by, among other things, a mortgage
and security agreement (the "Mortgage") on the Land and other property described
therein (hereinafter referred to as the "Mortgaged Property"); and

     WHEREAS, Landlord and Tenant have entered into that certain Master Lease
Agreement dated as of May 7, 1999, as amended by that certain Amendment No. 1 to
Master Lease Agreement dated as of May 7, 1999 (collectively the "Lease") with
respect to certain premises referred to in the Lease (the "Premises") which
include the Mortgaged Property; and

     WHEREAS, Landlord has assigned, pursuant to the Mortgage and that certain
Assignment of Deposits, Leases and Rents executed in connection therewith (the
"Assignment"), all of its right, title and interest in and to the Lease and the
rents payable thereunder to Lender as security for the performance of its
obligations being made in connection with the Loan; and

     WHEREAS, the parties wish to confirm that the Mortgage is superior in right
to the Lease and to the right, title and interests of Tenant thereto and
thereunder; and
<PAGE>

     NOW THEREFORE, in consideration of the mutual promises and covenants of the
parties hereto, and of other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto do mutually
covenant and agree as follows:

     1. The Lease is and shall at all times hereafter be subject and subordinate
in all respects to the Mortgage and the lien and effect thereof and to all
renewals, modifications, substitutions, replacements, consolidations and
extensions thereof and future advances thereunder, to all related loan documents
and to all other future mortgages to be held by Lender.

     2. No notice by Tenant to Landlord of any default by Landlord under any
obligation of the Lease, which default is of such nature as to give Tenant a
right to terminate the Lease or to reduce the rent or other monies payable under
the Lease or a right to any credit or offset against future rents or other
monies payable in the future shall be effective, notwithstanding any provision
in the Lease to the contrary, unless and until such notice is also given to
Lender and Lender shall not have cured or remedied such default within sixty
(60) days following receipt of such notice by Lender; provided that if such
default is not capable of being cured within such sixty (60) day period Lender
shall have a reasonable period of time after the expiration of the cure period
to cure such default provided it diligently proceeds with its efforts to cure.
Lender shall have the right, but not the obligation, to remedy or cure such
default.

     3. No person or entity who exercises a right, arising under the Mortgage or
Assignment, to receive the rents payable by Tenant under the Lease shall thereby
become obligated to Tenant for the performance of any of the terms, covenants,
conditions and agreements of Landlord under the Lease. Landlord and Tenant agree
that Tenant shall make all payments to be made by Tenant under the Lease to such
person or entity upon receipt of written notice of the exercise of such rights,
and Tenant agrees not to prepay any sums payable by Tenant under the Lease. Such
receipt of rent by any other party shall not relieve Landlord of its obligations
under the Lease, and Tenant shall continue to look to Landlord only for
performance thereof.

     4. If Lender or any successor-in-interest to Lender (or any receiver
appointed in an action or proceeding to foreclose the Mortgage or otherwise)
shall succeed to the rights of the Landlord under the Lease, whether through
possession, termination or cancellation of the Lease, surrender, assignment,
judicial action, subletting, foreclosure action or delivery of a deed in lieu of

<PAGE>

foreclosure or otherwise Tenant shall attorn to Lender or such other successor
in interest to Lender as lessor and without further evidence of such attornment
and acceptance, Tenant shall be bound by and comply with all the terms,
provisions, covenants and obligations contained in the Lease on its part to be
performed and this Agreement; provided, however, that nothing contained in this
Agreement or any other instrument, including, but not limited to, the Lease,
shall impose upon Lender an obligation to complete any improvements for the
benefit of Tenant. It is understood that Tenant's agreement to attorn under this
paragraph shall not be construed as amending the Landlord's obligations under
the Lease.

     5. In addition to and not in lieu of all the provisions of this Agreement,
Lender shall not in any way or to any extent be:

               a) liable for any warranty, act or omission of any landlord
          (including Lender and Landlord) in contravention of any provision of
          the Lease; or

               b) subject to any offsets, claims or defenses which Tenant might
          have against any prior landlord (including Landlord); or

               c) bound by any rent or percentage rent which Tenant might have
          paid more than thirty (30) days in advance to any prior landlord
          (including Landlord); or

               d) bound by an agreement or modification of the Lease made
          without Lender's written consent; or

               e) in any way responsible for deposit or security which was
          delivered to Landlord but which was not subsequently delivered to
          Lender.

     6. Tenant, in order to induce Lender to enter into this Agreement, hereby
warrants and represents that:

               a) The Master Lease Agreement dated May 7, 1999, executed by
          Landlord as landlord and Tenant as tenant, together with the following
          amendments:

<PAGE>

          Amendment No. 1 to Master Lease Agreement is a full, true and complete
          copy of the Lease;

               b) Tenant has delivered to Landlord a security deposit in the
          amount of $0;

               c) Fixed or Base Rent is payable monthly in the amount of
          $______________, commencing on June 1, 1999 and there has been no
          prepaid rent;

               d) The term of the Lease commenced on the 5th day of May , 1999
          and terminates on the 31st day of December, 2012;

               e) The Lease is in good standing;

               f) The Lease does __ does not __ contain an option to extend such
          Lease;

               g) If there is an option to extend the term of the Lease beyond
          the date specified in paragraph (d), the term of the extension is
          ____________ (___ )_____________ (___ ) year option(s).

               h) The Lease is in full force and effect and has not been
          modified or amended;

               i) Landlord is not in default under any of the Landlord's
          obligations under the Lease;

               j) Tenant has no present right of offset or defense against any
          rent or other monies due or to become due under the Lease;

               k) The Lease was duly authorized and constitutes the valid and
          binding obligation of Tenant and is enforceable in accordance with its
          provisions; and

<PAGE>

               l) Tenant will, after notice from Lender that Landlord is in
          default of its obligations under the Loan, pay to Lender, or to such
          person or firm designated by Lender, all rent and other monies due and
          to become due to Landlord under the Lease.

     7. Tenant agrees that if Lender acquires title to the Mortgaged Property as
a result of foreclosure of the Mortgage, the acceptance of a deed in lieu of
such foreclosure, or obtaining control of the Premises pursuant to the remedies
contained in the Mortgage or the Assignment, the laws of the State of Indiana,
or otherwise, Tenant shall have no recourse to any assets of Lender and Tenant's
sole remedy against Lender for any act of omission in contravention of any
provision of the Lease shall be to terminate the Lease without recourse against
Lender. Lender's acquisition of title to or control if the Premises in the
manner aforesaid or the performing of any of the obligations of Landlord
pursuant to the Lease shall not be construed as an assumption of said Lease by
Lender. Furthermore, upon such acquisition, the Lease shall be modified to
include the provisions contained herein, notwithstanding any other provisions of
said Lease.

     8. Tenant agrees to execute such other documents as Lender may deem
necessary to subordinate the Lease to the lien and effect of the Mortgage.

     9. All notices, demands or requests, and responses thereto, required or
permitted to be given pursuant to this Agreement shall be in writing and shall
be delivered by hand delivery, expedited courier or sent by certified mail,
postage prepaid, return receipt requested, and addressed to the party as
provided below or at such other places as such party may from time to time
designate in a notice to the other parties. Any notice shall be effective upon
receipt of delivery or three (3) days after the letter transmitting such notice
is certified and deposited in the United States Mail. Rejection or other refusal
to accept or inability to deliver because of changed address of which no notice
has been given shall constitute receipt of the notice, demand or request sent.
Any such notice if given to Landlord shall be addressed as follows:

                                    8 Perimeter Center East, Suite 8050
                                    Atlanta, GA 30346
                                    Attn: Craig R. Kitchin
<PAGE>

         if given to Lender shall be addressed as follows:

                                    Republic Bank
                                    201 S. Illinois Street, Suite 650
                                    Indianapolis, Indiana 46225
                                    Attention: ________________________

         if given to Tenant shall be addressed as follows:

                                    8 Perimeter Center East, Suite 8050
                                    Atlanta, GA 30346
                                    Attn: Legal Department

     10. This Agreement shall be binding upon and inure to the parties, their
respective heirs, successors and assigns.

     11. This Agreement shall be governed by, and construed in accordance with
the laws of the State of Indiana.

     12. This Agreement may not be changed, amended or modified in any manner
other than by an agreement in writing specifically referring to this Agreement
and executed by the parties hereto.

     LANDLORD, LENDER AND TENANT HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT TO ANY LITIGATION BASED HEREON OR
ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS ESTOPPEL CERTIFICATE AND
SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT AND ANY SECURITY
DOCUMENT CONTEMPLATED OR TO BE EXECUTED IN CONJUNCTION WITH THE LOAN OR ANY
COURSE OF ACTION,
<PAGE>

COURSE OF DEALING, STATEMENTS (WHETHER RELATING TO THE LOAN OR TO THIS
AGREEMENT.

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.

Signed, sealed and delivered in the presence of:

                                            TENANT:

                                            JAMESON HOSPITALITY, LLC,
                                            a Georgia limited liability company

                                            By:___________________________
                                            Title:________________________

                                            LANDLORD:

                                            JAMESON INNS, INC.,
                                            a Georgia corporation

                                            By:___________________________
                                               Craig R. Kitchin, President

                                            LENDER:

                                            REPUBLIC BANK

                                            By:___________________________
                                            Title:________________________
<PAGE>

STATE OF GEORGIA                    )
                                    )  SS:
COUNTY OF DEKALB                    )

         Before me, a Notary Public in and for the State of Indiana, personally
appeared _______________________, the ____________ of Jameson Hospitality, LLC,
a Georgia limited liability company, who, having been duly sworn, acknowledged
the execution of the foregoing instrument for and on behalf of said limited
liability company.

         Witness my hand and Notarial Seal this ____ day of September 2000.

                                        _______________________________________

                                        ________________________, Notary Public

My Commission Expires:

_________________________

My County of Residence:

_________________________
<PAGE>

STATE OF GEORGIA                    )
                                    )  SS:
COUNTY OF DEKALB                    )

         Before me, a Notary Public in and for the State of Indiana, personally
appeared Craig R. Kitchin, the President of Jameson Inns, Inc., a Georgia
corporation, who, having been duly sworn, acknowledged the execution of the
foregoing instrument for and on behalf of said corporation.

         Witness my hand and Notarial Seal this ____ day of September 2000.

                                        _______________________________________

                                        ________________________, Notary Public

My Commission Expires:

_________________________

My County of Residence:

_________________________
<PAGE>

STATE OF INDIANA                    )
                                    )  SS:
COUNTY OF INDIANA                   )

         Before me, a Notary Public in and for the State of Indiana, personally
appeared _________ , the of REPUBLIC BANK, a Michigan Commercial Bank, who,
having been duly sworn, acknowledged the execution of the foregoing instrument
for and on behalf of said Michigan Commercial Bank.

         Witness my hand and Notarial Seal this ____ day of September 2000.

                                        _______________________________________

                                        ________________________, Notary Public

My Commission Expires:

_________________________

My County of Residence:

_________________________
<PAGE>

                                    EXHIBIT A

                        LEGAL DESCRIPTION OF THE PROPERTY
<PAGE>

                                 PROMISSORY NOTE

$4,745,000.00                                              Indianapolis, Indiana
                                                              September __, 2000

         FOR VALUE RECEIVED, the undersigned ("Borrower") promises to pay to the
order of REPUBLIC BANK (hereinafter the "Lender"), at its office located at 201
South Capitol Avenue, Indianapolis, IN 46225, or at such other place as the
holder hereof may, from time to time, designate in writing, the principal sum of
Four Million Seven Hundred Forty-Five Thousand Dollars ($4,745,000.00) or so
much thereof as shall be advanced by Lender and remain unpaid, together with all
costs herein provided and interest from the date of disbursement on the
principal balance hereof and thereon until said amounts have been paid in full
at a rate equal to the "Contract Rate" (as hereinafter defined), or following an
Event of Default hereunder, at five percent (5%) in excess of the Contract Rate
(the "Default Rate"), with attorney's fees and costs of collection, and without
relief from valuation and appraisement laws.

         The Contract Rate shall be a fixed rate per annum equal to the greater
of (i) the "Index" (as hereinafter defined), as established from time to time
plus three hundred (300) basis points and (ii) 8.25%. The Contract Rate shall
initially be _____ and __/100 percent (____%). Each change in the Index
automatically and immediately shall result in a change in the rate of interest
payable hereunder. For the purposes hereof, the term "Index" shall mean the
trailing four week average yield on actively traded U.S. government securities
adjusted to a Treasury constant maturity of one (1) year as published by the
Board of Governors of the Federal Reserve System in the Federal Reserve
Statistical Release Publication No. H15(519) or any equivalent publication as
determined by Lender. The Index shall increase or decrease on October 1, 2001
and on each anniversary thereafter (the "Rate Adjustment Date"), based on the
rate determined on the 16th day of July prior to each Rate Adjustment Date until
October 1, 2010 (the "Maturity Date").
<PAGE>

         Interest shall be calculated on the daily unpaid principal balance
hereof based on the actual number of days elapsed in the interest payment period
over a year of three hundred sixty (360) days. Payments of principal and
interest shall be made in one hundred twenty (120) successive monthly
installments commencing on the 1st day of November, 2000, and continuing on the
1st day of each and every calendar month thereafter up to and including the
Maturity Date, when the entire principal balance with all accrued interest shall
be due and owing. Each payment shall be in the amount which would fully amortize
the then unpaid principal balance of the indebtedness evidenced by this Note,
such amortization to be based upon (a) the Contract Rate in effect as of such
date, (b) an amortization period of twenty (20) years, and (c) interest being
calculated on the basis of thirty (30) day calendar months in a three hundred
sixty (360) day year; provided that on each Rate Adjustment Date, the amount of
the monthly installments of principal and interest required hereunder shall be
increased or decreased, as the case may be, to a new payment equal to the
monthly amount it would take to fully amortize this Note based upon (x) the new
Contract Rate, and (y) the above referenced amortization period, less the number
of full months which have elapsed since the commencement of principal and
interest payments. If a payment date is other than on a business day (a day not
a Saturday, Sunday or national holiday), the installment shall be due on the
next business day.

         If not sooner paid as hereinafter permitted, the unpaid principal sum
of this Note and all accrued and unpaid interest and other charges hereunder
shall be payable in full on the Maturity Date.

         This Note and all amounts due hereunder are secured by a Mortgage,
Security Agreement and Fixture Filing (the "Mortgage") conveying to Lender a
first mortgage security interest in certain real and personal property, together
with the improvements thereon and hereafter constructed and the rents and
profits thereof (the "Property"), all under the Loan Agreement between Lender
and Borrower of even date herewith (the "Loan Agreement"), providing for, among
other things, the disbursement of funds hereunder. Said Mortgage and Loan
Agreement, together with the Assignment of Leases and Rents, Assignment
Agreement, Continuing Guaranty from each Guarantor, and Environmental
Certificate and Indemnity Agreement shall hereinafter be referred to
collectively as the "Loan Documents".
<PAGE>

         If all or any part of any monthly payment due under this Note is not
received by Lender by the close of business on the fifteenth day of the calendar
month in which such payment is due, the undersigned shall pay to Lender an
administration charge equal to five percent (5%) of such payment or Two Hundred
Fifty Dollars ($250), whichever is greater, such administrative charge to be
immediately due and payable without notice or demand by Lender.

         Borrower reserves the privilege to prepay in full, or in part, the
principal indebtedness evidenced hereby on any installment payment date upon
thirty (30) days' prior written notice to the holder hereof and payment of a
premium (the "Prepayment Premium") equal to one percent (1%) of the outstanding
principal balance of this Note. Borrower reserves the privilege to prepay in
full, or in part, without penalty, the principal indebtedness evidenced hereby
within thirty (30) days prior to any Rate Adjustment Date upon thirty (30) days'
prior written notice to the holder hereof.

         If the maturity of the indebtedness evidenced hereby is accelerated by
Lender as a consequence of the occurrence of an Event of Default, or in the
event the right to foreclose the Mortgage shall otherwise accrue to Lender,
Borrower agrees that an amount equal to the Prepayment Premium shall be added to
the balance of unpaid principal and interest then outstanding, and the
indebtedness evidenced hereby shall not be discharged except: (i) by payment of
such Prepayment Premium, together with the balance of principal and interest and
all other sums then outstanding (if Borrower tenders payment of the indebtedness
evidenced hereby prior to judicial confirmation of foreclosure sale); or (ii) by
inclusion of such Prepayment Premium as a part of the indebtedness evidenced
hereby in any such judicial order or judgment of foreclosure.

         It is agreed that time is of the essence in the performance of all
obligations hereunder and under the Loan Documents. It shall be an Event of
Default hereunder if any "Event of Default" occurs under the Loan Agreement or
any other Loan Documents. If an Event of Default hereunder occurs, unless Lender
elects otherwise, the entire principal balance of this Note, irrespective of the
maturity date specified herein, together with the then accrued and unpaid
interest thereon and other charges hereunder shall become immediately due and
payable, and
<PAGE>

Lender may, immediately or at any time thereafter, exercise any or all remedies
available to a secured party with respect to all collateral securing this Note.
Lender may, at its option, delay in or refrain from exercising some or all of
its rights and remedies without prejudice thereto and regardless of prior
forbearance.

       Upon the occurrence of any Event of Default hereunder, or upon maturity
hereof (by acceleration or otherwise), the entire unpaid principal sum shall
bear interest, from the date of occurrence of such Event of Default or upon
maturity and after judgment and until collection, at the Default Rate. The
aforesaid Default Rate interest, when and if applicable, shall be due and
payable immediately without notice or demand.

         This Note shall be binding on all parties hereto and their successors
and assigns. All makers, endorsers, guarantors and sureties hereof agree jointly
and severally that if, and as often as, this Note is placed in the hands of any
attorneys for collection or to defend or enforce any of the Lender's rights
hereunder or under the Loan Documents, the undersigned shall pay to Lender on
demand its reasonable attorney fees, together with all court costs and other
expenses provided in the Loan Documents paid by Lender.

          All makers, endorsers, guarantors and sureties consent to (i) any
renewal, extension or modification (whether one or more) of the terms of the
Loan Documents, including the terms or time of payment under this Note, (ii) the
release or surrender, exchange or substitution of all or any part of the
security, whether real or personal or direct or indirect, for the payment
hereof, (iii) the granting of any other waiver or concession to the undersigned,
and (iv) the taking or releasing of other or additional parties primarily or
contingently liable hereunder. Any such renewal, extension, modification,
release, surrender, exchange or substitution may be made without notice to the
undersigned and any endorsers, guarantors and sureties hereof and without
affecting the liability of said parties hereunder.

         The remedies of this Note and the Loan Documents providing for the
enforcement of the payment of the principal sum thereby secured, together with
interest thereon, and for the performance of the covenants, terms and conditions
contained therein, are cumulative and
<PAGE>

concurrent and may be pursued singularly or successively or together, at the
sole discretion of Lender, and may be exercised as often as occasion therefor
shall occur. When the obligations evidenced by this Note become due, by
acceleration or otherwise, Lender may, at its option, demand, sue for, collect
or make any compromise or settlement it deems necessary or desirable. Prior to
Lender obtaining possession of the collateral held as security Lender shall not
be required to take any steps necessary to preserve or create any rights,
benefits or privileges in the collateral held as security herefor, all of which
the undersigned hereby assume to do. In the event the obligations evidenced by
this Note are accelerated, any indebtedness owing to any of the undersigned from
Lender may be used and applied by Lender as a payment hereunder and as a payment
on any other indebtedness owing hereunder or to declare a default for failure to
make prompt payment. Further, the waiver by Lender or failure to enforce any
other term, covenant or condition of this Note, or the Loan Documents or to
declare any default hereunder or thereunder, shall not operate as a waiver of
any subsequent default or affect the right of Lender to exercise any right or
remedy not expressly waived in writing by Lender.

         CONSENT TO JURISDICTION. BORROWER HEREBY AGREES THAT ALL ACTIONS OR
PROCEEDINGS INITIATED BY BORROWER AND ARISING DIRECTLY OR INDIRECTLY OUT OF THIS
NOTE OR ANY OF THE OTHER LOAN DOCUMENTS SHALL BE LITIGATED IN THE CIRCUIT OR
SUPERIOR COURT OF MARION COUNTY, INDIANA, OR THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF INDIANA OR, IF LENDER INITIATES SUCH ACTION, ANY
COURT IN WHICH LENDER SHALL INITIATE SUCH ACTION AND WHICH HAS JURISDICTION.
BORROWER HEREBY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION
IN ANY ACTION OR PROCEEDING COMMENCED BY LENDER IN ANY OF SUCH COURTS, AND
HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS AND COMPLAINT, OR OTHER PROCESS OR
PAPERS ISSUED THEREIN, AND AGREES THAT SERVICE OF SUCH SUMMONS AND COMPLAINT OR
OTHER PROCESS OR PAPERS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO
BORROWER AT THE ADDRESS TO WHICH NOTICES ARE TO BE SENT PURSUANT TO THE
MORTGAGE. BORROWER WAIVES ANY CLAIM THAT
<PAGE>

MARION COUNTY, INDIANA OR THE SOUTHERN DISTRICT OF INDIANA IS AN INCONVENIENT
FORUM OR AN IMPROPER FORUM BASED ON LACK OF VENUE. SHOULD BORROWER, AFTER BEING
SO SERVED, FAIL TO APPEAR OR ANSWER TO ANY SUMMONS, COMPLAINT, PROCESS OR PAPERS
SO SERVED WITHIN THE NUMBER OF DAYS PRESCRIBED BY LAW AFTER THE MAILING THEREOF,
BORROWER SHALL BE DEEMED IN DEFAULT AND AN ORDER AND/OR JUDGMENT MAY BE ENTERED
BY LENDER AGAINST BORROWER AS DEMANDED OR PRAYED FOR IN SUCH SUMMONS, COMPLAINT,
PROCESS OR PAPERS. THE EXCLUSIVE CHOICE OF FORUM FOR BORROWER SET FORTH IN THIS
SECTION SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT, BY LENDER, OF ANY
JUDGMENT OBTAINED IN ANY OTHER FORUM OR THE TAKING, BY LENDER, OF ANY ACTION TO
ENFORCE THE SAME IN ANY OTHER APPROPRIATE JURISDICTION, AND BORROWER HEREBY
WAIVES THE RIGHT, IF ANY, TO COLLATERALLY ATTACK ANY SUCH JUDGMENT OR ACTION.

         BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, AND LENDER BY
ITS ACCEPTANCE OF THIS NOTE IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY AND ALL
RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT OR COUNTERCLAIM ARISING IN
CONNECTION WITH, OUT OF OR OTHERWISE RELATING TO THIS NOTE, OR ANY OTHER
DOCUMENT OR INSTRUMENT HERETOFORE, NOW OR HEREAFTER EXECUTED AND/OR DELIVERED IN
CONNECTION THEREWITH, THE LOAN SECURED BY THIS INSTRUMENT OR IN ANY WAY RELATED
TO THIS TRANSACTION OR OTHERWISE WITH RESPECT TO THE PROPERTY.

         The unenforceability or invalidity or any one or more provisions of
this Note shall not render any other provision herein contained unenforceable or
invalid.

         This Note and all of the Loan Documents have been executed and
delivered in the State of Indiana and shall be governed by and construed in
accordance with the laws of the State of Indiana without regard to choice of law
provisions. Time is of the essence hereof. This Note
<PAGE>

may not be amended or changed orally, but only by an instrument signed by the
party against whom enforcement of the change or amendment is sought.

         Whenever Lender is referred to in this Note, such reference shall be
deemed to include the successors and assigns of Lender, including, without
limitation, any subsequent assignee or holder of this Note, and all covenants,
provisions and agreements by or on behalf of the undersigned and any endorsers,
guarantors and sureties hereof which are contained herein shall inure to the
benefit of the successors and assigns of Lender.

         Notwithstanding any provisions to the contrary in this Note, or in any
of the documents securing payment hereof or otherwise relating hereto, nothing
herein contained nor any transaction related hereto shall be construed or shall
operate either presently or prospectively to require the undersigned to pay
interest in excess of the maximum permissible interest rate allowed by law. If
any excess of interest in such respect is provided for, in this Note or any of
the documents securing payment hereof or otherwise relating hereto, then in such
event the effective rate of interest shall be automatically subject to reduction
to the maximum permissible interest rate allowed by law.

         This Note was executed in Marion County, Indiana.

                                          JAMESON INNS, INC.,
                                          a Georgia corporation

                                          By:___________________________
                                             Craig R. Kitchin, President

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