-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MYfp7mjmtNlUYawhEZrhwoNAM5/XUgcnjEQiVyau15N5/VX8oCYMjyx6T2haA2jN YCP87bP1RigQTcKgQySu0Q== 0000931763-01-000734.txt : 20010409 0000931763-01-000734.hdr.sgml : 20010409 ACCESSION NUMBER: 0000931763-01-000734 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010402 FILER: COMPANY DATA: COMPANY CONFORMED NAME: JAMESON INNS INC CENTRAL INDEX KEY: 0000914373 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 582079583 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-23256 FILM NUMBER: 1590117 BUSINESS ADDRESS: STREET 1: 8 PERIMETER CENTER E STREET 2: STE 8050 CITY: ATLANTA STATE: GA ZIP: 30346-1603 BUSINESS PHONE: 7709019020 MAIL ADDRESS: STREET 1: 8 PERIMETER CENTER EAST STREET 2: STE 8050 CITY: ATLANTA STATE: GA ZIP: 30346 FORMER COMPANY: FORMER CONFORMED NAME: JAMESON CO DATE OF NAME CHANGE: 19931103 10-K405 1 0001.txt FORM 10-K405 PERIOD ENDING 12/31/2000 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended December 31, 2000 or [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) for the transition from __________ to __________ Commission File Number: 0-23256 JAMESON INNS, INC. (Exact name of Registrant as specified in its Articles) Georgia 58-2079583 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 8 Perimeter Center East, Suite 8050, Atlanta, Georgia 30346-1604 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (770) 901-9020 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.10 per share 9.25% Series A Cumulative Preferred Stock, par value $1.00 per share $1.70 Series S Cumulative Convertible Preferred Stock, par value $1.00 per share (Title of Each Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to the filing requirements for the past 90 days. [X] Yes [_] No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Aggregate market value of the voting and non-voting common equity stock held by nonaffiliates of the registrant as of March 22, 2001: $74,137,340. Number of shares of common stock outstanding on March 22, 2001: 11,568,018. DOCUMENTS INCORPORATED BY REFERENCE Portions of the proxy statement for the annual meeting of stockholders to be held June 30, 2001 are incorporated by reference into Part III. FORM 10-K JAMESON INNS, INC. ANNUAL REPORT YEAR ENDED DECEMBER 31, 2000 Table of Contents Forward Looking Statements
Page ---- PART I Item 1. Business.................................................................... 2 Item 2. Properties.................................................................. 29 Item 3. Legal Proceedings........................................................... 36 Item 4. Submission of Matters to a Vote of Security Holders......................... 36 PART II Item 5. Market for Jameson's Common Equity and Related Stockholder Matters.......... 36 Item 6. Selected Financial Data..................................................... 37 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation........................................................ 40 Item 7A. Quantitative and Qualitative Disclosure about Market Risks.................. 46 Item 8. Financial Statements and Supplementary Data................................. 46 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........................................................ 47 PART III Item 10. Directors and Executive Officers............................................ 47 Item 11. Executive Compensation...................................................... 47 Item 12. Security Ownership of Certain Beneficial Owners and Management....................................................... 47 Item 13. Certain Relationships and Related Transactions.............................. 47 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............ 47
i JAMESON INNS, INC. ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Forward-Looking Statements This report, including the documents incorporated in this report by reference, contains certain forward-looking statements. These include statements about our expansion plans, acquisition or leasing of additional land parcels, construction of new hotels and expansion of existing hotels, access to debt financing and capital, payment of quarterly dividends and other matters. These statements are not historical facts but are expectations or projections based on certain assumptions and analyses made by our senior management in light of their experience and perception of historical trends, current conditions, expected further developments and other factors. Whether actual results and developments will conform to our expectations and predictions is, however, subject to a number of risks and uncertainties. These include, but are not limited to: . Our ability to: . raise additional equity capital adequate to sustain our future growth; . secure construction and permanent financing for new Inns on favorable terms and conditions; . assess accurately the market demand for new Inns and expansions of existing Jameson Inns; . identify and purchase or lease new sites which meet our various criteria, including reasonable land prices or ground lease terms; . contract for the construction of new Inns and expansions of existing Jameson Inns in a manner which produces Inns consistent with our present quality and standards at a reasonable cost and without significant delay; . provide ongoing renovation and refurbishment of the Inns sufficient to maintain consistent quality throughout the chain; and . manage our business in a cost-effective manner given the increase in the number of Inns we own and the geographic areas in which they are located. . The ability of our lessee, Jameson Hospitality, LLC, to manage the Inns profitably. . General economic, market and business conditions, particularly those in the lodging industry and in the geographic markets in which the Inns are located. . Changes in rates of interest we pay on our mortgage indebtedness. . The business opportunities (or lack of opportunities) that may be presented to and pursued by us. . Availability of qualified managers and employees necessary to execute our growth strategy, particularly in light of current low rates of unemployment. . Changes in laws or regulations. 1 . Our continued qualification as a real estate investment trust, or REIT, and continuation of favorable income tax treatment for REITs under federal tax laws. The words "estimate," "project," "intend," "expect," "anticipate," "believe" and similar expressions are intended to identify forward-looking statements. These forward-looking statements are found at various places throughout this report and the documents incorporated in this report by reference as well as in other written materials, press releases and oral statements issued by us or on our behalf. We caution you not to place undue reliance on these forward-looking statements, which speak only as of the date that they are made. We do not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this report. PART I ITEM 1. BUSINESS General We are a self-administered real estate investment trust, commonly called a REIT, headquartered in Atlanta, Georgia. We develop and own limited service hotel properties ("Inns") in the southeastern United States under the trademark "The Jameson Inn(R)." In addition, we own Inns in the midwestern United States operating under the trademark "Signature Inn(R)." In this report, we sometimes refer separately to the Inns operating under the Jameson trademark as "Jameson Inns" and to those operating under the Signature trademark as "Signature Inns." We focus on developing Inns in communities which have a strong and growing industrial or commercial base and a shortage of quality hotel rooms. Generally, our Inns are rooms-only facilities designed to appeal to price and quality conscious travelers. Our target customers are business travelers, such as sales representatives and government employees, as well as families and leisure travelers attending events in our markets, such as college or cultural gatherings, fairs, festivals and family reunions. The typical Jameson Inn developed through the end of 1998 is a two-story, Colonial-style structure with exterior access to the guest rooms and constructed on a one- to two-acre tract with an outdoor swimming pool, fitness center and parking area. In late 1998, we designed and began building a new three-story, interior corridor structure with 56 to 80 rooms, depending on the location, and elevator access to each floor. Jameson Inns feature amenities such as remote- controlled television with access to cable programming, including HBO, free local calls, complimentary continental breakfast and newspaper, king-sized or double beds, attractive decor, quality furnishings and, in select rooms, whirlpool baths and small refrigerators. Based on market demand, certain Jameson Inns have been expanded one or more times since their initial construction. A typical Signature Inn incorporates a two-story atrium, and a bright, well-appointed and richly decorated lobby and registration area. Most Signature Inns contain approximately 120 guest rooms, averaging over 300 square feet per room, swimming pools, exercise facilities and a complimentary breakfast, as well as suite-like amenities including a microwave, refrigerator, in-room coffee, iron and ironing board and hair dryer in all guest rooms. Because approximately 65% of Signature Inn guests are business travelers, we emphasize services designed for the business traveler, such as large, in-room desks, voice mail and business centers. The lodging industry is generally divided into three broad categories based on the type of services provided. The first of these categories, full service hotels and resorts, offers their guests rooms, food and beverage services, meeting rooms, room service and similar guest services, and, in some cases, resort entertainment and activities. The second category is the limited service hotel, which generally offers rooms only and amenities such as swimming pools, continental breakfast and similar, limited services. The third category is the all-suite hotel or motel, which offers guests more spacious accommodations and usually kitchen facilities in the suite and common 2 laundry facilities. Each of these categories is generally subdivided into classifications based on price and quality. The terminology generally used in the hotel industry describes properties as luxury at the high end, economy in the middle and budget at the low end of the scale. Prices for each of these categories vary by region and locale. The Inns fall within the category of small, limited service, economy hotels. As a REIT, we are prohibited from operating our properties. Accordingly, all of the Inns are leased to Jameson Hospitality, LLC under master leases. The master leases require Jameson Hospitality to pay us base rent based on the number of rooms in operation on the first day of each month and, where required under the formulas in the master leases, percentage rent based on room revenues as defined in the master leases. Percentage rent is designed to allow us to participate in any growth in revenues at the Inns. The master leases generally provide that a portion of aggregate room revenues in excess of specified amounts will be paid to us as percentage rent. Jameson Hospitality is wholly owned by Thomas W. Kitchin, our chairman and chief executive officer, and members of his family. References to Jameson Hospitality throughout this report refer to either Jameson Hospitality or its predecessors, Jameson Operating Company, Jameson Operating Company, LLC and Jameson Operating Company II, LLC, as appropriate. Our mailing address is: Jameson Inns, Inc., 8 Perimeter Center East, Suite 8050, Atlanta, Georgia 30346-1604. Our telephone number is: (770) 901-9020. Material Developments in 2000 On February 29, 2000 we sold the Jameson Inn located in Clinton, Tennessee, resulting in a loss of approximately $33,000. During 2000, we also sold an undeveloped parcel of land located in Nashville, Tennessee at a profit of approximately $300,000. We have recently signed contracts to sell two Jameson Inns located in South Carolina, two Jameson Inns located in Georgia and one Signature Inn located in Ohio. While we have presently made no commitments to sell any other Jameson Inns or Signature Inns, we may consider in the future the disposal of several of our 40-room, exterior corridor Jameson Inn hotels and several Signature Inn hotels, all located in markets that have been under- performing. As of December 31, 2000, two operating Signature Inns and various outlots were classified as held for sale. We do not expect the sales of these properties to result in a significant gain or loss. During 2000, we opened 17 new interior corridor Jameson Inns (1,079 total additional rooms) and expanded 1 existing Jameson Inn (20 total additional rooms). As of December 31, 2000, we had 5 interior corridor Jameson Inns under development (352 total additional rooms). In August 2000, we announced a share repurchase program of up to $10 million of our outstanding stock. Most of our repurchases will most likely be of shares of our preferred stock, but may include our common stock as well. As of December 31, 2000, no shares of our outstanding stock have been repurchased under the program. Risk Factors Risks Which are Specific to Jameson - ----------------------------------- The following risks relate specifically to the conduct of our business. You should also refer to the information under the heading Forward Looking Statements on page 1. Constraints on future growth. As of December 31, 2000, we had 5 Inns under development. In addition, we anticipate expanding 9 of our 40 room Inns in 2001. While we expect to complete our present development and expansion plans and have adequate capital to do so, we have no other immediate growth plans. Our ability to expand in the future will depend on numerous factors, including those unique to us and those generally associated with overall hotel, real estate and general economic conditions. Those factors specific to us include our ability to: 3 . raise additional equity capital adequate to pursue further growth plans; . secure construction and permanent financing to finance such development on terms and conditions favorable to us; . assess accurately the market demand for new Inns and expansions of existing properties; . identify and purchase or lease new sites which meet our various criteria, including reasonable land prices and ground lease terms; . contract for the construction of new Inns and expansions in a manner which produces hotel properties consistent with present quality and standards at a reasonable cost and without significant delays; and . manage our business in a cost-effective manner given the increase in the number and geographic dispersion of our Inns. In addition, risk factors affecting our profitability include Jameson Hospitality's ability both to manage our Inns and to attract, develop and retain the personnel, procedures and practices necessary to generate the room revenues which we anticipate will result from any future development and expansions of Inns. Some or all of the factors discussed above could preclude or at least delay any future development of new Inns and the expansion of existing properties. Similarly, the terms of financing available to us or the operating results of any new or expanded Inns could have a negative economic effect on us and reduce the amount of cash available for distribution as dividends. Potential conflicts of interest exist among us and our chief executive officer and Jameson Hospitality. In addition to his positions with and stock ownership interest in us, Thomas W. Kitchin, our chairman and chief executive officer, and his family members are the owners of Jameson Hospitality, which constructs, conducts capital improvements and operates all of the Inns and pays and allocates all of our administrative overhead expenses. These relationships create conflicts of interest in our dealings with Jameson Hospitality under the master leases and the various construction agreements, and with regard to allocation and payment of our overhead expenses. In that regard, the master leases, the form of the construction agreements and the cost reimbursement agreement under which Jameson Hospitality pays and allocates our overhead were not negotiated on an arm's-length basis. We depend exclusively on Jameson Hospitality for lease revenues. Certain rules relating to the qualification of REITs prohibit us from operating the Inns. To comply with these rules, we have leased the Inns to Jameson Hospitality. As a result, we depend exclusively on Jameson Hospitality for lease revenues. Jameson Hospitality's obligations under the master leases are unsecured. Jameson Hospitality has few liquid assets, a history of operating losses and limited net worth. As a result, Jameson Hospitality has very limited resources to perform certain of its financial obligations under the Jameson Leases. These include indemnifying us against various claims, damages and losses and making payments of rent. Also, under the master leases, Jameson Hospitality controls the daily operations of the Inns and we have no ability to participate in those decisions. Thus, even if Jameson Hospitality were managing the Inns inefficiently or in a manner which failed to maximize the amount of percentage rent we receive, we would be unable to require a change in operating procedures. The master leases limit us to seeking redress only if Jameson Hospitality violates the lease terms, and then only to the extent of the remedies set forth in the master leases. Those remedies include our ability to terminate the master leases upon certain limited events of default, including Jameson Hospitality's failure to pay base rent. 4 We will need to obtain additional debt financing on favorable terms. We intend to borrow 100% of the funds required to finance the development of new Inns and the expansion of existing Jameson Inns. We also may need to borrow funds to pay the costs of replacement and refurbishment of furniture, fixtures and equipment of the Inns that we are required to pay under the master leases. Additionally, in recent quarters the amounts of our dividend distributions have exceeded our cash available for distribution which has inhibited our ability to reduce our overall level of indebtedness out of our cash flow. We are not certain that we will be able to obtain this financing, either through commercial borrowings or the issuance of corporate debt securities. If we are able to borrow needed funds, we may not be able to continue to meet our debt service obligations or to make dividend distributions at the current level. To the extent that we cannot, we risk the loss of some or all of our assets, including the Inns, to foreclosure, or face difficulties meeting the REIT income distribution requirements. Interest rate increases could increase our cost of current and future debt. A significant portion of our indebtedness is subject to adjustable interest rates and is secured by a substantial number of our Inns and billboards. Because of the current relative unavailability and high cost of fixed interest rate long-term financing, we anticipate that our future borrowings will be at interest rates which adjust with certain indices. Therefore, our cost of financing will vary subject to events beyond our control. Adverse economic conditions could result in higher interest rates which would increase debt service requirements on floating rate debt and could reduce cash available for distribution. Adverse economic conditions could also cause the terms on which borrowings are available to us to be unfavorable. In those circumstances, if we needed capital to repay indebtedness, we could be required to sell one or more Inns at times which might not permit realization of the maximum return on our investment. Cross-collateralization of the Inns increases our risk of loss. A significant number of our current loan agreements provide for cross- collateralization and cross-default with respect to our debt, and future loan agreements will likely contain similar provisions. The results of a cross- default provision are that all of the loans with this provision effectively secure repayment of our other loans and a default on one loan results in a default on the other loans. In general, these provisions in our loans may place our assets at a greater risk of foreclosure. The foreclosure of a mortgage on an Inn could have material adverse tax effects on us. If a mortgage lender foreclosed on an Inn to enforce its lien in satisfaction of non-recourse debt, we might be required to recognize income. If the amount of the debt discharged exceeded that property's fair market value, the amount of debt discharge income to be recognized would be equal to the excess of the amount of such debt over the fair market value of the property. In addition, we would recognize a capital gain to the extent, if any, that the fair market value of the property exceeded our basis in it. We also could recognize a gain if a mortgage lender foreclosed on a recourse debt. The debt discharge income would be subject to the 90% distribution requirement described below under the heading --Taxation of Jameson--Annual Distribution Requirements, even though we would receive no cash with which to make a distribution. Debt repayment terms could reduce our ability to make cash distributions. If our debt service obligations continue to be based primarily on 15- to 20-year amortizations, the portion of our cash flow necessary to make principal payments on obligations to finance future Inns may exceed the cost recovery deductions we can take on our federal income tax return, which are based on 39-year useful lives. As a result, our cash available for distribution to our shareholders may not be adequate to allow distribution of 90% of our taxable income. In that case, we might be forced to borrow to fund a distribution to shareholders. If we were unable to borrow the money, and as a result did not make the requisite distribution, our status as a REIT would be jeopardized. We could become more highly leveraged which would increase our debt service requirements and our risk of default. We currently have a policy of limiting our outstanding indebtedness to 65% of the aggregate appraised value of the Inns. However, our organizational documents do not limit the amount of indebtedness that we may incur. Accordingly, our Board of Directors could change the current policies and we could become more highly leveraged. This would increase our debt service requirements and also the risk of our defaulting on our obligations. An increase in our debt service requirements could adversely affect our financial condition and results of operations, 5 as well as our ability to make dividend distributions to our shareholders. This could, as a result, jeopardize our status as a REIT. See --Taxation of Jameson, below. Our lack of industry diversification makes us more vulnerable to economic downturns. We currently, and intend in the future to, invest only in Inns and billboards. This concentration of our investments in narrow segments of a single industry makes us more vulnerable to adverse effects of occurrences such as economic downturns. A weakness in the economy could have a more significant effect on the operation of the Inns and, therefore, on lease revenues and cash available for distribution than if our investments were more economically diverse. The Inns' geographic concentration increases our risks from local and regional economic downturns and other events. All currently operating Jameson Inns are located in the Southeast and approximately 40% of our Jameson Inns' rooms are located in Georgia. All Signature Inns are in the Midwest and approximately 50% of Signature Inns' rooms are located in Indiana. For the foreseeable future we will continue to restrict development of new Inns to those two regions of the country. This geographic concentration makes us more vulnerable to local and regional occurrences such as economic downturns, seasonal factors and natural disasters. Any of these could adversely affect our lease revenues and cash available for distribution. We rely heavily on the services of Thomas W. Kitchin. We and Jameson Hospitality have relied and will continue to rely heavily upon the services and expertise of Thomas W. Kitchin, our chairman, and chief executive officer and the chief executive officer and manager of Jameson Hospitality, for strategic business direction. In addition, certain of our loan agreements provide for a default upon a change of management. The occurrence of any event which would cause us to lose the services of Mr. Kitchin could have a material adverse effect on us. We maintain a $1.0 million key-man life insurance policy on the life of Mr. Kitchin. There is no assurance, however, that we will continue to maintain such life insurance policy in effect or that any proceeds thereof would be sufficient to compensate us for the life of Mr. Kitchin. Shares issued under our stock incentive plans could dilute shareholders' investments. We maintain certain stock option and stock grant plans to provide incentive compensation to our directors, officers and key employees and to those of Jameson Hospitality. The availability for resale of shares of our common stock issued or issuable under our stock incentive plans may depress the market price of our common stock. In addition, to the extent stock options and other incentive awards which may be granted under our stock inventive plans vest and are exercised at prices below the net book value of our common stock, the resulting issuance of shares of our common stock will cause an immediate dilution of the interests of our other shareholders. Rising interest rates and limited trading volume may depress the price of our capital stock. An increase in market interest rates may result in higher yields on other financial instruments than our shareholders realize from distributions and dividends paid on our common and preferred stock. This could adversely affect the market price of our common and preferred stock. In addition, the trading volume of equity interests in REITs is generally not as high as in equity interests in other entities. Accordingly, our status as a REIT may also adversely affect the trading volume of shares of our common and preferred stock. This would reduce the liquidity of an investment in Jameson. Our corporate documents have certain antitakeover provisions that tend to reduce the likelihood of our acquisition by another company. Certain provisions of our articles of incorporation and bylaws may have the effect of discouraging a third party from making an acquisition proposal for us without the approval of our Board of Directors. This will tend to reduce the likelihood of a change in control of Jameson, even when the holders of our stock could have the opportunity to realize a premium over the then prevailing market prices. For example, a provision of our articles of incorporation creates our classified Board. Under that provision, our Board of Directors is made up of three classes of directors with staggered terms of office. Directors for each class are elected for a three-year term upon the expiration of their then current class term. This makes it more difficult for our shareholders to change control of Jameson even if a change of control were in the shareholders' interest. In addition, to comply with the various restrictions imposed on REITs, our articles of incorporation contain a provision limiting 6 the amount of our voting stock which a shareholder or group of shareholders may own. This limit may also have the effect of precluding an acquisition of control of Jameson without the approval of our Board of Directors. Our articles of incorporation also authorize the Board of Directors to issue up to 10,000,000 shares of preferred stock and to establish the preferences and rights of any shares so issued. Accordingly, our Board of Directors is authorized, without shareholder approval, to issue preferred stock with distribution, dividend, liquidation, conversion, voting or other rights which could adversely affect the voting power or other rights of the holders of shares of our common stock. Issuance of preferred stock could have the effect of delaying or preventing a change of control of Jameson even if a change of control were in our shareholders' interest. To date, our Board has approved the issuance of the 9.25% Series A Cumulative Preferred Stock ("Series A Preferred Stock") and the $1.70 Series S Cumulative Convertible Preferred Stock ("Series S Preferred Stock") totaling 3,528,727 shares, of which 64,500 shares of the Series S Preferred Stock have been converted into our common stock. We could make changes in our investment and financing policies which could adversely affect our financial condition and/or results of operations. Our Board of Directors determines our investment and financing policies and our policies with respect to certain other activities, including growth, debt capitalization, distributions, operating policies and our qualification as a REIT. Among other things, our Board of Directors could make financing decisions which could result in the creation of interests in Jameson and/or the Inns with priority over the interests of the shareholders, and/or make equity investments in concerns with debt superior to our equity interest. Our Board of Directors has no present intention to amend or revise these policies. However, except with respect to our qualification as a REIT, our Board of Directors may do so at any time without the approval of the shareholders. Any decision by our Board of Directors to relinquish our status as a REIT is subject to the approval of a majority of our voting stock present at a meeting of our shareholders. A change in these policies could adversely affect our financial condition or results of operations. Risks of Hotel Investments Generally - ------------------------------------ The following are risks which affect hotel investments generally which could significantly affect our results of operations. General economic and regulatory conditions in the hotel industry will affect our business. Our ownership of the Inns is subject to varying degrees of risk generally incident to the ownership and operation of real property and, in particular, hotels. Our ownership of the Inns may be adversely affected by a number of factors, including: . the national, regional or local economic climate (which may be adversely impacted by plant closings, industry slowdowns, inflation and other factors); . local hotel market conditions (such as an oversupply of guest rooms); . perceptions by travelers of the safety, convenience and attractiveness of the Inns; . changes in governmental regulations, zoning or tax laws; . operating cost increases such as rising gas utility expense, labor problems, potential environmental or other legal liabilities; and . changes in interest rate levels. We face significant competition and the supply of hotel rooms is growing faster than demand in some of the markets in which Inns are located. A strong national economy and readily available debt and equity financing during the past several years has prompted the construction of a significant number of new hotels and motels in certain markets where we operate. Demand for lodging in the travel industry, however, has generally not kept up 7 with the growth in the supply of rooms. As a result, occupancy rates for hotels, including the Inns, have tended to remain constant or to decline. This condition is unlikely to change in the foreseeable future and may have a negative impact on our results of operations. In addition, there are numerous hotels, including those that are part of major chains with substantial advertising budgets, national reservation systems, marketing programs and greater name recognition than we have, that compete with the Inns in attracting travelers. Further, many of the Inns are located in smaller communities where the entry of even one additional competitor into the market may materially affect the financial performance of our Inn in that community. In several of the larger communities where our Inns are located, significant numbers of additional hotel rooms are currently under construction. We incur significant renovation and refurbishment costs. Hotels in general, including the Inns, have an ongoing need for renovation and refurbishment. We have adopted a policy of maintaining sufficient cash or available borrowings to fund expenditures for replacement and refurbishment of furniture, fixtures and equipment for the Inns up to an amount equal to 4% of Jameson Hospitality's total aggregate room revenues since July 1, 1995, less the amounts actually expended since that date. We may not be adequately insured. The ownership of hotel properties by its nature presents risks of liability resulting from injuries to guests and resulting litigation. Under the terms of the master leases, we carry comprehensive liability, fire, extended coverage, rental loss and business interruption insurance covering all of the Inns with policy specifications and insured limits customarily carried for similar properties. However, our insurance coverage could be insufficient to fully protect our business and assets from all claims or liabilities, including environmental liabilities. Further, we may not always be able to obtain additional insurance at commercially reasonable rates. In the event losses or claims are beyond the limits or scope of our insurance coverage, our business and assets could be materially adversely affected. In addition, certain types of losses (such as certain environmental liabilities) are not generally insured because they are either uninsurable or not economically insurable. If an uninsured loss or a loss in excess of insured limits occurs, we could lose our capital invested in the affected Inn, as well as anticipated future revenues from that Inn, while remaining obligated for any mortgage indebtedness or other financial obligations related to that Inn. Any such loss could have a material adverse effect on our financial condition and results of operations. We must comply with the Americans with Disabilities Act. The Americans with Disabilities Act of 1990 (the "ADA") requires that all public accommodations meet certain federal requirements related to access and use by disabled persons. If we were required to make modifications to comply with the ADA, our ability to make expected distributions to our shareholders could be adversely affected. In addition to remedial costs, noncompliance with the ADA could result in imposition of fines or an award of damages in private litigation. Our business is subject to seasonal fluctuations. The hotel industry is seasonal in nature. Hotel revenues are generally greater in the second and third calendar quarters than in the first and fourth quarters. This seasonality will cause quarterly fluctuations in our lease revenues. Risks of Real Estate Investments Generally - ------------------------------------------ The following are risks which are inherent in real estate investments generally and which could also significantly impact our results of operations. Real estate investments, including the Inns, are typically very illiquid. Equity real estate investments, including our investments in the Inns, are relatively illiquid. The illiquidity of our investment in the Inns is further increased by the location of many of the Inns in smaller communities. As a result, our ability to sell or otherwise dispose of any Inn in response to changes in economic or other conditions, or if necessitated by the need to fund a required distribution to shareholders, may be limited. Environmental laws and regulations could increase our costs or reduce the value of one or more of the Inns. Under various federal, state and local environmental laws, ordinances and regulations, a current or previous 8 owner or operator of real property may be liable for the costs of removal or remediation of hazardous or toxic substances on, under or in such property. These laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of hazardous or toxic substances. In addition, the presence of hazardous or toxic substances, or the failure to properly remediate the property, may adversely affect the owner's ability to borrow using that real property as collateral. Persons who arrange for the disposal or treatment of hazardous or toxic substances may also be liable for the costs of removal or remediation of those substances at the disposal or treatment facility, whether or not that facility is owned or operated by that person. We cannot be certain that . there are no material claims or liabilities related to our ownership of the Inns, . future laws, ordinances or regulations will not impose any material environmental liability on us with respect to our Inns or land held for sale, and . the current environmental condition of the Inns will not be affected by operation of the Inns, by the condition of properties in the vicinity of the Inns (such as the presence of underground storage tanks) or by third parties. Under the terms of the master leases, we indemnify Jameson Hospitality against environmental liabilities, except those caused by the acts or negligent failures of Jameson Hospitality. In addition, the master leases provide that Jameson Hospitality will indemnify us against environmental liabilities caused by Jameson Hospitality's acts or negligent failures. Jameson Hospitality's financial condition may limit the value of its indemnity and, in any event, the indemnity will not apply to or protect us against past unknown violations and related liabilities. Tax Risks - --------- The following risks relate to our status as a REIT under federal income tax laws. Failure to qualify as a REIT would reduce the amount of cash available to distribute to our shareholders. We intend to continue to operate in a manner so as to qualify as a REIT under the Internal Revenue Code. A REIT generally is not taxed at the corporate level on income it currently distributes to its shareholders, so long as it distributes at least 90% of its taxable income and satisfies certain other technical and complex requirements. Because our qualification as a REIT in our current and future taxable years depends upon our meeting the requirements of the Internal Revenue Code in future periods, we cannot be certain that we will continue to qualify as a REIT. If, in any taxable year, we were to fail to qualify as a REIT for federal income tax purposes, we would not be allowed a deduction for distributions to shareholders in computing taxable income and would be subject to federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates. In addition, unless entitled to relief under certain statutory provisions, we would be disqualified from treatment as a REIT for federal income tax purposes for the four taxable years following the year during which qualification was lost. The additional tax liability resulting from the failure to so qualify would significantly reduce the amount of funds available for distribution to our shareholders. We may need to borrow funds in order to make the distributions to shareholders which the tax laws require. To obtain the favorable tax treatment associated with REITs, we generally will be required each year to distribute to our shareholders at least 90% of our net taxable income (excluding any net capital gain). In addition, we will be subject to tax on our undistributed net taxable income and net capital gain, and a 4% nondeductible excise tax on the amount, if any, by which certain distributions which we pay with respect to any calendar year are less than the sum of 85% of our ordinary net income plus 95% of our capital gain net income for the calendar year. We intend to make distributions to our shareholders to comply with the distribution provisions of the Internal Revenue Code and to avoid or minimize income taxes and the nondeductible excise tax. Our income and cash flow will consist primarily of the rents received from Jameson Hospitality under the master leases. Differences 9 in timing between the receipt of income and the payment of expenses in arriving at our taxable income and the effect of required debt amortization payments could make it necessary for us to borrow funds on a short-term basis to meet the distribution requirements that are necessary to achieve the tax benefits associated with qualifying as a REIT even if we believe that then prevailing market conditions are not generally favorable for such borrowings or that such borrowings would not be advisable in the absence of such tax considerations. Distributions are determined by our Board of Directors and depend on a number of factors, including the amount of cash available for distribution, our financial condition, any decision to reinvest rather than to distribute such funds, our capital expenditures, the annual distribution requirements under the REIT provisions of the Internal Revenue Code and such other factors as our Board of Directors considers important. Accordingly, we cannot assure you that we will be able to maintain our required distribution rate. See --Taxation of Jameson-- Requirements for Qualification and -- Annual Distribution Requirements, below. The Master Leases We entered into master leases with Jameson Hospitality covering all of the completed and operating Jameson Inns (the "Jameson Lease") and a separate master lease covering the Signature Inns (the "Signature Lease"). New Inns which we develop during the term of the master leases will become subject to the respective master leases upon their completion of construction. The Jameson Lease and the Signature Lease are substantially the same except regarding the term and the calculation of rent. The following is a summary description of the material terms and conditions of both the Jameson Lease and the Signature Lease. Term. The Jameson Lease term expires on December 31, 2010, subject to earlier termination upon the occurrence of certain events. The Signature Lease expires December 31, 2012, also subject to earlier termination upon the occurrence of certain events. Rent. During the terms of each of the master leases, Jameson Hospitality is obligated to pay to us base rent calculated on the number of rooms in operation on the first day of the month and, where required under the formula described below, percentage rent based on room revenues. In general, percentage rent is calculated by multiplying average daily per room rental revenues for all of the Inns under each master lease by certain percentages and then subtracting the amount of the base rent paid for the same period. Under the Jameson Lease, base rent is payable monthly and equals $264 per room per month multiplied by the number of rooms available to rent at the beginning of the month. Percentage rent is payable quarterly and, at January 1, 2001, is based on the following formula: 39% of the first $22.65 of average daily per room rental revenues; plus 65% of all additional average daily per room rental revenues; less 100% of the base rent paid for the same period. Under the Signature Lease, base rent is $394 per room per month multiplied by the number of rooms available to rent at the beginning of the month. Percentage rent is payable quarterly and, at January 1, 2001, is based on the following formula: 37% of the first $38.00 of average daily per room rental revenues; plus 65% of the next $10.00 of average daily per room rental revenues; plus 70% of all additional average daily per room rental revenues; less 10 100% of base rent paid for the same period. Percentage rent is based on the total number of rooms available to rent during the period, rather than the number of rooms available to rent at the beginning of each month. The total base rent plus percentage rent payable by Jameson Hospitality under the Jameson Lease is limited to 47% of room revenues. For purposes of calculating base rent and percentage rent, each master lease under which Jameson or one of its subsidiaries is lessor is treated as a separate Jameson Lease or Signature Lease; that is, only the number of rooms and amount of room revenue attributable to Inns under a particular master lease are considered when determining the amount of base rent and percentage rent Jameson Hospitality is obligated to pay under that master lease. On January 1, 2002, the $22.65 amount referred to above under the Jameson Lease and the $38.00 amount referred to under the Signature Lease will be increased based on the percentage increase in the Consumer Price Index for all Urban Consumers published by the U.S. Department of Labor Bureau of Labor Statistics for the year ended December 31, 2001. Similar adjustments will be made on each subsequent January 1 for the year then beginning based on the changes the Consumer Price Index experienced over the most recently completed calendar year. Average daily per room rental revenues are determined by dividing room revenues realized by Jameson Hospitality over any given period by the sum of the number of rooms available for rent on each day during the period. Room revenues as defined in the Jameson Lease include revenues from telephone charges, vending machine payments and other miscellaneous revenues and exclude all credits, rebates and refunds, sales taxes and other excise taxes. Room revenues as defined in the Signature Lease are substantially the same as in the Jameson Lease. On or before March 1 of each year, Jameson Hospitality is required to provide a calculation of the percentage rent payable for the preceding year, together with a report by the same independent accounting firm serving as auditors of Jameson's financial statements, on the amount of room revenues and percentage rent. Total rent, including both base rent and percentage rent, which we earned under the Jameson Lease for the years ended December 31, 1998, 1999 and 2000 was $18.2 million, $22.7 million and $25.4 million, respectively. Total rent, including both base rent and percentage rent we earned under the Signature Lease for the period May 7, 1999 through December 31, 1999, and for the year ended December 31, 2000, was $11.5 million and $17.1 million, respectively. Operating Expenses. In addition to paying base rent and, if applicable, percentage rent, the master leases require Jameson Hospitality to pay all costs and expenses incurred in the operation of the Inns, including workers' compensation insurance premiums. We are responsible for other types of insurance, real and personal property taxes, the costs of replacing or refurbishing furniture, fixtures and equipment, and the maintenance of structural elements, roofs and underground utilities. Approval of Master Leases. Our independent directors are members of our Board of Directors who are not also officers or employees of Jameson and who are not affiliated with Jameson Hospitality. Our independent directors determined that the master leases, as amended, are fair to us. Trademarks. Jameson Hospitality owns the registered trademarks, The Jameson Inn(R) and Signature Inns(R). The master leases require Jameson Hospitality to operate the Inns using the trademarks and not to use the trademarks (or license their use to any other parties) for the operation of lodging facilities other than the Inns if we object to the unrelated use. We have an option to purchase The Jameson Inn(R) and Signature Inns(R) trademarks from Jameson Hospitality at the end of each master lease or upon the earlier termination of the master lease with respect to all of the Inns for $25,000 for The Jameson Inn(R) trademark and $50,000 for the Signature Inns(R) trademark. Maintenance and Modifications. Under the master leases, we are required to maintain the underground utilities and the structural elements of the improvements and the roof of each Inn. Jameson Hospitality is required, at its expense, to maintain the Inns in good order and repair and to make non- structural, foreseen and unforeseen, and ordinary and extraordinary repairs which may be necessary and appropriate to keep the Inns in good order and repair. 11 Jameson Hospitality, at its expense, may make non-capital and capital additions, modifications or improvements to the Inns which do not significantly alter the character or purposes, or significantly detract from the value or operating efficiencies, of the Inns. Modifications or improvements estimated to cost in excess of $100,000 must be done under the supervision of a qualified architect, engineer or contractor satisfactory to us and in accordance with plans and specifications which we approve. All alterations, replacements and improvements are subject to all the terms and provisions of the master leases and become the property of Jameson upon termination of a master lease. Through March 1, 2001, Jameson Hospitality had not undertaken any significant capital or non-capital alterations, replacements or improvements to the Inns. Hotels in general, including the Inns, have an ongoing need for renovation and refurbishment. A significant number of Jameson Inns have been constructed within the past two years and generally do not require any substantial renovation or refurbishment. However, Inns older than two years require periodic replacement of furniture, fixtures and equipment and the master leases require that we pay the costs of the refurbishment. We have adopted a policy of maintaining sufficient cash or available borrowings to fund expenditures for replacement and refurbishment of furniture, fixtures and equipment for the Inns up to an amount equal to 4% of Jameson Hospitality's total aggregate room revenues since July 1, 1995, less the amounts actually expended since that date. Capital improvements in 2001 will be contracted to Kitchin Construction Company, a division of Jameson Hospitality, our general contractor for Inns that we build and for expansions of existing Jameson Inns. Insurance and Property Taxes. The master leases provide that we are responsible for paying or reimbursing Jameson Hospitality for real and personal property taxes as well as for all insurance coverage on the Inns except workers' compensation coverage, which is an obligation of Jameson Hospitality. Indemnification. The master leases require Jameson Hospitality to indemnify us and our affiliates from and against all liabilities, costs and expenses (including reasonable attorneys' fees and expenses) incurred by, imposed upon or asserted against us or our affiliates, on account of, among other things, (1) any accident or injury to person or property on or about the Inns, (2) any misuse by Jameson Hospitality, or any of its agents, of the leased property, (3) taxes and assessments in respect of the Inns (other than our real and personal property taxes and income taxes on income attributable to the Inns), or (4) any breach of a master lease by Jameson Hospitality. The master leases do not, however, require Jameson Hospitality to indemnify us against our gross negligence or willful misconduct. We are required to indemnify Jameson Hospitality against any environmental liabilities other than those caused by the acts or negligent failures of Jameson Hospitality (for which Jameson Hospitality will indemnify us). Assignment and Subleasing. Under the terms of the master leases, Jameson Hospitality is not permitted to sublet all or any part of any of the Inns or assign its interest under the master leases, other than to an affiliate of Jameson Hospitality controlled by Mr. Kitchin, without the prior written consent of Jameson. No assignment or subletting will release Jameson Hospitality from any of its obligations under the master leases. Events of Default. Events of default under the master leases include, among others, the following: (1) Jameson Hospitality's continuing failure to pay rent for a period of 10 days after receipt by Jameson Hospitality from us of written notice of nonpayment; (2) except under certain circumstances, continued failure by Jameson Hospitality to observe or perform any other term of the master leases for a period of 30 days after Jameson Hospitality receives notice from us of the failure; (3) Jameson Hospitality's bankruptcy, insolvency or similar event; and 12 (4) Jameson Hospitality's voluntary discontinuation of operations at an Inn for more than five days, without our consent, except as a result of damage, destruction or condemnation. If an event of default occurs and continues beyond any curative period, we have the option of terminating the master leases as to any individual Inn (which would not affect the master leases as to the remainder of the Inns) or as to all of the Inns by giving Jameson Hospitality 10 days written notice of the termination date. Termination of Master Leases on Disposition of Inns. If we enter into an agreement to sell or otherwise transfer an Inn, we may terminate the applicable master lease as to that Inn. However, if a master lease is terminated as to Inns comprising 25% or more of the total rooms of all of the Inns within a period of 12 consecutive months, we must compensate Jameson Hospitality for the loss of its leasehold interest or offer substitute hotels. Most of the Inns have been mortgaged to secure our indebtedness. In the event of a foreclosure sale (or transfer in lieu of foreclosure) of any Inn, the applicable master lease will terminate with respect to that Inn. Inventory. The master leases require all inventory required in the operation of the Inns to be acquired and replenished by Jameson Hospitality. Inventory includes: (1) cleaning supplies, (2) linens, (3) towels and (4) paper goods. Growth Plans for 2001 We plan to enhance stockholder value by increasing funds from operations and cash available for distribution by developing additional Inns, expanding existing Jameson Inns and participating, through the master leases, in increased room revenues generated through operation of the Inns by Jameson Hospitality. For definitions and calculation of funds from operations and cash available for distributions, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. We have also begun to consider other strategic alternatives as a possible means of growth and increasing shareholder value. These include acquisitions of other properties, business combinations, corporate restructuring and other alternatives. We have made no decisions or commitments at this time, but we intend to continue to consider such alternatives. Development of New Inns. We believe that attractive opportunities exist for the development of new Jameson Inns in certain markets in the southeastern United States. Although we have no current plans to begin new development of Jameson Inns, we will continue to evaluate opportunities as they arise in targeted communities. With operating Jameson Inns in Alabama, Florida, Georgia, Mississippi, North Carolina, South Carolina, Tennessee and Virginia, we expect that any future development of Jameson Inns will occur in those states as well as in Kentucky and Louisiana. At December 31, 2000, Jameson had a total of 5 Jameson Inns under development (320 total additional rooms). We believe that Jameson has benefited significantly from its strategy of developing new Jameson Inns because of the experience and track record of Jameson and Jameson Hospitality in the development, construction and operation of Jameson Inns. In evaluating potential development sites, we target communities with strong industrial bases sufficient to attract business travelers. These communities typically have significant manufacturing facilities, state and federal government installations, or colleges and universities. We strive to locate our Inns in proximity to family-style restaurants and target markets which offer local community events (e.g. annual festivals, fishing tournaments, collegiate football games and other athletic events, graduation ceremonies, etc.) and/or tourist and recreational facilities (e.g. lakes, golf courses, hunting areas, etc.) attracting groups and individual discretionary and leisure travelers. 13 Although we have no specific plans to construct new or expand existing Signature Inns, we will consider developing new Signature Inns according to our assessment of market demand, cost and other relevant factors. Expansion of Existing Jameson Inns. We anticipate expanding 9 Jameson Inns in 2001. We intend to continue to expand additional existing Jameson Inns whenever market conditions warrant. To date, we have expanded 34 Jameson Inns. Since Jameson Inns built prior to 1999 were initially constructed with the office and lobby, swimming pool and fitness center on sites generally large enough for future expansions, the incremental cost per room of expansions is lower than for new Inns. Accordinglywe have been able to earn returns on its investment by expanding Jameson Inns in markets with strong room demand. Also, as compared to the development of new Inns, expansion of existing Jameson Inns is a relatively lower risk growth strategy since we have an opportunity to assess local room demand and market trends based on our direct experience in developing and owning the existing hotel. We expect to employ substantially the same strategy regarding expansion of our currently operating Jameson Inns. The sites for new, interior-corridor Jameson Inns, however, and all of the current Signature Inn sites are fully developed and these properties cannot be expanded. In these markets, expansions will occur, if at all, through the acquisition of additional sites and the construction of new Inns. Jameson Hospitality as Contractor. We anticipate that Jameson Hospitality will act as general contractor for new Inns we build and for expansions of existing Jameson Inns. Each construction contract for a new Inn or a group of Inns provides for a turnkey price for all work performed under the contract subject to reduction, however, if Jameson Hospitality's profits (as defined in the construction contract) exceed 10%. The contract price excludes the cost of the land and closing costs, but includes the costs of constructing and equipping the Inns, including interest charges we incur on the associated construction debt during construction and working with Jameson Hospitality to staff the Inn prior to opening. An independent architectural firm reviews each construction contract and each is also subject to approval by a majority of our independent directors. The average price charged by Jameson Hospitality for the 17 new Jameson Inns opened during 2000 and the one expanded Jameson Inn opened in 2000 was approximately $55,000 per room. Internal Growth. Through percentage rent, we participate in any increases in room revenues generated through increases in occupancy rates and average daily room rates or ADR of the Inns by Jameson Hospitality. Total rent payable under the Jameson Lease, including base rent and percentage rent, is limited, however, for each calendar year to 47% of Jameson Inn room revenues. Jameson Hospitality practices market-sensitive pricing, increasing room rates at particular Inns as market conditions in the specific communities warrant. The Inns' site managers receive a significant portion of their compensation based on achieving specified quarterly operating results. Marketing. Jameson Hospitality is responsible for marketing the Inns. It focuses on local efforts directed to the business community in the city or town where the particular Inn is located. Jameson Hospitality currently employs 16 direct sales managers, each of whom conducts and supervises direct sales for designated Inns. In addition, one of the key responsibilities of an Inn's manager is to make sales calls on local chambers of commerce, businesses, factories, government installations and colleges and universities. The goal of the sales call is to familiarize local business people with the Inn in their community and solicit their recommendation of the Inn to business travelers visiting communities where Inns are located, including both individual discretionary travelers as well as groups attending family or community events. Jameson Hospitality employs billboards and other similar types of advertising and has two "800" numbers to facilitate reservations for the Inns. Since our acquisition of Signature, Jameson Hospitality has utilized the reservation system previously used for the Signature Inns. All Jameson Inns and Signatures have direct links to Global Distribution Systems ("GDS") for reservations which also interfaces with major electronic reservation systems such as Sabre, Apollo, Worldspan, System One and Amadeus. This interface connects the Jameson and Signature Inns with travel agents nationally and internationally. In addition to billboard advertising which Jameson Hospitality has traditionally utilized and will continue to utilize, Jameson Hospitality places advertisements for the Inns in regional and special event publications and in 14 newspapers. Jameson Hospitality also markets the Inns through two websites: www.jamesoninns.com and www.signature-inns.com. Competition. The hotel industry is highly competitive. Each of the Inns is located in an area that has competing hotels. The number of competitive hotels in a particular area could have a material adverse effect on occupancy, ADR, and revenue per available room, or REVPAR, of the Inns. Many of the Jameson Inns are located in smaller communities where the entry of even one additional competitor into the market could materially affect the financial performance of the Jameson Inn in that community. Many of the Signature Inns are located in larger cities and communities in which significant new hotel and motel development is occurring. The Inns compete on the basis of price, quality and value. Competition for the Inns is made up primarily of limited service hotels in the southeastern and midwestern United States operating under national franchises which have greater financial resources than we do, substantial advertising budgets, national reservation systems, marketing programs and greater name recognition. Regulations Environmental Matters. Under various federal, state, and local environmental laws, ordinances and regulations, a current or previous owner or operator of real property may be liable for the costs of removal or remediation of hazardous or toxic substances on, under or in such property. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. In addition, the presence of hazardous or toxic substances, or the failure to properly remediate such property, may adversely affect the owner's ability to borrow using the real property as collateral. Persons who arrange for the disposal or treatment of hazardous or toxic substances may also be liable for the costs of removal or remediation of such substances at the disposal or treatment facility, whether or not such facility is owned or operated by such person. While we have not incurred any such costs in connection with our ownership of the Inns or land parcels, we may be potentially liable for such costs. We are not aware of any potential material liability or claims for which we may be responsible. However, we cannot be certain that (1) there are no material claims or liabilities related to real property which we own; (2) future laws, ordinances or regulations will not impose any material environmental liability on us; or (3) the current environmental condition of the Inns will not be affected by their operations, by the condition of properties in the vicinity of the Inns (such as the presence of underground storage tanks) or by third parties. Under the terms of the master leases, we indemnify Jameson Hospitality against environmental liabilities, except those caused by the acts or negligent failures of Jameson Hospitality. In addition, the master leases provide that Jameson Hospitality will indemnify us against environmental liabilities caused by Jameson Hospitality's acts or negligent failures, although Jameson Hospitality's financial condition may limit the value of such indemnity and, in any event, such indemnity will not apply to or protect us against past unknown violations and related liabilities. See --The Master Leases, above. We believe that the Inns are in compliance in all material respects with all federal, state and local ordinances and regulations regarding hazardous or toxic substances and do not anticipate that we will be required in the foreseeable future to expend any material amounts in order to comply with such ordinances and regulations. We have not been notified by any governmental authority, and are not otherwise aware, of any material noncompliance, liability or claim relating to hazardous or toxic substances in connection with any of our present or former properties. Americans with Disabilities Act. Under the Americans with Disabilities Act of 1990 or the ADA, all public accommodations are required to meet certain federal requirements related to access and use by disabled persons. In addition to remedial costs, noncompliance with the ADA could result in imposition of fines or an award 15 of damages to private litigants. We believe that all existing Inns are substantially in compliance with these requirements and we intend to construct future Inns in accordance with such requirements as well. In 1993, we engaged a disabilities consultant to make recommendations regarding compliance of the then existing Jameson Inns with the ADA. The consultant submitted a report recommending a number of improvements for access to and use by disabled persons with respect to certain of the Jameson Inns then in operation, which improvements were made. We have also incorporated the consultant's recommendation into the construction of new Jameson Inns and will continue to do so. Employees At December 31, 2000, we employed 17 persons. Our employees are also employees of Jameson Hospitality. Under a cost reimbursement agreement between Jameson and Jameson Hospitality, we reimburse Jameson Hospitality for the time that these shared employees spend on our business. For the year ended December 31, 2000, our reimbursement to Jameson Hospitality totaled approximately $962,000. None of our or Jameson Hospitality's employees is represented by a union or labor organization, nor have our or Jameson Hospitality's operations ever been interrupted by a work stoppage. We consider relations with our employees to be excellent. Jameson Hospitality. Jameson Hospitality leases and operates all completed Inns under the terms of the master leases. See --The Master Leases, above. Jameson Hospitality has also acted as contractor for the initial construction and expansion of all Jameson Inns. We expect Jameson Hospitality to serve as construction contractor for any further expansions of Jameson Inns, for construction of all new Jameson Inns and Signature Inns, and for renovation and refurbishment of all of our Inns. The names and certain other information concerning the executive officers of Jameson Hospitality are set forth below. At December 31, 2000, Jameson Hospitality had approximately 3,000 full- and part-time employees engaged in day-to-day management, marketing and construction of the Inns. Jameson Hospitality and its predecessor companies have a history of operating losses and a limited net worth. The audited financial statements of Jameson Hospitality appear elsewhere in this annual report and should be referred to for additional financial information concerning Jameson Hospitality. Although it has not done so to date, Jameson Hospitality may engage in activities other than as lessee and construction contractor of the Inns, subject to restrictions under the master leases. Predecessors of Jameson Hospitality include Jameson Operating Company, Jameson Operating Company II, LLC and Jameson Development Company, LLC which, on May 7, 1998, changed its name to Jameson Hospitality, LLC. In December 1999, Kitchin Investments, Inc. ("KI") merged into Jameson Hospitality. KI was a company wholly owned by Thomas W. Kitchin, our chairman and chief executive officer, which paid, and was reimbursed for, the salaries of our employees as well as our rent and other administrative and overhead expenses. The executive officers and key employees of Jameson Hospitality are the following: Name Position ---- -------- Thomas W. Kitchin President and Chief Executive Officer William D. Walker Vice President--Development Craig R. Kitchin Vice President--Finance and Chief Financial Officer Steven A. Curlee Vice President--Legal, General Counsel, Secretary Martin D. Brew Treasurer and Corporate Controller Gregory W. Winey Director of Hotel Operations Joseph H. Rubin President of Kitchin Construction Company 16 Set forth below is certain information concerning Jameson Hospitality's executive officers, managers and key employees. Thomas W. Kitchin is the founder and owner with his spouse of Jameson Hospitality. He is also the founder and has been an officer and director of Jameson since its incorporation in 1988. Prior to founding Jameson and the predecessors of Jameson Hospitality, he spent 10 years in the oil and gas industry and served as chief executive officer of an oil and gas company listed on the American Stock Exchange. Mr. Kitchin serves as a director of the Association of Publicly Traded Companies, an association that represents public companies that trade on The Nasdaq Stock Market, New York Stock Exchange and American Stock Exchange; a director of the Georgia Hospitality and Travel Association; director of the American Hotel & Lodging Association; director of the Georgia State University Cecil B. Day School of Hospitality Administration; director of a private school; and director of the Northside Hospital Advisory Board. In addition, he has served on the board of directors of several banks and oil companies and numerous other civic, charitable and social service agencies. Mr. Kitchin is the father of Craig R. Kitchin, president and chief financial officer of Jameson. William D. Walker is vice president--development of Jameson as well as of Jameson Hospitality. He has been an officer of Jameson since its inception in 1988 and served as a director from 1988 through October 29, 1993. He has been an officer of Jameson Hospitality and its predecessors since their inception. Prior to joining us, he worked in various financial management positions for twelve years. Mr. Walker received a B.B.A. degree in finance from Texas Tech University in 1975. Craig R. Kitchin has been an officer of Jameson Hospitality and its predecessors since their inception. Also an officer of Jameson, he became chief financial officer of Jameson in February 1994, vice president--finance in November 1997, and president in November 1998. He joined Jameson as its controller and treasurer on June 15, 1992, upon receiving his M.B.A. degree from the University of Chicago with concentrations in accounting and finance. Before attending the University of Chicago, he was a financial analyst with FMC Corporation in Santa Clara, California, from 1989 to 1990, where his primary responsibilities included budgeting and forecasting overhead expenses. Mr. Kitchin graduated from Santa Clara University with a B.S. degree in finance in 1989. Craig Kitchin is the son of Thomas W. Kitchin, the chairman and chief executive officer of Jameson. Steven A. Curlee has been an officer of Jameson Hospitality and its predecessors since their inception. Also an officer of Jameson, he became general counsel and secretary of Jameson on January 1, 1993 and vice president-- legal in November 1997. From April 1985 to July 1992, he was general counsel of an oil and gas company listed on the American Stock Exchange. Prior thereto, he was engaged in the private practice of law in Tulsa, Oklahoma for five years. From 1976 to 1980, Mr. Curlee served on active duty in the U.S. Navy as a Judge Advocate. He continues to serve in the Navy Reserves, having attained the rank of Commander. Mr. Curlee received a B.A. degree in political science and his J.D. from the University of Arkansas. He received a Master of Law in Taxation degree from Georgetown University. Mr. Curlee is admitted to practice law in Arkansas, the District of Columbia, Oklahoma, Texas and Georgia. Martin D. Brew has been an officer of Jameson Hospitality and of Jameson since we acquired Signature in May 1999. Prior to joining Jameson Hospitality, he was employed by Signature Inns for 13 years, first as controller and later as treasurer. Mr. Brew was also employed by KPMG LLP prior to his employment with Signature Inns. Mr. Brew has a B. S. degree in business from Indiana University and is a Certified Public Accountant. Gregory W. Winey is director of hotel operations of Jameson Hospitality. He joined Jameson Hospitality in April 1998 as a regional manager supervising the operations of 17 Jameson Inns. In October 1998 he became the director of operations supervising the operations of all Jameson Inns. Before joining Jameson Hospitality, he was with Promus Hotel Corporation from May 1991 to December 1997 serving in several capacities in hotel operations, most recently as a senior area manager overseeing the daily operations of 17 hotel properties, including Hampton Inns, Hampton Inn & Suites and Homewood Hotels. Prior to that he was a food and beverage manager for a 300- 17 room Days Inn Hotel in Charlotte, North Carolina for one year, and prior to that he was employed for six years by Traveler's Management Corporation as an innkeeper and rooms division manager of a 432-room convention hotel. Joseph H. Rubin became president of Kitchin Construction Company, the construction division of Jameson Hospitality, LLC, in October 1999. Prior to joining Jameson, Mr. Rubin was president and chief executive officer of Abrams Industries, Inc., an Atlanta based commercial real estate developer and construction company, where he had been employed since 1979. Mr. Rubin earned a B.A. degree in economics at Guilford College and a J.D. degree at the University of North Carolina. He is a Certified Public Accountant and is licensed to practice law in Georgia and North Carolina. Policies and Objectives with Respect to Certain Activities The following is a discussion of our investment objectives and policies, financing policies and policies with respect to certain other activities. These policies may be amended or revised from time to time at the sole discretion of our Board of Directors. We can give no assurance that we will attain our investment objectives or that the value of Jameson will not decrease. Investment Objectives and Policies. Our investment objective is to provide quarterly cash distributions and achieve long-term capital appreciation through increases in cash flow and the value of Jameson. We will seek to accomplish these objectives through the ownership and leasing of the Inns to Jameson Hospitality, Jameson Hospitality's increases in the Inns' room revenues, selective development of additional Inns and, where deemed appropriate, renovations and expansions of the Inns. A key criterion for new investments will be the opportunity they offer for growth in funds from operations and cash available for distribution. For definitions and calculation of funds from operations and cash available from operations, see Item 7--Jameson Management's Discussion and Analysis of Financial Condition and Results of Operations. We anticipate that we will conduct all of our activities directly, although Inns located in certain states are owned by our subsidiaries and we may participate with other entities in property ownership, through joint ventures, partnerships or other types of co-ownership. We intend to invest only in Jameson Inns and Signature Inns, although we may also hold temporary cash investments from time to time pending investment or distribution to stockholders. We may purchase or lease properties for long-term investment, expand and improve properties, or sell such properties, in whole or in part, when circumstances warrant. Equity investments may be subject to existing mortgage financing and other indebtedness which have priority over our equity interest. While we emphasize equity real estate investments, we may, in our discretion, invest in mortgages, stock of other REITs and other real estate interests. Mortgage investments may include participating or convertible mortgages. However, we have not invested previously in mortgages or stock of other REITs, and do not presently intend to do so. Dispositions. We have recently signed contracts to sell two Jameson Inns located in South Carolina, and two Jameson Inns located in Georgia and one Signature Inn located in Ohio. While we have presently made no commitments to sell any other Jameson Inns or Signature Inns, we may consider in the future the disposal of several of our 40-room, exterior corridor Jameson Inn hotels and several Signature Inn hotels, all located in markets that have been under- performing. As of December 31, 2000, two operating Signature Inns and various outlots were classified as held for sale. We do not expect the sales of these properties to result in a significant gain or loss. Financing. In January 1997, we filed a shelf registration statement on Form S-3 (the "1997 Registration Statement") with the Securities and Exchange Commission (the "SEC") that provides for the issuance of an aggregate of up to $100 million in our common stock, preferred stock and common stock warrants to be offered and sold from time to time. On March 10, 1997, we completed the sale of 2,300,000 newly issued shares of our 18 common stock. We used net proceeds of approximately $26 million to repay certain existing mortgage indebtedness at that date. In February 1998, our stockholders approved an amendment to our articles of incorporation to increase the number of authorized shares of our common stock from 20 million to 40 million shares and the authorized shares of preferred stock from 100,000 to 10 million shares. Following adoption of that amendment, in 1998 we sold, under the 1997 Registration Statement, 1,200,000 shares of our Series A preferred stock at an offering price of $25 per share. We used the approximately $28.5 million in net proceeds from the offering of Series A preferred stock to repay indebtedness and for general corporate purposes. In September 1999, we filed a post-effective amendment to the 1997 Registration Statement to permit us to sell up to 1,000,000 shares of our common stock at prevailing market prices through our designated sales agent, RCG Brinson Patrick, a division of Ramius Securities, LLC. During 1999, we sold a total of 61,100 shares of common stock at-the- market. These sales raised approximately $493,000 in net proceeds which we used to repay indebtedness and for general corporate purposes. During 2000, we made no additional sales through this shelf registration. We intend to use additional net proceeds, if any, from any sale of securities under the 1997 Registration Statement for the repayment of existing indebtedness, working capital and general corporate purposes. In the event we desire to raise additional equity capital, our Board of Directors has the authority, without stockholder approval, to issue additional shares of Jameson common stock or other capital stock of Jameson in any manner (and on such terms and for such consideration) it deems appropriate, including in exchange for property. Existing stockholders would have no preemptive right to purchase shares issued in any offering, and any such offering might cause a dilution of a stockholder's investment in Jameson. We anticipate that any additional borrowings will be made directly by Jameson. Indebtedness we incur may be in the form of bank borrowings, secured and unsecured, and publicly and privately placed debt instruments. Indebtedness may be recourse to all or any part of our Inns or may be limited to the Inn to which the indebtedness relates. We may use the proceeds from any of our borrowings for the payment of distributions, for working capital, to refinance existing indebtedness or to finance acquisitions, expansions or development of new Inns. At December 31, 2000, we had outstanding an aggregate of approximately $207.1 million of mortgage debt, including approximately $1.4 million in construction debt. The construction debt provides for total borrowings of $12.2 million and is secured by mortgages on 5 Inns under construction. While our organizational documents do not limit the amount or percentage of indebtedness that we may incur, we have adopted a policy of limiting our outstanding indebtedness to 65% of the aggregate appraised values of the Inns. Our Board of Directors could change our current policies and we could become more highly leveraged, resulting in an increased risk of default on our obligations and in an increase in debt service requirements. This increase could adversely affect our financial condition and results of operations, our ability to make dividend distributions to our stockholders and could, as a result, jeopardize our status as a REIT. Working Capital Reserves. Our policy is to maintain working capital reserves (and when not sufficient, access to borrowings) in amounts that our Board of Directors determines to be adequate to meet normal contingencies in connection with the operation of our business and investments. Policy Regarding Capital Expenditures. On July 1, 1995, we adopted a policy of maintaining cash or sufficient access to borrowings equal to 4% of the Jameson Inns' aggregate room revenues since July 1, 1995, less amounts actually spent from that date forward. Prior to this date, the obligation to fund replacement and refurbishment of furniture, fixtures and equipment was Jameson Hospitality's. This policy now extends to the Signature Inns acquired in May 1999. For the period July 1, 1995, through December 31, 2000, 4% of room revenues equaled $10.5 million and we expended $16.1 million on items in that same period. Other Policies. We intend to operate in a manner that will not subject us to regulation under the Investment Company Act of 1940. We do not intend to (1) invest in the securities of other issuers for the purpose of 19 exercising control over such issuer, (2) underwrite securities of other issuers or (3) actively trade in loans or other investments. We may make investments other than as previously described, although we do not currently intend to do so. We have the authority to repurchase or otherwise reacquire our common stock or any of our other securities and may engage in such activities in the future. In August 2000, we announced a share repurchase program of up to $10 million of our outstanding stock. Most of our repurchases, if any, will most likely be of shares of our preferred stock, but may include our common stock as well. As of December 31, 2000, no outstanding shares have been repurchased under the program. During the past five years, except in connection with the acquisition of billboard assets from Jameson Hospitality and the Signature merger, we have not issued Jameson common stock or any other securities in exchange for property, nor have we reacquired any of our common stock or any other securities; however, Jameson has authority to engage in such activities and may do so in the future. During the past five years, we have not made any loans to our officers, directors or other affiliates. We may in the future make loans to such persons and entities, including, without limitation, our officers, and to joint ventures in which we participate. During the last five years, we have not engaged in trading, underwriting or agency distribution or sale of securities of other issuers, and we do not intend to do so in the future. Our Board of Directors may review and modify our policies with respect to such activities from time to time without the vote of the stockholders. At all times, we intend to make investments in such a manner as to be consistent with the requirements of the Internal Revenue Code to qualify as a REIT unless, because of circumstances or changes in the Internal Revenue Code (or in the Treasury Regulations), our Board of Directors, with the consent of a majority of our stockholders, determines to revoke our REIT election. Conflicts of Interest. Because of Thomas W. Kitchin's ownership in and positions with Jameson and Jameson Hospitality, there are inherent conflicts of interest in the construction of new Jameson Inns and Signature Inns and the expansion and refurbishment of existing Inns by Jameson Hospitality. Conflicts of interest also exist in our dealings with Jameson Hospitality under the master leases, the construction and refurbishing contracts and under the cost reimbursement agreement between the two companies. See --The Master Leases; -- Growth Plans for 2001; Jameson Hospitality as Contractor; -- and Employees. In an effort to reduce the conflicts of interest, we have adopted a policy of requiring that any material transaction or arrangement between us and Jameson Hospitality, or an affiliate of either, is subject to approval by a majority of our independent directors. Further, Jameson Hospitality has agreed that neither it nor any of its affiliates will (1) operate or manage a hotel property in which we have not invested that is within a 20-mile radius of an Inn, or (2) own or have any interest in any Inn in which we or affiliates do not have an interest. In addition, Mr. Kitchin is prohibited under the terms of his employment agreement with us from owning, managing or operating, directly or indirectly, any hotel property other than the Jameson Inns during the term of his employment by us or, for two years following his employment, any hotel property within a 20-mile radius of a Jameson Inn. Our Board of Directors also has a policy that any contract or transaction between us and one or more of our directors or officers, or between us and any other entity in which one or more of our directors or officers are directors or officers or have a financial interest must be approved by a majority of either our independent directors or disinterested shareholders after the material facts as to the relationship or interest and as to the contract or transaction are disclosed or are known to them. The Board of Directors may change this policy without the consent of the shareholders upon the affirmative vote of a majority of our independent directors. Taxation of Jameson We made an election to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code, commencing with our taxable year beginning January 1, 1994. We believe that commencing with the 1994 taxable year, we were organized and we have operated in such a manner as to qualify for taxation as a REIT under the Internal Revenue Code. We intend to continue to operate in such a manner, but we cannot guarantee that we have operated in a manner, or will operate in a manner in the future, so as to remain qualified as a REIT. 20 The sections of the Internal Revenue Code relating to qualification and operation as a REIT are highly technical and complex. The following discussion summarizes the material aspects of the Internal Revenue Code sections that govern the federal income tax treatment of a REIT and its shareholders. Because it is a summary, it does not cover all aspects of this subject. In order to understand all of the rules and regulations applicable to us as a REIT, you need to refer to the applicable Internal Revenue Code provisions, Treasury Regulations and administrative and judicial interpretations thereof. As long as we qualify for taxation as a REIT, we generally will not be subject to federal corporate income tax on our net income that is currently distributed to our shareholders. This treatment substantially eliminates the "double taxation" (at the corporate and shareholder levels) that generally results from investment in a corporation. However, we will be subject to federal income or excise tax as follows: First, we will be taxed at regular corporate rates on our REIT taxable income, which is defined generally as taxable income (subject to certain adjustments), including net capital gains, less dividends (or certain deemed dividends) paid to shareholders. Second, we will generally be subject to the "alternative minimum tax" if REIT taxable income plus any tax adjustments and preferences is greater than dividends paid to shareholders. Third, if we have (1) net income from the sale or other disposition of "foreclosure property" which is held primarily for sale to customers in the ordinary course of a trade of business or (2) other nonqualifying net income from foreclosure property, we will be subject to tax at the highest corporate rate on such income. Fourth, if we have net income from prohibited transactions (generally certain sales or other dispositions of property (other than foreclosure property) held primarily for sale to customers in the ordinary course of business), this income will be subject to a 100% tax. Fifth, if we should fail to satisfy the 75% or 95% gross income tests discussed below and have nonetheless maintained our qualification as a REIT because certain other requirements have been met, we will be subject to a 100% tax on the net income attributable to the greater of the amount by which we fail the 75% or 95% gross income tests. Sixth, generally, if we fail to distribute to our shareholders during each calendar year an amount equal to our required distribution, we will be subject to a 4% nondeductible excise tax on the excess of such required distribution amount over the amount actually distributed for the year. The amount of required distribution is equal to the sum of (1) 85% of our ordinary income for such year, (2) 90% of our REIT capital gain net income for such year and (3) the amount, if any, of the required distribution for the previous year over the amount actually distributed for that year. In addition, if during the 10-year period (the "Recognition Period") beginning on the first day of the first taxable year for which we qualified as a REIT, we recognize gain on the disposition of any asset held by us as of the beginning of such Recognition Period, then, to the extent of the excess of (1) the fair market value of such asset as of the beginning of such Recognition Period over (2) our adjusted basis in such asset as of the beginning of the Recognition Period (the "Built-In Gain"), such Built-In Gain, which may be reduced by certain net operating loss carryforwards, will be subject to tax at the highest regular corporate rate. The Recognition Period began January 1, 1994, and will expire December 31, 2003. Further, if we acquire any asset from a C corporation in a transaction in which the basis of the asset in our hands is determined by reference to the basis of the asset (or any other property) in the hands of the C corporation (such as our acquisition of Signature Inns by reason of our acquisition of Signature Inns, Inc. on May 7, 1999), and we recognize gain on the disposition of such asset during the ten-year period beginning on the date on which such asset was acquired by us, then, to the extent of the Built-In Gain, such gain will be subject to tax at the highest regular corporate rate, pursuant to regulations that have not yet been promulgated. The amount of our Built-In-Gain based on the appraisals obtained in connection with our initial public offering in 1994 is approximately $8.1 million and will discourage a disposition by us of any Inn held at the time until after 2003. The amount of our Built-In Gain attributable to the Signature Inns acquisition is less than $1.0 million. Requirements for Qualification The Internal Revenue Code defines a REIT as a corporation, trust or association (1) which is managed by one or more trustees or directors; (2) the beneficial ownership of which is evidenced by transferable shares or by transferable certificates of beneficial interest; (3) which would be taxable as a domestic corporation, but for Sections 856 through 860 of the Internal Revenue Code; (4) which is neither a financial institution nor an insurance 21 company subject to certain provisions of the Internal Revenue Code; (5) the beneficial ownership of which is held by 100 or more persons; (6) at any time during the last half of each taxable year not more than 50% in value of the outstanding stock of which is owned, directly or indirectly, by five or fewer individuals (as defined in the Internal Revenue Code to include certain entities); (7) which makes an election to be a REIT and satisfies all relevant filing and other administrative requirements established by the IRS that must be met in order to elect and maintain REIT status; (8) which uses a calendar year for federal income tax purposes and complies with the record keeping requirements of the Internal Revenue Code and Treasury Regulations promulgated thereunder; and (9) which meets certain other tests, described below, regarding the nature of its income and assets. The Internal Revenue Code provides that conditions (1) to (4), inclusive, must be met during the entire taxable year and that condition (5) must be met during at least 335 days of a taxable year of 12 months, or during a proportionate part of a taxable year of less than 12 months. We have represented that we have met since we became a publicly held company, and we currently do meet, all of such definitional requirements. Income Tests In order for us to maintain our qualification as a REIT, we must satisfy two gross income tests annually. . First, at least 75% of our gross income (excluding gross income from prohibited transactions) for each taxable year must consist of defined types of income derived directly or indirectly from investments relating to real property or mortgages on real property (including "rents from real property" and, in certain circumstances, interest) or qualified temporary investment income. . Second, at least 95% of our gross income (excluding gross income from prohibited transactions) for each taxable year must be derived from such real property or temporary investments, and from dividends and other types of interest and gain from the sale or disposition of stock or securities. Rents received by us under the master leases with Jameson Hospitality will qualify as "rents from real property" in satisfying the gross income requirements for a REIT described above only if several conditions are met. . First, the amount of rent must not be based in whole or in part on the income or profits of any person. However, an amount received or accrued generally will not be excluded from the term "rents from real property" solely by reason of being based on a fixed percentage or percentages of receipts or sales. Therefore, the percentage rent provisions of the master leases should not disqualify rental income received from Jameson Hospitality. . Second, the Internal Revenue Code provides that rents received from a tenant, directly or indirectly, will not qualify as "rents from real property" in satisfying the gross income tests if the REIT, or a direct or indirect owner of 10% or more of the REIT, directly or constructively owns 10% or more of such tenant (a "Related Party Tenant"). We believe that since January 1, 1994, we have satisfied, and we will use our best efforts to continue to satisfy this requirement. Therefore, Jameson Hospitality is not and should not become a Related Party Tenant of Jameson (by reason of our adherence to the Ownership Limit and the Related Party Limit). . Third, if rent attributable to personal property, leased in connection with a lease of real property, is greater than 15% of the total rent received under the lease, then the portion of rent attributable to such personal property will not qualify as "rents from real property." Applicable Internal Revenue Code provisions provide that with respect to each lease, rent attributable to the personal property for the taxable year is that amount which bears the same ratio to total rent as the average of a REIT's adjusted bases of all personal property at the beginning and at the end of each taxable year bears to the average of the REIT's aggregate adjusted bases of all real and personal property at the beginning and at the end of such taxable year. We have confirmed by numerical testing that the resulting rental income attributable to personal property since January 1, 1994 has been less than 22 15%. We monitor these tests regularly. If we project that for any Inn for any taxable year the resulting rental income attributable to personal property may exceed 15% of all rental income, a portion of the personal property of that Inn may be sold by us to Jameson Hospitality, with the lease payments adjusted accordingly. . Finally, for rents received to qualify as "rents from real property," the REIT generally must not operate or manage the leased property or furnish or render services to the tenants of such property, other than through an independent contractor from whom the REIT derives no revenue; provided, however, we may directly perform certain services other than services which are considered rendered to the occupant of the property. We have not, do not and will not knowingly (1) charge rent for any property that is based in whole or in part on the income or profits of any person (except by reason of being based on a percentage of receipts or sales, as described above); (2) rent any property to a Related Party Tenant; (3) lease personal property in connection with the rental of any Inn which would cause the rental income attributable to such personal property to exceed 15% of the amount of total rental income; or (iv) perform services considered to be rendered for the occupants of the Inns other than through an independent contractor. Under the master leases, Jameson Hospitality has leased the land, buildings, improvements, furnishings, and equipment comprising the Inns from us. Jameson Hospitality pays us a per room rent ("Base Rent") plus additional rent based on a percentage of the gross room rental revenues ("Percentage Rent," with the total of the Base Rent and Percentage Rent being called "Total Rent"). In order for the Total Rent to constitute "rents from real property," the leases must be respected as true leases for federal income tax purposes and not treated as service contracts, joint venture or some other type of arrangement. The determination of whether the leases are true leases depends on an analysis of all of the surrounding facts and circumstances. In addition, pursuant to Section 7701(e) of the Internal Revenue Code, a service contract, partnership agreement, or some other type of arrangement may be treated instead as a lease of property if the contract, agreement or arrangement is properly treated as a lease of property, taking into account all relevant factors, including whether or not: (1) the service recipient is in physical possession of the property, (2) the service recipient controls the property, (3) the service recipient has a significant economic or possessory interest in the property (e.g., the property's use is likely to be dedicated to the service recipient for a substantial portion of the useful life of the property, the service recipient shares the risk that the property will decline in value, the service recipient shares in any appreciation in the value of the property, the service recipient shares in savings in the property's operating costs, or the service recipient bears the risk of damage to or loss of the property), (4) the service provider does not bear any risk of substantially diminished receipts or substantially increased expenditures if there is nonperformance under the lease, (5) the service provider does not use the property concurrently to provide significant services to entities unrelated to the service recipient and (6) the contract price does not substantially exceed the rental value of the property for the term of the lease. Under the master leases, (1) Jameson Hospitality has the right to exclusive possession, use and quiet enjoyment of the Inns during the term of the master leases, (2) Jameson Hospitality bears the cost of, and is responsible for daily maintenance and repair of the Inns, other than the cost of maintaining underground utilities and structural elements (including the roofs) of the improvements, (3) Jameson Hospitality dictates how the Inns are operated, maintained, and improved and bears all of the costs and expenses of operating the Inns (including the cost of any inventory used in their operation) during the term of the leases (other than real and personal property taxes, casualty, liability and other types of insurance and equipment and the maintenance of structural elements, roofs and underground utilities), (4) Jameson Hospitality benefits from any savings in the costs of operating the Inns during the term of the leases, (5) in the event of damage or destruction to an Inn, Jameson Hospitality is at economic risk because it will be obligated to restore the property to its prior condition and bear all costs of such restoration in excess of any insurance proceeds (except, under certain circumstances, during the last six months of the term of the master leases), (6) Jameson Hospitality has indemnified us against all liabilities imposed on us during the term of the 23 master leases by reason of injury to persons or damage to property occurring at the Inns or due to Jameson Hospitality's use, management, maintenance or repair of the Inns, and (7) Jameson Hospitality is obligated to pay substantial fixed rent for the term of the leases. In addition, we do not believe that the Total Rent under the leases materially, if not all, exceeds the fair rental value of the Inns. Pursuant to IRS Revenue Ruling 55-540, if one or more of the following conditions are present, the master leases will instead be considered as conditional contracts for purchase and sale of the Inns: . portions of the periodic payments are made specifically applicable to an equity interest in the property to be acquired by Jameson Hospitality, . Jameson Hospitality will acquire title upon the payment of a stated amount of "rentals" under the contract which it is required to make, . the total amount which Jameson Hospitality is required to pay for a relatively short period of use constitutes an inordinately large proportion of the total sum required to be paid to secure the transfer of the title, . the agreed "rental" payments materially exceed the current fair rental value, . the property may be acquired under a purchase option at a price which is nominal in relation to the value of the property at the time when the option may be exercised, as determined at the time of entering into the original agreement, or which is a relatively small amount when compared with the total payments which are required to be made, and . some portion of the periodic payments is specifically designated as interest or is otherwise readily recognizable as the equivalent of interest. Under the master leases, (1) no portion of the Total Rent has been or will be applied to any equity interest in the Inns to be acquired by Jameson Hospitality, (2) Jameson Hospitality has not acquired and will not be acquiring title to the Inns upon the payment of a stated amount of either Base Rent or Percentage Rent, (3) the Total Rent does not and will not materially exceed the current fair rental value of the Inns, (4) the Inns may not be acquired by Jameson Hospitality under a purchase option and (5) no portion of either Base Rent or Percentage Rent has been or will be specifically designated as interest or will be recognizable as the equivalent of interest. We believe that the master leases will be treated as true leases for federal income tax purposes. However, the IRS could challenge the tax treatment of the master leases, and, if it does, it could be successful. If the master leases are recharacterized as a service contract, partnership agreement, or some other type of arrangement rather than a true lease, part or all of the payments that we receive from Jameson Hospitality may not satisfy the various requirements for qualification as "rents from real property." In that case, we likely would not be able to satisfy either the 75% or 95% gross income tests and, as a result, would fail to qualify as a REIT. Any gross income derived from a prohibited transaction is subject to a 100% tax. The term "prohibited transaction" generally includes a sale or other disposition of property (other than foreclosure property) that is held primarily for sale to customers in the ordinary course of a trade or business. None of our assets are or have been held for sale to customers in the ordinary course of our business and we will not sell an Inn or associated property in the ordinary course of our business. Whether property is held "primarily for sale to customers in the ordinary course of a trade or business" depends, however, on the facts and circumstances in effect from time to time, including those related to a particular property. Nevertheless, we have since January 1, 1994 complied with and we will attempt to continue to comply with the terms of the safe-harbor provisions in the Internal Revenue Code prescribing when asset sales will not be characterized as prohibited transactions. Complete assurance cannot be given, however, that we can comply with the safe-harbor provisions of the Internal Revenue Code or avoid owning property that may be characterized as property held "primarily for sale to customers in the ordinary course of a trade or business." 24 If we fail to satisfy one or both of the 75% or 95% gross income tests for any taxable year, we may nevertheless qualify as a REIT for such year if we are entitled to relief under certain provisions of the Internal Revenue Code. These relief provisions will generally be available if (1) our failure to meet such tests is due to reasonable cause and not due to willful neglect, (2) we attach a schedule of the sources of our gross income to our return, and (3) any incorrect information on such schedule was not due to fraud with intent to evade tax. We cannot state, however, whether in all circumstances we would be entitled to the benefit of these relief provisions. As discussed above, even if these relief provisions apply, a 100% tax would be imposed which would be equal to the excess of 75% or 95% of our gross income over our qualifying income in the relevant category, whichever is greater, multiplied by the ratio that REIT taxable income bears to gross income for the taxable year (with certain adjustments). Asset Tests At the close of each quarter of our taxable year, we must also satisfy three tests relating to the nature of our assets. First, at least 75% of the value of our total assets must be represented by "real estate assets" which means (1) real property (including interests in real property and interests in mortgages on real property), (2) shares in other REIT's (3) stock or debt instruments held for not more than one year purchased with the proceeds of a stock offering or long-term (at least five years) debt offering of the Company, and (4) cash, cash items (including receivables) and government securities. Second, not more than 25% of our total assets may be represented by securities other than those in the 75% asset class. Third, of the investments included in the 25% asset class, the value of any one issuer's securities owned by us may not exceed 5% of the value of our total assets and we may not own more than 10% of such issuer's outstanding voting securities. We have satisfied these asset tests since December 31, 1993, and we will use our best efforts to continue to satisfy such tests in the future. After meeting the assets tests at the close of any quarter, we will not lose our status as a REIT for failure to satisfy the asset tests at the end of a later quarter solely by reason of changes in asset values. If the failure to satisfy the asset tests results from an acquisition of securities or other property during a quarter, the failure can be cured by disposition of sufficient nonqualifying assets within 30 days after the close of that quarter. We maintain adequate records of the value of our assets to ensure compliance with the asset test and we intend to take such other action within 30 days after the close of any quarter as may be required to cure any noncompliance. However, this action may not always be successful. Annual Distribution Requirements In order to qualify as a REIT, we are required to distribute dividends (other than capital gain dividends) to our shareholders in an amount at least equal to (A) the sum of (1) 90% of our "REIT taxable income" (computed without regard to the dividends paid deduction and any net capital gain) and (2) 90% of our net income (after tax), if any, from foreclosure property, minus (B) the sum of certain items of noncash income. In addition, if we dispose of any asset during our Recognition Period, we will be required to distribute at least 90% of the Built-In Gain (after tax), if any, recognized on the disposition of such asset. Such distributions must be paid in the taxable year to which they relate, or in the following taxable year if declared before we timely file our tax return for such year and if paid on or before the first regular dividend payment after such declaration. To the extent that we do not distribute all of our net capital gain or distribute at least 90%, but less than 100% of our "REIT taxable income," as adjusted, we will be subject to tax thereon at regular corporate tax rates. Furthermore, if we should fail to distribute our required distribution during each calendar year, we would be subject to a 4% nondeductible excise tax on the excess of such required distribution over the amounts actually distributed. Since January 1, 1994, we have made, and we hereafter will make, timely distributions sufficient to satisfy all annual distribution requirements. However, it is possible that, from time to time, we may experience timing differences between (1) the actual receipt of income and actual payment of deductible expenses and (2) the inclusion of that income and deduction of such expenses in arriving at our REIT taxable income. Therefore, we could have 25 less cash available for distribution than would be necessary to meet our annual 90% distribution requirement or to avoid federal corporate income tax with respect to capital gain or the 4% nondeductible excise tax imposed on certain undistributed income. To meet the 90% distribution requirement necessary to qualify as a REIT or to avoid federal income tax with respect to capital gain or the excise tax, it could be necessary for us to borrow funds. Under certain circumstances, we may be able to rectify a failure to meet the distribution requirement for a year by paying dividends to shareholders in a later year. If we declare a dividend before the date on which our tax return is due for a taxable year (including extensions) and distribute the amount of such dividend to shareholders in the 12-month period following the close of such taxable year, such subsequent year dividend may be deductible in computing our REIT taxable income for the immediately preceding year. The distribution of such dividend must be made no later than the date of the first regular dividend payment made after the declaration and distribution of such dividend and we must elect such treatment in our return. Shareholders receiving subsequent year distributions are taxable on such distributions in the year of actual receipt except in the following case. Any distributions we declare in October, November or December of any year payable to a shareholder of record on a specified date in any such month shall be treated as both paid by us and received by the shareholder on December 31, provided that the distribution is actually paid during January of the following calendar year. However, if we actually pay the declared distributions before December 31, the distributions will be treated as both paid by us and received by the shareholders on the actual dates paid and received, respectively. If, as a result of an audit by the IRS, the REIT taxable income for a prior taxable year is increased, we may elect to distribute an additional "deficiency dividend," as defined under Section 860 of the Internal Revenue Code, and claim an additional deduction for dividends paid for such taxable year in order to meet the annual distribution requirement. All deficiency dividends must be distributed within 90 days after the final determination of an audit, and the claim for such deficiency dividends must be filed within 120 days of such determination. We would also be liable for the payment of interest charges on the amount of the deficiency dividend. However, the payment of such dividends would ensure that our qualification as a REIT would not be jeopardized due to a failure to meet our annual distribution requirement. Failure to Qualify If we fail to qualify for taxation as a REIT in any taxable year, and the relief provisions do not apply, we will be subject to tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates. Distributions to shareholders in any year in which we fail to qualify will not be deductible by us nor will they be required to be made. In such event, to the extent of current and accumulated earnings and profits, all distributions to shareholders will be taxable as ordinary income, and, subject to certain limitations of the Internal Revenue Code, corporate distributees may be eligible for the dividends received deduction (such deduction is not available to corporate distributees so long as we qualify as a REIT). Unless entitled to relief under specific statutory provisions, we will also be disqualified from taxation as a REIT for the four taxable years following the year during which we ceased to qualify as a REIT. 26 Taxation of Shareholders Tax Consequences to Non Tax-Exempt U.S. Shareholders. As long as we qualify as a REIT, distributions made to our taxable U.S. shareholders from current or accumulated earnings and profits (and not designated as capital gain dividends) will be taken into account by such U.S. shareholders as ordinary income in the year they are received and will not be eligible for the dividends received deduction for corporations. Such distributions will be treated as portfolio income and not as income from passive activities. Accordingly, shareholders will not be able to apply any passive losses against such income. Distributions that are designated as capital gain dividends will be taxed as long-term capital gains (to the extent they do not exceed our actual net capital gain for the taxable year) without regard to the period for which a shareholder has held our stock. However, corporate shareholders may be required to treat up to 20% of certain capital gain dividends as ordinary income. Distributions in excess of current and accumulated earnings and profits will not be taxable to a U.S. shareholder to the extent such distributions do not exceed the adjusted basis of such U.S. shareholder's shares, but rather will reduce the adjusted basis of such shares. To the extent that distributions in excess of current and accumulated earnings and profits exceed the adjusted basis of a U.S. shareholder's shares, such distributions will be included in income as long-term capital gain (or short-term capital gain if the shares have been held for one year or less) assuming the shares are held as a capital asset by the U.S. shareholder. Shareholders may not include in their income tax returns any net operating losses or capital losses of the Company. Finally, in general, any loss upon a sale or exchange of shares by a shareholder who has held such shares for more than one year (after applying certain holding period rules) will be treated as a long-term capital loss to the extent of distributions from us required to be treated by such shareholder as long-term capital gain. In determining the extent to which a distribution on the Series A Preferred Stock or Series S Preferred Stock constitutes a dividend for tax purposes, our earnings and profits will be allocated, on a pro rata basis, first to distributions with respect to the Series A Preferred Stock and the Series S Preferred Stock, and then to the common stock. Under the Internal Revenue Code we are permitted to make an election to treat all or a portion of our undistributed net capital gain as if it had been distributed to our shareholders. If we were to make such an election, our shareholders would be required to include in their income as long-term capital gain their proportionate share of our undistributed net capital gain, as we designated. Each of our shareholders would be deemed to have paid his proportionate share of our income tax with respect to such undistributed net capital gain, and this amount would be credited or refunded to the shareholder. In addition, the tax basis of the shareholder's stock would be increased by his or her proportionate share of undistributed net capital gain included in his or her income less his or her proportionate share of our income tax with respect to such gains. With respect to distributions we designate as capital gain dividends, we may designate (subject to certain limits) whether the dividend is taxable to shareholders as a 20% rate gain distribution or as an unrecaptured depreciation distribution taxed at a 25% rate. Information Reporting Requirements and Backup Withholding. We will report to our U.S. shareholders and the IRS the amount of distributions paid during each calendar year and the amount of tax withheld, if any. Under the backup withholding rules, a U.S. shareholder may be subject to backup withholding at the rate of 31% with respect to distributions paid unless such holder (a) is a corporation or comes within certain other exempt categories and, when required, demonstrates this fact, or (b) provides a taxpayer identification number, certifies as to no loss of exemption from backup withholding and otherwise complies with applicable requirements of the backup withholding rules. A shareholder that does not provide us with his correct taxpayer identification number may also be subject to penalties imposed by the IRS. Any amount paid as backup withholding will be creditable against the shareholder's income tax liability. In addition, we may be required to withhold a portion of capital gain distributions to any shareholders who fail to certify their non-foreign status to us. See below "-- Taxation of Non-U.S. Shareholders." 27 Taxation of Tax-Exempt Shareholders. Distributions to a U.S. shareholder that is a tax-exempt entity should not constitute "unrelated business taxable income" as defined in Section 512(a) of the Internal Revenue Code ("UBTI"), provided that the tax-exempt entity has not financed the acquisition of our shares with "acquisition indebtedness" within the meaning of Section 514(c) of the Internal Revenue Code and the shares are not otherwise used in an unrelated trade or business of the tax-exempt entity. In addition, if we are considered to be a pension-held REIT, then a portion of the dividends paid to qualified trusts (any trust defined under Section 401(a) and exempt from tax under Section 501(a)) that owns more than 10 percent by value in the REIT may be considered UBTI. In general, a pension-held REIT is a REIT that is held by at least one qualified trust holding more than 25% by value of the interests in the REIT or by one or more qualified trusts (each of whom owns more than 10% by value) holding in the aggregate more than 50% by value of the interests in the REIT. We are not currently a pension-held REIT. Taxation of Non-U.S. Shareholders. The rules governing United States federal income taxation of nonresident alien individuals, foreign corporations, foreign partnerships and other foreign shareholders (collectively, "Non-U.S. Shareholders") are complex and we will make no attempt herein to provide more than a summary of such rules. The Treasury Department issued new final regulations relating to withholding, information reporting and backup withholding on U.S. source income paid to foreign persons (including, for example, dividends we pay to our foreign shareholders). These regulations generally will be effective with respect to payments made after December 31, 2000, subject to certain transition rules. We urge prospective investors to consult their own tax advisors as to the effect, if any, of the final regulations on their purchase, ownership and disposition of shares of common stock. Distributions to Non-U.S. Shareholders that are not attributable to gain from sales or exchanges by us of United States real property interests and not designated by us as capital gains dividends will be treated as dividends of ordinary income to the extent their source is our current or accumulated earnings and profits. Such distributions will ordinarily be subject to a withholding tax equal to 30% of the gross amount of the distribution unless an applicable tax treaty reduces or eliminates that tax. However, if income from a Non-U.S. Shareholder's investment in our stock is treated as effectively connected with the Non-U.S. Shareholder's conduct of a United States trade or business, the Non-U.S. Shareholder generally will be subject to a tax at graduated rates, in the same manner as U.S. Shareholders are taxed with respect to such distributions (and may also be subject to the 30% branch profits tax in the case of a shareholder that is a foreign corporation). We expect to withhold United States income tax at the rate of 30% on the gross amount of any such distributions made to a Non-U.S. Shareholder unless (1) a lower treaty rate applies or (2) the Non-U.S. Shareholder files an IRS Form 4224 with us claiming that the distribution is "effectively connected" income within the meaning of Section 871 of the Internal Revenue Code. Distributions in excess of our current and accumulated earnings and profits will not be taxable to a Non-U.S. Shareholder to the extent that such distributions do not exceed the adjusted basis of the Non-U.S. Shareholder's shares, but rather will reduce the adjusted basis of such shares. To the extent that distributions in excess of current and accumulated earnings and profits exceed the adjusted basis of a Non-U.S. Shareholder's shares, such distributions will give rise to tax liability if the Non-U.S. Shareholder would otherwise be subject to tax on any gain from the sale or disposition of his shares in Jameson, as described below. If it cannot be determined at the time a distribution is made whether or not such distribution will be in excess of our current and accumulated earnings and profits, the distribution will be subject to withholding at a 30% rate. Further, pursuant to recently enacted legislation, we will be required to withhold 10% of any distribution in excess of our current and accumulated earnings and profits. However, amounts withheld may be refundable if it is subsequently determined that such distribution was in excess of our current and accumulated earnings and profits and the amount withheld exceeded the Non-U.S. Shareholder's U.S. tax liability, if any. For any year in which we qualify as a REIT, distributions that are attributable to gain from our sales or exchanges of United States real property interests will be taxed to a Non-U.S. Shareholder under the provisions of the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). Under FIRPTA, distributions attributable to gain from sales of United States real property interests are taxed to a Non-U.S. Shareholder as if such gain were "effectively connected" with a United States business. Non-U.S. Shareholders would thus be taxed at the normal capital gain rates applicable to U.S. Shareholders (subject to any applicable alternative minimum tax). Also, distributions subject to FIRPTA may be subject to a 30% branch profits tax in the case of a foreign corporate 28 shareholder not entitled to treaty exemption. We are required by Treasury Regulations to withhold 35% of any distribution to a Non-U.S. Shareholder that could be designated by us as a capital gains dividend. This amount is creditable against the Non-U.S. Shareholder's FIRPTA tax liability. Gain recognized by a Non-U.S. Shareholder upon a sale of shares generally will not be taxed under FIRPTA if we are a "domestically controlled REIT," defined generally as a REIT in which at all times during a specified testing period less than 50% in value of the REIT's stock was held directly or indirectly by foreign persons. We believe that we are a "domestically controlled REIT," and therefore the sale of our shares should not be subject to taxation under FIRPTA. We anticipate that we will continue to be a "domestically controlled REIT" and that sales of our shares by Non-U.S. Shareholders will not be subject to U.S. taxation unless (1) the investment in the shares is "effectively connected" with the Non-U.S. Shareholder's trade or business in the United States, in which case such Non-U.S. Shareholder would be taxed at the normal capital gain rates applicable to U.S. Shareholders (subject to any applicable alternative minimum tax), or (2) in the case of a Non-U.S. Shareholder who is a "nonresident alien individual", such Non-U.S. Shareholder was present in the United States for a period or periods aggregating 183 days or more during the taxable year and certain other conditions apply, in which case such person would be subject to a 30% tax on his capital gains. Other Tax Consequences We and our shareholders may be subject to state or local taxation in various state or local jurisdictions, including those in which we or they transact business or reside. The state and local tax treatment of Jameson and our shareholders may not conform to the federal income tax consequences discussed above. Consequently, you should consult your own tax advisor regarding the effect of state and local tax laws on an investment in us. ITEM 2. PROPERTIES. The Inns. The following tables set forth certain information about our 130 operating Inns at December 31, 2000. Year Number Opened/ Property Of Jameson Inns Expanded Type Rooms - ------------ -------------- -------- ------- ALABAMA: Albertville 1994 Exterior 40 Alexander City 1994/1995 Exterior 60 Arab 1995 Exterior 40 Auburn 1997 Exterior 40 Bessemer 1999/2000 Exterior 60 Decatur 1996/1999 Exterior 58 Eufaula 1996 Exterior 40 Florence 1996/1996 Exterior 63 Greenville 1996 Exterior 40 29 Year Number Opened/ Property Of Expanded Type Rooms -------------- -------- ------- Jasper 1997/1998 Exterior 58 Oxford (2) 1997 Exterior 40 Ozark 1995 Exterior 39 Prattville 1998/1999 Exterior 58 Scottsboro (2) 1998 Exterior 40 Selma 1992/1995 Exterior 59 Sylacauga (2) 1997 Exterior 40 Trussville 1998/1999 Exterior 60 Tuscaloosa (1), (2) 1997 Exterior 40 ----- Subtotal (18 Inns) 875 ===== FLORIDA: Crestview 2000 Interior 55 Jacksonville 2000 Interior 79 Lake City 1999 Interior 55 Lakeland 2000 Interior 67 Ormond Beach 2000 Interior 67 Palm Bay 2000 Interior 67 ----- Subtotal (6 Inns) 390 ===== GEORGIA: Albany 1995/1996 Exterior 62 Americus 1992/1993/1994 Exterior 77 Bainbridge 1994/1995 Exterior 60 Brunswick 1995/1996 Exterior 60 Calhoun 1988/1994 Exterior 59 Carrollton 1994/1995 Exterior 59 Commerce 1996 Exterior 40 30 Year Number Opened/ Property Of Expanded Type Rooms -------- -------- ------ Conyers 1996/1999 Exterior 57 Covington 1990 Exterior 38 Dalton 1998/1999 Exterior 59 Douglas 1995 Exterior 40 Dublin (1) 1997 Exterior 40 Eastman 1989 Exterior 41 Fitzgerald 1994 Exterior 40 Greensboro 1990 Exterior 40 Hartwell 1992 Exterior 40 Jesup 1990/1991 Exterior 60 Kingsland 1998 Exterior 40 LaGrange 1996/1998 Exterior 56 Macon 1997 Exterior 40 Newnan 2000 Interior 67 Oakwood 1997 Exterior 40 Perry 1998 Exterior 40 Pooler 2000 Interior 55 Rome 1999 Interior 67 Statesboro 1989 Exterior 39 Thomaston 1990/1996 Exterior 60 Thomasville (1) 1998 Exterior 39 Valdosta 1995/1995 Exterior 55 Warner Robins 1997 Exterior 59 Washington 1990 Exterior 41 Waycross 1993/1996 Exterior 60 Waynesboro 1996 Exterior 40 Winder 1988 Exterior 39 ----- Subtotal (34 Inns) 1,709 ===== 31 Year Number Opened/ Property Of Expanded Type Rooms -------- -------- ------ MISSISSIPPI: Grenada 1999 Exterior 39 Jackson 2000 Interior 67 Meridian 1999/1999 Exterior 59 Pearl 2000 Interior 67 Tupelo 1998/1998 Exterior 60 Vicksburg 1999/1999 Exterior 59 --- Subtotal (6 Inns) 351 === NORTH CAROLINA: Asheboro 1997 Exterior 40 Dunn 1998 Exterior 40 Eden 1998 Exterior 39 Forest City 1997/1998 Exterior 59 Garner 1998 Exterior 40 Goldsboro 2000 Interior 67 Greenville 1998 Exterior 40 Henderson 2000 Interior 67 Hickory 1998/1999 Exterior 59 Laurinburg 1997 Exterior 40 Lenoir 1998 Exterior 39 Roanoke Rapids 1998 Exterior 39 Sanford 1997 Exterior 40 Smithfield 1998 Exterior 40 Wilson 1997 Exterior 39 --- Subtotal (15 Inns) 688 === 32 Year Number Opened/ Property Of Expanded Type Rooms -------- -------- ------ SOUTH CAROLINA: Anderson 1993/1994 Exterior 57 Cheraw 1995/1999 Exterior 57 Duncan 1998 Exterior 40 Easley (2) 1995 Exterior 40 Gaffney 1995/1997 Exterior 58 Georgetown (2) 1996 Exterior 40 Greenwood 1995/1996 Exterior 64 Lancaster (2) 1995 Exterior 40 Orangeburg (2) 1995 Exterior 40 Seneca (2) 1996 Exterior 40 Simpsonville 1996 Exterior 40 Spartanburg 1998 Exterior 40 Union 1997 Exterior 40 --- Subtotal (13 Inns) 596 === TENNESSEE: Cleveland 1998/1999 Exterior 60 Decherd 1997 Exterior 40 Columbia 2000 Interior 55 Gallatin 1999/1999 Exterior 59 Greenville 2000 Interior 55 Jackson 2000 Interior 67 Johnson City 1997 Exterior 59 Kingsport 2000 Interior 55 Oak Ridge 1999 Interior 79 Tullahoma 1997 Exterior 40 --- Subtotal (10 Inns) 569 === 33 Year Number Opened/ Property Of Expanded Type Rooms -------- -------- ------ VIRGINIA: Harrisonburg 2000 Interior 67 Martinsville 2000 Interior 55 --- Subtotal (2 Inns) 122 === JAMESON INN TOTAL (104 Inns) 5,300 ===== (1) Land is subject to a ground lease. (2) A 20-room expansion of this Inn is planned for 2001. Signature Inns - -------------- Number Year Property Of Opened Type Rooms ------ -------- ------ INDIANA: Indianapolis North 1981 Interior 137 Fort Wayne 1982 Interior 102 Castleton 1983 Interior 125 Lafayette 1983 Interior 121 Muncie 1984 Interior 101 Southport 1985 Interior 101 Indianapolis East 1985 Interior 101 Indianapolis West 1985 Interior 101 Kokomo 1986 Interior 101 Evansville 1986 Interior 125 Terre Haute 1987 Interior 150 Elkhart 1987 Interior 125 South Bend 1987 Interior 123 Carmel 1997 Interior 81 ----- Subtotal (14 Inns) 1,594 ===== 34 Number Year Property Of Opened Type Rooms ------ -------- ------ OHIO: Cincinnati (North) 1985 Interior 130 Cincinnati (Northeast) 1985 Interior 99 Columbus 1986 Interior 125 Dayton 1987 Interior 125 ----- Subtotal (4 Inns) 479 ===== KENTUCKY: Florence 1987 Interior 125 Louisville South 1988 Interior 119 Louisville East (2) 1997 Interior 119 ----- Subtotal (3 Inns) 363 ===== ILLINOIS: Normal 1988 Interior 124 Peoria 1988 Interior 124 Springfield (1) 1996 Interior 124 ----- Subtotal (3 Inns) 372 ===== IOWA: Bettendorf 1989 Interior 119 ===== TENNESSEE: Knoxville 1989 Interior 124 ===== SIGNATURE INNS TOTAL (26 Inns) 3,051 ===== ________________ 35 (1) Land is subject to a ground lease. (2) Operates as both a Best Western and a Signature Inn. ITEM 3. LEGAL PROCEEDINGS. We are not a party to any litigation which, in our judgment, would have a material adverse effect on our operations or financial condition if adversely determined. However, due to the nature of our business, we are, from time to time, a party to certain legal proceedings arising in the ordinary course of our business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to security holders for a vote during the fourth quarter of fiscal year 2000 which required the solicitation of any proxies. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS As of March 22, 2001, there were approximately 3,300 holders of record of our common stock and, we estimate, approximately 9,500 beneficial holders of our common stock. Comparative Per Share Market Price and Dividend Information The following table sets forth the high and low sale prices for our common stock for the periods indicated. The prices are as reported on The Nasdaq National Market based on published financial sources. The table also sets forth the cash dividends paid per share for the periods indicated for a share of each of our common stock. Jameson Common Stock (1) ------------------------ Cash Dividends High Low Per Share ---- --- --------- 1999 ---- First Quarter $ 9.38 $ 7.63 $ .240 Second Quarter 10.00 8.31 .240 Third Quarter 9.75 8.25 .245 Fourth Quarter 8.88 7.00 .245 2000 ---- First Quarter 7.75 6.50 .245 Second Quarter 7.8125 6.50 .245 36 Third Quarter 8.3125 7.125 .245 Fourth Quarter 7.5625 5.50 .245 ____________ (1) Our common stock trades on The Nasdaq National Market under the symbol "JAMS." We intend to continue making regular quarterly distributions to our stockholders. Our cash available for distribution is generally an amount equal to our net income from operations plus the amount of non-cash expenses we record, such as amortization, depreciation and stock compensation expenses, less amounts we believe should be retained for working capital purposes, debt service or anticipated capital expenditures. In recent quarters, our dividend distribution have exceeded our cash available for distribution. Unless our board of directors determines otherwise, we currently intend to continue the dividend distributions at the current rate. However, in order to do this we may be required to obtain additional financing or sell some of our assets. During the period of February 2000 to November 2000, we issued approximately 54,000 shares of our common stock under our 1995 Dividend Reinvestment and Stock Purchase Plan in excess of the number of shares included in the registration statement covering sales of our shares under that plan. This oversale was inadvertent. Because of the relatively small number of shares involved, the prices at which the shares were issued and the relatively short statute of limitations covering actions for public sales of unregistered shares, we believe our potential liability for this oversale is nominal at most. On February 20, 2001, a registration statement was filed and became effective with respect to shares to be issued under our recently adopted 2001 Dividend Reinvestment and Stock Purchase Plan. Thus, the offer and sale of all shares issued pursuant to the 2001 plan have been covered by this registration statement. ITEM 6. SELECTED FINANCIAL DATA The following table sets forth our selected financial and operating information on a pro forma and historical basis. The following information should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this report. The consolidated historical financial data has been derived from our audited historical consolidated financial statements. Historical financial and operating information includes all Inns owned by us, including both those under development as well as operating Inns; however, due to our development of new Jameson Inns and expansion of existing Jameson Inns, the information is not comparable between periods. Historical financial and operating information includes all Jameson Inns and Signature Inns combined financial results. The historical financial data for Signature Inns was prepared from the audited financial statements and filings of Signature for each of the years in the period ended December 31, 1998. The information for the year ended December 31, 1999 assumes the Signature Inns were operated by Jameson Hospitality for the entire year. Historical operating results, including net income, may not be comparable to future operating results. 37 JAMESON INNS, INC. SELECTED FINANCIAL INFORMATION (dollars in thousands, except per share data, ADR and REVPAR)
December 31, ------------ 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- Balance Sheet Data: Investment in real estate (before accumulated depreciation) $ 372,415 $ 320,960 $ 168,880 $ 117,515 $ 80,816 Net investment in real estate 334,091 296,583 152,125 104,931 70,611 Total assets 346,725 322,852 156,329 107,606 73,985 Total mortgage debt 207,145 173,958 53,697 29,625 22,317 Stockholders' equity 126,741 136,303 98,869 75,161 50,763 Year Ended December 31, ---------------------- 2000 1999 1998 1997 1996 ----- ---- ---- ---- ---- Financial Data: Lease revenues $ 43,232 $ 34,669 $ 18,230 $ 12,966 $ 9,376 Expenses: Depreciation 14,620 10,397 5,636 3,898 2,670 Property and other taxes and insurance expense 4,541 3,200 1,541 1,107 733 General and administrative expenses 1,405 1,117 575 445 499 (Gain) loss on disposal of furniture and equipment (283) 755 508 144 48 Write-off and amortization of offering costs 176 100 - - - Loss on impairment of real estate - - 2,507 - - ---------- ---------- ---------- ---------- ---------- Income from operations 22,773 19,100 7,463 7,372 5,426 Interest expense, net of amounts capitalized (14,942) (8,429) (1,656) (778) (1,386) Other income 48 100 - - - ---------- ---------- ---------- ---------- ---------- Income before extraordinary item 7,879 10,771 5,807 6,595 4,040 Extraordinary loss 88 - 134 689 989 ---------- ---------- ---------- ---------- ---------- Net income 7,791 10,771 5,673 5,906 3,051 Preferred stock dividends 6,696 5,387 2,188 - - ---------- ---------- ---------- ---------- ---------- Net income attributable to common stockholders 1,095 5,383 3,485 5,905 3,051 Basic earnings before extraordinary item 0.11 0.51 0.37 0.72 0.65 Diluted earnings before extraordinary item 0.10 0.51 0.36 0.70 0.63 Basic earnings per Common share 0.10 0.51 0.36 0.64 0.49
38
Year Ended December 31, ---------------------- 2000 1999 1998 1997 1996 ----- ---- ---- ---- ---- Diluted earnings per Common share 0.10 0.51 0.35 0.63 0.48 Dividends paid per Common share 0.98 0.97 0.94 0.90 0.86 Cash flow provided by operating activities 37,201 23,202 13,845 11,911 6,626 Cash flow used in investing activities (51,818) (40,228) (55,845) (37,362) (23,548) Cash flow provided by financing activities 14,063 19,057 42,161 25,581 16,895 Other Data: Funds from operations (1) $ 16,016 $ 16,658 $ 12,270 $ 10,637 $ 6,758 Ratio of earnings to fixed charges and preferred stock dividends (2) 0.98 1.25 1.50 5.21 2.84 - --------------------------------------------------------------------------------------------------- Jameson Inns: Occupancy rate 57.1% 60.0% 61.7% 64.9% 66.9% ADR $ 54.92 $ 53.05 $ 50.60 $ 47.25 $ 45.80 REVPAR $ 31.34 $ 31.84 $ 31.21 $ 30.68 $ 30.64 Room Revenues (3) $ 53,989 $ 48,358 $ 38,787 $ 27,588 $ 19,950 Room nights available 1,688,485 1,485,849 1,216,998 878,056 634,549 Operating hotels (at period end) 104 88 81 62 43 Rooms available (at period end) 5,300 4,241 3,748 2,924 2,107 Year Ended December 31, ---------------------- 2000 1999 (4) 1998 (4) 1997 (4) 1996 (4) ----- -------- ---------- ---------- -------- Signature Inns: Occupancy rate 55.9% 57.9% 61.5% 64.0% 65.2% ADR $ 64.81 $ 63.41 $ 61.48 $ 58.68 $ 57.56 REVPAR $ 36.21 $ 36.73 $ 37.81 $ 37.53 $ 37.55 Room Revenues (3) $ 42,107 $ 42,817 $ 43,971 $ 42,960 $ 39,850
39 Room nights available 1,116,674 1,116,535 1,114,960 1,080,263 1,020,758 Operating hotels (at period end) 26 26 26 26 24 Rooms available (at period end) 3,051 3,059 3,059 3,059 2,859
- ----------- (1) In October 1999, NAREIT issued a clarification effective as of January 1, 2000 stipulating that FFO should include both recurring and non-recurring operating results. Consistent with this clarification, non-recurring items that are not defined as "extraordinary" under GAAP will be reflected in the calculation of FFO. Gains and losses from the sale of operating property will continue to be excluded from the calculation of FFO. Funds from operations does not represent cash flow from operating activities in accordance with GAAP and is not indicative of cash available to fund all of Jameson's cash needs. Funds from operations should not be considered as an alternative to net income or any other GAAP measure as an indicator of performance and should not be considered as an alternative to cash flows as a measure of liquidity. (2) For purposes of computing these ratios, earnings have been calculated by adding fixed charges (excluding capitalized interest and preferred stock dividends) to income before extraordinary item. Fixed charges consist of interest costs whether expensed or capitalized, amortization of debt discounts and issue costs whether expensed or capitalized and preferred stock dividends in applicable periods. Jameson paid preferred stock dividends in 2000, 1999 and 1998. (3) The master leases between Jameson and Jameson Hospitality with regard to the Jameson Inns and the Signature Inns define "Room Revenues" to include gross room rentals, revenues from telephone charges, vending machine payments and other miscellaneous revenues and excludes all credits, rebates and refunds, sales taxes and other excise taxes. (4) Assumes that the Signature Inns were owned as of January 1 of the respective year. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion in conjunction with our historical consolidated financial statements and those of Jameson Hospitality and the accompanying notes which are included in this report. General The following table shows certain historical financial and other information for the years indicated. Year Ended December 31 ---------------------- 2000 1999 1998 ---- ---- ---- Occupancy rate 56.6% 60.0% 61.7% ADR $ 58.81 $ 56.36 $ 50.60 REVPAR $ 33.28 $ 33.83 $ 31.21 Room rental revenues (000s) $ 93,352 $ 74,246 $ 37,982 40 Year Ended December 31 ---------------------- 2000 1999 1998 ---- ---- ---- Other Inn revenues (000s) $ 2,744 $ 2,181 $ 804 Room Revenues (000s) $ 96,096 $ 76,427 $ 38,787 Room nights available 2,805,159 2,194,613 1,216,998 Operating Inns (at period end) 130 114 81 Rooms available (at period end) 8,351 7,300 3,748 We have grown from a hotel chain with four Jameson Inns at January 1, 1990, to 104 Jameson Inns and 26 Signature Inns in operation at December 31, 2000. In addition, we have 5 Jameson Inns under development (352 rooms). From our inception in 1988 until December 31, 1993, we were engaged in the business of developing, owning and managing Jameson Inns. As part of our development activities, we engaged in development and construction of new Jameson Inns. On December 31, 1993, we reorganized by divesting ourselves of the subsidiary corporations through which we conducted our construction activities, securities brokerage activities and aviation operations. In addition, we transferred our outdoor advertising business to Jameson Hospitality's predecessor. We no longer manage or operate our Inns upon their completion, but limit our primary activities to developing and owning the properties. Effective January 1, 1994, our primary source of revenue became lease payments by Jameson Hospitality which leases and operates our Inns under the master leases. Effective April 2, 1999, our subsidiary, Jameson Outdoor Advertising Company, acquired certain assets of Jameson Hospitality consisting of billboards, ground leases for the sites on which the billboards are erected and other related assets. As consideration for these assets we issued 72,727 shares of our 9.25% Series A preferred stock, paid cash in the amount of $400,000 and assumed liabilities in the amount of approximately $700,000. We obtained an opinion from Interstate/Johnson Lane Corporation that the terms of the transaction were fair from a financial standpoint to us and to our shareholders. In order to maintain our REIT status, these assets are leased to and operated by Jameson Hospitality which pays us annual rentals on each of the billboards. Rental payments from these assets totaled approximately $608,000 in 2000 and $474,000 in 1999. On May 7, 1999, we merged with Signature Inns, Inc. which owned and operated a chain of limited service hotels in the Midwest. In this merger, we acquired 25 Signature Inns and an interest in a limited partnership which owned an additional Signature Inn. In December 1999, we acquired the outstanding limited partnership interest in that partnership, dissolved the partnership and took direct ownership of the hotel property. As a result of these transactions, at December 31, 2000, we owned a total of 26 Signature Inns located in six midwestern states. All of the Signature Inns are also leased to Jameson Hospitality. Although room revenues are earned by our lessee, Jameson Hospitality, not by us, they are the basis upon which the percentage rent paid to us by Jameson Hospitality (under the Jameson Lease) is determined and, accordingly, we discuss those revenues below. The term "Same Inn Room Revenues" refers to revenues earned with respect to our Inns which were operating during all of both comparison periods and includes revenues attributable to rooms added to our existing Inns by virtue of expansion of such Inns. The master leases provide for the payment of base rent and percentage rent. For the year ended December 31, 2000, we earned a combined base rent and percentage rent in the aggregate amount of $25.4 million from rental of Jameson Inns and $17.2 million from rental of Signature Inns. The principal determinant of percentage rent under the master leases is room revenues of our Inns. Therefore, we believe that a review of the historical performance of the operations of our 104 operating Jameson Inns and 26 Signature Inns, particularly with 41 respect to occupancy, ADR and REVPAR, is appropriate for understanding our lease revenue (see --Funds from Operations; Cash Available for Distribution, below, for the calculation of ADR and REVPAR). We have also begun to consider other strategic alternatives as a possible means of growth and increasing shareholder value. These include acquisitions of other properties, business combinations, corporate restructuring and other alternatives. We have made no decisions or commitments at this time, but we intend to continue to consider any such alternatives. Results of Operations Comparison of the Year Ended December 31, 2000 to the Year Ended December 31, 1999. Our lease revenue for 2000 increased 24.6% to $42.6 million as compared to $34.2 million for 1999. The increase was due to an increase in Jameson Hospitality's room revenues. Additionally, revenue from the rental of billboards increased from $474,000 in 1999 to $608,000 in 2000, reflecting a full twelve months of lease rentals. The billboards were acquired in April of 1999. As a result of the following factors, Jameson Hospitality's room revenues rose 25.8%, from $76.4 million for 1999 to $96.1 million in 2000: . The number of room nights available at our Inns increased from 2,194,613 in 1999 to 2,805,159 in 2000, or 27.8%, due to the acquisition of Signature Inns in May 1999 resulting in 407,910 additional room nights available and the opening from January 1999 through December 2000 of 17 new Jameson Inns (1,079 total additional rooms) and the expansion of one existing Jameson Inn (20 total additional rooms), offset partially by the sale of two Jameson Inns, Milledgeville, Georgia (100 rooms) in July 1999 and Clinton, Tennessee (40 rooms) in February 2000. . The occupancy rate for all Inns decreased from 60.0% for 1999 to 56.6% for 2000. The decrease in overall occupancy of the Inns is attributable primarily to: . additional competition in certain markets in which our Inns are located, and . the impact from our recently opened larger interior-corridor properties which achieved start-up occupancies which are lower than our mature hotel properties. . The ADR for all Inns increased 4.3% from $56.36 in 1999 to $58.81 in 2000. Jameson Hospitality's Same Inn Room Revenues for Jameson Inns for 2000 compared to 1999 declined to $43.9 million from $44.1 million due to a decrease in the occupancy rate of these Inns from 61.2% in 1999 to 59.2% in 2000, partially offset by an increase in ADR from $52.93 to $54.23 for these Inns and the expansion of one of these Inns since January 1999. Our general and administrative expense includes overhead charges for management, accounting and legal services for the corporate home office. Our general and administrative expense for 2000 was $1.4 million, as compared to $1.1 million for 1999, due to additional costs resulting from our increased size and more time spent by shared employees on our business matters as compared to Jameson Hospitality's. Our property and other taxes and insurance expenses totaled $4.5 million in 2000, compared with $3.2 million for 1999. The increase is attributable primarily to the increase in the number of Inns as a result of the Signature acquisition in May 1999, the construction and expansion of Jameson Inns and an increase in state franchise taxes of $147,000. 42 Our interest expense increased from $8.4 million in 1999 to $14.9 million in 2000. This was the result primarily of interest rate increases and greater amounts of average principal indebtedness outstanding as a result of our assumption of $67.1 million of mortgage indebtedness in connection with the Signature acquisition in May 1999 and increased indebtedness related to the development of new Jameson Inns. Our depreciation expense increased from $10.4 million in 1999 to $14.6 million in 2000, due primarily to the Signature acquisition in May 1999 and an increase in the number of operating Jameson Inns. Comparison of the Year Ended December 31, 1999 to the Year Ended December 31, 1998. Our lease revenue for 1999 increased 87.9% to $34.2 million as compared to $18.2 million for 1998. The increase was due to an increase in Jameson Hospitality's room revenues. Additionally, we received $474,000 in lease rentals from the billboards we acquired in April of 1999. As a result of the following factors, Jameson Hospitality's room revenues rose 97.0%, from $38.8 million for 1998 to $76.4 million in 1999: . The number of room nights available at our Inns increased from 1,216,998 in 1998 to 2,194,613 in 1999, or 80.3%, due primarily to our acquisition of Signature in May 1999, which accounted for 708,764 of the additional room nights available, and to the opening from January 1998 through December 1999 of 27 new Jameson Inns (1,150 total additional rooms) and 15 expansions of existing Jameson Inns (290 total additional rooms). . The occupancy rate for all Inns decreased from 61.7% for 1998 to 60.0% for 1999. The decrease in overall occupancy of the Inns is attributable primarily to: . additional competition in certain markets, and . the expansion of several high occupancy Jameson Inns which then experienced lower occupancy rates because of the additional rooms available. . ADR increased 11.4% from $50.60 in 1998 to $56.36 in 1999 due primarily to the addition of the Signature Inns which experienced an ADR of $63.31 for the period of May 7, 1999, through December 31, 1999. Jameson Hospitality's Same Inn Room Revenues for Jameson Inns for 1999 compared to 1998 grew to $35.4 million from $33.7 million, or 5.0%. The growth is due to an increase in ADR from $50.48 to $52.87 for these Inns and the expansion of 11 of these Inns since January 1998, partially offset by a decrease in the occupancy rate of these Inns from 63.6% in 1998 to 62.3% in 1999. Our general and administrative expense includes overhead charges for management, accounting and legal services for the corporate home office. Our general and administrative expense for 1999 was $1.1 million, compared to $592,000 for 1998, due to additional costs resulting from our increased size and more time spent by shared employees on our business matters as compared to Jameson Hospitality's. Our property and other taxes and insurance expenses totaled $3.2 million in 1999, compared with $1.5 million for 1998. The increase is attributable primarily to the increase in the number of Inns as a result of the Signature acquisition in May 1999 and to the construction and expansion of Jameson Inns. Our interest expense increased from $1.7 million in 1998 to $8.4 million in 1999 due to the increase in our average outstanding debt balance in 1999. This was the result primarily of our assumption of an additional $67.1 43 million of indebtedness in connection with the Signature acquisition in May 1999 and increased indebtedness related to the development of new Jameson Inns. Our depreciation expense increased from $5.6 million in 1998 to $10.4 million in 1999, due primarily to the Signature acquisition in May 1999 and to an increase in the number of operating Jameson Inns and the expansion of existing Jameson Inns during 1999. Funds From Operations; Cash Available For Distribution The following table illustrates our calculation of funds from operations and cash available for distribution on a historical basis for the years ended December 31, 2000, 1999 and 1998 (unaudited): Year Ended December 31, ----------------------- 2000 1999 1998 ---- ---- ---- (dollars in thousands) Net income available to common stockholders $ 1,095 $ 5,383 $ 3,485 Add: Depreciation expense 14,620 10,396 5,636 Adjustment for equity share of hotel limited partnership -- 24 -- Amortization of offering costs 176 -- -- Loss on disposals 37 755 508 Write-off of offering costs -- 100 -- Extraordinary item 88 -- 134 Loss on impairment of real estate -- -- 2,507 ------- ------- ------- Funds from operations 16,016 16,658 12,270 Add: Loan fee amortization expense 597 228 114 Less: Additions to reserve for furniture, fixtures and equipment (1) (3,844) (3,057) (1,551) Required loan principal repayments (5,288) (2,365) (146) ------- ------- ------- Cash available for distribution $ 7,481 $11,464 $10,687 ======= ======= ======= __________ (1) This amount equals 4% of the room revenues of our Inns for the respective period. 44 Liquidity and Capital Resources We expect to continue to develop additional Jameson Inns and to expand existing Jameson Inns, as suitable opportunities arise. We will not undertake such investments, however, unless adequate sources of financing are available. Since our election to be taxed as a REIT, we have financed construction of new Jameson Inns and currently intend to continue financing the construction of new Jameson Inns and Signature Inns entirely with bank borrowings. While we believe we can continue to finance new Inns and expansions with these construction and long-term mortgage loans, we will need additional debt financing for this growth. At December 31, 2000, we had approximately $207.1 million in outstanding debt. We have $14.5 million in lines of credit (the "Lines"). At December 31, 2000, we had drawn down $1.9 million under the Lines with $12.6 million remaining available credit. Loans made under the Lines bear interest at rates which are adjustable annually to a spread over the prime rate plus .375 to 1.0 percentage points. The minimum annual interest rate payable is 7% and the maximum is 12%. The annual interest rates at December 31, 2000 ranged from 9.125% to 10%. $8.9 million of these loans are secured by mortgages on 9 Jameson Inns, $5.0 million are secured by mortgages on 3 Signature Inns and $577,000 is secured by billboards. Payments of interest are due monthly, and monthly payments of principal and interest commence at various dates except for the line secured by the billboards. Principal under each term loan under the Lines is amortized using a 15- or 20-year period and is payable in full at various dates through 2005. We use the Lines to purchase land and to supplement the financing of construction and refurbishing costs, and certain other operating needs including the payment of dividends and other operating expenses. We anticipate that we will need additional financing to continue our historic growth pattern and to maintain the current level of our dividend distributions. In December 1999 and January 2000, we refinanced indebtedness by issuance of adjustable rate economic development revenue refunding bonds in the aggregate principal amount of $12,115,000 secured by four Signature Inns. The bonds mature on December 1, 2016, subject to prior optional and mandatory redemption, and are subject to mandatory purchase under certain conditions. The interest rates on the bonds adjust weekly and were 5.25% at December 31, 2000. Historically, we have utilized construction and long-term mortgage financing to fund the balance of construction costs of Inns not funded under the Line. For each new Jameson Inn to be built, we generally obtain a construction loan for 60% to 65% of total construction costs. After an 18-month interest-only period, each construction loan converts to a long-term mortgage financing upon completion of the Inn without any further action by us, amortized over a 15 or 20 year period and payable in full seven years from its inception. The interest rate on each of the loans adjusts annually, to rates ranging from the then prevailing prime rate plus .125% to prime plus .375%. As of December 31, 2000, the construction loans are secured by mortgages on five of the Jameson Inns under construction. As of December 31, 2000, we had a total of five Jameson Inns under construction with total remaining construction costs, excluding land and closing costs, expected to total $20.6 million when the projects are complete. For these properties, we had obtained commitments for construction loans totaling $12.2 million, with remaining availability of $10.9 million at December 31, 2000. The nine Inn expansions planned for 2001 are expected to total $8.1 million when the projects are complete. We intend to obtain construction loan commitments prior to construction. To fund the completion of the properties under construction we will use the remaining availability under the construction loans, availability on the Lines and proceeds from the refinancing of Inns with increased borrowing capacity. Since we presently intend to rely primarily on borrowings for construction and permanent financing of new Inns and for the expansion of existing Jameson Inns, the lack of sufficient financing on favorable terms and conditions could prevent or significantly deter us from constructing new Jameson Inns or expanding existing Jameson Inns. The availability of such financing depends on a number of factors over which we have no control, including general economic conditions, the economic and competitive environments of the communities in which 45 the Inns are located and the level and stability of long-term interest rates. We are also considering possible additional long-term debt or equity financing that would be available to fund our ongoing development activities. In January 1997, we filed a shelf registration statement on Form S-3 with the SEC to provide additional financing. In September 1999, we filed a post-effective amendment to that registration statement. See Item 1. Business-- Policies and Objectives with Respect to Certain Activities--Financing for a description of the registration statement and post-effective amendment. In August 2000, we announced a share repurchase program of up to $10 million of our outstanding stock. Most of our repurchases, if any, will most likely be of shares of our preferred stock, but they may include our common stock as well. As of December 31, 2000, no shares have been repurchased under the program. As with most real estate investments, our investments in the Inns and billboards are relatively illiquid and such illiquidity is further increased by the location of many Jameson Inns in small communities. As a result, the ability of Jameson to sell or otherwise dispose of any Inn to provide liquidity will be very limited. We have four stock incentive plans in place. As of December 31, 2000, 264,149 shares of our common stock were reserved for future grants and options to purchase 920,721 shares of our common stock were outstanding (including 522,471 which were exercisable). In addition, as of December 31, 2000, 415,370 shares of our common stock issued to certain key employees of Jameson and Jameson Hospitality are restricted as to sale until fully vested in 2006 through 2010. On February 20, 2001, we registered with the Securities and Exchange Commission the issuance of 200,000 shares of our common stock under our Dividend Reinvestment and Stock Purchase Plan that was approved by our board of directors on February 9, 2001. Our Dividend Reinvestment and Stock Purchase Plan provides holders of our common and preferred stock with a convenient method of investing cash dividends and voluntary cash payments in additional shares of our common stock. We intend to use the net proceeds to be received by us from the sale of the shares of common stock under the plan for working capital and other corporate purposes. Inflation Operators of hotels in general possess the ability to adjust room rates quickly. Jameson Hospitality raised its room rates for Jameson Inns by approximately 1.6% in 1998, 2.7% in 1999 and 3.4% in 2000 and by approximately 2.7% for Signature Inns since May 1999. Nevertheless, competitive pressures have limited, and may in the future limit, Jameson Hospitality's ability to raise rates in the face of inflation. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information regarding this, to the extent that it is relevant to our business, is included in Item 1 of this report under the caption Risk Factors - Interest Rate Increases Could Increase Our Cost of Current and Future Debt and in Item 7 under the caption Liquidity and Capital Resources. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The financial statements and supplementary data are indexed in Item 14 of this report. 46 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information required to be contained in this Item is incorporated by reference to our definitive proxy statement to be filed with respect to our 2001 annual meeting under the headings "Proposal One -- Election of Directors," "Executive Officers" and "Section 16(a) Beneficial Ownership Reporting Compliance." ITEM 11. EXECUTIVE COMPENSATION The information required to be contained in this Item is incorporated by reference to our definitive proxy statement to be filed with respect to our 2001 annual meeting under the heading "Executive Compensation." ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required to be contained in this Item is incorporated by reference to our definitive proxy statement to be filed with respect to our 2001 annual meeting under the heading "Principal Stockholders and Security Ownership of Management." ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required to be contained in this Item is incorporated by reference to our definitive proxy statement to be filed with respect to our 2001 annual meeting under the heading "Certain Transactions." PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. Financial Statements of Jameson Inns, Inc. Report of Independent Auditors F-2 Consolidated Balance Sheets as of December 31, 2000 and 1999 F-3 Consolidated Statements of Operations for each of the three years ended December 31, 2000, 1999 and 1998 F-4 Consolidated Statements of Stockholders' Equity for each of the three years ended December 31, 2000, 1999 and 1998 F-5 Consolidated Statements of Cash Flows for each of the three years ended December 31, 2000, 1999 and 1998 F-6 Notes to Consolidated Financial Statements F-8 2. Financial Statement Schedules 47 Schedule III-Real Estate and Accumulated Depreciation F-34 Notes to Schedule III F-40 All other schedules have been omitted since the required information is not present, or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the financial statements and notes thereto. 3. Financial Statements of Jameson Hospitality, LLC Report of Independent Auditors F-43 Consolidated Balance Sheets as of December 31, 2000, and 1999 F-44 Consolidated Statements of Operations for each of the three years ended December 31, 2000, 1999 and 1998 F-45 Consolidated Statements of Members Capital for each of the three years ended December 31, 2000, 1999 and 1998 F-46 Consolidated Statements of Cash Flows for each of the three years ended December 31, 2000, 1999 and 1998 F-47 Notes to Consolidated Financial Statements F-49 (b) Reports on Form 8-K No reports on Form 8-K were filed during the fourth quarter of the year ended December 31, 2000. (c) 1. The following exhibits are filed as part of this Annual Report or incorporated herein by reference: Exhibit Number Description ------ ----------- 1.1 -- Sales Agency Agreement by and among Jameson Inns, Inc., RGC Brinson Patrick, a division of Ramius Securities, LLC, and Jameson Hospitality, LLC, dated September 3, 1999, incorporated by reference to Exhibit 1.4 to Post-Effective Amendment No. 1 to the Registration Statement on Form S-3, File No. 333- 20143 3.1 -- Articles of Incorporation of the Registrant incorporated by reference to Exhibit 3.1.1 to the Registration Statement filed on Form S-11, File No. 33-71160 3.2 -- Articles of Amendment to the Articles of Incorporation of the Registrant incorporated by reference to Exhibit 3.1.2 to the Registration Statement filed on Form S-11, File No. 33-71160 48 3.3 - Articles of Amendment to the Articles of Incorporation of the Registrant setting forth the Designation of Preferences, Rights, Privileges and Restrictions of the 9.25% Series A Cumulative Preferred Stock the Registrant incorporated by reference to Exhibit 2.1 to the Registrant's Form 10- K/A1 (Amendment No. 1 to the Registrant's Annual Report on Form 10-K) for the year ended December 31, 1993 3.4 - Articles of Amendment to the Articles of Incorporation of the Registrant incorporated by reference to Exhibit 3.3.1 to Form 10-K/A2 (Amendment No. 2 to the Registrant's Annual Report on Form 10-K) for the year ended December 31, 1993 3.5 - Articles of Amendment to the Articles of Incorporation of the Registrant amending the Designation of Preferences, Rights, Privileges and Restrictions of the 9.25% Series A Cumulative Preferred Stock of the Registrant incorporated by reference to Exhibit 3.6 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994 3.6 - Articles of Amendment to the Articles of Incorporation of the Registrant amending the Designation of Preferences, Rights, Privileges and Restrictions of the 9.25% Series A Cumulative Preferred Stock incorporated by reference to Exhibit 3.5 to the Registration Statement on Form S-4, File No. 333-74149 3.7 - Articles of Amendment to the Articles of Incorporation of the Registrant setting forth the Designation of Preferences, Rights, Privileges and Restrictions of the $1.70 Series S Cumulative Convertible Preferred Stock incorporated by reference to Exhibit 3.7 of Post-Effective Amendment No. 1 to the Registration Statement on Form S-3, File No. 333- 20143 3.8 - Bylaws of the Registrant incorporated by reference to Exhibit 3.2.1 to the Registration Statement on Form S-11, File No. 33-71160 3.9 - Amendment to the Bylaws of the Registrant incorporated by reference to Exhibit 3.2.2 to the Registration Statement on Form S-11, File No. 33- 71160 3.10 - Amendment No. 2 to the Bylaws of Registrant incorporated by reference to Exhibit 3.8 to the Annual Report on Form 10-K for the year ended December 31, 1995 3.11 - Amendment No. 3 to the Bylaws of Registrant incorporated by reference to Exhibit 4.8 to the Registration Statement on Form S-3, File No. 333- 55916 4.1 - Specimen certificate of Common Stock incorporated by 49 reference to Exhibit 4.1 to the Company's Registration Statement on Form S-11 (File No. 33- 71160) 4.2 - Specimen certificate of 9.25% Series A Cumulative Preferred Stock incorporated by reference to Exhibit 1 to the Registration Statement on Form 8-A filed March 13, 1998 (File No.000-23256) 4.3 - Specimen certificate of $1.70 Series S Cumulative Convertible Preferred Stock incorporated by reference to Exhibit 1 to the Registration Statement on Form 8- A filed March 26, 1999 (File no. 000-23256) 10.1 - Master Lease Agreement (relating to Jameson Inns) incorporated by reference to Exhibit 10.1 to the Annual Report filed on Form 10-K for the year ended December 31, 1993 10.2 - Amendment No. 1 to Master Lease Agreement (relating to Jameson Inns) between Jameson Inns., Inc. and Jameson Operating Company (revised) incorporated by reference to Exhibit 10.2 to the Annual Report filed on Form 10-K for the year ended December 31, 1995 10.3 - Amendment No. 2 to Master Lease Agreement (relating to Jameson Inns) between Jameson Inns., Inc. and Jameson Operating Company (revised) incorporated by reference to Exhibit 10.3 to the Annual Report filed on Form 10-K for the year ended December 31, 1996 10.4 - Amendment No. 3 to Master Lease Agreement (relating to Jameson Inns) between Jameson Inns., Inc. and Jameson Operating Company (revised) incorporated by reference to Exhibit 10.4 to the Annual Report filed on Form 10-K for the year ended December 31, 1996 10.5 - Amendment No. 4 to Master Lease Agreement (relating to Jameson Inns) between Jameson Inns., Inc. and Jameson Operating Company (revised) incorporated by reference to Exhibit 10.5 to the Annual Report filed on Form 10-K for the year ended December 31, 1997 10.6 - Amendment No. 5 to Master Lease Agreement (relating to Jameson Inns) between Jameson Inns., Inc. and Jameson Alabama, Inc., as lessor, and Jameson Development Company, LLC incorporated by reference to Exhibit 10.6 to the Registration Statement on Form S- 4, File No. 333-74149 10.7 - Schedule of documents substantially similar to Exhibit 10.1 incorporated by reference to Exhibit 3.7 to the Registration Statement on Form S-4, File No. 333-74149 10.8 - Schedule of documents substantially similar to Exhibit 10.6 50 incorporated by reference by Exhibit 10.8 to the Registration Statement on Form S-4, File No. 333-74149 10.9 -- Master Lease Agreement (relating to Signature Inns) incorporated by reference to Exhibit 10.9 to the Post- Effective Amendment No. 1 to the Registration Statement on Form S-3, File No. 333-20143 10.10 -- Amendment No. 1 to Master Lease Agreement (relating to Signature Inns) incorporated by reference to Exhibit 10.11 to the Post-Effective Amendment No. 1 to the Registration Statement on Form S-3, File No. 333-20145 10.11 -- Cost Reimbursement Agreement between Jameson Inns., Inc. and Jameson Hospitality, LLC (formerly Kitchin Investments, Inc.) incorporated by reference to Exhibit 10.2 to the Registration Statement on Form S-11, File No. 33-71160 10.12 -- Form of Construction Contract between Jameson Inns., Inc., and Jameson Hospitality, LLC (formerly Jameson Construction Company) for construction of Jameson Inns incorporated by reference to Exhibit 10.7 to the Annual Report filed on Form 10-K for the year ended December 31, 1995 10.13 -- Jameson 1993 Stock Incentive Plan incorporated by reference to Exhibit 10.22.1 to the Registration Statement on Form S- 11, File No. 33-71160 10.14 -- Form of Stock Option Agreement under Jameson Inns, Inc. Stock Incentive Plan incorporated by reference to Exhibit 10.23 to the Registration Statement on Form S-11, File No. 33-71160 10.15 -- Amendment No. 1 to Jameson 1993 Stock Incentive Plan incorporated by reference to Exhibit 10.10 to the Annual Report filed on Form 10-K for the year ended December 31, 1995 10.16 -- 1994 Amendment to Jameson 1993 Stock Incentive Plan incorporated by reference to Exhibit 10.11 to the Annual Report filed on Form 10-K for the year ended December 31, 1995 10.17 -- Amendment No. 3 to Jameson 1993 Stock Incentive Plan incorporated by reference to Exhibit 10.12 to the Annual Report filed on Form 10-K for the year ended December 31, 1995 10.18 -- Jameson Inns., Inc. Director Stock Option Plan incorporated by reference to Exhibit 10.13 to the Annual Report filed on Form 10-K for the year ended December 31, 1995 51 10.19 -- Jameson 1996 Stock Incentive Plan incorporated by reference to Exhibit 10.45 to the Annual Report filed on Form 10-K for the year ended December 31, 1995 10.20 -- Jameson 1997 Director Stock Option Plan incorporated by reference to Exhibit 10.17 to the Annual Report filed on Form 10-K for the year ended December 31, 1997 10.21 -- Indemnification and Hold Harmless Agreement between Jameson Inns, Inc. and Jameson Hospitality, LLC (formerly Jameson Operating Company) incorporated by reference to Exhibit 10.25 to the Registration Statement on Form S-11, File No. 33-71160 10.22 -- Indemnification and Hold Harmless Agreement between Jameson Inns, Inc. and Jameson Hospitality, LLC (formerly Kitchin Investments, Inc.) incorporated by reference to Exhibit 10.26 to the Registration Statement on Form S-11, File No. 33-71160 10.23 -- Form of Indemnification agreement between Jameson Inns., Inc. and Directors and Officers incorporated by reference to Exhibit 10.27 to the Registration Statement on Form S-11, File No. 33-71160 10.24 -- Form of Construction Loan Agreement, Indenture, Security Agreement and Promissory Note for loan from Empire Financial Services, Inc. to Jameson Inns., Inc. (formerly Jameson Company) for construction of Jameson Inn incorporated by reference to Exhibit 10.39 to the Registration Statement on Form S-11, File No. 33-71160 10.25 -- Form of Construction Loan Indenture, Security Agreement, Assignment of Fees and Income, Promissory Note for $4.2 million revolving loan from Empire Financial Services, Inc. to Jameson Inns., Inc. incorporated by reference to Exhibit 10.21 to the Annual Report filed on Form 10-K for the year ended December 31, 1993 10.26 -- Form of Deed to Secure Debt, Security Agreement, Assignment of Operating Lease, Assignment of Fees and Income, Promissory Note for loan from Empire Financial Services, Inc. to Jameson Inns., Inc. incorporated by reference to Exhibit 10.24 to the Annual Report filed on Form 10-K for the year ended December 31, 1995 10.27 -- Loan Modification Agreement and Note increasing by $2.6 million the revolving loan from Empire Financial Services, Inc. to Jameson Inns., Inc. incorporated by reference to Exhibit 10.26 to the Annual Report filed on Form 10-K for the year ended December 31, 1995 52 10.28 -- Deeds to Secure Debt, Mortgages, Assignments and Security Agreements, Assignment of Rents and Leases, Assignments of Income and Promissory Note for $17,171,717 loan from Bank Midwest, N.A. to Jameson Inns, Inc. secured by 14 separate Jameson Inns incorporated by reference to Exhibit 10.34 to the Registration Statement on Form S-4, File No. 333-74149 10.29 -- Adjustable Rate Note dated June 30, 1996 in the amount of $1,050,000 from Jameson Inns., Inc. to Empire Financial Services, Inc. for loan on Waynesboro, Georgia incorporated by reference to Exhibit 10.3 to the Report for the quarter ended March 31, 1996 10.30 -- Asset Purchase Agreement by and among Jameson Outdoor Advertising Company, Jameson Inns, Inc. and Jameson Hospitality, LLC dated as of January 4, 1999 incorporated by reference to Exhibit 10.30 to the Annual Report filed on Form 10-K for the year ended December 31, 1999 10.31 -- Term Loan Agreement dated as of December 28, 1999, between Jameson Inns, Inc. and First National Bank & Trust; Mortgage; Security Agreement; Assignment of Rents and Leases; Mortgage Note for $3.7 million incorporated by reference to Exhibit 10.31 to the Annual Report filed on Form 10-K for the year ended December 31, 1999 10.32 -- Loan Agreement between the City of Elkhart, Indiana and Jameson Inns, Inc. dated as of December 1, 1999, relating to the issuance of $3,305,000 of Adjustable Rate Economic Development Revenue Refunding Bonds, Series 1999; Trust Indenture between City of Elkhart, Indiana and Firstar Bank, N.A. as Trustee, dated as of December 1, 1999; Escrow Deposit Agreement dated December 22, 1999, by and among Jameson Inns, Inc., the City of Elkhart, Indiana, Bank One Trust Company, NA as Escrow Trustee and Bank One Trust Company, NA as Prior Trustee; Specimen Irrevocable Letter of Credit dated December 22, 1999 for the benefit of bondholders for the account of Jameson Inns, Inc.; Reimbursement Agreement between Jameson Inns, Inc. and Firstar Bank, N.A. dated December 22, 1999; Mortgage, Assignment of Rents and Security Agreement from Jameson Inns, Inc. to Firstar Bank, N.A. dated as of December 22, 1999; Assignment of Leases and Rents from Jameson Inns, Inc. to Firstar Bank, N.A. dated as of December 22, 1999; Assignment and Subordination of Master Lease by Jameson Inns, Inc. and Jameson Hospitality, LLC for the benefit of Firstar Bank, N.A. dated as of December 22, 1999; Environmental Indemnity Agreement by Jameson Inns, Inc. to and for the benefit of Firstar Bank, N.A. dated as of December 22, 1999; Agreement with respect to Pledged Bonds by and among Firstar Bank, N.A., as Trustee, Firstar Bank, N.A. as Letter of Credit Bank and Jameson Inns, 53 Inc. dated as of December 1, 1999; Bond Purchase Agreement by and among the City of Elkhart, Indiana, Jameson Inns, Inc. and Banc One Capital Markets, Inc. dated as of December 21, 1999; Remarketing Agreement between Banc One Capital Markets, Inc. and Jameson Inns, Inc. dated as of December 1, 1999 incorporated by reference to Exhibit 10.32 to the Annual Report filed on Form 10-K for the year ended December 31, 1999 10.33 -- Schedule of documents substantially similar to Exhibit 10.32 incorporated by reference to Exhibit 10.33 to the Annual Report filed on Form 10-K for the year ended December 31, 1999 10.34 -- Employment contract with Thomas W. Kitchin dated July 27, 2000, incorporated by reference to Exhibit 10.1 to the Report for the quarter ended September 30, 2000 10.35 -- Employment contract with Craig R. Kitchin dated July 27, 2000, incorporated by reference to Exhibit 10.2 to the Report for the quarter ended September 30, 2000 10.36 -- Employment contract with William D. Walker dated July 27, 2000, incorporated by reference to Exhibit 10.3 to the Report for the quarter ended September 30, 2000 10.37 -- Employment contract with Steven A. Curlee dated July 27, 2000, incorporated by reference to Exhibit 10.4 to the Report for the quarter ended September 30, 2000 10.38 -- Loan Agreement dated as of September 27, 2000, between Jameson Inns, Inc. and Geneva Leasing Associates, Inc. for Signature Inn, Fort Wayne, Indiana; Mortgage, Assignment of Rents, Security Agreement and Financing Statement; and Note for $2,825,000 10.39 -- Loan Agreement dated September 27, 2000, between Jameson Inns, Inc. and Republic Bank, Indianapolis, Indiana for Signature Inn, Indianapolis West; Mortgage, Security Agreement and Fixture Filing; Assignment of Deposits, Leases and Rents; Estoppel Certificate, Subordination and Attonment Agreement; and Promissory Note for $4,745,000 10.40 -- Loan Agreement dated December 27, 2000, between Jameson Properties, LLC and First Bank, Peoria, Illinois for Signature Inn, Normal, Illinois; Mortgage and Security Agreement; Assignment of Leases and Rents; Subordination Agreement; Tenant Estoppel Agreement; Indemnity Agreement; and Promissory Note A for $6,000,000; Promissory Note B for $5,000,000 10.41 -- Schedule of documents substantially similar to Exhibit 10.40 10.42 -- Open-end Mortgage dated May 16, 2001 between Jameson Inns, Inc. and Cornerstone Bank for Signature Inn, Columbus, Ohio; Security Agreement, Equipment, Inventory Receivables; Assignment of Rents as Security; Hazardous Substance Indemnity Agreement; Depository Agreement; Promissory Note for $3,900,000; and Addendum to Promissory Note 10.43 -- Real Estate Mortgage dated March 28, 2001 between Jameson Alabama, Inc. and Empire Financial Services, Inc. for Jameson Inn, Tuscaloosa, Alabama; Assignment of Lease; Assignment of Operating Lease; Assignment of Fees and Income; Security Agreement; Adjustable Rate Note for $1,500,000; Unconditional Guaranty of Payment and Performance 10.44 -- Schedule of documents substantially similar to Exhibit 10.43 21.1 -- Subsidiaries of the Registrant 23.1 -- Consent of Ernst & Young LLP 54 Jameson Inns, Inc. Consolidated Financial Statements Years ended December 31, 2000 and 1999 Contents
Report of Independent Auditors.................................. F-2 Consolidated Financial Statements Consolidated Balance Sheets..................................... F-3 Consolidated Statements of Operations........................... F-4 Consolidated Statements of Stockholders' Equity................. F-5 Consolidated Statements of Cash Flows........................... F-6 Notes to Consolidated Financial Statements...................... F-8
F-1 Report of Independent Auditors The Board of Directors Jameson Inns, Inc. We have audited the accompanying consolidated balance sheets of Jameson Inns, Inc. as of December 31, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Jameson Inns, Inc. at December 31, 2000 and 1999, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. February 8, 2001 Atlanta, Georgia F-2 Jameson Inns, Inc. Consolidated Balance Sheets
December 31 2000 1999 --------------------------------- Assets Operating property and equipment $365,243,811 $318,601,921 Property and equipment held for sale 7,171,688 2,358,504 Less accumulated depreciation (38,324,641) (24,377,453) --------------------------------- 334,090,858 296,582,972 Cash 1,976,592 2,531,009 Restricted cash 636,126 12,616,482 Lease revenue receivable 5,782,118 6,941,315 Deferred finance costs, net 3,690,409 2,942,324 Other assets 549,382 1,237,643 --------------------------------- $346,725,485 $322,851,745 ================================= Liabilities and Stockholders' equity Mortgage notes payable $207,145,362 $173,957,998 Accounts payable and accrued expenses 553,443 1,269,334 Accounts payable to affiliates 6,820,370 6,475,510 Accrued interest payable 1,461,280 972,544 Accrued property taxes 2,336,416 2,178,719 Preferred stock dividends payable 1,667,183 1,694,595 --------------------------------- 219,984,054 186,548,700 Stockholders' equity: Preferred stock, 1,272,727 shares authorized, 9.25% Series A Cumulative Preferred Stock, $1 par value, liquidation preference $25 per share, 1,272,727 1,272,727 1,272,727 shares issued and outstanding Preferred stock, 2,256,000 shares authorized, 8.5% Series S Cumulative Convertible Preferred Stock, $1 par value, liquidation preference $20 per share, 2,191,500 shares (2,256,000 in 2,191,500 2,256,000 1999) issued and outstanding Common stock, $.10 par value, 40,000,000 shares authorized, 11,554,238 shares (11,083,952 in 1999) issued and 1,155,424 1,108,395 outstanding Additional paid-in capital 123,148,771 132,692,914 Retained deficit (1,026,991) (1,026,991) --------------------------------- Total stockholders' equity 126,741,431 136,303,045 --------------------------------- $346,725,485 $322,851,745 =================================
See accompanying notes. F-3 Jameson Inns, Inc. Consolidated Statements of Operations
Year ended December 31 2000 1999 1998 ----------------------------------------------- Lease revenue $43,231,727 $34,668,532 $18,229,748 Expenses: Property and other tax expense 3,670,841 2,634,056 1,059,040 Insurance expense 869,601 566,351 481,932 Depreciation 14,619,521 10,396,468 5,636,079 General and administrative expenses 1,405,343 1,116,520 574,688 (Gain) loss on disposal of real estate (283,258) 755,214 507,718 Amortization of offering costs 176,281 99,724 - Loss on impairment of real estate - - 2,507,000 ----------------------------------------------- Total expenses 20,458,329 15,568,333 10,766,457 ----------------------------------------------- Income from operations 22,773,398 19,100,199 7,463,291 Interest expense, net of capitalized amounts 14,942,749 8,429,007 1,656,240 Equity in income of hotel limited partnership - 75,462 - Other income 48,085 23,913 - ----------------------------------------------- Income before extraordinary loss 7,878,734 10,770,567 5,807,051 Extraordinary loss-early extinguishment of debt 87,816 - 133,951 ----------------------------------------------- Net income 7,790,918 10,770,567 5,673,100 Less preferred stock dividends 6,696,144 5,387,248 2,188,050 Net income attributable to common ----------------------------------------------- stockholders $ 1,094,774 $ 5,383,319 $ 3,485,050 =============================================== Per common share: Income before extraordinary loss: Basic $ .11 $ .51 $ .37 Diluted $ .10 $ .51 $ .36 Net income: Basic $ .10 $ .51 $ .36 Diluted $ .10 $ .51 $ .35
See accompanying notes. F-4 Jameson Inns, Inc. Consolidated Statements of Stockholders' Equity
Preferred Preferred Stock Stock Common Contributed Retained Stockholders' Series A Series S Stock Capital Deficit Equity ------------------------------------------------------------------------------------ Balance at January 1, 1998 $ - $ - $ 977,408 $ 75,210,464 $(1,026,991) $ 75,160,881 Issuance of preferred and common stock, net of offering expense 1,200,000 - 4,253 27,839,002 29,043,255 Exercise of stock options - 5,930 353,089 359,019 Vesting of restricted stock grants - 1,990 60,442 62,432 Common stock dividends ($0.94 per share) - - (3,784,845) (5,457,255) (9,242,100) Preferred stock dividends ($1.82 per share) - - (1,972,205) (215,845) (2,188,050) Net income - - 5,673,100 5,673,100 ------------------------------------------------------------------------------------ Balance at December 31, 1998 1,200,000 989,581 97,705,947 (1,026,991) 98,868,537 Issuance of preferred and common stock, net of offering expense 72,727 2,256,000 117,341 39,585,070 - 42,031,138 Exercise of stock options - - 1,501 100,302 - 101,803 Vesting of restricted stock grants - - (28) 67,653 - 67,625 Common stock dividends ($.97 per share) - - - (4,072,307) (6,077,070) (10,149,377) Preferred stock dividends-Series S ($1.70 per share) - - - - (2,486,112) (2,486,112) Preferred stock dividends - Series A ($2.31 per share) - - - (693,751) (2,207,385) (2,901,136) Net income - - - - 10,770,567 10,770,567 ------------------------------------------------------------------------------------ Balance at December 31, 1999 1,272,727 2,256,000 1,108,395 132,692,914 (1,026,991) 136,303,045 Issuance of common stock, net of offering expense - - 7,211 492,658 - 499,869 Vesting of restricted stock grants - - 33,110 271,066 - 304,176 Conversion of Series S Preferred Stock - (64,500) 6,708 (143,771) - (201,563) Common stock dividends ($.98 per share) - - - (10,164,096) (1,094,774) (11,258,870) Preferred stock dividends-Series S ($1.70 per share) - - - - (3,557,370) (3,557,370) Preferred stock dividends - Series A ($2.31 per share) - - - - (3,138,774) (3,138,774) Net income - - - - 7,790,918 7,790,918 ------------------------------------------------------------------------------------ Balance at December 31, 2000 $ 1,272,727 $2,191,500 $1,155,424 $123,148,771 $(1,026,991) $126,741,431 ====================================================================================
See accompanying notes. F-5 Jameson Inns, Inc. Consolidated Statements of Cash Flows
Year ended December 31 2000 1999 1998 ------------------------------------------------- Operating activities Net income $ 7,790,918 $ 10,770,567 $ 5,673,100 Adjustments to reconcile net income to cash provided by operating activities: Extraordinary loss 87,816 - 133,951 Depreciation and amortization 15,216,932 10,624,136 5,750,186 Equity in income of hotel limited partnership - (75,462) - Amortization of offering costs 176,281 99,724 - (Gain) loss on disposal of property and equipment (283,258) 755,214 507,718 Stock-based compensation expense 304,176 67,625 62,432 Loss on impairment of real estate - - 2,507,000 Changes in assets and liabilities increasing (decreasing) cash: Lease revenue receivable 1,159,197 (4,651,562) (832,081) Restricted cash 11,980,356 882,592 - Other assets 511,981 (894,526) (206,712) Accounts payable and accrued (715,891) 730,989 (13,681) expenses Accounts payable to affiliates 344,860 4,605,402 (98,778) Accrued interest payable 488,736 (7,893) 185,679 Accrued property taxes and other accrued liabilities 138,733 295,263 176,294 ------------------------------------------------- Net cash provided by operating 37,200,837 23,202,069 13,845,108 activities Investing activities Acquisition of Signature Inns and billboards, net - 92,092 - Proceeds from disposition of land, property and equipment 2,060,575 1,441,586 - Additions to property and equipment (53,878,540) (41,761,690) (55,844,810) ------------------------------------------------- Net cash used in investing activities (51,817,965) (40,228,012) (55,844,810)
F-6 Jameson Inns, Inc. Consolidated Statements of Cash Flows (continued)
Year ended December 31 2000 1999 1998 ------------------------------------------------ Financing activities Common stock dividends paid $(11,258,870) $(10,149,377) $ (9,242,100) Preferred stock dividends paid (6,723,556) (4,386,403) (1,494,300) Proceeds from issuance of preferred and common stock, net of offering expense 499,869 977,230 29,043,255 Proceeds from exercise of stock options - 101,803 359,019 Conversion of Series S preferred stock (201,563) - - Proceeds from mortgage notes payable 75,711,945 62,003,310 53,936,020 Payment of deferred finance costs (1,440,533) (2,001,251) (576,922) Payments on mortgage notes payable (42,524,581) (27,488,737) (29,863,474) Net cash provided by financing ------------------------------------------------ activities 14,062,711 19,056,575 42,161,498 ------------------------------------------------ Net change in cash (554,417) 2,030,632 161,796 Cash at beginning of year 2,531,009 500,377 338,581 ------------------------------------------------ Cash at end of year $ 1,976,592 $ 2,531,009 $ 500,377 ================================================ Supplemental information Interest paid, net of interest capitalized $ 15,258,820 $ 8,746,028 $ 2,252,778 ================================================ State income and franchise taxes paid $ 213,004 $ 16,226 $ 17,353 ================================================
See accompanying notes. F-7 Jameson Inns, Inc. Notes to Consolidated Financial Statements December 31, 2000 1. Business and Basis of Financial Statements Jameson Inns, Inc. ("the Company") develops and owns limited service hotel properties (the "Inns") operating under the trademark "The Jameson Inn(R)." In addition, as a result of the Company's acquisition of Signature Inns, Inc. ("Signature") in May of 1999, the Company owns Inns in the Midwest operating under the trademark "Signature Inns(R)". On May 7, 1999, the Company merged with Signature, a limited-service hotel company based in Indiana with Inns located in Midwestern states. Through the Signature merger, the Company acquired 25 wholly-owned Signature Inns (2,978 available rooms) and a 40% general partnership interest in a limited partnership which owned one additional Signature Inn (81 available rooms). In December 1999 the Company acquired the remaining partnership interest in this partnership and took direct ownership of the hotel. At December 31, 2000, there were 104 Jameson Inns in operation in nine Southeastern states and 26 Signature Inns in operation in six Midwestern states, with a total of 8,351 rooms. In 2001, five additional Jameson Inns will be developed and nine expansions of existing Jameson Inns will be completed. 2. Accounting Policies The Company has several business relationships with Jameson Hospitality, LLC ("JH") including contracts to construct the new Inns (see Note 11) and the lease to operate the Inns (see Note 6). JH is wholly-owned by Thomas W. Kitchin, chairman and chief executive officer of the Company, and members of his family. JH is the successor to Jameson Development Company, LLC and Jameson Operating Company II, LLC which previously held the contracts and the lease, respectively and Kitchin Investments, Inc., which was merged into JH on December 31, 1999. The Company's principal business also includes arranging construction and permanent financing, land acquisition, ownership of the Inns and billboards, capital improvements to the Inns, and acquisition and replacement of furniture, fixtures and equipment for the Inns. F-8 Jameson Inns, Inc. Notes to Consolidated Financial Statements (continued) 2. Accounting Policies (continued) Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Property and Equipment Costs incurred to acquire and open new Inn locations or to expand or renovate existing Inns are capitalized as property costs and amortized over their depreciable life. The Company also capitalizes construction period interest costs and real estate taxes. Interest costs of $1,686,879 and $1,596,925, were capitalized in 2000 and 1999, respectively. Property and equipment used in Inn operations is depreciated using the straight- line method generally over 31.5 to 39 years (buildings), 15 years (land improvements) and three to five years (furniture, fixtures and equipment). Billboards are depreciated over ten years (see Note 5). Deferred Finance Costs Deferred finance costs represent fees and other expenses incurred to obtain long-term debt financing on the Inn facilities and are amortized to expense over the terms of the loans, beginning with the opening of the Inn. Amortization of deferred finance costs is included in interest expense in the consolidated statements of operations. Accumulated amortization totaled $963,600 and $397,018 as of December 31, 2000 and 1999, respectively. F-9 Jameson Inns, Inc. Notes to Consolidated Financial Statements (continued) 2. Accounting Policies (continued) Income Taxes The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the "Code"), and has operated as such since January 1, 1994. As a result, the Company is not subject to federal income taxes to the extent that it distributes annually at least 95% (90% in 2001) of its taxable income to its shareholders and satisfies certain other requirements defined in the Code. The Company uses the liability method of accounting for income taxes, which amounts have not been material since the REIT election. Stock-Based Compensation The Company uses the intrinsic value method for valuing its awards of stock options, restricted stock and other stock awards and recording the related compensation expense, if any. This compensation expense is included in general and administrative expense. See Note 8 for pro forma disclosures using the fair value method as described in Financial Accounting Standards Board Statement No. 123, Accounting for Stock- Based Compensation ("FAS 123"). Financial Instruments The Company considers its cash, restricted cash and mortgage notes payable to meet the definition of financial instruments as prescribed by Financial Accounting Standards Board Statement No. 107, Disclosures about Fair Value of Financial Instruments. At December 31, 2000 and 1999, the carrying value of the Company's financial instruments approximated their fair value. F-10 Jameson Inns, Inc. Notes to Consolidated Financial Statements (continued) 2. Accounting Policies (continued) Restricted Cash Restricted cash at December 31, 1999 primarily represents amounts that have been funded from bond issuances, held in trust, to retire four outstanding bonds payable. In January 2000, $12,115,000 of the restricted cash was used to retire such bonds. At December 31, 2000, the restricted cash balance is restricted under the requirements of the bond indentures. Principles of Consolidation Intercompany transactions among the entities included in the consolidated financial statements have been eliminated. As of December 31, 2000, the Company had one wholly-owned and two 99.8%-owned qualified real estate investment trust subsidiaries. Various companies wholly-owned by the Company's Chairman and CEO and members of his family own the remaining 0.2% of these two subsidiaries. For 1999, the equity in income in hotel limited partnership represents the Company's 40% general partnership interest in the Carmel, Indiana Signature Inn limited partnership. The investment was accounted for using the equity method of accounting whereby the Company recorded its proportionate share of the partnership's income. On December 28, 1999, the Company purchased the remaining 60% partnership interest, therefore, the operations of the partnership beginning December 28, 1999 are consolidated in the Company's financial statements. Earnings Per Share Net income attributable to common stock is reduced by all preferred stock dividends declared through the end of the period. Basic earnings per share is calculated using weighted average shares outstanding less issued and outstanding but unvested restricted shares of Common Stock. F-11 Jameson Inns, Inc. Notes to Consolidated Financial Statements (continued) 2. Accounting Policies (continued) Earnings Per Share (continued) Diluted earnings per share is calculated using weighted average shares outstanding plus the dilutive effect of outstanding shares of Preferred Stock, outstanding restricted shares of Common Stock and outstanding stock options, using the treasury stock method and the average stock price during the period. The potential conversion of the Convertible Series S Preferred Stock has been excluded from the dilutive earnings per share calculation as the effects of redemption would be antidilutive. 3. Property and Equipment Property and equipment consists of the following at December 31: 2000 1999 ----------------------------------- Land and improvements $ 58,922,401 $ 57,449,978 Buildings 253,407,237 208,229,439 Furniture, fixtures and equipment 42,816,001 30,262,230 Billboards 2,783,076 2,537,437 Construction in process 7,315,096 20,122,837 ----------------------------------- Operating property and equipment 365,243,811 318,601,921 Property and equipment held for sale 7,171,688 2,358,504 Accumulated depreciation (38,324,641) (24,377,453) ----------------------------------- $334,090,858 $296,582,972 =================================== In 1996, the Company adopted Financial Accounting Standards Board Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which requires impairment losses to be recorded on long-lived assets used in operations or held for sale when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. During 1998, the Company recognized a $2,507,000 loss on impairment of real estate related to one of its properties. In 1999 the property was sold and the sales price approximated its carrying value. No impairment losses have been recognized in 2000 or 1999. F-12 Jameson Inns, Inc. Notes to Consolidated Financial Statements (continued) 3. Property and Equipment (continued) Based on a review of its investment portfolio at December 31, 2000, the Company has determined that two operating hotel properties do not meet its investment criteria. Accordingly, the Company has decided to sell the properties and therefore the properties are classified as held for sale in the accompanying balance sheet. In addition, the Company owns several parcels of land mainly adjacent to operating Inns which are held for sale. The hotel properties and parcels of land held for sale are recorded at the lower of cost or fair value less anticipated selling costs. At December 31, 1999, one property that had been determined as not meeting the Company's investment criteria was classified as held for sale on the Company's balance sheet. In February 2000, the Company closed on the sale of this hotel property. The sales price, less selling costs, approximated the carrying amount. 4. Merger with Signature Inns, Inc. On May 7, 1999, the Company completed its merger with Signature Inns, Inc. In the merger, the Company acquired 25 Signature Inns and a 40% general partnership interest in a partnership which owned one Signature Inn. Immediately prior to the merger, the Signature operating assets were sold to, and the liabilities pertaining to the operations of the Signature Inns were assumed by JH. In connection with the merger, the Company entered into a new master lease with JH covering the 25 wholly-owned Signature Inns (Note 6). In the merger, holders of Signature common stock received one-half of a share of Jameson common stock and $1.22 in cash for each share of Signature common stock. Holders of Signature Series A Preferred Stock received one share of Jameson Series S Preferred Stock for each share of Signature Series A Preferred Stock. In the merger, the Company assumed all of the outstanding indebtedness of Signature, except for $2.1 million which was repaid at closing with additional borrowings under the Company's line of credit. As of May 7, 1999, the debt assumed totaled $67.1 million and was secured by mortgages on twenty-four of the Signature Inns. F-13 Jameson Inns, Inc. Notes to Consolidated Financial Statements (continued) 4. Merger with Signature Inns, Inc. (continued) The purchase price of Signature approximated $46.3 million, consisting of $2.6 million in cash, the issuance of 1,051,846 shares of Jameson Common Stock (at $9.125 per share), 2,256,000 shares of Jameson Series S Preferred Stock (at $13.375 per share), and merger related costs of approximately $4.0 million. The purchase price was allocated to the fair value of the net assets acquired as follow: Cash $ 6,721,951 Restricted cash 1,384,074 Hotel limited partnership 1,079,675 Property and equipment 108,332,245 Amount due from affiliates 398,447 Accounts payable and accrued expenses (277,580) Accrued interest payable (630,001) Accrued property taxes (1,411,796) Mortgage notes payable (69,231,797) ------------- $ 46,365,218 ============= The merger was accounted for as a purchase of Signature by Jameson as prescribed by Accounting Principles Board Opinion No. 16, Business Combinations. Accordingly, the historical results of Jameson include the effects of the merger beginning May 8, 1999. F-14 Jameson Inns, Inc. Notes to Consolidated Financial Statements (continued) 4. Merger with Signature Inns, Inc. (continued) The following presents the unaudited pro forma results of operations for 1999 and 1998 as if the purchase and all related transactions were consumed on January 1, of the respective period for the year ended December 31. Such information reflects the allocation of the purchase price. 1999 1998 -------------------------------- Pro forma: Lease revenues $39,626,806 $35,081,173 Income before extraordinary items 10,616,738 9,481,780 Extraordinary items - 133,951 -------------------------------- Net income 10,616,738 9,347,829 Preferred stock dividends 6,736,336 6,023,250 -------------------------------- Net income attributable to common stock $ 3,880,402 $ 3,324,579 ================================ Pro forma earnings per share: Basic earnings per common share: Income before extraordinary items $ .36 $ .32 Extraordinary items - (.01) -------------------------------- Net income $ .36 $ .31 ================================ Diluted earnings per common share: Income before extraordinary items $ .35 $ .31 Extraordinary items - (.01) -------------------------------- Net income $ .35 $ .30 ================================ F-15 Jameson Inns, Inc. Notes to Consolidated Financial Statements (continued) 5. Acquisition of Outdoor Advertising Assets of Jameson Hospitality, LLC On April 2, 1999, the Company completed the acquisition of the outdoor advertising assets and certain related operations of JH. These assets consist of approximately 100 roadside billboards on which advertising for the Company's hotel properties and, in certain instances, other services or products for third parties, is placed. These billboards were leased to JH and continue to be used for similar types of advertising. Consideration of $2,381,000 paid to JH consisted of (i) 72,727 newly issued shares of the Company's Series A Preferred Stock (at $17.625 per share), (ii) $400,000 in cash, and (iii) the assumption of indebtedness of approximately $700,000 which is secured by mortgages on the billboards and the revenues generated therefrom. 6. The Leases The Company has entered into master leases, whereby all of the operating Inns are leased to JH. Therefore, all of the lease revenue and related receivables are derived from these leases. The Jameson and Signature leases, which expire December 31, 2010 and 2012, respectively, provide for payment of Base Rent plus Percentage Rent. Base Rent is payable monthly and equals $264 and $394 per month for the Jameson Inns and Signature Inns, respectively, based upon rooms available at the beginning of the relevant month. Percentage Rent is payable quarterly and is calculated as a percentage in excess of Base Rent of the total amount of room rental and other miscellaneous revenues realized by JH during the relevant period. For Jameson Inns, the percentage is 39% of such revenues up to $21.91 per day per room in 2000, plus 65% of all additional average daily room rental revenues. For Signature Inns, the percentage is 37% of such revenues up to $36.76 per day per room in 2000, plus 65% of the next $10.00 of average daily per room rental revenues; plus 70% of all additional average daily room rental revenues. F-16 Jameson Inns, Inc. Notes to Consolidated Financial Statements (continued) 6. The Leases (continued) Total rent for the Jameson Inns in any calendar year may not exceed 47% of total room rental revenues for that year. The $21.91 and $36.76 per room amount, for Jameson Inns and Signature Inns, respectively, used in calculating percentage rent is subject to adjustment each year based on changes in the Consumer Price Index and as of January 1, 2001 was $22.65 and $38.00 for Jameson Inns and Signature Inns, respectively. Base rent totaled $28,900,248, $20,998,052 and $10,501,920 in 2000, 1999, and 1998, respectively, and assuming no change in rooms available after December 31, 2000, the base rent for 2001 and thereafter would total $31,215,528 per year until the Lease expires. The Lease requires the Company to pay real and personal property taxes, casualty and liability insurance premiums and the cost of maintaining structural elements, including underground utilities and the cost of replacing or refurbishing the furniture, fixtures and equipment in the Inns. The Company intends to maintain cash reserves or sufficient access to borrowings equal to 4% of room revenues of JH, less amounts expended to date, to fund the Company's future capital expenditures for such replacements and refurbishments. JH is required to pay all other costs and expenses incurred in the operations of the Inns. F-17 Jameson Inns, Inc. Notes to Consolidated Financial Statements (continued) 7. Mortgage Notes Payable As of December 31, long-term debt consists of:
2000 1999 ------------------------------ Notes payable: Terms ranging from four to twenty-one years, due in monthly installments of principal and interest with remaining unpaid balances payable at maturity, which range from 2001 to 2017. At December 31, 2000 the Company had $3.8 million of availability. Interest rates are adjusted annually and range from 8.62% to 10.75% and are mainly adjustable to a spread above the prime rate or Treasury securities at December 31, 2000. Secured by mortgages on 103 Inns. $175,051,374 $108,534,789 Term of twenty years and interest accrues at 3.75% above a weekly average yield on Treasury securities, adjusted annually (9.4% at December 31, 2000). Principal and interest payments are due monthly through maturity in 2019. Secured by mortgages on 14 Inns. 16,427,808 16,780,358 Terms of seventeen years due in annual installments of principal and bi-annual installments of interest with any unpaid balances payable in December 2016. Interest rates are adjusted weekly and were 5.25% at December 31, 2000. Secured by mortgages on 4 Inns. 11,805,000 12,115,000 Term of five years due in monthly installments of principal and interest with unpaid balance payable at maturity in December 2004. Interest rate is fixed at 9.50%. Secured by Company billboards. 531,924 646,984
F-18 Jameson Inns, Inc. Notes to Consolidated Financial Statements (continued) 7. Mortgage Notes Payable (continued)
2000 1999 ------------------------ Lines of credit: $8.92 million line of credit convertible to term notes due at various dates through 2004. At December 31, 2000, the Company had $7.0 million of availability. The Line bears interest at initial annual rates ranging from 8.875% to 9.0%, adjusted annually to the prime rate plus .375% to .5%, with a floor of 7% and a cap of 12% (9.125% to 10% at December 31, 2000). Payments of interest are due monthly, and monthly payments of principal and interest commence at various dates using a 15 to 20-year amortization period and payable at various maturities in 2003 to 2004. Secured by mortgages on 9 Inns. 1,925,227 13,332,203 $5.0 million secured line of credit available to draw on at December 31, 2000. The line bears interest at initial annual rates of 9.625%, adjusted annually to prime plus .625%. Payments of interest are due monthly through December 2001. Beginning January 2002, principal and interest are due with the principal balance payable at maturity in December 2005. - - $600,000 line of credit secured by Company billboards. At December 31, 2000, the Company had $576,914 available to borrow. The line bears interest at prime plus 1% (10.5% at December 31, 2000). Payments of interest are due monthly with the principal balance payable upon maturity in December 2001. 23,086 23,082 Construction obligations: $12.2 million total commitments. As of December 31, 2000, $10.8 million was available for borrowing. The construction loans have terms of seven years and are due in monthly installments of interest only for 18 months and principal and interest using a 15-year amortization period until maturity in 2006 and 2007. Interest rates are adjusted annually to the then prevailing prime rate plus .125% to .375%. Interest rates at December 31, 2000 ranged from 8.375% to 9.875%. Secured by 5 Inns under construction. 1,380,943 10,410,577
F-19 Jameson Inns, Inc. Notes to Consolidated Financial Statements (continued)
$12,115,000 of bonds payable at December 31, 1999, secured by restricted cash, with interest at 9.8%. In January 2000, all such bonds were retired utilizing the Company's restricted cash. - 12,115,000 ------------------------------- $207,145,362 $173,957,998 ===============================
F-20 Jameson Inns, Inc. Notes to Consolidated Financial Statements (continued) 7. Mortgage Notes Payable (continued) At December 31, 2000 and 1999, approximately $333.0 and $286.5 million, respectively, of the Company's net book value of property and equipment collateralized the mortgage notes payable. At December 31, 2000 and 1999, the carrying value of the long-term debt approximated its fair value. The following table summarizes the scheduled aggregate principal payments for the five years subsequent to December 31, 2000: 2001 $ 7,682,345 2002 17,848,943 2003 15,634,465 2004 20,290,213 2005 and thereafter 145,689,396 ------------ $207,145,362 ============ As a result of the early extinguishment of certain debt in 2000 and 1998, the Company incurred extraordinary losses of $87,816 and $133,951, in 2000 and 1998, respectively, comprised of the unamortized deferred finance costs and prepayment penalties. 8. Stockholders' Equity Preferred Stock On May 7, 1999, in connection with the Signature merger, the Company issued 2,256,000 shares of 8.5% Series S Cumulative Convertible Preferred Stock ("Series S Preferred Stock") at $13.375 per share. The Series S Preferred Stock is senior to all shares of the Company's common stock and is on a parity with the Company's 9.25% Series A Preferred Stock ("Series A Preferred Stock"). F-21 Jameson Inns, Inc. Notes to Consolidated Financial Statements (continued) 8. Stockholders' Equity (continued) Preferred Stock (continued) On March 18, 1998, the Company completed the sale of 1,200,000 newly issued shares of 9.25% Series A Preferred Stock at $25 per share before underwriting discounts and expenses. Net proceeds of approximately $28.5 million were used to repay certain existing mortgage indebtedness at that date. Dividends on the Series A and Series S Preferred Stock are cumulative from the date of original issue and are payable quarterly in arrears on or about the 20th day of January, April, July and October to shareholders of record on the last business day of December, March, June and September at the fixed rate of 9.25% per annum of the liquidation preference of $25 per share (equivalent to a fixed annual rate of $2.3125 per share) for the Series A Preferred Stock and at the fixed rate of 8.5% per annum of the liquidation preference of $20 per share (equivalent to a fixed annual rate of $1.70 per share) for the Series S Preferred Stock. Holders of Series A and Series S Preferred Stock generally will have no voting rights except as required by law. In addition, certain changes to the terms of the Series A and Series S Preferred Stock that would be materially adverse to the rights of holders of the Series A and Series S Preferred Stock cannot be made without the affirmative vote of holders of at least a majority of the outstanding Series A and Series S Preferred Stock. The Series S Preferred Stock is convertible into the Company's common stock, at the option of the holder at the stated Conversion Price (as defined). Additionally, at any time on or after February 1, 2000, the Company has the right to redeem any, or all, of the Series S Preferred Stock, plus accrued and unpaid dividends, at the Redemption Price, as defined, which ranges from $20.00 to $20.97 per share (depending on the date of redemption). The holders do not have the option to redeem the Series S Preferred Stock. During 2000, 64,500 shares of the Series S Preferred Stock were converted into common stock. The Series A Preferred Stock is not convertible into or exchangeable for any other property or securities. F-22 Jameson Inns, Inc. Notes to Consolidated Financial Statements (continued) 8. Stockholders' Equity (continued) Preferred Stock (continued) Upon the occurrence of a Change of Control Event, as defined, at any time prior to March 18, 2003, the Company may redeem all of the outstanding Series A Preferred Stock at a purchase price ranging from $25.05 to $26.05 per share (depending on the date of the redemption), plus accrued and unpaid dividends (if any) to the date of redemption. Except in certain circumstances relating to preservation of the Company's status as a REIT and in connection with a change of control of the Company, the Series A Preferred Stock is not redeemable prior to March 18, 2003. On and after such date, the Series A Preferred stock will be redeemable for cash at the option of the Company, in whole or in part, at a redemption price of $25 per share, plus dividends accrued and unpaid to the redemption date (whether or not declared) without interest. Stock Options The Company has four stock option plans. The Company adopted the 1993 Stock Incentive Plan ("1993 Plan") to provide incentives to attract and retain officers and key employees of both the Company and JH. This Plan provides for a number of shares equal to 10% of the Company's outstanding common shares (excluding shares issued pursuant to exercises of options granted under this Plan). In 1996, the Jameson 1996 Stock Incentive Plan ("1996 Plan") was adopted and 500,000 additional shares were reserved for issuance. As of December 31, 2000 the Company had a total of 1,465,240 shares reserved for issuance, including 264,149 shares available for future option grants and restricted stock under the 1993 and 1996 Plans. The Director Stock Option Plan ("1995 Director Plan") reserved 150,000 shares of Common Stock to attract and retain qualified independent directors. This plan provides that, upon election to the Board of Directors, each director will receive options to purchase 25,000 shares of common stock at the then current market price; such options are fully vested upon issuance. F-23 Jameson Inns, Inc. Notes to Consolidated Financial Statements (continued) 8. Stockholders' Equity (continued) Stock Options (continued) In addition, the Company adopted the 1997 Director Stock Option Plan ("1997 Director Plan") which reserved 200,000 shares of Common Stock and provides that at time of the Company's approval of the plan and subsequently upon each annual shareholders meeting, each independent director will also be granted an option to purchase 5,000 shares at the then current market price with all shares becoming fully vested upon issuance. As of December 31, 2000, a total of 350,000 options are reserved for issuance under the 1995 Director Plan and the 1997 Director Plan, including 215,000 options available for future option grants. F-24 Jameson Inns, Inc. Notes to Consolidated Financial Statements (continued) 8. Stockholders' Equity (continued) Stock Options (continued) A summary of the stock option activity follows:
Weighted Number Range of Average of Exercise Price Exercise Price Shares Per Share Per Share ------------------------------------------------------------- Options outstanding December 31, 1997 807,851 $ 6.65 - $11.75 $ 9.87 Granted in 1998 175,000 $9.125 - $11.375 $10.63 Exercised in 1998 (50,737) $ 6.65 - $10.875 $ 7.07 Forfeited in 1998 (84,000) $10.00 - $11.75 $11.39 ---------------- Options outstanding December 31, 1998 848,114 $ 6.65 - $11.75 $10.04 Granted in 1999 231,835 $7.125 - $ 9.75 $ 7.91 Exercised in 1999 (14,758) $ 6.65 - $ 7.25 $ 7.11 Forfeited in 1999 (175,220) $ 7.25 - $11.75 $11.03 ---------------- Options outstanding December 31, 1999 889,971 $ 6.65 - $11.75 $ 9.38 Granted in 2000 130,500 $ 6.94 - $ 7.25 $ 7.07 Exercised in 2000 - $ - $ $ - Forfeited in 2000 (99,750) $ 7.00 - $11.75 $ 9.06 ---------------- Options outstanding December 31, 2000 920,721 $ 6.94 - $11.75 $ 9.02 ================ Options exercisable: December 31, 1998 417,714 $ 6.65 - $11.75 $ 8.71 ================ December 31, 1999 458,971 $ 6.65 - $11.75 $ 9.02 ================ December 31, 2000 522,471 $ 6.94 - $11.75 $ 9.22 ================
The average contractual life remaining on options outstanding at December 31, 2000 was 6.89 years. F-25 Jameson Inns, Inc. Notes to Consolidated Financial Statements (continued) 8. Stockholders' Equity (continued) Restricted Stock In 2000, 1999 and 1998, the Company awarded 334,500, 4,750, and 20,821 shares, respectively of Common Stock to certain officers and employees of the Company and JH, under the provisions of the 1996 Plan. The shares vest ten years after date of grant, assuming the individual is continuously employed by one of the two companies at that date. Holders are entitled to all dividends prior to forfeiture or full vesting. As of December 31, 2000, 415,370 restricted shares of common stock remain outstanding; the balance were forfeited and returned to the Company. Compensation expense resulting from the stock award is calculated as the fair value of the restricted shares at the date of grant based on the market price at date of grant; and is being recorded over the ten-year vesting period using the straight line method, net of forfeitures. The expense recorded was $304,176 in 2000, $67,625 in 1999 and $62,432 in 1998. Pro Forma Effects of Stock-Based Compensation Pro forma information regarding net income and earnings per share is required by FAS 123, which also requires that the information be determined as if the Company has accounted for its stock options and restricted stock granted subsequent to December 31, 1994, using the fair value method prescribed by that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following assumptions for 2000, 1999 and 1998; risk-free interest rates of 4.10% to 6.80%; a dividend yield of 10% in 2000 and 8% in 1999 and 1998; a volatility factor of the expected market price of the Company's Common Stock of .199, .151, and .196, respectively; and an expected life of the option of 3 to 10 years. F-26 Jameson Inns, Inc. Notes to Consolidated Financial Statements (continued) 8. Stockholders' Equity (continued) Pro Forma Effects of Stock-Based Compensation (continued) The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options and shares which have no vesting restrictions and are fully transferable. In addition, valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's stock options and restricted stock have characteristics significantly different from those of traded options or unrestricted shares, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options and restricted stock. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the vesting period. The Company's pro forma information follows: 2000 1999 1998 ------------------------------------- Pro forma net income (in 000's) $ 989 $5,310 $3,419 Pro forma earnings per share-basic $ .09 $ .50 $ .35 Pro forma earnings per share-diluted $ .09 $ .50 $ .34
Dividend Reinvestment Plan In April 1995, the Company registered 200,000 shares of common stock for purchase under the Dividend Reinvestment and Stock Purchase Plan. The plan allows existing shareholders to reinvest their dividends in additional shares purchased at a 5% discount from the average market price of the shares. The plan also allows existing shareholders to make additional cash purchases at the current market price of common stock of up to $5,000 per calendar quarter. During 2000, 1999, and 1998, 72,102, 60,459, and 41,726 shares, respectively, were purchased through dividend reinvestments and additional cash purchases. F-27 Jameson Inns, Inc. Notes to Consolidated Financial Statements (continued) 8. Stockholders' Equity (continued) Warrants As a part of its initial public offering, the Company issued and had warrants outstanding to purchase up to 260,000 shares of Common Stock at an exercise price of $14.85 per share; the warrants were exercisable in whole or in part from date of grant until January 26, 1999. The warrants expired on that date with no exercises. F-28 Jameson Inns, Inc. Notes to Consolidated Financial Statements (continued) 9. Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share: 2000 1999 1998 ------------------------------------------------------------- Numerator Income from continuing operations $ 7,878,734 $10,770,567 $ 5,807,051 Extraordinary loss (87,816) - (133,951) ------------------------------------------------------------- Net income 7,790,918 10,770,567 5,673,100 Preferred stock dividends (6,696,144) (5,387,248) (2,188,050) Numerator for basic earnings per share-income available to common stockholders $ 1,094,774 $ 5,383,319 $ 3,485,050 ============================================================= Denominator Weighted average shares outstanding 11,488,104 10,628,980 9,836,624 Less: Unvested restricted shares (406,937) (85,685) (64,734) ------------------------------------------------------------- Denominator for basic earnings per share 11,081,167 10,543,295 9,771,890 Plus: Effect of dilutive securities: Employee and director stock options 6,323 46,849 95,497 Unvested restricted shares 363,765 67,402 61,509 ------------------------------------------------------------- Total dilutive potential common shares 370,088 114,251 157,006 ------------------------------------------------------------- Denominator for diluted earnings per share-adjusted weighted average shares and assumed conversions 11,451,255 10,657,546 9,928,896 ============================================================= Basic Earnings Per Common Share Income before extraordinary loss $ .11 $ .51 $ 0.37 Extraordinary loss (.01) - (.01) ------------------------------------------------------------- Net income $ .10 $ .51 $ 0.36 ============================================================= Diluted Earnings Per Common Share Income before extraordinary loss $ .10 $ .51 $ 0.36 Extraordinary loss - - (0.01) ------------------------------------------------------------- Net income $ .10 $ .51 $ 0.35 =============================================================
F-29 Jameson Inns, Inc. Notes to Consolidated Financial Statements (continued) 9. Earnings Per Share (continued) Options to purchase 522,471, 521,833, and 503,833, shares of Common Stock during 2000, 1999, and 1998, respectively, and warrants to purchase 260,000 shares of Common Stock during 1998 were all outstanding but were not included in the computation of diluted earnings per share because the securities' exercise price was greater than the average market price of the common shares and, therefore, the effect would be antidilutive. Additionally, the potential conversion of the Series S Preferred Stock was not included in the computation of diluted earnings per share as the effect of conversion would be antidilutive. 10. Income Taxes The Company recorded no provision for federal income taxes in 2000, 1999, or 1998 due to its REIT status. State tax expense, which is not material, is included in property and other tax expense. At December 31, 2000, the Company had net operating loss carryforwards of approximately $1.2 million available for federal income tax purposes, which begin to expire in 2005. As a result of the REIT election and change in ownership resulting from the IPO, future utilization of the net operating loss carryforwards by the Company, may be limited. The Company declared and paid dividends on its Common Stock of $.98, $.97, and $.94 per share in 2000, 1999, and 1998, respectively. Of these dividends, $.35, $.48, and $.72 per share represents ordinary income and $.63, $.49, and $.22 per share represents return of capital in 2000, 1999, and 1998, respectively. 11. Additional Related Party Transactions JH identifies sites and constructs the Inns for the Company. The Company paid JH and its predecessor companies a total of $61,082,972, $27,342,000, and $41,055,000 for construction of new Inns, Inn expansions, and renovations during the years ended December 31, 2000, 1999, and 1998, respectively. F-30 Jameson Inns, Inc. Notes to Consolidated Financial Statements (continued) 11. Additional Related Party Transactions (continued) The Company shares employees and office space with JH, which until December 31, 1999 was wholly owned by Thomas W. Kitchin, the Company's chairman and chief executive officer. On December 31, 1999, Kitchin Investments, Inc., merged with JH and the cost reimbursement was assumed by JH effective December 31, 1999. Under the Cost Reimbursement Agreement, JH charged the Company approximately $962,000, $417,000, and $200,000 for its allocation of salary, office overhead, and other general and administrative costs in 2000, 1999, and 1998, respectively. 12. Other Commitments and Contingencies As of December 31, 2000, the Company had executed or expected to execute construction contracts with JH, for new Inns or expansions totaling $20.6 million, of which $13.3 million had not been expended. The Company leases office space, land underlying certain of its Inns which are built or under construction and land for each billboard location for terms of five or ten years. Lease expense of $245,900, $101,500, and $71,600 in 2000, 1999, and 1998, respectively, is included in general and administrative expense in the Company's statements of operations. The leases require future minimum payments as follows: 2001 $ 461,277 2002 449,576 2003 272,707 2004 212,346 2005 212,346 Thereafter 6,032,830 --------------- $7,641,082 =============== The rent expense under the office lease is paid by JH and is allocated under the Cost Reimbursement agreement described in Note 11. F-31 Jameson Inns, Inc. Notes to Consolidated Financial Statements (continued) 12. Other Commitments and Contingencies (continued) The Company is a defendant or plaintiff in various legal actions which have arisen in the normal course of business. In the opinion of management, the ultimate resolution of these matters will not have a material adverse effect on the Company's financial position or results of operations. 13. Quarterly Results of Operations (Unaudited) The following is a summary of the quarterly results of operations for the years ended December 31, 2000 and 1999:
2000 Quarters --------------------------------------------------------------------- First Second Third Fourth --------------------------------------------------------------------- Lease revenue $9,109,277 $11,682,167 $12,219,244 $10,221,039 Net income 1,312,369 3,186,855 3,078,758 212,936 Earnings per common share: Net income: (.03) .14 .13 (.13) Basic (.03) .13 .12 (.13) Diluted 1999 Quarters --------------------------------------------------------------------- First Second Third Fourth --------------------------------------------------------------------- Lease revenue $4,875,038 $9,322,064 $11,379,166 $ 9,092,264 Net income 1,627,806 3,811,516 3,983,628 1,347,617 Earnings per common share: Net income: Basic $ 0.10 $ 0.24 $ 0.21 ($0.03) Diluted $ 0.09 $ 0.24 $ 0.21 ($0.03)
F-32 Jameson Inns, Inc. Notes to Consolidated Financial Statements (continued) 13. Quarterly Results of Operations (Unaudited) (continued) Quarterly earnings per share do not sum to the annual earnings per share amounts due to the effects of the timing of stock issuances and fluctuations in average price during the period. F-33
- ------------------------------------------------------------------------------------------------------------------------------------ Jameson Inns, Inc. Schedule III - Real Estate and Accumulated Depreciation As of December 31, 2000 Gross Amount at Which Cost Capitalization Carried at Close of Initial Cost Subsequent to Acquisition Period ---------------------- ------------------------- ---------------------- Buildings, Buildings, Buildings, Mortgage Equipment & Equipment & Equipment & Property Debt Land Improvement Land Improvement Land Improvement --------------------------------- --------- --------- ----------- ----------- ----------- --------- ------------ Georgia: Albany $1,269,519 $265,344 $0 $92,307 $1,774,337 $357,652 $1,774,337 Americus 1,573,108 131,629 0 72,297 2,619,348 203,926 2,619,348 Bainbridge 1,379,307 125,000 0 0 1,689,018 125,000 1,689,018 Brunswick 1,577,603 175,275 0 0 1,716,158 175,275 1,716,158 Calhoun 1,475,317 113,722 0 18,008 1,747,933 131,730 1,747,933 Carrollton 1,485,064 225,000 0 50,029 1,698,308 275,029 1,698,308 Commerce 1,038,053 304,809 0 1,300 1,352,190 306,109 1,352,190 Conyers 1,753,375 301,128 0 0 2,288,563 301,128 2,288,563 Covington 973,606 141,452 0 22,399 1,366,404 163,851 1,366,404 Dalton 1,734,901 546,257 0 1,550 2,278,389 547,807 2,278,389 Douglas 986,839 120,033 0 0 1,203,039 120,033 1,203,039 Dublin (f) 10,000 0 0 0 1,442,456 0 1,442,456 Eastman (g) 658,755 87,883 0 13,917 1,469,684 101,800 1,469,684 Fitzgerald (g) 900,244 133,515 0 0 1,144,446 133,515 1,144,446 Greensboro (g) 1,103,949 109,840 0 17,394 1,551,909 127,234 1,551,909 Hartwell 775,518 85,000 0 13,460 1,431,948 98,460 1,431,948 Jesup 1,583,514 89,917 0 14,239 2,116,434 104,156 2,116,434 Kingsland 1,052,403 283,432 0 0 1,440,552 283,432 1,440,552 Lagrange 1,983,919 200,073 0 0 2,012,581 200,073 2,012,581 Macon (f) 629,227 288,518 0 0 1,399,908 288,518 1,399,908 Newnan 2,037,951 529,377 0 0 3,787,978 529,377 3,787,978 Oakwood 778,907 258,903 0 0 1,371,994 258,903 1,371,994 Perry (f) 35,000 238,325 0 0 1,413,004 238,325 1,413,004 Pooler 1,752,434 501,223 0 0 3,115,722 501,223 3,115,722 Rome 2,361,616 254,849 0 0 3,760,666 254,849 3,760,666 Statesboro 775,518 132,817 0 21,032 1,649,117 153,849 1,649,117 Thomaston 1,483,972 157,181 0 (50,110) 2,131,611 107,071 2,131,611 Thomasville 1,120,392 331,161 0 0 1,536,195 331,161 1,536,195 Valdosta 1,479,282 166,632 0 0 1,644,825 166,632 1,644,825 Warner Robins 1,835,125 365,853 0 0 2,073,065 365,853 2,073,065 Washington 775,518 107,780 0 17,067 1,331,397 124,847 1,331,397 Waycross 1,583,507 87,000 0 13,777 2,095,982 100,777 2,095,982 Waynesboro 1,003,755 142,501 0 0 1,298,905 142,501 1,298,905 Winder 997,671 124,500 1,268, 199 0 741,405 124,500 2,009,604 Alabama: Albertville 758,943 174,000 0 418 1,133,319 174,418 1,133,319 Alexander City (g) 1,619,782 160,086 0 0 1,816,202 160,086 1,816,202 Arab 758,539 131,554 0 0 1,151,839 131,554 1,151,839 Auburn 643,193 227,000 0 0 1,389,413 227,000 1,389,413 Bessemer 1,828,795 327,192 0 0 2,324,744 327,192 2,324,744 Decatur 992,762 201,629 0 0 2,120,861 201,629 2,120,861 Eufaula 1,039,902 228,869 0 5,575 1,236,577 234,444 1,236,577 Florence 1,827,711 313,579 0 1,202 1,932,517 314,781 1,932,517 Greenville (g) 928,171 228,511 0 0 1,517,372 228,511 1,517,372 Jasper (f) 1,227,189 225,633 0 0 2,279,838 225,633 2,279,838 Oxford (g) 1,202,516 307,635 0 (340) 1,425,070 307,295 1,425,070 Ozark (g) 768,821 176,148 0 0 1,180,190 176,148 1,180,190 Prattville 1,640,673 319,736 0 0 2,277,107 319,736 2,277,107 Scottsboro 1,108,450 324,732 0 0 1,485,839 324,732 1,485,839 Selma 1,471,744 143,812 0 22,773 1,970,531 166,585 1,970,531 Sylacauga (f) 1,000 224,476 0 0 1,455,185 224,476 1,455,185 Trussville 1,525,774 425,438 0 1,377 2,276,204 426,815 2,276,204 Tuscaloosa 797,542 0 0 0 1,480,150 0 1,480,150 - ------------------------------------------------------------------------------------------------------------------------------------
F-34
- ------------------------------------------------------------------------------------------------------------------------------------ Jameson Inns, Inc. Schedule III - Real Estate and Accumulated Depreciation As of December 31, 2000 Life on Which Depreciation in Latest Income Accumulated Date Date of Statement Property Total Depreciation Acquired Construction Computed ---------------------------------------- ----------- ------------ -------- ------------ ------------ Georgia: Albany $2,131,989 $436,427 1994 1995 (e) Americus 2,823,274 804,826 1991 1992 (d) Bainbridge 1,814,018 427,643 1994 1994 (e) Brunswick 1,891,432 355,648 1994 1995 (e) Calhoun 1,879,663 560,122 1988 1988 (d) Carrollton 1,973,337 413,461 1993 1994 (e) Commerce 1,658,300 282,540 1996 1996 (e) Conyers 2,589,691 360,902 1996 1996 (e) Covington 1,530,255 478,995 1990 1990 (d) Dalton 2,826,196 218,952 1998 1998 (e) Douglas 1,323,072 296,051 1995 1995 (e) Dublin (f) 1,442,456 279,699 1997 1997 (e) Eastman (g) 1,571,484 552,635 1989 1989 (d) Fitzgerald (g) 1,277,961 305,740 1993 1994 (e) Greensboro (g) 1,679,143 607,731 1989 1990 (d) Hartwell 1,530,408 463,727 1991 1992 (d) Jesup 2,220,590 774,626 1990 1990 (d) Kingsland 1,723,984 199,916 1997 1998 (e) Lagrange 2,212,654 384,334 1995 1996 (e) Macon (f) 1,688,425 226,720 1997 1997 (e) Newnan 4,317,356 0 1998 2000 (e) Oakwood 1,630,896 269,768 1996 1997 (e) Perry (f) 1,651,329 219,390 1997 1998 (e) Pooler 3,616,945 52,943 1998 2000 (e) Rome 4,015,515 273,331 1998 1999 (e) Statesboro 1,802,966 641,990 1988 1989 (d) Thomaston 2,238,682 741,149 1990 1990 (d) Thomasville 1,867,357 168,637 1998 1998 (e) Valdosta 1,811,457 443,156 1994 1995 (e) Warner Robins 2,438,918 363,339 1997 1997 (e) Washington 1,456,244 491,526 1989 1990 (d) Waycross 2,196,759 587,167 1992 1993 (e) Waynesboro 1,441,406 298,395 1995 1996 (e) Winder 2,134,104 894,124 1988 - (d) Alabama: Albertville 1,307,737 299,941 1994 1994 (e) Alexander City (g) 1,976,288 436,883 1994 1994 (e) Arab 1,283,393 280,512 1995 1995 (e) Auburn 1,616,413 234,318 1996 1997 (e) Bessemer 2,651,936 158,104 1998 1999 (e) Decatur 2,322,490 370,296 1995 1996 (e) Eufaula 1,471,021 284,164 1995 1996 (e) Florence 2,247,299 406,966 1995 1996 (e) Greenville (g) 1,745,884 254,084 1996 1996 (e) Jasper (f) 2,505,471 346,697 1997 1997 (e) Oxford (g) 1,732,365 263,046 1996 1997 (e) Ozark (g) 1,356,338 318,285 1994 1995 (e) Prattville 2,596,843 190,120 1998 1998 (e) Scottsboro 1,810,571 183,914 1998 1998 (e) Selma 2,137,116 579,567 1991 1992 (d) Sylacauga (f) 1,679,661 251,870 1997 1997 (e) Trussville 2,703,018 260,939 1997 1998 (e) Tuscaloosa 1,480,150 255,936 1996 1997 (e) - ------------------------------------------------------------------------------------------------------------------------------------
F-35
- ------------------------------------------------------------------------------------------------------------------------------------ Jameson Inns, Inc. Schedule III - Real Estate and Accumulated Depreciation As of December 31, 2000 Gross Amount at Which Cost Capitalization Carried at Close of Initial Cost Subsequent to Acquisition Period ------------------------ --------------------------- ------------------------- Buildings, Buildings, Buildings, Mortgage Equipment & Equipment & Equipment & Property Debt Land Improvement Land Improvement Land Improvement - ------------------------------------ ----------- --------- ------------- --------- ------------- -------- -------------- Florida: Crestview 1,967,380 471,426 0 10 3,096,228 471,436 3,096,228 Jacksonville 2,764,287 679,519 0 1,448 4,417,656 680,967 4,417,656 Lake City 1,803,653 391,456 0 0 3,096,932 391,456 3,096,932 Lakeland 2,330,466 618,636 0 0 3,748,316 618,636 3,748,316 Ormond Beach 2,270,664 497,099 0 10,859 3,750,318 507,958 3,750,318 Palm Bay 2,183,376 418,745 0 (11) 3,741,486 418,735 3,741,486 Illinois: Normal 2,640,000 1,076,916 5,163,743 0 213,596 1,076,916 5,377,339 Peoria 2,280,000 817,523 4,886,124 0 245,273 817,523 5,131,397 Springfield 1,080,000 0 1,494,985 0 229,216 0 1,724,201 Indiana: Carmel 3,644,139 684,321 3,730,497 0 40,049 684,321 3,770,546 Elkhart 3,220,000 637,753 5,834,950 0 199,267 637,753 6,034,217 Evansville 2,927,033 359,102 2,880,265 0 186,459 359,102 3,066,724 Ft. Wayne 2,813,047 473,564 3,062,301 0 224,852 473,564 3,287,154 Indy Castleton 3,035,820 584,039 5,241,877 0 196,378 584,039 5,438,254 Indy East 2,676,511 400,007 2,479,422 0 185,190 400,007 2,664,612 Indy Northwest 2,093,669 442,666 2,217,552 0 358,475 442,666 2,576,028 Indy South 1,222,695 180,071 1,824,161 0 126,531 180,071 1,950,692 Indy West 4,720,536 916,161 5,236,594 0 133,306 916,161 5,369,900 Kokomo 2,927,033 527,376 3,720,270 (5,843) 164,624 521,533 3,884,894 Lafayette 3,245,275 403,849 3,970,336 0 225,899 403,849 4,196,235 Muncie 2,341,627 407,065 3,392,767 0 124,587 407,065 3,517,354 South Bend 3,512,440 585,531 5,836,122 0 147,746 585,531 5,983,869 Iowa: Bettendorf 1,223,285 974,058 3,073,596 0 173,979 974,058 3,247,575 Kentucky: Florence 2,455,000 524,289 2,293,556 0 112,950 524,289 2,406,506 Louisville East 3,768,085 585,491 6,973,653 0 188,481 585,491 7,162,134 Louisville South 2,485,000 644,870 6,509,901 0 352,370 644,870 6,862,272 Mississippi: Grenada 1,115,397 350,000 0 2,217 1,560,832 352,217 1,560,832 Jackson 2,350,000 586,831 0 602 3,746,430 587,433 3,746,430 Meridian 1,734,343 419,856 0 2,648 2,368,302 422,504 2,368,302 Pearl 2,400,000 564,932 0 0 3,743,513 564,932 3,743,513 Tupelo 1,522,334 427,924 0 1,360 2,265,146 429,284 2,265,146 Vicksburg 1,759,063 326,653 0 1,112 2,381,682 327,765 2,381,682 North Carolina: Asheboro 958,781 278,841 0 0 1,501,244 278,841 1,501,244 Clayton/Garner 1,063,292 255,234 0 0 1,550,607 255,234 1,550,607 Dunn 1,138,305 202,052 0 0 1,499,416 202,052 1,499,416 Eden 1,063,292 197,468 0 26 1,531,671 197,494 1,531,671 Forest City 946,268 187,294 0 2,950 2,000,588 190,244 2,000,588 Goldsboro 2,200,000 397,096 0 (5,102) 3,746,590 391,994 3,746,590 Greenville 1,115,250 310,006 0 0 1,507,030 310,006 1,507,030 Henderson 1,735,314 478,688 0 0 3,756,119 478,688 3,756,119 Hickory 1,723,812 412,322 0 0 2,366,325 412,322 2,366,325 Laurinburg (f) 0 225,441 0 (181,525) 1,273,835 43,916 1,273,835 Lenoir 1,039,577 360,923 0 1,605 1,414,777 362,528 1,414,777 Roanoke Rapids 1,105,363 320,014 0 (4,812) 1,500,168 315,202 1,500,168 Sanford (f) 500,000 227,030 0 32,171 1,470,520 259,201 1,470,520 Smithfield 1,044,311 246,092 0 0 1,543,751 246,092 1,543,751 Wilson 954,187 237,712 0 20 1,542,424 237,732 1,542,424 - ------------------------------------------------------------------------------------------------------------------------------------
F-36
- ------------------------------------------------------------------------------------------------------------------------------------ Jameson Inns, Inc. Schedule III - Real Estate and Accumulated Depreciation Life on As of December 31, 2000 Which Depreciation in Latest Income Accumulated Date Date of Statement Property Total Depreciation Acquired Construction is Computed - ---------------------- ----------- -------------- ----------- -------------- --------------- Florida: Crestview 3,567,664 168,603 1998 2000 (e) Jacksonville 5,098,623 243,539 1998 2000 (e) Lake City 3,488,389 201,752 1998 1999 (e) Lakeland 4,366,952 58,641 1999 2000 (e) Ormond Beach 4,258,276 226,185 1998 2000 (e) Palm Bay 4,160,221 46,328 1999 2000 (e) Illinois: Normal 6,454,256 419,232 1999 - (e) Peoria 5,948,920 419,184 1999 - (e) Springfield 1,724,201 229,331 1999 - (e) Indiana: Carmel 4,454,867 156,754 1999 - (e) Elkhart 6,671,969 423,268 1999 - (e) Evansville 3,425,826 289,892 1999 - (e) Ft. Wayne 3,760,718 266,399 1999 - (e) Indy Castleton 6,022,293 390,461 1999 - (e) Indy East 3,064,619 266,385 1999 - (e) Indy Northwest 3,018,694 297,857 1999 - (e) Indy South 2,130,763 218,155 1999 - (e) Indy West 6,286,061 369,096 1999 - (e) Kokomo 4,406,428 289,008 1999 - (e) Lafayette 4,600,084 319,824 1999 - (e) Muncie 3,924,419 261,855 1999 - (e) South Bend 6,569,400 396,109 1999 - (e) Iowa: Bettendorf 4,221,633 313,736 1999 - (e) Kentucky: Florence 2,930,795 270,016 1999 - (e) Louisville East 7,747,625 450,457 1999 - (e) Louisville South 7,507,142 448,084 1999 - (e) Mississippi: Grenada 1,913,049 97,220 1998 1999 (e) Jackson 4,333,863 54,006 1998 2000 (e) Meridian 2,790,805 184,659 1998 1999 (e) Pearl 4,308,445 100,954 1998 2000 (e) Tupelo 2,694,430 261,634 1998 1998 (e) Vicksburg 2,709,447 221,242 1998 1999 (e) North Carolina: Asheboro 1,780,085 254,713 1997 1997 (e) Clayton/Garner 1,805,841 193,365 1998 1998 (e) Dunn 1,701,468 227,575 1997 1998 (e) Eden 1,729,165 201,987 1997 1998 (e) Forest City 2,190,832 375,642 1996 1997 (e) Goldsboro 4,138,584 34,357 1999 2000 (e) Greenville 1,817,036 199,000 1998 1998 (e) Henderson 4,234,807 0 1999 2000 (e) Hickory 2,778,647 214,268 1998 1998 (e) Laurinburg (f) 1,317,752 245,484 1996 1997 (e) Lenoir 1,777,305 202,768 1997 1998 (e) Roanoke Rapids 1,815,370 203,181 1997 1998 (e) Sanford (f) 1,729,720 254,735 1996 1997 (e) Smithfield 1,789,843 244,199 1997 1998 (e) Wilson 1,780,156 246,013 1996 1997 (e) - ------------------------------------------------------------------------------------------------------------------------------------
F-37
- ----------------------------------------------------------------------------------------------------------------------------------- Jameson Inns, Inc. Schedule III - Real Estate and Accumulated Depreciation As of December 31, 2000 Gross Amount at Which Cost Capitalization Carried at Close of Initial Cost Subsequent to Acquisition Period ----------------------- ------------------------- ----------------------- Buildings, Buildings, Buildings, Mortgage Equipment & Equipment & Equipment & Property Debt Land Improvement Land Improvement Land Improvement - ------------------------------------------ ------------ ----------- ------------ -------- ------------- --------- ----------- Ohio: Cincy North 2,265,163 521,588 2,220,586 0 188,091 521,588 2,408,677 Columbus 3,861,138 782,254 3,905,175 0 213,873 782,254 4,119,048 Dayton 2,093,669 625,511 3,388,780 0 309,593 625,511 3,698,373 South Carolina: Anderson 1,164,782 201,000 0 133,385 2,059,011 334,385 2,059,011 Cheraw (g) 1,713,420 168,458 0 (50,000) 1,924,832 118,458 1,924,832 Duncan 1,031,464 212,246 0 0 1,495,539 212,246 1,495,539 Easley 974,278 266,753 0 2,710 1,174,969 269,463 1,174,969 Gaffney (g) 1,961,480 135,025 0 0 1,694,224 135,025 1,694,224 Georgetown (g) 1,103,949 144,353 0 0 1,494,259 144,353 1,494,259 Greenwood 1,029,034 140,231 0 20,741 1,805,834 160,972 1,805,834 Lancaster (g) 1,232,086 150,592 0 0 1,156,350 150,592 1,156,350 Orangeburg (g) 1,287,940 165,010 0 585 1,233,002 165,595 1,233,002 Seneca (g) 1,251,799 204,385 0 0 1,256,277 204,385 1,256,277 Simpsonville 1,035,042 229,205 0 0 1,321,104 229,205 1,321,104 Spartanburg 1,033,740 247,838 0 0 1,469,999 247,838 1,469,999 Union (g) 694,896 178,006 0 746 1,301,051 178,752 1,301,051 Tennessee: 0 Cleveland 1,753,615 384,688 0 4,343 2,261,375 389,031 2,261,375 Columbia 1,805,814 483,568 0 6,967 3,084,513 490,535 3,084,513 Decherd (f) 0 254,501 0 (124,809) 1,335,526 129,692 1,335,526 Gallatin 1,641,327 405,738 0 0 2,282,310 405,738 2,282,310 Greeneville 1,743,274 406,052 0 (274,709) 3,085,130 131,343 3,085,130 Jackson 2,210,226 467,741 0 141 3,759,214 467,882 3,759,214 Johnson City 1,827,716 405,939 0 89 2,166,988 406,028 2,166,988 Kingsport 1,715,552 425,481 0 0 3,083,478 425,481 3,083,478 Knoxville 2,105,060 572,026 3,347,959 0 170,528 572,026 3,518,487 Oakridge 2,832,271 451,037 0 8 4,418,412 451,045 4,418,412 Tullahoma (f) 0 303,536 0 0 1,326,259 303,536 1,326,259 Virginia: Harrisonburg 144,890 435,000 0 (700) 3,743,961 434,300 3,743,961 Martinsville 1,621,211 411,496 0 3,100 3,083,482 414,596 3,083,482 Construction in progress: Alcoa, TN 799,966 427,803 0 0 1,789,406 427,803 1,789,406 Lafayette, LA 79,682 433,291 0 204,546 1,801,123 637,837 1,801,123 Richmond, KY 63,405 607,095 0 2,858 582,617 609,953 582,617 Wilmington, NC 169,009 685,078 0 (87) 2,111,473 684,991 2,111,473 Shreveport, LA 268,882 531,041 0 8,409 995,407 539,450 995,407 Billboards 555,009 0 2,381,012 0 439,458 0 2,820,470 Property and equipment held for sale 4,868,285 2,869,482 9,112,756 (297,443) (3,854,097) 2,572,039 5,258,659 ------------ ----------- ------------ ---------- ------------ ----------- ------------ Totals $207,145,362 $47,912,951 $105,447,139 ($149,714) $219,864,133 $47,763,237 $325,311,272 ============ =========== ============ ========== ============ =========== ============
F-38
- ---------------------------------------------------------------------------------------------------------------------------- Life on Which Depreciation in Latest Income Accumulated Date Date of Statement Property Total Depreciation Acquired Construction is Computed - ---------------------------------------- -------------- ------------- -------- ------------- ------------ Ohio: Cincy North 2,930,265 277,032 1999 - (e) Columbus 4,901,302 333,142 1999 - (e) Dayton 4,323,884 342,645 1999 - (e) South Carolina: Anderson 2,393,396 528,067 1993 1993 (e) Cheraw (g) 2,043,290 331,976 1995 1995 (e) Duncan 1,707,784 238,413 1997 1998 (e) Easley 1,444,433 287,142 1994 1995 (e) Gaffney (g) 1,829,249 380,879 1995 1995 (e) Georgetown (g) 1,638,612 282,202 1996 1996 (e) Greenwood 1,966,806 388,448 1994 1995 (e) Lancaster (g) 1,306,942 276,857 1994 1995 (e) Orangeburg (g) 1,398,597 292,137 1995 1995 (e) Seneca (g) 1,460,662 252,196 1996 1996 (e) Simpsonville 1,550,309 271,395 1996 1996 (e) Spartanburg 1,717,837 233,237 1997 1998 (e) Union (g) 1,479,802 254,090 1996 1997 (e) Tennessee: Cleveland 2,650,406 224,247 1997 1998 (e) Columbia 3,575,048 19,263 1998 2000 (e) Decherd (f) 1,465,218 246,344 1996 1997 (e) Gallatin 2,688,049 177,881 1998 1999 (e) Greeneville 3,216,473 186,906 1998 2000 (e) Jackson 4,227,096 71,009 1998 2000 (e) Johnson City 2,573,016 349,712 1997 1997 (e) Kingsport 3,508,959 38,187 1999 2000 (e) Knoxville 4,090,513 319,897 1999 - (e) Oakridge 4,869,457 302,334 1998 1999 (e) Tullahoma (f) 1,629,796 233,895 1996 1997 (e) Virginia: Harrisonburg 4,178,261 0 1998 2000 (e) Martinsville 3,498,077 19,238 1998 2000 (e) Construction in progress: Alcoa, TN 2,217,209 0 - - - Lafayette, LA 2,438,960 0 - - - Richmond, KY 1,192,570 0 - - - Wilmington, NC 2,796,464 0 - - - Shreveport, LA 1,534,857 0 - - - Billboards 2,820,470 457,467 1999 2000 (e) Property and equipment held for sale 7,830,698 659,010 - - (e) ------------ ----------- Totals $373,074,509 $38,983,651 ============ =========== - ----------------------------------------------------------------------------------------------------------------------------
F-39 Jameson Inns, Inc. Notes to Schedule III ----------------------------------------
2000 1999 1998 ------------ ------------ ------------ (a) Reconciliation of real estate Balance at beginning of year......... $321,134,052 $168,880,042 $117,515,375 Additions during year: Improvements............... 53,873,140 157,106,500 55,844,810 Deletions.................. (1,932,683) (4,852,490) (4,480,143) ------------ ------------ ------------ Balance at end of year............... $373,074,509 $321,134,052 $168,880,042 ============ ============ ============ (b) Reconciliation of accumulated depreciation Balance at beginning of year.......... $ 24,551,080 $ 16,754,843 $ 12,584,189 Depreciation for the year.. 14,619,522 10,396,468 5,636,079 Retirements................ (186,951) (2,600,231) (1,465,425) ------------ ------------ ------------ Balance at end of year................ $ 38,983,651 $ 24,551,080 $ 16,754,843 ============ ============ ============
(c) The aggregate cost of the land, buildings, and furniture, fixtures and equipment for federal income tax purposes approximates the book basis. (d) Depreciation for 1992 and prior additions is computed based on the following useful lives: Buildings 31.5 years Land Improvements 15 years Furniture, fixtures and equipment 5 years (e) Depreciation for 1993 and later additions is computed based on the following useful lives: Buildings 39 years Land Improvements 15 years Furniture, fixtures and equipment 3-5 years Billboards 10 years (f) This Inn is one of 9 Inns securing the Company's $8.92 million line of credit. (g) This Inn is one of 14 Inns securing the Company's $17.2 million note payable. Amount of debt listed as outstanding is an allocation. F-40 REPORT OF INDEPENDENT AUDITORS The Board of Directors Jameson Inns, Inc. We have audited the consolidated financial statements of Jameson Inns, Inc. as of December 31, 2000 and 1999, and for each of the three years in the period ended December 31, 2000, and have issued our report thereon dated February 8, 2001 (included elsewhere in this Annual Report on Form 10-K). Our audits also included the financial statement schedule in item 14(a) of this Annual Report on Form 10-K. This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. ERNST & YOUNG LLP Atlanta, Georgia February 8, 2001 F-41 Jameson Hospitality, LLC Consolidated Financial Statements Years ended December 31, 2000 and 1999
Contents Report of Independent Auditors......................................... F-43 Consolidated Financial Statements Consolidated Balance Sheets............................................ F-44 Consolidated Statements of Operations.................................. F-45 Consolidated Statements of Members' Capital............................ F-46 Consolidated Statements of Cash Flows.................................. F-47 Notes to Consolidated Financial Statements............................. F-49
F-42 Report of Independent Auditors The Members Jameson Hospitality, LLC We have audited the accompanying consolidated balance sheets of Jameson Hospitality, LLC as of December 31, 2000 and 1999, and the related consolidated statements of operations, members' capital and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Jameson Hospitality, LLC at December 31, 2000 and 1999, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Atlanta, Georgia March 8, 2001 F-43 Jameson Hospitality, LLC Consolidated Balance Sheets
December 31 2000 1999 ------------------------------------ Assets Current assets: Cash $ 1,733,272 $ 543,282 Marketable securities 1,113,795 1,013,785 Accounts receivable, net of allowance of $85,324 ($141,500 in 1999) 2,921,771 2,630,305 Accounts receivable from affiliates 7,972,729 7,231,418 Predevelopment costs 103,773 288,785 Prepaid expenses and other assets 261,413 363,668 Inventory 1,451,363 1,256,015 ---------------------------------- 15,558,116 13,327,258 Property and equipment, net 640,305 833,585 Leasehold improvements, net 71,034 89,828 Intangibles, net 253,493 267,818 ---------------------------------- $ 16,522,948 $14,518,489 ================================== Liabilities and Members' capital Current liabilities: Subcontractors payable, including retainage of $3,835,055 ($1,195,267 in 1999) $ 4,054,135 $ 3,040,499 Accounts payable 593,350 1,293,239 Lease expense payable 5,782,118 6,941,315 Notes payable, current portion 9,916 9,010 Accrued payroll 1,176,161 465,128 Other accrued liabilities 3,709,803 1,725,497 ---------------------------------- 15,325,483 13,474,688 Deferred gain on sale of asset 670,502 883,394 Notes payable, long-term portion 306,393 315,638 ---------------------------------- Total liabilities 16,302,378 14,673,720 Members' capital 220,570 (155,231) ---------------------------------- $ 16,522,948 $14,518,489 ==================================
See accompanying notes. F-44 Jameson Hospitality, LLC Consolidated Statements of Operations
Year ended December 31 2000 1999 1998 ------------------------------------------------ Revenues: Room rental revenues $ 93,351,545 $ 74,245,709 $ 37,982,374 Telephone revenues 1,572,681 1,450,448 757,105 Other inn-related sales 1,171,575 730,866 47,220 Contract revenues 48,298,347 30,413,710 40,990,447 Billboard rentals - 105,877 91,076 Overhead reimbursement income 1,257,867 - - Other income - 36,772 6,458 Gain on sale of assets, net 134,471 240,545 - ----------------------------------------------- 145,786,486 107,223,927 79,874,680 Expenses: Lease expense 43,099,792 34,612,795 18,229,748 Cost of contract revenues 41,599,541 25,342,725 35,518,450 Room expenses 24,407,376 19,132,033 8,888,441 Utilities 5,520,621 4,029,937 3,346,327 General and administrative 17,842,765 8,292,165 4,085,566 Inn manager salaries 5,570,735 5,039,406 2,510,644 Maintenance 4,063,860 3,303,181 1,366,510 Advertising 3,005,726 2,706,089 2,195,759 Management fee to affiliate - 4,202,961 2,655,334 Prospective site expense - 301,401 614,448 Interest (income) expense, net (233,762) 17,922 166,416 Depreciation and amortization 316,806 109,316 456,213 ----------------------------------------------- Total expenses 145,193,460 107,089,931 80,033,856 ----------------------------------------------- Net income (loss) $ 593,026 $ 133,996 $ (159,176) ===============================================
See accompanying notes. F-45 Jameson Hospitality, LLC Consolidated Statements of Members' Capital
Members' Comprehensive Capital Income (Loss) ---------------- ----------------- Balance at December 31, 1997 $ 1,929,940 Capital contributions 600,000 Distributions (2,234,718) Net loss (159,176) $ (159,176) Unrealized loss on marketable securities (66,719) (66,719) -------------- Comprehensive loss $ (225,895) --------------- ============== Balance at December 31, 1998 69,327 Capital contributions 105,764 Distributions (42,723) Net income 133,996 $ 133,996 Unrealized loss on marketable securities (421,595) (421,595) -------------- Comprehensive loss - $ (287,599) --------------- ============== Balance at December 31, 1999 (155,231) Distributions (392,505) Net income 593,026 $ 593,026 Unrealized gain on marketable securities 175,280 175,280 -------------- Comprehensive income - $ 768,306 --------------- ============== Balance at December 31, 2000 $ 220,570 ===============
See accompanying notes. F-46 Jameson Hospitality, LLC Consolidated Statements of Cash Flows
Year ended December 31 2000 1999 1998 ---------------------------------------------------- Operating activities Net income (loss) $ 593,026 $ 133,996 $ (159,176) Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities: Depreciation and amortization 316,806 109,316 456,213 Bad debt expense - 264,684 72,409 Gain on sale of assets (134,471) (240,545) - Changes in assets and liabilities increasing (decreasing) cash: Accounts receivable (291,466) (775,833) (352,983) Accounts receivable from affiliates (741,311) (5,220,190) (35,461) Predevelopment costs 185,012 168,428 (307,853) Prepaid expenses and other assets 102,255 3,347 (75,545) Inventory (195,348) (108,876) (147,200) Subcontractors payable 1,013,636 (65,667) (130,238) Accounts payable (699,889) (471,869) 913,054 Lease expense payable (1,159,197) 4,651,562 832,082 Accrued payroll and other 2,695,339 787,556 179,587 ------------------------------------------------ Net cash provided by (used in) operating activities 1,684,392 (764,091) 1,244,889 Investing activities Proceeds from sale of assets - 592,707 - Purchase of property and equipment (93,558) (103,819) (1,476,655) Purchase of Signature Inn assets, net of cash acquired - 17,500 - Dividends on marketable securities - - (266,248) ------------------------------------------------ Net cash (used in) provided by investing activities (93,558) 506,388 (1,742,903)
F-47 Jameson Hospitality, LLC Consolidated Statements of Cash Flows (continued)
Year ended December 31 2000 1999 1998 ----------------------------------------------------------- Financing activities Contributions from members $ - $ 150,095 $ 600,000 Distributions to members (392,505) (243,479) (2,234,718) Proceeds from notes payable - - 1,104,415 Payments on notes payable (8,339) (183,210) (212,590) -------------------------------------------------------- Net cash used in financing activities (400,844) (276,594) (742,893) Net change in cash 1,189,990 (534,297) (1,240,907) Cash at beginning of year 543,282 1,077,579 2,318,486 -------------------------------------------------------- Cash at end of year $ 1,733,272 $ 543,282 $ 1,077,579 ======================================================== Supplemental cash flow information Interest paid during the year $ 1,718,875 $ 1,576,626 $ 1,326,782 ======================================================== Non-cash activity Unrealized loss on marketable securities $ 175,280 $ (421,595) $ (66,719) ======================================================== Net non-cash items related to merger and distribution activities $ - $ 156,425 $ - ========================================================
See accompanying notes. F-48 Jameson Hospitality, LLC Notes to Consolidated Financial Statements December 31, 2000 1. Business and Basis of Financial Statements Jameson Hospitality, LLC (the "Company") leases, operates, and develops inns owned by Jameson Inns, Inc. (the "REIT"). Jameson Inns, Inc. is a real estate investment trust which owns the Jameson Inns, and effective May 7, 1999, Signature Inns properties (the "Inns"). Thomas W. Kitchin is the Chairman and CEO of Jameson Inns, Inc. and of the Company. Jameson Development Company, LLC was formed on March 22, 1996 and then changed its name to Jameson Hospitality, LLC (the "Company") on May 7, 1998. Effective March 31, 1998, three related companies merged into Jameson Development Company, LLC: Jameson Operating Company, LLC, Jameson Outdoor Advertising Company II, LLC and Jameson Aviation Company, LLC. Since these three companies were all wholly- owned by Thomas W. Kitchin and his spouse, the merger was accounted for similar to a pooling of interests. In November 2000, the Jameson Development Company division of Jameson Hospitality, LLC changed its name to Kitchin Construction Company, a division of Jameson Hospitality, LLC. On January 1, 1999, the Company distributed the ownership interest of Jameson Aviation Company, LLC to its owners. The $200,756 excess of the liabilities over the assets of Jameson Aviation Company, LLC were recorded as a non-cash distribution. On April 2, 1999, the Company sold the outdoor advertising assets and certain operations of the Company to the REIT for consideration totaling approximately $2.4 million. These assets consisted of approximately 100 roadside billboards on which advertising for the Jameson hotel properties and, in certain instances, other services or products for third parties, is placed. These billboards were leased to the Company and continue to be used for similar types of advertising. On May 7, 1999, the REIT merged with Signature Inns, Inc. As a part of this transaction, the Company acquired all of the assets and assumed the liabilities related to operation of the Signature Inn hotel properties, for total cash consideration of $250,000. The Signature Inn employees became employees of the Company and the Company entered into a lease with the REIT and began operating these hotels effective May 7, 1999. F-49 Jameson Hospitality, LLC Notes to Consolidated Financial Statements (continued) 1. Business and Basis of Financial Statements (continued) Prior to December 31, 1999, Kitchin Investments, Inc. was wholly-owned by Thomas W. Kitchin and employed all of the individuals who provide services to both the Company and the REIT. This company also provided the general office overhead support for these other companies. Effective December 31, 1999, Kitchin Investments, Inc. merged into the Company. Due to the common ownership of the Company and Kitchin Investments, Inc., the merger was accounted for similar to a pooling of interests. Intercompany transactions among the entities and the divisions included in the consolidated financial statements have been eliminated. The Company and its divisions perform the following activities: . The Hotel division leases the Inns from the REIT (see Note 3) and operates the Inns in all respects including staffing, advertising, housekeeping, and routine maintenance. At the present time, the Company is the exclusive lessee of Jameson Inns and Signature Inns. At December 31, 2000 and 1999, the Company leased 130 Inns (8,350 rooms) and 114 Inns (7,300 rooms), respectively. . The Construction division develops Inns and Inn expansions for the REIT, including identification of suitable Inn locations, Inn design and configuration, land preparation, construction, acquisition of initial furniture, fixtures and equipment, and pre-marketing of properties prior to opening. At the present time, the Company is the exclusive developer/contractor for the REIT. The members have no liability for any debt, obligations, or liabilities of the Company (beyond his or her respective contributions) or for the acts of omission of any other member, agent or employee of the Company, except as provided for by section 14-11-408 of the Georgia Securities Act of 1973, as amended. F-50 Jameson Hospitality, LLC Notes to Consolidated Financial Statements (continued) 2. Summary of Significant Accounting Policies Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Marketable Securities The Company considers all of its marketable securities as available for sale and hence records them at fair value with changes in unrealized gains or losses being recorded directly to members' capital. Fair value is based on the closing price of the securities on the last day of trading in the year. Contracts Billings and costs applicable to construction contracts are recognized on the percentage-of-completion method, measured by the percentage of cost incurred to date compared to estimated total cost for each contract. Revisions to estimated contract profits or losses are made in the year in which circumstances requiring such revisions become known. Any anticipated losses on construction contracts are charged to operations as soon as such losses can be estimated. Predevelopment Costs The Company capitalizes direct costs related to specific future Inn sites when they are deemed probable and until either the REIT purchases the land and actual construction begins when the amounts are transferred to construction costs, or until the site is no longer deemed probable at which time the costs are expensed. Amounts expensed are reflected as "Prospective Site Expense" in the accompanying statements of operations. F-51 Jameson Hospitality, LLC Notes to Consolidated Financial Statements (continued) 2. Summary of Significant Accounting Policies (continued) Inventory Inventory, consisting of room linens and towels, is stated at the lower of cost (first-in, first-out method) or market. Replacements of inventory are expensed. Property and Equipment Property and equipment is stated at cost. Depreciation is calculated using the straight line method over five years for transportation equipment, and over three to seven years for furniture, fixtures and equipment. Leasehold improvements at the Inns are being amortized using the straight-line method over their estimated useful lives ranging from three to ten years, not to exceed the remaining term of the lease (see Note 3), and the corporate office leasehold improvements are being amortized over the life of the lease. The Company follows FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. There were no impairment losses recorded for the periods presented. F-52 Jameson Hospitality, LLC Notes to Consolidated Financial Statements (continued) 2. Summary of Significant Accounting Policies (continued) Intangibles Intangibles consist primarily of the registered trademark, "The Jameson Inn(R)" and goodwill associated with the Signature Inn transaction in May 1999. The lease described in Note 3 requires the Company to operate the Inns using the trademarks and not to use the trademarks (or license its use to any other parties) for the operation of lodging facilities other than the Inns unless the REIT does not object to such unrelated use. The REIT has an option to purchase the The Jameson Inn(R) and Signature Inns(R) trademarks from the Company at the end of the lease term (or upon the earlier termination of the lease with respect to all of the Inns) for $25,000 and $50,000, respectively. The intangibles are being amortized over 20 years. Accumulated amortization totaled $18,369 and $4,044 as of December 31, 2000 and 1999, respectively. Income Taxes Jameson Hospitality, LLC has elected to be treated as a partnership for federal and state income tax purposes. Accordingly, the members are to report their proportionate share of the Company's taxable income or loss in their respective tax returns; therefore, no provision for income taxes has been included in the accompanying financial statements. Advertising All forms of advertising in 2000 were expensed as incurred. During 1999 and 1998, the Company contracted with an advertising agency for the production and broadcast or printing of various radio, newspaper and television ads for the Inns. The Company expenses advertising upon first showing. This contract was not renewed in 2000. 3. Leases In January 1994, the Company entered into a master lease (the "Lease") with the REIT whereby all of the operating Inns are leased to the Company under the Lease and future Inns constructed by the REIT during the term of the Lease will be added to the lease upon completion of each such Inn's construction. F-53 Jameson Hospitality, LLC Notes to Consolidated Financial Statements (continued) 3. Leases (continued) The Jameson and Signature leases, which expire December 31, 2010 and 2012, respectively, provide for payment of Base Rent plus Percentage Rent. Base Rent, which is payable monthly, equals $264 and $394 per month for the Jameson Inns and Signature Inns, respectively, for each rentable room in the Inns at the beginning of the relevant month. Percentage Rent, which is payable quarterly, is calculated as a percentage in excess of Base Rent of the total amount of room rental and other miscellaneous revenues realized by the Company over the relevant period. For Jameson Inns, the percentage is 39% of such revenues up to $21.91 per day per room in 2000 plus 65% of all additional average daily room rental revenues. For Signature Inns, the percentage is 37% of such revenues up to $36.76 per day per room in 2000 plus 65% of the next $10.00 of average daily per room rental revenues; plus 70% of all additional average daily room rental revenues. Total rent for the Jameson Inns for any calendar year may not exceed 47% of total room rental revenues Jameson Inns for that year. The $21.91 and $36.76 per room amount, for Jameson Inns and Signature Inns, respectively, used in calculating percentage rent is subject to adjustment each year based on changes in the Consumer Price Index and as of January 1, 2001 was adjusted to $22.65 and $38.00 for Jameson Inns and Signature Inns, respectively. Base rent totaled $28,900,248, $20,998,052 and $10,501,920 in 2000, 1999 and 1998, respectively, and assuming the same number of rooms in operation at December 31, 2000, would total $31,215,528 per year until the Lease expires. Under the Leases, the REIT is required to maintain the structural elements of each Inn. The Company is required, at its expense, to maintain the Inns (exclusive of furniture, fixtures and equipment) in good order and to make nonstructural repairs which may be necessary and which do not significantly alter the character or purpose, or significantly detract from the value or operating efficiencies of the Inns. All alterations, replacements and improvements are subject to all the terms and provisions of the Lease and become the property of the REIT upon termination of the Leases. F-54 Jameson Hospitality, LLC Notes to Consolidated Financial Statements (continued) 3. Leases (continued) The Company has agreed that neither it nor any of its affiliates will (i) operate or manage a hotel property in which the REIT has not invested that is within a 20-mile radius of an Inn, or (ii) own or have any interest in any hotel property in which the REIT or an affiliate does not have an interest. 4. Property and Equipment Property and equipment consists of the following at December 31: 2000 1999 --------------------------- Property and equipment $ 1,054,495 $ 974,989 Accumulated depreciation (414,190) (141,404) --------------------------- $ 640,305 $ 833,585 =========================== On April 2, 1999, the Company completed the sale of the outdoor advertising assets and certain operations of the Company to the REIT. These assets consist of approximately 100 roadside billboards on which advertising for the Jameson hotel properties and, in certain instances, other services or products for third parties, is placed. Consideration of $2,381,000 paid to the Company consisted of (i) 72,727 newly issued shares of the REIT's Series A Preferred Stock (at $17.625 per share), (ii) $400,000 in cash, and (iii) the assumption of indebtedness of approximately $700,000 which is secured by mortgages on the billboards and the revenues generated therefrom. The gain of $1,163,098 is being recognized over the lease period, accordingly, $212,892 and $279,704 were recognized in the years ended December 31, 2000 and 1999, respectively. F-55 Jameson Hospitality, LLC Notes to Consolidated Financial Statements (continued) 5. Contracts Contracts consist of the following at December 31: 2000 1999 ---------------------------------- Costs incurred on contracts $41,599,541 $25,342,725 Estimated earnings 6,698,806 5,070,985 --------------------------------- Contract revenues earned 48,298,347 30,413,710 Less: billings 48,298,347 30,413,710 --------------------------------- Costs and estimated earnings in excess of billings on contracts in progress $ - $ - ================================= The Company records income on construction contracts on the percentage-of- completion basis. Revisions to estimated contract profits are made in the year in which circumstances requiring such revisions become known. The effect of changes in the estimates of contract gross margins decreased net income for the year ended December 31, 2000 and 1999 by approximately $576,000 and $789,000, respectively. 6. Notes Payable Notes payable consist of the following at December 31: 2000 1999 -------------------------- Mortgage note payable, maturing October 2017, due in monthly installments of $2,873 of principal and interest with remaining unpaid balance payable at maturity. Interest accrues at prime plus 1.25% (10.75% at December 2000). This loan is guaranteed by the CEO and President of the Company. $287,033 $293,317 F-56 Jameson Hospitality, LLC Notes to Consolidated Financial Statements (continued) 6. Notes Payable (continued) 2000 1999 -------------------------- Notes payable, maturing, July 2009. Due in monthly installments of $160 and $265 of principal and interest with remaining unpaid balance payable at maturity. Interest accrues at a 10% per annum. 29,276 31,331 -------------------------- Total 316,309 324,648 Less current portion 9,916 9,010 -------------------------- 306,393 $315,638 ========================== At December 31, 2000 and 1999, none of the Company's net book value of property and equipment was collateralized by the various notes payable. The following table summarizes the scheduled aggregate principal payments for the notes payable for the five years subsequent to December 31, 2000 and thereafter: 2001 $ 9,916 2002 10,911 2003 12,009 2004 13,216 2005 14,766 Thereafter 255,491 -------- $316,309 ======== 7. Related Party Transactions At December 31, 2000 the Company had executed or expected to execute construction contracts with the REIT for new Inns or expansions totaling $20.6 million, of which $13.3 million had not been expended. The Company shares office space and management with the REIT. The Company has a Cost Reimbursement Agreement with the REIT whereby the REIT agrees to pay for its share of the use of office space, office equipment, telephones, file and storage space and other reasonable and necessary office equipment and facilities and personnel costs. F-57 Jameson Hospitality, LLC Notes to Consolidated Financial Statements (continued) Overhead charged to the REIT was $961,821 in 2000 pursuant to the Cost Reimbursement Agreement and is reflected as overhead reimbursement income in the accompanying statements of operations. Prior to December 31, 1999, the Company shared office space and management with Kitchin Investments, Inc. The Company had a Cost Reimbursement Agreement with Kitchin Investments, Inc. whereby the Company agreed to reimburse Kitchin Investments, Inc. for its share of the use of office space, office equipment, telephones, file and storage space and other reasonable and necessary office equipment and facilities and personnel costs. Overhead charged to the Company in 1999 and 1998 was $4,202,961 and $2,655,234 respectively, pursuant to the Cost Reimbursement Agreement and such amounts are reflected as management fee to affiliate in the accompanying statements of operations through December 31, 1999. On December 31, 1999, Kitchin Investments, Inc. merged with the Company and the Cost Reimbursement Agreement was assumed by the Company effective December 31, 1999. The Company's construction contracts with the REIT are generally fixed price and limit the Company's profit on each contract to 10% after considering costs of construction and certain other amounts. The Company does not believe that there were amounts in excess of such limitations at December 31, 2000, 1999 or 1998. Although the REIT is the legal borrower of construction loans or related debt, the Company is responsible for interest due on such financing during the construction period as a part of its contract. Construction period interest incurred during 2000, 1999, and 1998, which is included in cost of revenues earned, totaled approximately $1,686,879, $1,596,925 and $1,125,935, respectively. Interest paid includes amounts paid on behalf of the REIT. F-58 Jameson Hospitality, LLC Notes to Consolidated Financial Statements (continued) 8. Commitments and Contingencies The Company leases approximately 100 billboards from the REIT for initial terms of five years. These leases expire at various dates but generally include 5-year automatic renewal periods; the leases provide for future minimum payments by the Company as follows: Year ending December 31, 2001 $ 656,381 2002 667,915 2003 684,114 2004 699,504 2005 525,928 Thereafter 571,583 ---------- $3,805,425 ========== The Company leases billboards from 3rd party companies for terms of 1 to 3 years. These leases expire at various dates then may continue on a month-to- month basis pending renewal or cancellation of the leases. The leases provide for future minimum payments by the Company as follows: Year ending December 31, 2001 $550,008 2002 82,504 2003 14,082 -------- $646,594 ======== From time to time, the Company becomes party to various claims and legal actions arising during the ordinary course of business. Management, after reviewing with legal counsel all actions and proceedings, believes that aggregate losses, if any, would not have a material adverse effect on the Company's financial position or results of operations. F-59 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on March 27, 2001. JAMESON INNS, INC. By: /s/ Craig R. Kitchin ------------------------------------ Craig R. Kitchin, President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated: NAME TITLE DATE ---- ----- ---- /s/ Thomas W. Kitchin - -------------------------- Chairman of the Board of March 27, 2001 Thomas W. Kitchin Directors, Chief Executive Officer (principal executive officer) /s/ Craig R. Kitchin - -------------------------- President and Chief Financial March 27, 2001 Craig R. Kitchin Officer (principal financial officer) /s/ Martin D. Brew - -------------------------- Treasurer and Corporate Controller March 27, 2001 Martin D. Brew (principal accounting officer) /s/ Robert D. Hisrich - -------------------------- Director March 27, 2001 Robert D. Hisrich /s/ Michael E. Lawrence - -------------------------- Director March 27, 2001 Michael E. Lawrence /s/ Thomas J. O'Haren - -------------------------- Director March 27, 2001 Thomas J. O'Haren EXHIBIT INDEX 1.1 -- Sales Agency Agreement by and among Jameson Inns, Inc., RGC Brinson Patrick, a division of Ramius Securities, LLC, and Jameson Hospitality, LLC, dated September 3, 1999, incorporated by reference to Exhibit 1.4 to Post-Effective Amendment No. 1 to the Registration Statement on Form S-3, File No. 333- 20143 3.1 -- Articles of Incorporation of the Registrant incorporated by reference to Exhibit 3.1.1 to the Registration Statement filed on Form S-11, File No. 33-71160 3.2 -- Articles of Amendment to the Articles of Incorporation of the Registrant incorporated by reference to Exhibit 3.1.2 to the Registration Statement filed on Form S-11, File No. 33-71160 3.3 -- Articles of Amendment to the Articles of Incorporation of the Registrant setting forth the Designation of Preferences, Rights, Privileges and Restrictions of the 9.25% Series A Cumulative Preferred Stock the Registrant incorporated by reference to Exhibit 2.1 to the Registrant's Form 10- K/A1 (Amendment No. 1 to the Registrant's Annual Report on Form 10-K) for the year ended December 31, 1993 3.4 -- Articles of Amendment to the Articles of Incorporation of the Registrant incorporated by reference to Exhibit 3.3.1 to Form 10-K/A2 (Amendment No. 2 to the Registrant's Annual Report on Form 10-K) for the year ended December 31, 1993 3.5 -- Articles of Amendment to the Articles of Incorporation of the Registrant amending the Designation of Preferences, Rights, Privileges and Restrictions of the 9.25% Series A Cumulative Preferred Stock of the Registrant incorporated by reference to Exhibit 3.6 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994 3.6 -- Articles of Amendment to the Articles of Incorporation of the Registrant amending the Designation of Preferences, Rights, Privileges and Restrictions of the 9.25% Series A Cumulative Preferred Stock incorporated by reference to Exhibit 3.5 to the Registration Statement on Form S-4, File No. 333-74149 3.7 -- Articles of Amendment to the Articles of Incorporation of the Registrant setting forth the Designation of Preferences, Rights, Privileges and Restrictions of the $1.70 Series S Cumulative Convertible Preferred Stock incorporated by reference to Exhibit 3.7 of Post-Effective Amendment No. 1 to the Registration Statement on Form S-3, File No. 333- 20143 3.8 -- Bylaws of the Registrant incorporated by reference to Exhibit 3.2.1 to the Registration Statement on Form S-11, File No. 33-71160 3.9 -- Amendment to the Bylaws of the Registrant incorporated by reference to Exhibit 3.2.2 to the Registration Statement on Form S-11, File No. 33- 71160 3.10 -- Amendment No. 2 to the Bylaws of Registrant incorporated by reference to Exhibit 3.8 to the Annual Report on Form 10-K for the year ended December 31, 1995 3.11 -- Amendment No. 3 to the Bylaws of Registrant incorporated by reference to Exhibit 4.8 to the Registration Statement on Form S-3, File No. 333- 55916 4.1 -- Specimen certificate of Common Stock incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-11 (File No. 33- 71160) 4.2 -- Specimen certificate of 9.25% Series A Cumulative Preferred Stock incorporated by reference to Exhibit 1 to the Registration Statement on Form 8-A filed March 13, 1998 (File No.000-23256) 4.3 -- Specimen certificate of $1.70 Series S Cumulative Convertible Preferred Stock incorporated by reference to Exhibit 1 to the Registration Statement on Form 8- A filed March 26, 1999 (File no. 000-23256) 10.1 -- Master Lease Agreement (relating to Jameson Inns) incorporated by reference to Exhibit 10.1 to the Annual Report filed on Form 10-K for the year ended December 31, 1993 10.2 -- Amendment No. 1 to Master Lease Agreement (relating to Jameson Inns) between Jameson Inns., Inc. and Jameson Operating Company (revised) incorporated by reference to Exhibit 10.2 to the Annual Report filed on Form 10-K for the year ended December 31, 1995 10.3 -- Amendment No. 2 to Master Lease Agreement (relating to Jameson Inns) between Jameson Inns., Inc. and Jameson Operating Company (revised) incorporated by reference to Exhibit 10.3 to the Annual Report filed on Form 10-K for the year ended December 31, 1996 10.4 -- Amendment No. 3 to Master Lease Agreement (relating to Jameson Inns) between Jameson Inns., Inc. and Jameson Operating Company (revised) incorporated by reference to Exhibit 10.4 to the Annual Report filed on Form 10-K for the year ended December 31, 1996 10.5 -- Amendment No. 4 to Master Lease Agreement (relating to Jameson Inns) between Jameson Inns., Inc. and Jameson Operating Company (revised) incorporated by reference to Exhibit 10.5 to the Annual Report filed on Form 10-K for the year ended December 31, 1997 10.6 -- Amendment No. 5 to Master Lease Agreement (relating to Jameson Inns) between Jameson Inns., Inc. and Jameson Alabama, Inc., as lessor, and Jameson Development Company, LLC incorporated by reference to Exhibit 10.6 to the Registration Statement on Form S-4, File No. 333-74149 10.7 -- Schedule of documents substantially similar to Exhibit 10.1 incorporated by reference to Exhibit 3.7 to the Registration Statement on Form S-4, File No. 333-74149 10.8 -- Schedule of documents substantially similar to Exhibit 10.6 incorporated by reference by Exhibit 10.8 to the Registration Statement on Form S-4, File No. 333-74149 10.9 -- Master Lease Agreement (relating to Signature Inns) incorporated by reference to Exhibit 10.9 to the Post- Effective Amendment No. 1 to the Registration Statement on Form S-3, File No. 333-20143 10.10 -- Amendment No. 1 to Master Lease Agreement (relating to Signature Inns) incorporated by reference to Exhibit 10.11 to the Post-Effective Amendment No. 1 to the Registration Statement on Form S-3, File No. 333-20145 10.11 -- Cost Reimbursement Agreement between Jameson Inns., Inc. and Jameson Hospitality, LLC (formerly Kitchin Investments, Inc.) incorporated by reference to Exhibit 10.2 to the Registration Statement on Form S-11, File No. 33-71160 10.12 -- Form of Construction Contract between Jameson Inns., Inc., and Jameson Hospitality, LLC (formerly Jameson Construction Company) for construction of Jameson Inns incorporated by reference to Exhibit 10.7 to the Annual Report filed on Form 10-K for the year ended December 31, 1995 10.13 -- Jameson 1993 Stock Incentive Plan incorporated by reference to Exhibit 10.22.1 to the Registration Statement on Form S- 11, File No. 33-71160 10.14 -- Form of Stock Option Agreement under Jameson Inns, Inc. Stock Incentive Plan incorporated by reference to Exhibit 10.23 to the Registration Statement on Form S-11, File No. 33-71160 10.15 -- Amendment No. 1 to Jameson 1993 Stock Incentive Plan incorporated by reference to Exhibit 10.10 to the Annual Report filed on Form 10-K for the year ended December 31, 1995 10.16 -- 1994 Amendment to Jameson 1993 Stock Incentive Plan incorporated by reference to Exhibit 10.11 to the Annual Report filed on Form 10-K for the year ended December 31, 1995 10.17 -- Amendment No. 3 to Jameson 1993 Stock Incentive Plan incorporated by reference to Exhibit 10.12 to the Annual Report filed on Form 10-K for the year ended December 31, 1995 10.18 -- Jameson Inns., Inc. Director Stock Option Plan incorporated by reference to Exhibit 10.13 to the Annual Report filed on Form 10-K for the year ended December 31, 1995 10.19 -- Jameson 1996 Stock Incentive Plan incorporated by reference to Exhibit 10.45 to the Annual Report filed on Form 10-K for the year ended December 31, 1995 10.20 -- Jameson 1997 Director Stock Option Plan incorporated by reference to Exhibit 10.17 to the Annual Report filed on Form 10-K for the year ended December 31, 1997 10.21 -- Indemnification and Hold Harmless Agreement between Jameson Inns, Inc. and Jameson Hospitality, LLC (formerly Jameson Operating Company) incorporated by reference to Exhibit 10.25 to the Registration Statement on Form S-11, File No. 33-71160 10.22 -- Indemnification and Hold Harmless Agreement between Jameson Inns, Inc. and Jameson Hospitality, LLC (formerly Kitchin Investments, Inc.) incorporated by reference to Exhibit 10.26 to the Registration Statement on Form S-11, File No. 33-71160 10.23 -- Form of Indemnification agreement between Jameson Inns., Inc. and Directors and Officers incorporated by reference to Exhibit 10.27 to the Registration Statement on Form S-11, File No. 33-71160 10.24 -- Form of Construction Loan Agreement, Indenture, Security Agreement and Promissory Note for loan from Empire Financial Services, Inc. to Jameson Inns., Inc. (formerly Jameson Company) for construction of Jameson Inn incorporated by reference to Exhibit 10.39 to the Registration Statement on Form S-11, File No. 33-71160 10.25 -- Form of Construction Loan Indenture, Security Agreement, Assignment of Fees and Income, Promissory Note for $4.2 million revolving loan from Empire Financial Services, Inc. to Jameson Inns., Inc. incorporated by reference to Exhibit 10.21 to the Annual Report filed on Form 10-K for the year ended December 31, 1993 10.26 -- Form of Deed to Secure Debt, Security Agreement, Assignment of Operating Lease, Assignment of Fees and Income, Promissory Note for loan from Empire Financial Services, Inc. to Jameson Inns., Inc. incorporated by reference to Exhibit 10.24 to the Annual Report filed on Form 10-K for the year ended December 31, 1995 10.27 -- Loan Modification Agreement and Note increasing by $2.6 million the revolving loan from Empire Financial Services, Inc. to Jameson Inns., Inc. incorporated by reference to Exhibit 10.26 to the Annual Report filed on Form 10-K for the year ended December 31, 1995 10.28 -- Deeds to Secure Debt, Mortgages, Assignments and Security Agreements, Assignment of Rents and Leases, Assignments of Income and Promissory Note for $17,171,717 loan from Bank Midwest, N.A. to Jameson Inns, Inc. secured by 14 separate Jameson Inns incorporated by reference to Exhibit 10.34 to the Registration Statement on Form S-4, File No. 333-74149 10.29 -- Adjustable Rate Note dated June 30, 1996 in the amount of $1,050,000 from Jameson Inns., Inc. to Empire Financial Services, Inc. for loan on Waynesboro, Georgia incorporated by reference to Exhibit 10.3 to the Report for the quarter ended March 31, 1996 10.30 -- Asset Purchase Agreement by and among Jameson Outdoor Advertising Company, Jameson Inns, Inc. and Jameson Hospitality, LLC dated as of January 4, 1999 incorporated by reference to Exhibit 10.30 to the Annual Report filed on Form 10-K for the year ended December 31, 1999 10.31 -- Term Loan Agreement dated as of December 28, 1999, between Jameson Inns, Inc. and First National Bank & Trust; Mortgage; Security Agreement; Assignment of Rents and Leases; Mortgage Note for $3.7 million incorporated by reference to Exhibit 10.31 to the Annual Report filed on Form 10-K for the year ended December 31, 1999 10.32 -- Loan Agreement between the City of Elkhart, Indiana and Jameson Inns, Inc. dated as of December 1, 1999, relating to the issuance of $3,305,000 of Adjustable Rate Economic Development Revenue Refunding Bonds, Series 1999; Trust Indenture between City of Elkhart, Indiana and Firstar Bank, N.A. as Trustee, dated as of December 1, 1999; Escrow Deposit Agreement dated December 22, 1999, by and among Jameson Inns, Inc., the City of Elkhart, Indiana, Bank One Trust Company, NA as Escrow Trustee and Bank One Trust Company, NA as Prior Trustee; Specimen Irrevocable Letter of Credit dated December 22, 1999 for the benefit of bondholders for the account of Jameson Inns, Inc.; Reimbursement Agreement between Jameson Inns, Inc. and Firstar Bank, N.A. dated December 22, 1999; Mortgage, Assignment of Rents and Security Agreement from Jameson Inns, Inc. to Firstar Bank, N.A. dated as of December 22, 1999; Assignment of Leases and Rents from Jameson Inns, Inc. to Firstar Bank, N.A. dated as of December 22, 1999; Assignment and Subordination of Master Lease by Jameson Inns, Inc. and Jameson Hospitality, LLC for the benefit of Firstar Bank, N.A. dated as of December 22, 1999; Environmental Indemnity Agreement by Jameson Inns, Inc. to and for the benefit of Firstar Bank, N.A. dated as of December 22, 1999; Agreement with respect to Pledged Bonds by and among Firstar Bank, N.A., as Trustee, Firstar Bank, N.A. as Letter of Credit Bank and Jameson Inns, Inc. dated as of December 1, 1999; Bond Purchase Agreement by and among the City of Elkhart, Indiana, Jameson Inns, Inc. and Banc One Capital Markets, Inc. dated as of December 21, 1999; Remarketing Agreement between Banc One Capital Markets, Inc. and Jameson Inns, Inc. dated as of December 1, 1999 incorporated by reference to Exhibit 10.32 to the Annual Report filed on Form 10-K for the year ended December 31, 1999 10.33 -- Schedule of documents substantially similar to Exhibit 10.32 incorporated by reference to Exhibit 10.33 to the Annual Report filed on Form 10-K for the year ended December 31, 1999 10.34 -- Employment contract with Thomas W. Kitchin dated July 27, 2000, incorporated by reference to Exhibit 10.1 to the Report for the quarter ended September 30, 2000 10.35 -- Employment contract with Craig R. Kitchin dated July 27, 2000, incorporated by reference to Exhibit 10.2 to the Report for the quarter ended September 30, 2000 10.36 -- Employment contract with William D. Walker dated July 27, 2000, incorporated by reference to Exhibit 10.3 to the Report for the quarter ended September 30, 2000 10.37 -- Employment contract with Steven A. Curlee dated July 27, 2000, incorporated by reference to Exhibit 10.4 to the Report for the quarter ended September 30, 2000 10.38 -- Loan Agreement dated as of September 27, 2000, between Jameson Inns, Inc. and Geneva Leasing Associates, Inc. for Signature Inn, Fort Wayne, Indiana; Mortgage, Assignment of Rents, Security Agreement and Financing Statement; and Note for $2,825,000 10.39 -- Loan Agreement dated September 27, 2000, between Jameson Inns, Inc. and Republic Bank, Indianapolis, Indiana for Signature Inn, Indianapolis West; Mortgage, Security Agreement and Fixture Filing; Assignment of Deposits, Leases and Rents; Estoppel Certificate, Subordination and Attonment Agreement; and Promissory Note for $4,745,000 10.40 -- Loan Agreement dated December 27, 2000, between Jameson Properties, LLC and First Bank, Peoria, Illinois for Signature Inn, Normal, Illinois; Mortgage and Security Agreement; Assignment of Leases and Rents; Subordination Agreement; Tenant Estoppel Agreement; Indemnity Agreement; and Promissory Note A for $6,000,000; Promissory Note B for $5,000,000 10.41 -- Schedule of documents substantially similar to Exhibit 10.40 10.42 -- Open-end Mortgage dated May 16, 2001 between Jameson Inns, Inc. and Cornerstone Bank for Signature Inn, Columbus, Ohio; Security Agreement, Equipment, Inventory Receivables; Assignment of Rents as Security; Hazardous Substance Indemnity Agreement; Depository Agreement; Promissory Note for $3,900,000; and Addendum to Promissory Note 10.43 -- Real Estate Mortgage dated March 28, 2001 between Jameson Alabama, Inc. and Empire Financial Services, Inc. for Jameson Inn, Tuscaloosa, Alabama; Assignment of Lease; Assignment of Operating Lease; Assignment of Fees and Income; Security Agreement; Adjustable Rate Note for $1,500,000; Unconditional Guaranty of Payment and Performance 10.44 -- Schedule of documents substantially similar to Exhibit 10.43 21.1 -- Subsidiaries of the Registrant 23.1 -- Consent of Ernst & Young LLP EX-10.38 2 0002.txt LOAN AGREEMENT DATED SEPTEMBER 27, 2000 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 1 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 2 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 3 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 4 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. ----------------------------------------- 5 (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 6 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' 7 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 8 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. 9 (g) Insurance. Maintain comprehensive public liability insurance naming Borrower and Lender (Geneva Leasing Associates, Inc., its participants, successors and assigns) as an additional named insured, protecting against claims for bodily injury, death, property and economic damage arising out of the use, ownership, operation, maintenance, foreclosure, surrender, possession or condition of the Mortgaged Premises and other Collateral; insure and keep the property and assets of Borrower, including but not limited to the Mortgaged Premises and other Collateral, insured against fire, theft and other losses, damages or hazards as covered under extended coverage, including but not limited to, loss by flood, wind, and other extended coverage risks customarily insured against by companies engaged in similar business, and each such policy of insurance shall designate Lender as a loss payee. Each such policy of insurance shall be in a form and amount with insurance companies acceptable to Lender, and shall provide for not less than thirty (30) days prior written notice to Lender in the event of any renewal or its replacement, cancellation or material alteration and Borrower shall furnish satisfactory evidence of such coverages to Lender at least fifteen (15) days prior to the last date such policy of insurance is in effect. So long as no Default or Event of Default shall have occurred and be continuing, Borrower is made attorney-in-fact to obtain, adjust and, with Lender's prior consent, settle any claim and endorse and negotiate any drafts. If a Default or an Event of Default shall have occurred and be continuing, Lender is hereby made attorney-in-fact for Borrower to obtain, adjust, settle and cancel, in its sole discretion, such insurance and any claim and endorse and negotiate any drafts. In the event of failure to provide insurance as herein provided, Lender may, at Lender's option, provide such insurance at the expense of the Borrower. Borrower assigns to Lender all rights to receive proceeds of such insurance not exceeding the unpaid balance of all Liabilities, costs of collection, including any attorney's fees and obligations of whatever kind of Borrower to Lender, directs any insurer to pay all such proceeds directly to Lender, and authorizes Lender, as Borrower's attorney-in-fact, to obtain such proceeds and to endorse and negotiate any draft for such proceeds. The power of attorney created hereby is a power coupled with an interest with full power of substitution. So long as no Default or Event of Default shall have occurred and be continuing all insurance payments received as the result of any property damage with regard to the Mortgaged Premises or other Collateral shall be applied towards making repairs, or replacements, or to reimburse the Borrower such costs. Whenever the Borrower files an insurance claim, regarding the Mortgaged Premises or other Collateral, which amounts to $25,000 or more, the Borrower shall send a copy to the Lender and no settlement of such claim shall be made without the prior written consent of the Lender. (h) Licenses and Governmental Authorities. Use the Mortgaged Premises solely for 10 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 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 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 (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 (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 (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 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 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 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 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 (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 (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 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 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 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 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 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 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 (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 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 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 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 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 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 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 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 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 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 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 EX-10.39 3 0003.txt LOAN AGREEMENT DATED DECEMBER 27, 2000 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 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 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 (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 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 (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 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 (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 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 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 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 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 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 (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 (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 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 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 (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 (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 (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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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: 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 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 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, 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:________________________ 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: _________________________ 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: _________________________ 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: _________________________ EXHIBIT A LEGAL DESCRIPTION OF THE PROPERTY 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"). 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". 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 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 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 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 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 EX-10.40 4 0004.txt SCHEDULE OF DOCUMENTS SIMILAR TO EXHIBIT 10.40 EXHIBIT 10.40 ================================================================================ LOAN AGREEMENT JAMESON PROPERTIES, LLC and FIRST BANK _________, 2000 ================================================================================ TABLE OF CONTENTS ----------------- PAGE 1. DEFINITIONS AND RULES OF INTERPRETATION................... -1- 1.1. Definitions............................................. -1- 1.2. Rules of Interpretation................................. -9- 2. THE NOTE; INTEREST; MATURITY AND PREPAYMENT...............-10- 2.1. The Note................................................-10- 2.2. Funds for Payments......................................-10- 2.3. Computations............................................-10- 2.4. Maturity................................................-11- 2.5. Commitment Fee..........................................-11- 2.6. Interest on Overdue Amounts.............................-11- 2.7. Prepayment..............................................-11- 2.8. Alienation..............................................-11- 3. AGREEMENT TO MAKE NOTE B ADVANCES; LIMITATIONS............-11- 3.1. Agreement to Make Advances under Note B.................-11- 3.2. Draw Request............................................-11- 3.3. Amount; Notice and Frequency of Advances................-12- 3.4. Advances Do Not Constitute a Waiver.....................-12- 3.5. Cessation of Disbursements..............................-12- 4. CONDITIONS TO CLOSING.....................................-12- 4.1. Loan Documents..........................................-13- 4.2. Contracts...............................................-13- 4.3. Certified Copies of Organizational Documents............-13- 4.4. Deliveries..............................................-13- 4.5. Legal Opinions..........................................-15- 4.6. Lien Search.............................................-15- 4.7. Appraisal...............................................-15- 4.8. Commitment Fee; Other Fees and Expenses................-15- 4.9. Performance; No Default.................................-15- 4.10. Truth of Representations and Warranties................-15- 4.11. Waiver of Requirements.................................-15- 5. CONDITIONS OF SUBSEQUENT ADVANCES.........................-16- 5.1. Prior Conditions Satisfied..............................-16- 5.2. Performance; No Default.................................-16- 5.3. No Damage...............................................-16- 5.4. Receipt of Documents by the Lender......................-16- 5.5. Liens...................................................-16- 6. CERTAIN RIGHTS OF THE LENDER............................. -16- 6.1. Right to Obtain Appraisals............................. -16- 7. REPRESENTATIONS AND WARRANTIES........................... -17- 7.1. Organization; Authority; Etc........................... -17- 7.2. Title to Property and other Properties................. -18- 7.3 Financial Statements................................... -18- 7.4. No Material Changes, Etc............................... -18- 7.5. Litigation............................................. -18- 7.6. No Materially Adverse Contracts, Etc................... -19- 7.7. Compliance With Other Instruments, Laws, Etc........... -19- 7.8. Tax Status............................................. -19- 7.9. No Event of Default.................................... -19- 7.10. Investment Company Act................................ -19- 7.11. Absence of Financing Statements, Etc.................. -19- 7.12. Setoff, Etc........................................... -19- 7.13. Condition of Property................................. -20- 7.14. Other Contracts....................................... -20- 7.15. Real Property Taxes; Special Assessments.............. -20- 7.16. Effect of Draw Request................................ -20- 8. AFFIRMATIVE COVENANTS OF THE BORROWER.................... -20- 8.1. Punctual Payment....................................... -20- 8.2. Maintenance of Office.................................. -20- 8.3. Records and Accounts................................... -20- 8.4. Financial Statements, Certificates and Information..... -21- 8.5. Notices................................................ -22- 8.6. Existence; Maintenance of Properties................... -23- 8.7. Insurance.............................................. -23- 8.8. Taxes.................................................. -24- 8.9. Inspection of Property, Other Properties and Books..... -25- 8.10. Compliance with Laws, Contracts, Licenses, and Permits -25- 8.11. Further Assurances.................................... -25- 8.12. Operating Accounts.................................... -26- 8.13. Reserve Accounts...................................... -26- 9. NEGATIVE COVENANTS OF THE BORROWER....................... -26- 9.1. Restriction on Leases.................................. -26- 9.2. Restrictions on Easements, Covenants and Restrictions.. -26- 9.3. Restrictions on Liens, Etc............................. -27- 9.4. Merger, Consolidation and Disposition of Assets........ -27- 10. EVENTS OF DEFAULT AND REMEDIES.......................... -28- 10.1. Events of Default......................................-28- 10.2. Acceleration...........................................-31- 10.3. Other Remedies.........................................-32- 10.4. Distribution of Collateral Proceeds....................-33- 10.5. Power of Attorney......................................-33- 10.6. Waivers................................................-33- 11. MISCELLANEOUS AND GENERAL................................-33- 11.1. Setoff.................................................-33- 11.2. Expenses...............................................-34- 11.3. Indemnification........................................-34- 11.4. Rights of Third Parties................................-35- 11.5. Survival of Covenants, Etc.............................-35- 11.6. Participations.........................................-35- 11.7. Relationship...........................................-35- 11.8. Notices................................................-35- 11.9. Governing Law..........................................-36- 11.10. Consent to Jurisdiction; Waivers......................-37- 11.11. Headings..............................................-37- 11.12. Counterparts..........................................-37- 11.13. Entire Agreement, Etc.................................-37- 11.14. Consents, Amendments, Waivers, Etc....................-37- 11.15. Time of the Essence...................................-38- 11.16. Severability..........................................-38- 11.17. Assignments...........................................-38- 11.18. Waiver and Release by Borrower........................-38- 11.19. Construction..........................................-39- 11.20. Further Assurance.....................................-39- 11.21. Binding Effect........................................-39- 11.22. Exhibits..............................................-39- 11.23. Termination...........................................-39- 11.24. Loan Documents........................................-39- 11.25. Leases................................................-39- 11.26. Liability of the Lender...............................-39- LOAN AGREEMENT -------------- THIS LOAN AGREEMENT, dated this ____ day of __________ 2000, by and between JAMESON PROPERTIES, LLC, a Georgia limited liability company, and its successors and assigns (the "Borrower") having its principal place of business at 8 Perimeter Center East, Suite 8050 Atlanta, Georgia 30346 and FIRST BANK, a Missouri banking corporation ("Lender") having its principal business address at 240 S.W. Jefferson, Peoria, Illinois 61602. WITNESSETH: RECITAL. Borrower has requested Lender to lend Borrower the sum of Eleven ------- Million Dollars ($11,000,000.00) as provided herein (the "Loan"), and Lender is willing to do so upon the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the promises herein contained, other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and each intending to be legally bound hereby, the parties agree as follows: 1. DEFINITIONS AND RULES OF INTERPRETATION. --------------------------------------- 1.1. Definitions. The following terms shall have the meanings set forth ----------- in this Section 1 or elsewhere in the provisions of this Agreement or other Loan Documents referred to below: Advance. Any disbursement of the proceeds of the Loan made or to be made ------- by the Lender pursuant to the terms of this Agreement. Affiliate. With respect to any Person (the "Specified Person") means any --------- Person (1) who directly or indirectly controls, or is controlled by, or is under common control with such Specified Person; (2) who directly or indirectly beneficially owns or controls ten percent (10%) or more of the beneficial ownership (voting stock, general partnership interests, or otherwise) of such Specified Person; (3) ten percent (10%) or more of the beneficial ownership (voting stock, general partnership interests, or otherwise) of whom is owned, directly or indirectly, by the Specified Person; (4) who is an officer, director, partner, member, or trustee of the Specified Person; or (5) in whom the Specified Person is an officer, director, partner, member, or trustee. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, through the ownership of voting securities, partnership interests, membership interests or otherwise, by contract or otherwise. Agreement. This Agreement, including any Schedules and Exhibits hereto. --------- --------- -------- Appraisal. An appraisal of the value of the Property, determined on an --------- orderly liquidation basis, performed by a qualified independent appraiser selected by the Lender. Balance Sheet Date. March 31, 2000. ------------------ Business Day. Any day on which Lender is open for the transaction of ------------ banking business. Closing Date. The first date on which the conditions set forth in Section ------------ 4 have been satisfied. Collateral. All of (a) the property, rights and interests of the Borrower ---------- that are or are intended to be subject to the security interests, assignments, and mortgage liens created by the Loan Documents, including, without limitation, the Property, the Personal Property, and (b) the Guaranty. Combined Debt Service Coverage Ratio. (a) EBITDA, less Replacement ------------------------------------ Reserves required pursuant to Section 8112, less real estate and personal property taxes for the Property, for all of the Property for the period in question divided by (b) Debt service for the period in question. The Combined Debt Service Coverage Ratio shall be calculated as of the end of each fiscal quarter of the Borrower for the previous four fiscal quarters of Borrower. The term "Debt" for purposes of this paragraph only shall mean the then current principal and interest payments due under the Note for the period in question. Consolidated or consolidated. With reference to any term defined herein, ---------------------------- shall mean that term as applied to the accounts of the Borrower and its Subsidiaries, consolidated in accordance with generally accepted accounting principles. Debt Service Coverage Ratio. (a) EBITDA for a Person for the period in --------------------------- question divided by (b) Debt service for the period in question. The Debt Service Coverage Ratio shall be calculated as of the end of each fiscal quarter of the Borrower for the previous four fiscal quarters of Borrower. The term "Debt" for purposes of this paragraph only shall mean all liabilities of Borrower determined in accordance with generally accepted accounting principles. Default. A condition or event which would, with the giving of notice or ------- lapse of time or both, constitute an Event of Default. Default Rate. The default rate of interest set forth in the Note. ------------ Distribution. The declaration or payment of any dividend on or in respect ------------ of any shares of any class of capital stock of the Borrower, other than dividends payable solely in shares of common stock of the Borrower; the purchase, redemption, or other retirement of any shares of any class of capital stock of the Borrower, directly or indirectly; the return of capital by the Borrower to its shareholders as such; or any other distribution by the Borrower to Borrower's beneficial owners. Dollars or $. Dollars in lawful currency of the United States of America. ------------ EBITDA. Earnings before interest, taxes, depreciation and amortization ------ determined in accordance with Generally Accepted Accounting Principles. -2- Event of Default. See Section 10. ---------------- Financial Statements. Those items required pursuant to Section 84 hereof. -------------------- Financing Statements. Uniform Commercial Code Form 1 Financing -------------------- Statement(s) from the Borrower in favor of the Lender giving notice of a security interest in the Collateral, such financing statements to be in form and substance satisfactory to the Lender. Generally Accepted Accounting Principles. Principles that are (a) ---------------------------------------- consistent with the principles promulgated or adopted by the Financial Accounting Standards Board and its predecessors, as in effect from time to time and (b) consistently applied with past financial statements of the Borrower adopting the same principles; provided that a certified public accountant would, -------- insofar as the use of such accounting principles is pertinent, be in a position to deliver an unqualified opinion (other than a qualification regarding changes in generally accepted accounting principles) as to financial statements in which such principles have been properly applied. Ground Lease. That certain Lease between the City of Springfield, ------------ Illinois (the "City") and Prehn Plaza, Inc. ("Prehn") dated November 17, 1964, as amended by that certain Amended Lease between the City and Prehn, dated November 29, 1966 and recorded June 19, 1967 in the Office of the Recorder of Sangamon County, Illinois in Mortgage Records 1015 at Page 798 as Document No. 482815, as amended by that certain Amendment to Lease between City and Prehn, recorded August 1, 1986, in the Office of the Recorder of Sangamon County, Illinois as Document No. 32736, and as amended by that certain Amendment to Lease between City and Prehn, dated February 22, 1996, and that certain Amendment to Lease between City and Prehn dated June 23, 1997, neither of which Amendments was not recorded. Guarantor or Guarantors. Jameson Inns, Inc. a Georgia corporation having ----------------------- an address at 8 Perimeter Center East, Suite 850 Atlanta, Georgia 30346. Guaranty or Guaranties. The Unconditional Continuing Guaranty of All ---------------------- Obligations and Security Agreement, dated or to be dated on or prior to the Closing Date, made by each Guarantor in favor of the Lender, pursuant to which each Guarantor guarantees to the Lender the payment and performance of the Obligations, such Guaranties to be in form and substance satisfactory to the Lender. Hospitality. Jameson Hospitality, LLC., a Georgia limited liability ----------- company. Indemnity Agreement. The Indemnity Agreement dated or to be dated on or ------------------- prior to the Closing Date, made by the Borrower and the Guarantor in favor of the Lender, pursuant to which the Borrower and the Guarantor agree to indemnify the Lender with respect to Hazardous Materials, Environmental Laws, and Accessibility Laws, such Indemnity Agreement to be in form and substance satisfactory to the Lender. Individual Debt Service Coverage Ratio. (a) EBITDA, less Replacement -------------------------------------- Reserves required -3- pursuant to Section 8112, less real estate and personal property taxes for the Property, hereunder for the Normal Property, the Peoria Property, or the Springfield Property, as the case may be for the period in question divided by (b) Debt service for the period in question. The Individual Debt Service Coverage Ratio shall be calculated as of the end of each fiscal quarter of the Borrower for the previous four fiscal quarters of Borrower. The term "Debt" for purposes of this paragraph only shall mean, with respect to the Normal Property, the Peoria Property, or the Springfield Property, as the case may be, the then current principal and interest payments due under the Note for the period in question times a fraction, the numerator of which is the appraised value of the Normal Property, the Peoria Property, or the Springfield Property as of the date hereof, as the case may be, and the denominator of which is the aggregate appraised value of all of the Normal Property, the Peoria Property, and the Springfield Property as of the date hereof. Leases. Leases, licenses, and agreements, whether written or oral, ------ relating to the use or occupation of space in the improvements on the Property by Persons other than the Borrower. Loan. The loan which is the subject of this Agreement. ---- Loan Amount. Eleven Million Dollars ($11,000,000.00). ----------- Loan Documents. This Agreement, Note A, Note B, the Indemnity Agreement, -------------- the Normal Mortgage, the Peoria Mortgage, the Springfield Mortgage, the Financing Statements, the Normal Assignment of Leases, the Peoria Assignment of Leases, the Springfield Assignment of Leases, the Normal Assignment of Deposit Account, Peoria Assignment of Deposit Account, Springfield Assignment of Deposit Account, and all other agreements, documents and instruments now or hereafter evidencing, securing or otherwise relating to the Loan. Master Lease. That certain Master Lease Agreement between Borrower (and/or ------------ affiliates of Borrower) and Hospitality dated as of May 7, 1999, and amended by Amendment No. 1 to Master Lease Agreement dated as of May 7, 1999, and as amended by Amendment No. 2 to Master Lease Agreement dated as of November 2, 2000, and as amended by Amendment No. 3 to Master Lease Agreement dated as of November 22, 2000, whereby Hospitality leases various properties from Borrower (and/or affiliates of Borrower) including the Normal Property, the Peoria Property, and the Springfield Property. Maturity Date. _____________, 2005. ------------- Mortgage. Collectively, the Normal Mortgage, the Peoria Mortgage, and the -------- Springfield Mortgage. Normal Assignment of Deposit Account. The Assignment of Deposit Account ------------------------------------ for the Normal Property, dated or to be dated on or prior to the Closing Date, made by the Borrower in favor of the Lender, pursuant to which the Borrower assigns its right, title and interest in the Normal Reserve Account, such Assignment of Deposit Account to be in form and substance satisfactory to the Lender. -4- Normal Assignment of Leases. The Assignment of Leases and Rents, dated or --------------------------- to be dated on or prior to the Closing Date, made by the Borrower in favor of the Lender, pursuant to which the Borrower assigns its right, title and interest as landlord in and to the Leases and the rents, issues and profits of the Normal Property, such Assignment of Leases and Rents to be in form and substance satisfactory to the Lender. Normal Mortgage. That certain Mortgage and Security Agreement encumbering --------------- the Normal Property, executed and delivered by Borrower in favor of Lender in connection with the Loan. Peoria Assignment of Deposit Account. The Assignment of Deposit Account ------------------------------------ for the Peoria Property, dated or to be dated on or prior to the Closing Date, made by the Borrower in favor of the Lender, pursuant to which the Borrower assigns its right, title and interest in the Peoria Reserve Account, such Assignment of Deposit Account to be in form and substance satisfactory to the Lender. Peoria Assignment of Leases. The Assignment of Leases and Rents, dated or --------------------------- to be dated on or prior to the Closing Date, made by the Borrower in favor of the Lender, pursuant to which the Borrower assigns its right, title and interest as landlord in and to the Leases and the rents, issues and profits of the Peoria Property, such Assignment of Leases and Rents to be in form and substance satisfactory to the Lender. Peoria Mortgage. That certain Mortgage and Security Agreement encumbering ---------------- the Peoria Property, executed and delivered by Borrower in favor of Lender in connection with the Loan. Note. Collectively, Note A and Note B. ---- Note A. That certain promissory note in the amount of Six Million Dollars ------ ($6,000,000.00) executed of even date herewith. Note B. That certain promissory note in the amount of Five Million Dollars ------ ($5,000,000.00) executed of even date herewith. Obligations. The obligations of Borrower to: ----------- (A) To repay all indebtedness, obligations and liabilities of the Borrower to the Lender, individually or collectively, existing on the date of this Agreement or arising thereafter, including any extensions, amendments, modifications, renewals, refinancings, refundings thereof and substitutions therefor, whether direct or indirect, joint or several, absolute or contingent, matured or unmatured, liquidated or unliquidated, secured or unsecured, arising by contract, operation of law or otherwise, arising or incurred under this Agreement, any of the other Loan Documents, or the Note or other instruments at any time evidencing any thereof, or otherwise. (B) To repay to Lender all amounts advanced by Lender hereunder or otherwise on -5- behalf of Borrower, including, but without limitation, advances for principal or interest payments to prior secured parties, mortgagee, or lienors, or for taxes, levies, insurance, rent, repairs to or maintenance or storage of any of the Collateral; and (C) To reimburse Lender, on demand, for all of Lender's expenses and costs, including without limitation the reasonable fees and expenses of its counsel, in connection with the enforcement of this Agreement, the preparation of the documents required hereunder, and the closing of the Loan, and including without limitation, any proceeding brought or threatened to enforce payment of any of the obligations referred to in the foregoing paragraphs (A) and (B). Permitted Liens. Liens, security interests and other encumbrances --------------- permitted by Section 93. Person. Any individual, corporation, partnership, limited liability ------ company, trust, unincorporated association, business, or other legal entity, and any government or any governmental agency or political subdivision thereof. Personal Property. All goods, materials, supplies, inventory, furnishings, ----------------- fixtures, furniture, machinery, equipment, all other items of tangible personal property, all general intangibles, all drawings, designs, specifications, blue prints, plans, promotional brochures, mailing lists, records, customer lists, all instruments, chattel paper, documents and accounts, and all proceeds, substitutes, replacements, accretions, accessions and products of any of the foregoing now or hereafter owned or acquired by the Borrower, wherever located, and either (i) to be located on or incorporated into the Property, (ii) used in connection with the construction of the Improvements or (iii) to be used in connection with the ownership, operation, or maintenance of the Property, excluding, however, leased computer equipment and software used in connection with the Property. Property. Collectively the real property described on Exhibit A, A1 and -------- ----------------- A2, attached hereto and incorporated herein located in McLean County, Illinois, (the "Normal Property"), in Peoria County, Illinois (the "Peoria Property"), in Sangamon County, Illinois, (the "Springfield Property") respectively together with all improvements thereon and appurtenances thereto and more fully described in each Mortgage. Springfield Assignment of Deposit Account. The Assignment of Deposit ----------------------------------------- Account for the Springfield Property, dated or to be dated on or prior to the Closing Date, made by the Borrower in favor of the Lender, pursuant to which the Borrower assigns its right, title and interest in the Springfield Reserve Account, such Assignment of Deposit Account to be in form and substance satisfactory to the Lender. Springfield Assignment of Leases. The Assignment of Leases and Rents, -------------------------------- dated or to be dated on or prior to the Closing Date, made by the Borrower in favor of the Lender, pursuant to which the Borrower assigns its right, title and interest as landlord in and to the Leases and the rents, issues and profits of the Springfield Property, such Assignment of Leases and Rents to be in form and substance satisfactory to the Lender. -6- Springfield Mortgage. That certain Leasehold Mortgage and Security --------------------- Agreement encumbering the Springfield Property, executed and delivered by Borrower in favor of Lender in connection with the Loan. Sublease. That certain Sublease of the Property between Prehn and -------- Stevenson Motor Inn Corporation ("SMIC"), dated November 29, 1966, and recorded June 19, 1967, in the Office of the Recorder of Sangamon County, Illinois in Book 1015 of Mortgages, Page 798, as Document No. 482815 ("the 1966 Sublease"), which 1966 Sublease was amended pursuant to that certain Amendment to Sublease between Prehn and SMIC recorded August 1, 1986, in the Office of the Recorder of Sangamon County, Illinois as Document No. 32737 (the "1986 Amendment"), and further amended by that certain Amendment to Sublease between Prehn and Motel Equity Venture Limited Partnership ("Motel Equity"), dated September 4, 1987, and recorded September 11, 1987, in the Office of the Recorder of Sangamon County, Illinois as Document No. 78779 (the "1987 Amendment") (the 1966 Sublease, as amended from time to time, including the 1986 Amendment and the 1987 Amendment, are referred to herein as the "Original Sublease"). Pursuant to that certain Assignment of Sublease and Amendment to Sublease, dated July 31, 1986, and recorded August 1, 1986, in the Office of the Recorder of Sangamon County, Illinois as Document No. 32738, SMIC assigned all of its rights, title, interest and estate in, to and under the Original Sublease to Ben H. Selph, Bryan W. Selph and David Selph (collectively the "Selph's"). Pursuant to that certain Assignment of Sublease and Amendment to Sublease, dated November 13, 1986, and recorded on March 26, 1987, in the Office of the Recorder of Sangamon County, Illinois as Document No. 59565, the Selph's assigned all of their rights, title, interest and estate in, to and under the Original Sublease to Private Capital Ltd. ("Private Capital"). Pursuant to that certain Assignment of Sublease and Amendment to Sublease, dated June 30, 1987, and recorded July 1, 1987, in the office of the Recorder of Sangamon County, Illinois as Document No. 71462, Private Capital assigned all of its rights, title, interest and estate in, to and under the Original Sublease to Motel Equity. Pursuant to that certain Assignment and Assumption of Sublease, dated as of October 21, 1993, and recorded October 26, 1993, in the Office of the Recorder of Sangamon County, Illinois as Document No. 93-47344, Motel Equity assigned all of its rights, title, interest and estate in, to and under the Original Sublease to Summit Avenue Properties, Inc. ("SAPI"). Pursuant to that certain Assignment and Assumption Agreement dated as of August 26, 1996, and recorded August 27, 1996, in the office of Sangamon County, Illinois as Document No. 96-34549, SAPI assigned all of its right, title, interest and estate in, to and under the Original Sublease to SI Springfield Corporation ("SISC"). The Original Sublease was further amended by the certain Amended and Restated Sublease between Prehn and SISC dated August 26, 1996, and recorded August 27, 1996, in the office of the Recorder of Sangamon County, Illinois as Document No. 96-34550 (the "Sublease"). Prehn and SISC further entered into an Amendment to Amended and Restated Sublease dated as of July __, 1997, extending the term of the Sublease to May 20, 2034. Signature Inns, Inc.("SII") merged into Jameson Inns, Inc., a Georgia corporation ("JII"), on May 7, 1999. Prior to such merger, SISC was a wholly owned subsidiary of SII and is now a wholly owned subsidiary of JII. On May 28, 1997, SII entered into a letter agreement with the City regarding the encroachment of a cantilevered canopy over a City Water, Light and Power Easement (the "Encroachment Agreement"), which was not recorded. Pursuant to that certain Assignment and Assumption Agreement dated as of __________________, 2000, SISC assigned all of its right, title, interest and estate in, to and under the Sublease to Borrower. -7- Subordination Agreement. Agreements among the Lender, the Borrower, and ----------------------- Hospitality pursuant to which Hospitality agrees to subordinate its rights under the Master Lease to the lien of the Normal Mortgage, the Peoria Mortgage, and the Springfield Mortgage, such agreements to be in form and substance satisfactory to the Lender. Survey. An ALTA/ACSM survey of each Property prepared by a registered land ------ surveyor certified to Lender and the Title Company, which survey is to show the same by metes and bounds together with all easements as actually located (referring to same by book and page number of recordation or if the same cannot be located then, indicating the same), set back lines, improvements, walks, alleys, drives, former streets and alleys, if vacated, adjoining public roads, streets, or other thoroughfares, and all appurtenant easements, the proposed location of the buildings, a legal description of the Property and the area of the Property in square feet, dimensions, area, and locations of improvements, ingress and egress to and from the Property; parking area; easements, including all appurtenant easements, the location of adjacent streets, and such additional details as Lender may reasonably request, together with satisfactory evidence that the improvements on the Property do not and will not encroach upon any property line, building set-back line or easement. Surveyor's Certificate. With respect to any Survey, a certificate executed ---------------------- by the surveyor who prepares such Survey dated as of a recent date and containing such information relating to each Property as the Lender or the Title Insurance Company may require. Taking. Any condemnation for public use of, or damage by reason of, the ------ action of any Governmental Authority, or any transfer by private sale in lieu thereof, either temporarily or permanently. Title Insurance Company. First Associates Title LLC, with a usual place of ----------------------- business at 620 North McKnight Road, St. Louis, Missouri 63132-4911. Title Policy-Springfield. An ALTA standard form title insurance policy ------------------------ issued by the Title Insurance Company (with such reinsurance or co-insurance as the Lender may require, any such reinsurance to be with direct access endorsements) in an amount not less than the Loan Amount insuring the priority of the Mortgage and that the Borrower holds marketable leasehold title to the Springfield Property, subject only to such exceptions as the Lender may approve and which shall not contain exceptions for mechanics liens, persons in occupancy (except under Leases which have been approved by Lender) or matters which would be shown by a survey, shall not insure over any matter except to the extent that any such affirmative insurance is acceptable to the Lender in its sole discretion, and shall contain such endorsements and affirmative insurance as the Lender in its discretion may require, including but not limited to (a) a comprehensive endorsement, (b) a variable rate of interest endorsement, (c) a future advance endorsement, and (d) an ALTA form 3.1 zoning endorsement. Title Policy-Normal. An ALTA standard form title insurance policy issued ------------------- by the Title -8- Insurance Company (with such reinsurance or co-insurance as the Lender may require, any such reinsurance to be with direct access endorsements) in an amount not less than the Loan Amount insuring the priority of the Mortgage and that the Borrower holds marketable fee title to the Normal Property, subject only to such exceptions as the Lender may approve and which shall not contain exceptions for mechanics liens, persons in occupancy (except under Leases which have been approved by Lender) or matters which would be shown by a survey, shall not insure over any matter except to the extent that any such affirmative insurance is acceptable to the Lender in its sole discretion, and shall contain such endorsements and affirmative insurance as the Lender in its discretion may require, including but not limited to (a) a comprehensive endorsement, (b) a variable rate of interest endorsement, (c) a future advance endorsement, and (d) an ALTA form 3.1 zoning endorsement. Title Policy-Peoria. An ALTA standard form title insurance policy issued ------------------- by the Title Insurance Company (with such reinsurance or co-insurance as the Lender may require, any such reinsurance to be with direct access endorsements) in an amount not less than the Loan Amount insuring the priority of the Mortgage and that the Borrower holds marketable fee title to the Peoria Property, subject only to such exceptions as the Lender may approve and which shall not contain exceptions for mechanics liens, persons in occupancy (except under Leases which have been approved by Lender) or matters which would be shown by a survey, shall not insure over any matter except to the extent that any such affirmative insurance is acceptable to the Lender in its sole discretion, and shall contain such endorsements and affirmative insurance as the Lender in its discretion may require, including but not limited to (a) a comprehensive endorsement, (b) a variable rate of interest endorsement, (c) a future advance endorsement, and (d) an ALTA form 3.1 zoning endorsement. 1.2. Rules of Interpretation. ----------------------- (a) A reference to any agreement, budget, document or schedule shall include such agreement, budget, document or schedule as revised, amended, modified or supplemented from time to time in accordance with its terms and the terms of this Agreement. (b) The singular includes the plural and the plural includes the singular. (c) A reference to any law includes any amendment or modification to such law. (d) A reference to any Person includes its permitted successors and permitted assigns. (e) The words "include", "includes" and "including" are not limiting. (f) The words "approval" and "approved", as the context so determines, means an approval in writing given to the party seeking approval after full and fair disclosure to the party giving approval of all material facts necessary in order to determine whether approval should be granted. -9- (g) Reference to a particular Section refers to that section of this Agreement unless otherwise indicated. (h) The words "herein", "hereof", "hereunder" and words of like import shall refer to this Agreement as a whole and not to any particular section or subdivision of this Agreement. 2. THE NOTE; INTEREST; MATURITY AND PREPAYMENT. ------------------------------------------- 2.1. The Note. The Loan shall be evidenced by a promissory note of the -------- Borrower in substantially the form of Exhibit B1 hereto ( "Note A"), a ----------- promissory note of the Borrower in substantially the form of Exhibit B2 hereto ----------- ("Note B") (Note A and Note B are hereinafter collectively sometimes referred to as the "Note" or the "Notes") each dated as of the Closing Date and completed with appropriate insertions. The Notes shall be payable to the order of Lender in an aggregate principal amount equal to the Loan Amount. 2.2. Funds for Payments. ------------------ (a) All payments of principal, interest, fees and any other amounts due under the Notes or under any of the other Loan Documents shall be made to the Lender, at its office at 240 S.W. Jefferson, Peoria, Illinois 61602, or at such other location that the Lender may from time to time designate, in each case not later than 2:00 p.m. (Peoria, Illinois time) on the day when due in immediately available funds in lawful money of the United States. (b) All payments by the Borrower under the Note and under any of the other Loan Documents shall be made without setoff or counterclaim and free and clear of and without deduction for any taxes, levies, imposts, duties, charges, fees, deductions, withholdings, compulsory loans, restrictions or conditions of any nature now or hereafter imposed or levied by any jurisdiction or any political subdivision thereof or taxing or other authority therein unless the Borrower is compelled by law to make such deduction or withholding. If any such obligation to deduct or withhold is imposed upon the Borrower with respect to any amount payable by it under the Note or under any of the other Loan Documents, the Borrower will pay to the Lender on the date on which such amount is due and payable under the Note or under such other Loan Document, such additional amount in dollars as shall be necessary to enable the Lender to receive the same amount which the Lender would have received on such due date had no such obligation been imposed upon the Borrower. The Borrower will deliver promptly to the Lender certificates or other valid vouchers for all taxes or other charges deducted from or paid with respect to payments made by the Borrower under the Note or under such other Loan Document. 2.3. Computations. Interest on the Note shall be calculated on a daily ------------ basis by dividing the annual rate of interest by 360 to obtain the daily interest rate. All interest due hereunder shall be paid for the actual number of days elapsed. Whenever a payment hereunder or under any of the other Loan Documents becomes due on a day that is not a Business Day, the due date for such payment shall be extended to the next succeeding Business Day, and interest shall accrue during such extension. -10- 2.4. Maturity. The Borrower promises to pay to the Lender on the -------- Maturity Date, and there shall become absolutely due and payable on the Maturity Date, the principal balance of the Notes outstanding on such date, together with any and all accrued and unpaid interest thereon. 2.5. Commitment Fee. The Borrower agrees to pay to the Lender on the -------------- Closing Date a commitment fee in the amount of Eighty-Two Thousand Five Hundred Dollars ($82,500.00). 2.6. Interest on Overdue Amounts. Overdue principal and (to the extent --------------------------- permitted by applicable law) interest and all other overdue amounts payable hereunder or under any of the other Loan Documents shall bear interest payable on demand at the Default Rate until such amount shall be paid in full (whether before or after judgment). 2.7. Prepayment. The Borrower shall have the right, at its election, to ---------- repay the outstanding amount principal balance of the Note, as a whole or in part, at any time without penalty or premium. Each such partial prepayment shall be in an integral multiple of One Thousand Dollars ($1,000.00), on the principal repaid to the date of payment. No amount prepaid by the Borrower may be reborrowed. 2.8. Alienation. It is agreed, and the Mortgage and the Note shall so ---------- provide, that all indebtedness evidenced by the Note shall at the option of the holder of the Note become forthwith due and payable upon any assignment, sale, voluntary encumbrance, or other attempted alienation of the Property. 3. AGREEMENT TO MAKE NOTE B ADVANCES; LIMITATIONS. ---------------------------------------------- 3.1. Agreement to Make Advances under Note B. Subject to the terms and --------------------------------------- conditions of this Agreement, the Lender agrees to lend to the Borrower and the Borrower may borrow from time to time between the Closing Date and December ____, 2001, upon submission by the Borrower of a Draw Request to the Lender in accordance with Section 32, such amounts as are requested by the Borrower up to a maximum aggregate principal amount equal to the amount of Note B. Each Draw Request for an Advance hereunder shall constitute a representation and warranty by the Borrower that the conditions set forth in Section 5 have been satisfied on the date of such Draw Request. 3.2. Draw Request. At such time as the Borrower shall desire to obtain ------------ an Advance under Note B, the Borrower shall complete, execute and deliver to the Lender a Draw Request in the form of Exhibit C, attached hereto (hereinafter --------- referred to as "Draw Request"). Each Draw Request shall state with particularity the purpose for which the Advance is requested and, in the event that any of such Advance is for the purpose of paying for labor or materials supplied with respect to any Property it shall be accompanied by written lien waivers from the contractor and such laborers, subcontractors and materialmen for work done and materials supplied by them. Borrower shall also provide Lender such other information, documentation and certification as the Lender shall reasonably request. -11- 3.3. Amount; Notice and Frequency of Advances. Each Draw Request shall ---------------------------------------- be submitted to the Lender at least three (3) Business Days prior to the date of the requested Advance, and no more frequently than once each month and shall be for an amount not less than Fifty Thousand Dollars ($50,000.00). 3.4. Advances Do Not Constitute a Waiver. No Advance made by the Lender ----------------------------------- shall constitute a waiver of any of the conditions to the obligation of the Lender to make further Advances nor, in the event the Borrower fails to satisfy any such condition, shall any such Advance have the effect of precluding the Lender from thereafter declaring such failure to satisfy a condition to be an Event of Default. 3.5. Cessation of Disbursements. Lender shall have the right to cause a -------------------------- cessation of Advances to Borrower and shall not be obligated to make any further Advances to Borrower upon the occurrence of any of the following: 3.5.1. A Default or Event of Default hereunder; 3.5.2. If any of the improvements on the Property are materially damaged by fire or other casualty and not repaired within a reasonable period of time, unless Lender actually receives insurance proceeds or a cash deposit from Borrower sufficient in Lender's judgment to pay for the repair of such improvements in a timely manner; and 3.5.3. If Borrower fails to deliver any items or documents required for disbursement hereunder or if an extension is granted by Lender for delivery of such item or document, then failure to deliver such item or document during any such extension. 3.6. Certain Events. At the time of any Advance: -------------- 3.6.1. No Default. No Default or Event of Default shall have occurred ---------- and be continuing; 3.6.2. Adverse Change. No material adverse change shall have occurred -------------- in the financial condition of Borrower since the submission of Financial Statements of Borrower on or about the date of this Agreement; 3.6.3. Loan Documents. All of the Loan Documents shall be in full -------------- force and effect; and 3.6.4. Representations and Warranties. All of the representations and ------------------------------ warranties of Borrower shall be true and correct. 4. CONDITIONS TO CLOSING. The obligation of the Lender to close shall be --------------------- subject to the satisfaction of the following conditions precedent: -12- 4.1. Loan Documents. Each of the Loan Documents shall have been duly -------------- executed and delivered by the respective parties thereto, shall be in full force and effect and shall be in form and substance satisfactory to the Lender. Lender shall have received a fully executed copy of each such document. 4.2. Contracts. The Borrower shall have delivered to the Lender correct --------- and complete photocopies of all contracts relating to the Property and the Personal Property. 4.3. Certified Copies of Organizational Documents. The Lender shall have -------------------------------------------- received: 4.3.1. Certified copies of (i) the Articles of Organization and all amendments thereto of Borrower certified by the Secretary of the State of Georgia; (ii) the operating agreement and all amendments thereto of Borrower; (iii) certified copies of any required consent of Borrower's members; and (iv) the names and signatures of the all of the members or the managers of Borrower signing the Loan Documents; and containing (v) a certificate of good standing of Borrower under the laws of the States of Georgia and Illinois; 4.3.2. A certificate by Guarantor's secretary certifying: (i) a copy of resolutions of Guarantor's Board of Directors authorizing the execution, delivery, and performance of the Loan Documents; (ii) a complete copy of Guarantor's By-Laws and all amendments thereto; (iii) a complete copy of Guarantor's Articles of Incorporation and all amendments thereto certified by the Secretary of the State of Georgia; (iv) the incumbency and signatures of the officers of Guarantor signing the Loan Documents; and containing (v) a certificate of good standing of Guarantor under the laws of the States of Georgia and Illinois; 4.3.3. Certified copies of (i) the Articles of Organization and all amendments thereto of Hospitality certified by the Secretary of the State of Georgia; (ii) the operating agreement and all amendments thereto of Hospitality; (iii) certified copies of any required consent of Hospitality's members; and (iv) the names and signatures of the all of the members or the managers of Hospitality signing the Loan Documents; and containing (v) a certificate of good standing of Hospitality under the laws of the States of Georgia and Illinois; 4.4. Deliveries. The following items or documents shall have been ---------- delivered to the Lender by the Borrower and shall be in form and substance satisfactory to the Lender: 4.4.1. Title Policies. The Normal Title Policy, the Peoria Title -------------- Policy and the Springfield Title policy, together with proof of payment of all fees and premiums for such policies and true and accurate copies of all documents listed as exceptions under such policies. 4.4.2. Insurance. If requested by Lender, duplicate originals or --------- certified copies of all policies of insurance required by the Mortgages to be obtained and maintained by the Borrower and certificates of insurance evidencing the insurance required by Section 87 to be obtained and maintained by the Borrower. -13- 4.4.3. Evidence of Access; Availability of Utilities. Evidence as to: --------------------------------------------- (i) the methods of access to and egress from the Property, and nearby or adjoining public ways, meeting the reasonable requirements of the Property and the status of completion of any required improvements to such access; (ii) the availability of water supply and storm and sanitary sewer facilities meeting the reasonable requirements of the Property; and (iii) the availability of all other required utilities, in location and capacity sufficient to meet the reasonable needs of the Property; 4.4.4. Environmental Report. An environmental site assessment report -------------------- or reports of one or more qualified environmental engineering or similar inspection firms approved by the Lender, which report or reports shall indicate a condition of the Property and any existing improvements thereon in all respects satisfactory to the Lender in its sole discretion and upon which report or reports the Lender is expressly entitled to rely. 4.4.5. Survey. A Survey of the Normal Property, the Peoria Property ------ and the Springfield Property (and any existing improvements thereon) and Surveyor's Certificate. 4.4.6. Taxes. Evidence of payment of all real estate taxes and ----- municipal charges on the Property (and any existing improvements thereon) which were due and payable prior to the Closing Date. 4.4.7. Financial Statements. Financial Statements as required -------------------- pursuant to Section 84 hereof. 4.4.8. Flood Plain. Evidence satisfactory to Lender the Property is ----------- not in a federally designated flood plain zone or, in lieu thereof, a federally subsidized policy of flood insurance naming Lender as mortgagee. 4.4.9. Zoning Letters. Evidence satisfactory to Lender the Property -------------- is zoned to permit its current use. 4.4.10. Ground Lease; Estoppel. Fully executed photocopies of the ---------------------- Ground Lease with respect to the Springfield Property, together with an estoppel from the City of Springfield, Illinois, in form and substance satisfactory to the Lender. 4.4.11. Sublease; Estoppel. Fully executed photocopies of the Sublease ------------------ together with an estoppel from Prehn, in form and substance satisfactory to the Lender; and together with evidence that Borrower is an "Approved Sublessee," as such term is defined in the Ground Lease. -14- 4.4.12. Master Lease. Copies of the fully executed Master Lease and ------------ all amendments thereto. 4.4.13. Subordination Agreements. Fully executed Subordination ------------------------ Agreements, each in recordable form relating to each Mortgage. 4.5. Legal Opinions. The Lender shall have received favorable opinions -------------- in form and substance satisfactory to the Lender, addressed to the Lender and dated as of the Closing Date, from Borrower's counsel relating to such matters as the Lender shall reasonably request. 4.6. Lien Search. The Lender shall have received a certification from ----------- Title Insurance Company or counsel satisfactory to the Lender (which shall be updated from time to time at the Borrower's expense upon request by the Lender) that a search of the public records disclosed no conditional sales contracts, security agreements, chattel mortgages, leases of personalty, financing statements or title retention agreements which affect the Collateral. 4.7. Appraisal. The Lender shall have received an Appraisal for each --------- Property, in form and substance satisfactory to the Lender, stating that the Property has an aggregate fair market value of at least Seventeen Million Four Hundred Thousand Dollars ($17,400,000.00). 4.8. Commitment Fee; Other Fees and Expenses. The Borrower shall have ---------------------------------------- paid to Lender: 4.8.1. Commitment Fee. The commitment fee pursuant to Section 25 -------------- hereof; 4.8.2. Attorneys' Fees. Lender's attorneys' fees and expenses; and --------------- 4.8.3. Other Fees. All other fees and expenses of Lender incurred in ---------- connection with the Loan. 4.9. Performance; No Default. The Borrower shall have performed and ----------------------- complied with all terms and conditions herein required to be performed or complied with by it on or prior to the date of the initial Advance, and on the date of the initial Advance, there shall exist no Default or Event of Default. 4.10. Truth of Representations and Warranties. The representations and --------------------------------------- warranties made by the Borrower and the Guarantors in the Loan Documents or otherwise made by or on behalf of the Borrower or the Guarantors in connection therewith or after the date thereof shall have been true and correct in all respects when made and shall also be true and correct in all respects on the date of the initial Advance. 4.11. Waiver of Requirements. Lender in its sole and absolute discretion, ---------------------- may temporarily waive the requirements to deliver one or more of the items or documents required in this Section 4 with respect to one or more Advances under the Loan, however, at the sole and absolute discretion of Lender, such items or documents must be delivered to Lender prior to any further Advances of -15- the Loan unless Lender otherwise agrees in writing. 5. CONDITIONS OF SUBSEQUENT ADVANCES. The obligation of the Lender to make --------------------------------- any Advance after the date hereof shall be subject to the satisfaction of the following conditions precedent: 5.1. Prior Conditions Satisfied. All conditions precedent to the closing -------------------------- and any prior Advance shall continue to be satisfied as of the date of such subsequent Advance. 5.2. Performance; No Default. The Borrower shall have performed and ----------------------- complied with all terms and conditions herein required to be performed or complied with by it on or prior to the date of such Advance, and on the date of such Advance there shall exist no Default or Event of Default. 5.3. No Damage. The Improvements shall not have been injured or damaged --------- by fire, explosion, accident, flood or other casualty, unless the Lender shall have received insurance proceeds sufficient in the reasonable judgment of Lender to effect the satisfactory restoration of the Improvements and to permit the completion thereof on or prior to the Completion Date. 5.4. Receipt of Documents by the Lender. The Lender shall have received ---------------------------------- the following items or documents which shall be in form and substance satisfactory to the Lender: 5.4.1. Draw Request. A Draw Request complying with the requirements ------------ hereof, including those set forth in Section 32 hereof; and 5.4.2. Endorsement to Title Policy. If required by the Title Insurance --------------------------- Company in order to provide coverage against mechanics' or materialmens' liens or to insure the priority of the Mortgage, a "date down" endorsement to the Title Policy indicating no change in the state of title and containing no survey exceptions not approved by the Lender, which endorsement shall, expressly or by virtue of a proper "pending disbursements" clause or endorsement in the Title Policy, increase the coverage of the Title Policy to the aggregate amount of all proceeds of the Loan advanced on or before the effective date of such endorsement; 5.5. Liens. There shall be no liens filed of record against the ----- Property. Borrower shall provide Lender with written notice of any liens filed against the Property not later than three (3) Business Days following Borrower's receipt of notice of such liens. In addition, Borrower shall cause the Title Insurance Company to furnish Lender monthly reports of any liens filed against the Property. Lender shall have no obligation to make any Advances so long as any such liens are of record; provided, however, that the Borrower shall not be required to pay or discharge any lien filed against the Property so long as it, in good faith, shall be concurrently contesting any such lien and shall have either escrowed or posted a bond in an amount equal to one hundred and fifty percent (150%) of the amount being contested. 6. CERTAIN RIGHTS OF THE LENDER. ---------------------------- 6.1. Right to Obtain Appraisals. The Lender shall have the right to -------------------------- obtain from time to time, -16- at the Borrower's cost and expense, updated Appraisals of the Property, provided -------- that so long as no Default or Event of Default shall have occurred and be continuing, the Borrower shall only be obligated to pay for the costs and expenses associated with one such Appraisal during any twelve (12) month period. The costs and expenses incurred by the Lender in obtaining such Appraisals shall be paid by the Borrower forthwith upon billing or request by the Lender for reimbursement therefor. 7. REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants to ------------------------------ the Lender as follows: 7.1. Organization; Authority; Etc. ---------------------------- 7.1.1. Organization; Good Standing. --------------------------- (i) Borrower is and shall continue to be a limited liability company organized and validly existing under the laws of the State of Georgia and authorized to do business in Illinois; and Borrower has and shall continue to have the lawful power to own its properties and to engage in the business it conducts; (ii) Borrower is and shall continue to be a corporation organized and validly existing under the laws of the State of Georgia and shall continue to be authorized to transact business in the State of Illinois; and Borrower has and shall continue to have the lawful power to own its properties and to engage in the business it conducts; (iii) Borrower (i) has all requisite power to own its property and conduct its business as now conducted and as presently contemplated, and (ii) is in good standing as a foreign entity and is duly authorized to do business in the jurisdiction where the Property is located and in each other jurisdiction where such qualification is necessary except where a failure to be so qualified in such other jurisdiction would not have a materially adverse effect on its business, assets or financial condition. 7.1.2. Authorization. The execution, delivery and performance of this ------------- Agreement and the other Loan Documents to which the Borrower or the Guarantor is or is to become a party and the transactions contemplated hereby and thereby (i) are within the authority of such Person, (ii) have been duly authorized by all necessary proceedings on the part of such Person, (iii) do not conflict with or result in any breach or contravention of any provision of law, statute, rule or regulation to which such Person is subject or any judgment, order, writ, injunction, license or permit applicable to such Person, (iv) do not conflict with any provision of the articles of incorporation or bylaws, or any agreement or other instrument binding upon, such Person, and (v) do not require the approval or consent of, or filing with, any governmental agency or authority other than those already obtained and the filing of the Mortgage, the Assignment of Leases and the Financing Statements in the appropriate public records with respect thereto. 7.1.3. Enforceability. The execution and delivery of this Agreement -------------- and the other Loan Documents to which the Borrower or the Guarantor is or is to become a party will result in -17- valid and legally binding obligations of such Person enforceable against it in accordance with the respective terms and provisions hereof and thereof, except as enforceability is limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting generally the enforcement of creditors' rights and except to the extent that availability of the remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding therefor may be brought. 7.2. Title to Property and other Properties. -------------------------------------- 7.2.1. The Borrower holds good clear record and marketable fee simple absolute title to the Normal Property and Peoria Property and leasehold title to the Springfield Property, and owns the Personal Property, subject to no rights of others, including any mortgages, leases, conditional sale agreements, title retention agreements, liens or other encumbrances. 7.2.2. The Borrower owns all of the assets reflected in the audited balance sheet of the Borrower as of the Balance Sheet Date or acquired since that date (except property and assets sold or otherwise disposed of in the ordinary course of business since that date), subject to no rights of others, including any mortgages, leases, conditional sales agreements, title retention agreements, liens or other encumbrances except Permitted Liens. 7.3. Financial Statements. There has been furnished to the Lender an -------------------- audited balance sheet of the Borrower as of the Balance Sheet Date, and a statement of income for the fiscal year then ended, certified by Borrower's Certified Public Accountant. Such balance sheet and statement of income have been prepared in accordance with generally accepted accounting principles and fairly present the financial condition of the Borrower as of the close of business on the date thereof and the results of operations for the fiscal year then ended. As of the date of this Agreement, there are no liabilities or contingent liabilities of the Borrower known to the officers of the Borrower which are not disclosed in said balance sheet and the related notes thereto ------------- other than the Obligations. 7.4. No Material Changes, Etc. Since the Balance Sheet Date, there has ------------------------ occurred no adverse change in the financial condition or business of the Borrower as shown on or reflected in the audited balance sheet of the Borrower as of the Balance Sheet Date, or the consolidated statement of income for the fiscal year then ended, other than changes in the ordinary course of business that have not had any adverse effect either individually or in the aggregate on the business or financial condition of the Borrower. Since the Balance Sheet Date, the Borrower has not made any Distribution. 7.5. Litigation. There are no actions, suits, proceedings or ---------- investigations of any kind pending or threatened against the Borrower or the Guarantor before any court, tribunal or administrative agency or board that, if adversely determined, might, either in any case or in the aggregate, adversely affect the properties, assets, financial condition or business of such Person or materially impair the right of such Person to carry on business substantially as now conducted by it, or result in any liability not adequately covered by insurance, or for which adequate reserves are not -18- maintained on the balance sheet of such Person, or which question the validity of this Agreement or any of the other Loan Documents, any action taken or to be taken pursuant hereto or thereto, or any lien or security interest created or intended to be created pursuant hereto or thereto, or which will adversely affect the ability of the Borrower or the Guarantor to construct, use and occupy the Property or to pay and perform the Obligations in the manner contemplated by this Agreement and the other Loan Documents. 7.6. No Materially Adverse Contracts, Etc. Borrower is not subject to ------------------------------------ any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation that has or is expected in the future to have a materially adverse effect on the business, assets or financial condition of the Borrower. Borrower is not a party to any contract or agreement that has or is expected, in the judgment of the Borrower's officers, to have any materially adverse affect on the business of the Borrower. 7.7. Compliance With Other Instruments, Laws, Etc. Borrower is not in -------------------------------------------- violation of any provision of its organizational documents, by-laws, or any agreement or instrument to which it may be subject or by which it or any of its properties may be bound or any decree, order, judgment, statute, license, rule or regulation, in any of the foregoing cases in a manner that could result in the imposition of penalties or materially and adversely affect the financial condition, properties or business of the Borrower. 7.8. Tax Status. The Borrower (a) has made or filed all federal and ---------- state income and all other tax returns, reports and declarations required by any jurisdiction to which any of them is subject and (b) have paid all taxes and other governmental assessments and charges shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and by appropriate proceedings, and (c) have set aside on their books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Borrower know of no basis for any such claim. 7.9. No Event of Default. No Default or Event of Default has occurred ------------------- and is continuing. 7.10. Investment Company Act. Borrower is not an "investment company", or ---------------------- an "affiliated company" or a "principal underwriter" of an "investment company", as such terms are defined in the Investment Company Act of 1940. 7.11. Absence of Financing Statements, Etc. There is no financing ------------------------------------ statement, security agreement, chattel mortgage, real estate mortgage or other document filed or recorded with any filing records, registry, or other public office, that purports to cover, affect or give notice of any present or possible future lien on, or security interest in, (a) any Collateral or (b) any other assets or property of the Borrower or any rights relating thereto. 7.12. Setoff, Etc. The Collateral and the rights of the Lender with ----------- respect to the Collateral -19- are not subject to any setoff, claims, withholdings or other defenses. The Borrower is the owner of the Collateral free from any lien, security interest, encumbrance and any other claim or demand. 7.13. Condition of Property. Neither the Property nor any part thereof is --------------------- now damaged or injured as result of any fire, explosion, accident, flood or other casualty or has been the subject of any Taking, and to the knowledge of the Borrower, no Taking is pending or contemplated. 7.14. Other Contracts. The Borrower has made no contract or arrangement --------------- of any kind or type whatsoever (whether oral or written, formal or informal), the performance of which by the other party thereto could give rise to a lien or encumbrance on the Property. 7.15. Real Property Taxes; Special Assessments. There are no unpaid or ---------------------------------------- outstanding real estate or other taxes or assessments on or against the Property or any part thereof which are payable by the Borrower (except only real estate taxes not yet due and payable). The Borrower has delivered to the Lender true and correct copies of real estate tax bills for the Property for the past fiscal tax year. No abatement proceedings are pending with reference to any real estate taxes assessed against the Property. There are no betterment assessments or other special assessments presently pending with respect to any part of the Property, and the Borrower has received no notice of any such special assessment being contemplated. 7.16. Effect of Draw Request. Each Draw Request submitted to the Lender ---------------------- as provided in Section 32 hereof shall constitute an affirmation that the representations and warranties contained in Section 7 of this Agreement and in the other Loan Documents remain true and correct as of the date thereof (except to the extent of changes resulting from transactions contemplated or permitted by the Loan Documents and changes occurring in the ordinary course of business that singly or in the aggregate are not adverse); and, unless the Lender is notified to the contrary, in writing, prior to the date of the requested Advance or any portion thereof, shall constitute an affirmation that the same remain true and correct on the date of such Advance. 8. AFFIRMATIVE COVENANTS OF THE BORROWER. The Borrower covenants and agrees ------------------------------------- that, so long as any Obligations are outstanding: 8.1. Punctual Payment. The Borrower will duly and punctually pay or ---------------- cause to be paid the principal and interest on the Loan and all other amounts provided for in the Note, this Agreement and the other Loan Documents to which the Borrower is a party, all in accordance with the terms of the Note, this Agreement and such other Loan Documents. 8.2. Maintenance of Office. The Borrower will maintain its chief --------------------- executive office in DeKalb County, Georgia, or at such other place in the United States of America as the Borrower shall designate upon written notice to the Lender, where notices, presentations and demands to or upon the Borrower in respect of the Loan Documents may be given or made. 8.3. Records and Accounts. The Borrower will (a) keep true and accurate -------------------- records and books of account in which full, true and correct entries will be made in accordance with generally accepted -20- accounting principles and (b) maintain adequate accounts and reserves for all taxes (including income taxes), depreciation and amortization of its properties, contingencies, and other reserves. 8.4. Financial Statements, Certificates and Information. The Borrower -------------------------------------------------- will deliver or cause to be delivered to the Lender: 8.4.1. As soon as practicable, but in any event not later than ninety (90) days after the end of each fiscal year of the Borrower, the consolidated balance sheet of the Borrower at the end of such year, and the related consolidated statement of income, statement of retained earnings and statement of cash flows for such year, each setting forth in comparative form the figures for the previous fiscal year and all such statements to be in reasonable detail, prepared in accordance with generally accepted accounting principles, and accompanied by an auditor's report prepared without qualification by an independent certified public accountant acceptable to the Lender; 8.4.2. As soon as practicable, but in any event not later than forty- five (45) days after the end of each of the first three (3) fiscal quarters of the Borrower, copies of the unaudited balance sheet of the Borrower as at the end of such quarter, and the related unaudited statement of income, statement of retained earnings and statement of cash flows for the portion of the Borrower's fiscal year then elapsed, all in reasonable detail and prepared in accordance with generally accepted accounting principles, together with a certification by the principal financial or accounting officer of the Borrower that the information contained in such financial statements fairly presents the financial position of the Borrower on the date thereof (subject to year-end adjustments); 8.4.3. Contemporaneously with the delivery of the financial statements referred to in subsection 841 above, a statement of all contingent liabilities of the Borrower which are not reflected in such financial statements or referred to in the notes thereto, and a statement of projected cash flows of the Borrower for the current fiscal year, all in reasonable detail and certified by the principal financial or accounting officer of the Borrower; 8.4.4. Contemporaneously with mailing thereof, copies of all material of a financial nature sent to the stockholders of the Borrower; 8.4.5. As soon as practicable, but in any event not later than one hundred and twenty (120) days after the end of each fiscal year of the Property, the operating statement for the Property at the end of such year, and the related statement of income for such year, each setting forth in comparative form the figures for the previous fiscal year and all such statements to be in reasonable detail, prepared in accordance with generally accepted accounting principles, prepared without qualification by Borrower's chief financial officer or by an independent certified public accountant acceptable to the Lender; 8.4.6. As soon as practicable, but in any event not later than forty- five (45) days after the end of each of the first three (3) fiscal quarters of the Property for any fiscal year, the operating statement for the Property at the end of such quarter, and the related statement of income for such quarter, each setting forth in comparative form the figures for the previous fiscal year and all such -21- statements to be in reasonable detail, prepared in accordance with generally accepted accounting principles, prepared without qualification by Borrower's chief financial officer or by an independent certified public accountant acceptable to the Lender; 8.4.7. Within thirty (30) days following the end of each calendar year, and from time to time as Lender shall reasonably request, but no more frequently than quarterly, Guarantor's audited balance sheet and profit and loss statement prepared in accordance with generally accepted accounting principles consistently applied; 8.4.8. Within thirty (30) days after the due date therefore, if requested by the Lender, copies of each Guarantor's state and federal tax returns; 8.4.9. From time to time such other financial data and information (including accountants' management letters) as the Lender may reasonably request. 8.5. Notices. ------- 8.5.1. Defaults. The Borrower will promptly notify the Lender in -------- writing of the occurrence of any Default or Event of Default, specifying the nature and existence of such Default or Event of Default and what action the Borrower is taking or proposes to take with respect thereto. If any Person shall give any notice or take any other action in respect of a claimed default (whether or not constituting an Event of Default) under this Agreement or under any note, evidence of indebtedness, indenture or other obligation to which or with respect to which the Borrower is a party or obligor, whether as principal or surety, and such default would permit the holder of such note or obligation or other evidence of indebtedness to accelerate the maturity thereof, which acceleration would have a material adverse effect on the Borrower, the Borrower shall forthwith give written notice thereof to the Lender, describing the notice or action and the nature of the claimed default. 8.5.2. Notification of Claims Against Collateral. The Borrower will, ----------------------------------------- immediately upon becoming aware thereof, notify the Lender in writing of any setoff, claims, withholdings or other defenses to which any of the Collateral, or the rights of the Lender with respect to the Collateral, are subject. 8.5.3. Notice of Litigation and Judgments. The Borrower will give ---------------------------------- notice to the Lender in writing within fifteen (15) days of becoming aware of any litigation or proceedings threatened in writing or any pending litigation and proceedings affecting the Property or affecting the Borrower or to which the Borrower is or is to become a party involving an uninsured claim against the Borrower that has a reasonable likelihood of being adversely determined and could reasonably be expected to have a material adverse effect on the Borrower and stating the nature and status of such litigation or proceedings. The Borrower will give notice to the Lender, in writing, in form and detail satisfactory to the Lender, within ten (10) days of any judgment not covered by insurance, final or otherwise, against the Borrower in an amount in excess of Ten Thousand Dollars ($10,000.00). -22- 8.5.4. Notice of Occupancy of Tenants. The Borrower will give written ------------------------------ notice to the Lender at least ten (10) days prior to the commencement of, and again on the date of, occupancy of the improvements on the Property by any tenant under a Lease, stating the name of the tenant, the date of occupancy, and the area so occupied. 8.6. Existence; Maintenance of Properties. The Borrower will do or cause ------------------------------------ to be done all things necessary to preserve and keep in full force and effect its existence as a Georgia corporation. The Borrower will do or cause to be done all things necessary to preserve and keep in full force all of its rights and franchises. The Borrower (a) will cause all of its properties used or useful in the conduct of its business to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment, (b) will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Borrower may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times, and (c) will continue to engage primarily in the businesses now conducted by it and in related businesses. 8.7. Insurance. --------- 8.7.1. Borrower's Insurance. The Borrower will obtain and maintain -------------------- insurance with respect to the Property as required by the Mortgage including but not limited to: (1) hazard insurance, covering such hazards as Lender may reasonably require, including without limitation, fire, earthquake, and tornado insurance, together with an ordinance or law coverage endorsement (form CP 04 05 or its equivalent), and insurance for vandalism and malicious mischief with respect to the Property with such insurance companies and in an amount not less than the greater of: (1) the "full insurable value" of the Property or (2) such other amounts as may from time to time be required by Lender, with no co-insurance clauses in the policies of insurance unless Lender shall consent thereto in writing. The "full insurable value" shall mean the actual replacement (excluding foundation and excavation costs and costs of underground flues, pipes, drains, and all uninsurable items) after deduction for physical depreciation and shall be determined from time to time at the request of Lender, not more frequently than once every five (5) years by an architect, contractor or appraisal company, or one of the insurers, and in any case, selected by and paid for by Borrower and approved by the Lender; (2) comprehensive general liability and property damage with bodily injury coverage with broad form coverage or with broad form coverage endorsement with such companies and in such amounts as Lender may reasonably require; (3) business interruption or rent loss insurance in an amount of not less than a sum equal to twelve (12) months rental or other income from all Leases or other uses, together with an ordinance or law - increased period of restoration endorsement (form CP 15 31 or its equivalent); -23- (4) in the event any part of the Property is located in a flood plain, flood insurance in an amount reasonably acceptable to Lender; (5) during the period of any construction, a Contractor's All Risk Policy form, for the full insurable value of the Property; and (6) such other insurance from time to time reasonably required by Lender, all with such coverages, in such forms and with such insurers as may be required by Lender. All insurance policies shall not be cancelable or modifiable without at least thirty (30) days' written notice to Lender. All property insurance shall include the standard non-contributory mortgagee's clause or its equivalent in favor of Lender naming Lender as mortgagee with loss payable to Lender as such mortgagee. All other policies shall name Lender as an additional named insured. Borrower will deliver to Lender such policies marked "PAID", and new policies as replacement for any existing policies at least thirty (30) days before the date of expiration. Borrower shall pay or cause to be paid, as and when due, all premiums for all insurance policies. Borrower hereby agrees that, in the event Borrower fails to pay or cause to be paid the premium on any such insurance when due, Lender may do so and be reimbursed by Borrower therefor together with interest at the Default Rate. All amounts recoverable under any such policies with respect to the Property are hereby assigned to Lender. Borrower shall keep all such policies of insurance constantly assigned, pledged, and delivered to Lender for further securing the Obligations. In the event of a loss, each insurance company is authorized and directed to make payment for such loss directly to Lender, and Lender is authorized to adjust and compromise such loss proceeds without the consent of Borrower and to collect, receive, and receipt for such proceeds in the name of Borrower and Lender, and to endorse Borrower's name upon any check in payment of loss; provided, however, that prior to the occurrence of a Default or Event of Default hereunder Borrower shall be entitled to participate in all negotiations and settlement conferences regarding the same and shall have the right to approve the amount of all such settlements or compromises, which approval shall not be unreasonably withheld or delayed. This power shall be coupled with an interest and shall be irrevocable. All insurance proceeds shall be applied by Lender in accordance with the provisions of the Mortgage or if none, shall be applied to the Obligations whether or not the same are then due and payable. The Borrower will maintain with respect to its other properties and business insurance with financially sound and reputable insurers against such casualties and contingencies as shall be in accordance with the general practices of businesses engaged in similar activities in similar geographic areas and in amounts, containing such terms, in such forms and for such periods as may be reasonable and prudent. 8.8. Taxes. ----- 8.8.1. The Borrower will pay all taxes, assessments and other governmental charges imposed upon it with respect to the Property or imposed upon the Property at the time and in the -24- manner required by the Mortgage. The Borrower will promptly pay and discharge (by bonding or otherwise) all claims for labor, material or supplies that if unpaid might by law become a lien or charge against the Property or any part thereof or might affect the priority of the lien created by the Mortgage. 8.8.2. The Borrower will duly pay and discharge, or cause to be paid and discharged, before the same shall become overdue, all taxes, assessments and other governmental charges imposed upon it and its other real properties, sales and activities, or any part thereof, or upon the income or profits therefrom, as well as all claims for labor, materials, or supplies that if unpaid might by law become a lien or charge upon any of its property; provided that any such tax, -------- assessment, charge, levy or claim with respect to properties other than the Property need not be paid if the validity or amount thereof shall currently be contested in good faith by appropriate proceedings and if the Borrower shall have set aside on its books adequate reserves with respect thereto; and provided -------- further that the Borrower will pay all such taxes, assessments, charges, levies - ------- or claims forthwith upon the commencement of proceedings to foreclose any lien that may have attached as security therefor. 8.9. Inspection of Property, Other Properties and Books. -------------------------------------------------- 8.9.1. The Borrower shall permit the Lender to visit and inspect the Property and will cooperate with the Lender during such inspections. 8.9.2. The Borrower shall permit the Lender at the Borrower's expense to examine the books of account of the Borrower (and to make copies thereof and extracts therefrom) and to discuss the affairs, finances and accounts of the Borrower with, and to be advised as to the same by, its officers, all at such reasonable times and intervals as the Lender may reasonably request; provided -------- that the Borrower shall only be obligated to pay the expenses associated with one such investigation during any twelve (12) month period. 8.10. Compliance with Laws, Contracts, Licenses, and Permits. The ------------------------------------------------------ Borrower will comply with, (a) the applicable laws and regulations wherever its business is conducted, including all Environmental Laws, (b) the provisions of its organizational documents, and other charter documents and by-laws, (c) all agreements and instruments by which it or any of its properties may be bound, including, in the case of the Borrower the and all restrictions, covenants and easements affecting the Property, (d) all applicable decrees, orders and judgments, and (e) all licenses and permits required by applicable laws and regulations for the conduct of its business or the ownership, use or operation of its properties. 8.11. Further Assurances. ------------------ 8.11.1. Regarding Preservation of Collateral. The Borrower will ------------------------------------ execute and deliver to the Lender such further documents, instruments, assignments and other writings, and will do such other acts necessary or desirable, to preserve and protect the Collateral at any time securing or intended to secure the Obligations, as the Lender may require. -25- 8.11.2. Regarding this Agreement. The Borrower will cooperate with, ------------------------ and will do such further acts and execute such further instruments and documents as the Lender shall reasonably request to carry out to the Lender's satisfaction the transactions contemplated by this Agreement and the other Loan Documents. 8.12. Operating Accounts. Borrower shall deposit and maintain all ------------------- operating and deposit accounts for the Normal Property, Peoria Property and the Springfield Property with Lender. 8.13. Reserve Accounts. On the date hereof, Borrower shall deposit One ---------------- Hundred Thousand ($100,000.00) with Lender to be maintained in Account # 9920952268 (the "Normal Reserve Account"). On or about the 1/st/ day of each month hereunder beginning on February 1, 2001, Borrower shall deposit monthly three percent (3%) of the gross revenue from the Normal Property received during the preceding month into the Normal Reserve Account. On the date hereof, Borrower shall deposit One Hundred Thousand ($100,000.00) with Lender to be maintained in Account # 9920952255 (the "Peoria Reserve Account"). On or about the 1/st/ day of each month hereunder beginning on February 1, 2001, Borrower shall deposit monthly three percent (3%) of the gross revenue from the Peoria Property received during the preceding month into the Peoria Reserve Account. On or before February 1, 2001, Borrower shall deposit One Hundred Thousand ($100,000.00) with Lender to be maintained in Account # 9920952271 (the "Springfield Reserve Account"). On or about the 1/st/ day of each month hereunder beginning on February 1, 2001, Borrower shall deposit monthly three percent (3%) of the gross revenue from the Springfield Property received during the preceding month into the Springfield Reserve Account. Each of the Reserve Accounts shall be interest bearing accounts. Withdrawals from each Reserve Account may only be made after February 1, 2001, to fund furniture, fixture and equipment expenditures incurred in connection with the Property to which the respective Reserve Account is related, with such all such withdrawals being subject to the Lender's prior written approval. Each of the Reserve Accounts shall be assigned to Lender as additional Collateral for the Obligations pursuant to the Assignment of Deposit Account for each Property. 9. NEGATIVE COVENANTS OF THE BORROWER. The Borrower covenants and agrees ---------------------------------- that, so long as any Obligation is outstanding: 9.1. Restriction on Leases. Except for the Master Lease, the Borrower --------------------- will not become a party to, or agree to become a party to, any Lease affecting the Property without the prior approval of the Lender. The Borrower will not amend, supplement or otherwise modify, or (except in the ordinary course of business as a result of a tenant default) terminate or cancel, or accept the surrender of, or grant any concessions to or waive the performance of any obligations of any tenant under, any Lease (other than extensions of the lease term under the same or better terms) without the prior approval of the Lender. Except in the ordinary course of business as a result of a tenant default, the Borrower will not, directly or indirectly, cause or permit to exist any condition which would result in the termination or cancellation of, or which would relieve the performance of any obligations of any tenant under, any Lease. -26- 9.2. Restrictions on Easements, Covenants and Restrictions. The Borrower ----------------------------------------------------- will not create or allow to be created or to exist any easement, right of way, restriction, covenant, condition, license or other right in favor of any Person which affects or might affect title to the Property or the use and occupancy of the Property or any part thereof without (i) submitting to the Lender the proposed instrument creating such easement, right of way, covenant, condition, license or other right, accompanied by a survey showing the exact proposed location thereof and such other information as the Lender may reasonably request, and (ii) obtaining the prior approval of the Lender. 9.3. Restrictions on Liens, Etc. The Borrower will not (a) create or -------------------------- incur or allow to be created or incurred or to exist any lien, encumbrance, mortgage, pledge, charge, restriction or other security interest of any kind upon the Property, or upon the income or profits therefrom; (b) transfer the Property or assets or the income or profits thereof for the purpose of subjecting the same to the payment of indebtedness or performance of any other obligation in priority to payment of its general creditors; (c) acquire, or agree or have an option to acquire, any property or assets related to the Property upon conditional sale or other title retention or purchase money security agreement, device or arrangement; (d) allow to exist for a period of more than thirty (30) days after the same shall have been incurred any indebtedness or claim or demand against it that if unpaid might by law or upon bankruptcy or insolvency, or otherwise, be given any priority whatsoever over its general creditors; or (e) sell, assign, pledge or otherwise transfer any accounts, contract rights, general intangibles, chattel paper or instruments related to the Property, with or without recourse; provided that the Borrower -------- may create or incur or allow to be created or incurred or to exist the following (hereinafter referred to as "Permitted Liens"): (i) liens to secure taxes, assessments and other governmental charges in respect of obligations not overdue; (ii) deposits or pledges made in connection with, or to secure payment of, workmen's compensation, unemployment insurance, old age pensions or other Social Security obligations; (iii) liens of carriers, warehousemen, mechanics and materialmen, and other like liens on properties other than the Property in existence less than one hundred and twenty (120) days from the date of creation thereof in respect of obligations not overdue; (iv) liens in favor of the Lender under the Loan Documents or otherwise; and (v) other liens on the Property consisting of easements, rights of way, covenants and restrictions if and to the extent the same have been approved by the Lender. 9.4. Merger, Consolidation and Disposition of Assets. ----------------------------------------------- 9.4.1. The Borrower will not become a party to any merger or consolidation, or agree to or effect any asset acquisition or stock acquisition (other than the acquisition of assets in the ordinary course of business consistent with past practices). -27- 9.4.2. The Borrower will not become a party to or agree to or effect any disposition of the Property or any part thereof. 9.4.3. The Borrower will not become a party to or agree to effect any disposition of assets, other than the disposition of assets not included in the Property in the ordinary course of business, consistent with past practices. 10. EVENTS OF DEFAULT AND REMEDIES. ------------------------------ 10.1. Events of Default. The term "Event of Default" as used herein, ----------------- shall mean the occurrence of any of the following events: 10.1.1. The failure of Borrower to pay the Obligations, or any part thereof, as said Obligations become due in accordance with the terms of the Note or of any other notes, instruments, documents or agreements now or hereafter evidencing, securing, or related to the Obligations, which failure shall continue for five (5) days after the giving of written notice that such amount is due by Lender or when accelerated pursuant to any provision thereof or of the Mortgage; or 10.1.2. The failure by Borrower, or any other party thereto, to punctually and fully perform and observe each term, covenant, agreement, or condition contained herein or in the Note, the Mortgage, the Loan Documents or in any other notes, instruments, or agreements now or hereafter evidencing, securing, or related to the Obligations; or if such failure shall continue for more than thirty (30) days after the giving of written notice thereof by Lender or, if such failure is incapable of being cured within said thirty (30) day period, Borrower fails to commence to cure said failure within said thirty (30) day period or fails to diligently prosecute said cure; or 10.1.3. The default by Borrower or Guarantor under any other notes, agreements, mortgages, deeds of trust, security agreements, or any other obligations of Borrower or Guarantor to Lender, whether or not secured by the Collateral; or 10.1.4. Any failure by the Borrower or Guarantor to pay at maturity, or within any applicable period of grace, any obligation for borrowed money or credit received, or any failure to observe or perform any material term, covenant or agreement contained in any agreement by which it is bound, evidencing or securing borrowed money or credit received for such period of time as would permit (assuming the giving of appropriate notice if required) the holder or holders thereof or of any obligations issued thereunder to accelerate the maturity thereof; or 10.4.5. A sale, transfer, conveyance, lease, contract for deed, or other disposition of all or any part of the Collateral or any interest therein, including a sale, transfer, conveyance, lease, -28- contract for deed, or other disposition occasioned by an assignment for the benefit of creditors, appointment of a receiver, adjudication as a bankrupt, or the filing or instituting of bankruptcy proceedings by or against Borrower, without prior written notice to Lender and without Lender's prior written consent, which consent shall be at Lender's sole option and shall be upon such terms and conditions as Lender shall, at its sole option, elect; or 10.1.6. Title to the Collateral is or becomes unsatisfactory to the Lender by reason of any lien, charge, encumbrance, title condition or exception (including without limitation, any mechanic's, materialman's or similar statutory or common law lien or notice thereof), and such matter causing title to be or become unsatisfactory is not cured or removed (including by bonding) within twenty (20) days after notice thereof from the Lender to the Borrower; or 10.1.7. Borrower shall place or allow the placement of a mortgage or deed of trust or other lien or encumbrance upon all or any portion of the Collateral; or 10.1.8. Any party other than Borrower shall assume or enter or undertake the performance of the obligations of Borrower under the Note, the Mortgage, or under any of the other Loan Documents; or 10.1.9. The occurrence of any act or omission which would authorize or permit the holder or owner of an indebtedness or obligation secured by any superior lien against any of the Collateral to foreclose the superior lien; or 10.1.10. Any substantial change in the legal or beneficial ownership of the Borrower or Guarantor; or 10.1.11. Any Guarantor denies that such Guarantor has any liability or obligations under such Guarantor's Guaranty or the Indemnity Agreement, or shall notify the Lender of the Guarantor's intention to attempt to cancel or terminate such Guaranty or the Indemnity Agreement, or shall fail to observe or comply with any term, covenant, condition and agreement under such Guaranty or the Indemnity Agreement or any Guarantor gives notice to Lender that such Guarantor shall not be liable for any future Obligations or if Borrower gives notice of its intent to terminate the future advance clause under the Mortgage; or 10.1.12. Any representation or warranty made or deemed to be made by or on behalf of the Borrower or the Guarantor in this Agreement or in any of the other Loan Documents, or in any report, certificate, financial statement document or other instrument delivered pursuant to or in connection with this Agreement or any of the other Loan Documents, shall prove to have been false or incorrect in any material respect upon the date when made or deemed to be made or repeated; or 10.1.13. Any dissolution, termination, partial or complete liquidation, merger or consolidation of the Borrower or the guarantor, or any sale, transfer or other disposition of all or substantially all of the assets of the Borrower or the Guarantor, other than as permitted under the terms of this Agreement; or -29- 10.1.14. Any of the Loan Documents shall be canceled, terminated, revoked or rescinded otherwise than in accordance with the terms thereof or with the express prior approval of the Lender, or any action at law, suit in equity or other legal proceeding to cancel, revoke or rescind any of the Loan Documents shall be commenced by or on behalf of the Borrower or the guarantor which is a party thereto or any of their respective stockholders, partners, members or beneficiaries, or any court or any other governmental or regulatory authority or agency of competent jurisdiction shall make a determination that, or issue a judgment, order, decree or ruling to the effect that, any one or more of the Loan Documents is illegal, invalid or unenforceable in accordance with the terms thereof; or 10.1.15. Any suit or proceeding shall be filed against the Borrower, the Guarantor or the Property which, if adversely determined, would have a materially adverse affect on the ability of the Borrower or the Guarantor to perform each and every one of their respective obligations under and by virtue of the Loan Documents; or 10.1.16. Any uninsured final judgment in excess of Ten Thousand Dollars ($10,000.00) shall be entered against the Borrower or the Guarantor and shall remain undischarged, unsatisfied and unstayed, for more than thirty (30) days, whether or not consecutive; or 10.1.17. The Borrower or the Guarantor shall: (1) become insolvent, (2) file a voluntary petition in bankruptcy under Title 11 of the United States Code, or an order for relief shall be issued against the Borrower or the Guarantor in any involuntary petition in bankruptcy under Title 11 of the United States Code, or the Borrower or the Guarantor shall file any petition or answer seeking or acquiescing in any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief for itself under any present or future federal, state or other law or regulation relating to bankruptcy, insolvency or other relief of debtors, or the Borrower or the Guarantor shall seek or consent to or acquiesce in the appointment of any custodian, trustee, receiver, conservator or liquidator of the Borrower or the Guarantor, respectively, or of all or any substantial part of its respective property, or the Borrower or the Guarantor shall make an assignment for the benefit of creditors, or the Borrower or the Guarantor shall fail generally to pay its debts as such debts become due, or the Borrower or the Guarantor shall give notice to any governmental authority or body of insolvency or pending insolvency or suspension of operations; or 10.1.18. A court of competent jurisdiction shall enter any order, judgment or decree approving a petition filed against the Borrower or the Guarantor seeking any reorganization, arrangement, composition, readjustment, liquidation or similar relief under any present or future federal, state or other law or regulation relating to bankruptcy, insolvency or other relief for debtors, or appointing any custodian, trustee, receiver, conservator or liquidator of all or any substantial part of its property and the same is not dismissed within sixty (60) days after the institution thereof; or 10.1.19. If the Collateral is seized under any writ or process of court or by any trustee or receiver; or -30- 10.1.20. The Borrower or the Guarantor shall be indicted for a federal crime, a punishment for which could include the forfeiture of any of its assets; or 10.1.21. The Property or any part thereof is subject to a Taking; or 10.1.22. Any "Event of Default," as defined in any of the other Loan Documents, shall occur; or 10.1.23. Failure of Borrower to deposit and maintain or cause to be deposited or maintained the Operating Accounts as set forth in Section 8.12 hereof; or 10.1.24. Failure of Borrower to deposit and maintain the Reserve Accounts as set forth in Section hereof; or 10.1.25. The occurrence of a default (beyond any applicable cure periods) under the Ground Lease or the Sublease; or 10.1.26. Any termination of the Ground Lease or the Sublease; or 10.1.27. Failure to maintain an Individual Debt Service Coverage Ratio of at least 1.15 to 1 for each of the Normal Property, the Peoria Property and the Springfield Property at all times hereunder prior to and including December ____, 2001; or 10.1.28. Failure to maintain an Individual Debt Service Coverage Ratio of at least 1.25 to 1 for each of the Normal Property, the Peoria Property and the Springfield Property at all times hereunder from and after December ____, 2001; or 10.1.29. Failure to maintain a Combined Debt Service Coverage Ratio of at least 1.25 to 1 for the Normal Property, the Peoria Property and the Springfield Property at all times hereunder; or 10.1.30. Failure of Guarantor to maintain a Debt Service Coverage Ratio of at least 1.25 to 1 at all times hereunder. 10.2. Acceleration. If any one or more of the Events of Default shall ------------ occur, the Lender may, by notice to the Borrower, declare all unpaid principal of and accrued interest on the Note, together with all other amounts owing under the Loan Documents, to be immediately due and payable, whereupon same shall become and be immediately due and payable, anything in the Loan Documents to the contrary notwithstanding, and without presentment, protest, demand or other notice of any kind, all of which are hereby expressly waived by the Borrower; provided that if any one or more of the Events of Default specified in Section - -------- 10117 or Section 10118 shall occur with respect to the Borrower and all unpaid principal of and accrued interest on the Note, together with all other amounts owing under the Loan Documents, automatically shall become and be immediately so due and payable, without any declaration or other act on the part of the Lender. -31- 10.3. Other Remedies. If any one or more of the Events of Default shall -------------- have occurred, and whether or not the Lender shall have accelerated the maturity of the Loan pursuant to Section 102, the Lender, if owed any amount with respect to the Loan may proceed to protect and enforce its rights and remedies under this Agreement, the Note or any of the other Loan Documents by suit in equity, action at law or other appropriate proceeding, whether for the specific performance of any covenant or agreement contained in this Agreement and the other Loan Documents or any instrument pursuant to which the Obligations are evidenced. Without limiting the generality of the foregoing, Lender may immediately, without demand of performance and without other notice (except as specifically required by this Agreement or the Loan Documents) or demand whatsoever to Borrower, all of which are hereby expressly waived, sell at public or private sale or otherwise realize upon, the whole or, from time to time, any part of the Collateral, or any interest which Borrower may have therein. Any remainder of the proceeds after satisfaction in full of the Obligations shall be distributed as required by applicable Laws. Notice of any sale or other disposition of any of the Collateral consisting of personal property shall be given to Borrower at least five (5) days before the time of any intended public sale or of the time after which any intended private sale or other disposition of the Collateral is to be made, which Borrower hereby agrees shall be reasonable notice of such sale or other disposition. Borrower agrees to assemble, or to cause to be assembled, at its own expense, the Collateral at such place or places as Lender shall designate. At any such sale or other disposition, Lender may, to the extent permissible under applicable Laws, purchase the whole or any part of the Collateral, free from any right of redemption on the part of Borrower, which right is hereby waived and released. With respect to the exercise of Lender's right to nonjudicial foreclosure sale of the Property pursuant to the terms of the Mortgage, Lender shall be governed by the terms and conditions of the Mortgage and other applicable law of Illinois regarding real estate foreclosures. Without limiting the generality of any of the rights and remedies conferred upon Lender under this Section, Lender may, at Lender's sole option, to the full extent permitted by applicable Laws: 10.3.1. Enter upon the premises of Borrower, exclude Borrower therefrom, and take immediate possession of the Collateral, either personally or by means of a receiver appointed ex parte by a court of competent jurisdiction, -- ----- using all necessary force to do so; 10.3.2. Use, operate, manage, and control the Collateral in any lawful manner; 10.3.3. Collect and receive all rents, income, revenue, earnings, issues and profits therefrom; and 10.3.4. Maintain, repair, renovate, complete, alter, or remove the Collateral as Lender may determine in its discretion. No remedy conferred upon the Lender or the holder of any Note in this Agreement or in any of the other Loan Documents is intended to be exclusive of any other remedy and each and every remedy shall be cumulative and shall be in addition to every other remedy given hereunder or thereunder or now or hereafter existing at law or in equity or by statute or any other provision of law. -32- 10.4. Distribution of Collateral Proceeds. In the event that, following ----------------------------------- the occurrence or during the continuance of any Default or Event of Default, the Lender receives any monies in connection with the enforcement of any the Loan Documents, or otherwise with respect to the realization upon any of the Collateral, such monies shall be distributed for application as follows: 10.4.1. First, to the payment of or the reimbursement to Lender for or in respect of all reasonable costs, expenses, disbursements and losses which shall have been incurred or sustained by the Lender in connection with the collection of such monies by the Lender, for the exercise, protection or enforcement by the Lender of all or any of the rights, remedies, powers and privileges of the Lender under this Agreement or any of the other Loan Documents or in respect of the Collateral or in support of any provision of adequate indemnity to the Lender against any taxes or liens which by law shall have, or may have, priority over the rights of the Lender to such monies; 10.4.2. Second, to all other Obligations in such manner and order or preference as the Lender may determine in Lender's sole discretion; 10.4.3. Third, upon payment and satisfaction in full or other provisions for payment in full satisfactory to the Lender of all of the Obligations, to the payment of any obligations required to be paid pursuant to (S) 9-504(1)(c) of the Uniform Commercial Code of the State of Illinois; and 10.4.4. Fourth, the excess, if any, shall be returned to the Borrower or to such other Persons as are entitled thereto. 10.5. Power of Attorney. For the purposes of carrying out the provisions ----------------- and exercising the rights, remedies, powers and privileges granted by or referred to in this Section 10, the Borrower hereby irrevocably constitutes and appoints the Lender its true and lawful attorney-in-fact, with full power of substitution, to execute, acknowledge and deliver any instruments and do and perform any acts which are referred to in this Section 10, in the name and on behalf of the Borrower. The power vested in such attorney-in-fact is, and shall be deemed to be, coupled with an interest and irrevocable. 10.6. Waivers. The Borrower hereby waives to the extent not prohibited by ------- applicable law (a) all presentments, demands for performance, notices of nonperformance (except to the extent required by the provisions hereof or of any of the other Loan Documents), protests and notices of dishonor, (b) any requirement of diligence or promptness on the part of the Lender in the enforcement of its rights (but not fulfillment of its obligations) under the provisions of this Agreement or any of the other Loan Documents, and (c) any and all notices of every kind and description which may be required to be given by any statute or rule of law and any defense of any kind which the Borrower may now or hereafter have with respect to its liability under this Agreement or under any of the other Loan Documents. -33- 11. MISCELLANEOUS AND GENERAL. ------------------------- 11.1. Setoff. Regardless of the adequacy of any collateral, during the ------ continuance of any Event of Default, any deposits (general or specific, time or demand, provisional or final, regardless of currency, maturity, or the branch of Lender where such deposits are held) or other sums credited by or due from Lender to the Borrower and any securities or other property of the Borrower in the possession of Lender may be applied to or set off against the payment of Obligations and any and all other liabilities, direct, or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, of the Borrower to the Lender. 11.2. Expenses. The Borrower agrees to pay (a) the reasonable costs of -------- producing and reproducing this Agreement, the other Loan Documents and the other agreements and instruments mentioned herein, (b) any taxes (including any interest and penalties in respect thereto) payable by the Lender (other than taxes based upon the Lender's net income), including any recording, mortgage or intangibles taxes in connection with the Mortgage, or other taxes payable on or with respect to the transactions contemplated by this Agreement, including any taxes payable by the Lender after the Closing Date (the Borrower hereby agreeing to indemnify the Lender with respect thereto), (c) all title insurance premiums, (d) the reasonable fees, expenses and disbursements of the Lender's counsel or any local counsel to the Lender incurred in connection the making of the Loan and the preparation, review, administration or interpretation of the Loan Documents and other instruments mentioned herein, and amendments, modifications, extensions, approvals, consents or waivers hereto or hereunder, (e) the fees, expenses and disbursements of the Lender incurred by the Lender in connection with the preparation, administration or interpretation of the Loan Documents and other instruments mentioned herein (including all Appraisal fees and surveyor fees) (f) all reasonable out-of-pocket expenses (including reasonable attorneys' fees and costs, which attorneys may be employees of the Lender and including attorneys' fees for representation in proceedings under the Bankruptcy Code) and the fees and costs of consultants, accountants, auctioneers, receivers, brokers, property managers, appraisers, investment bankers other experts retained by any Lender in connection with (i) the enforcement of or preservation of rights under any of the Loan Documents against the Borrower or the Guarantor or the administration thereof after the occurrence of a Default or Event of Default and (ii) any litigation, proceeding, or dispute whether arising hereunder or otherwise, in any way related to the Lender's relationship with the Borrower or the Guarantor, and (g) all reasonable fees, expenses and disbursements of the Lender incurred in connection with UCC searches, UCC filings, title rundowns, title searches, or mortgage recordings. The covenants of this Section 112 shall survive payment or satisfaction of payment of all amounts owing with respect to the Note. 11.3. Indemnification. The Borrower agrees to indemnify, defend, and hold --------------- Lender harmless from and against any and all claims, actions and suits, whether groundless or otherwise, and from and against any and all liabilities, losses, damages and expenses of every nature and character arising out of this Agreement or any of the other Loan Documents or the transactions contemplated hereby and thereby, in each case including, without limitation, the reasonable fees and disbursements of counsel and allocated costs of internal counsel incurred in connection with any such investigation, litigation or other proceeding. In litigation, or the preparation therefor, the Lender shall be entitled to select its own counsel and, in addition to the foregoing indemnity, the Borrower agrees to pay promptly the reasonable fees and expenses of such counsel. The obligations of the Borrower under -34- this Section 113 shall survive the repayment of the Loan and shall continue in full force and effect so long as the possibility of such claim, action or suit exists. If, and to the extent that the obligations of the Borrower under this Section 113 are unenforceable for any reason, the Borrower hereby agrees to make the maximum contribution to the payment in satisfaction of such obligations which is permissible under applicable law. 11.4. Rights of Third Parties. All conditions to the performance of the ----------------------- obligations of the Lender under this Agreement are imposed solely and exclusively for the benefit of the Lender and no other Person shall have standing to require satisfaction of such conditions in accordance with their terms and no other Person shall, under any circumstances, be deemed to be a beneficiary of such conditions, any and all of which may be freely waived in whole or in part by the Lender at any time if in its sole discretion it deems it desirable to do so. No third party shall have any right whatsoever hereunder to compel compliance with any provision hereof, whether at law or in equity. 11.5. Survival of Covenants, Etc. All covenants, agreements, -------------------------- representations and warranties made herein, in the Note, in any of the other Loan Documents or in any documents or other papers delivered by or on behalf of the Borrower or the Guarantor pursuant hereto and thereto shall be deemed to have been relied upon by the Lender, notwithstanding any investigation heretofore or hereafter made by any of them, and shall survive the making by the Lender of the Loan, as herein contemplated, and shall continue in full force and effect so long as any amount due under this Agreement or the Note or any of the other Loan Documents remain outstanding. All statements contained in any certificate or other paper delivered to any Lender or the Lender at any time by or on behalf of the Borrower or the Guarantor pursuant hereto or in connection with the transactions contemplated hereby shall constitute representations and warranties by the Borrower or the Guarantor hereunder. 11.6. Participations. Lender may sell participations to one or more banks -------------- or other entities in all or a portion of Lender's rights and obligations under this Agreement and the other Loan Documents. The Borrower agrees that in addition to disclosures made in accordance with standard banking practices any Lender may disclose information obtained by Lender pursuant to this Agreement to assignees or participants and potential assignees or participants hereunder. 11.7. Relationship. The relationship between the Lender and the Borrower ------------ is solely that of a lender and borrower, and nothing contained herein or in any of the other Loan Documents shall in any manner be construed as making the parties hereto partners, joint venturers or any other relationship other than lender and borrower. 11.8. Notices. Each notice, demand, election or request provided for or ------- permitted to be given pursuant to this Agreement (hereinafter in this Section 118 referred to as "Notice") must be in writing and shall be deemed to have been properly given or served by personal delivery or by sending same by overnight courier or by depositing same in the United States Mail, postpaid and registered or certified, return receipt requested, or by facsimile transmission or telegraph and addressed as follows: -35- (A) If to Borrower: Jameson Properties, LLC 8 Perimeter Center East, Suite 850 Atlanta, Georgia 30346 Attention: Craig R. Kitchin Fax Number: 770-396-0103 with a copy to: Steve Curlee 8 Perimeter Center East Suite 8050 Atlanta, GA 30346 Fax: 770-901-9203 (B) If to Lender: First Bank 240 S.W. Jefferson Peoria, Illinois 61602 Attention: Michael Dexter Fax Number: 309-637-6185 with a copy to: Robert C. Graham, III Armstrong Teasdale LLP One Metropolitan Square Suite 2600 St. Louis, Missouri 63102 Fax Number: (314) 621-5065 Each Notice shall be effective upon being personally delivered or upon being sent by overnight courier or by facsimile transmission or telegraph or upon being deposited in the United States Mail as aforesaid. The time period in which a response to such Notice must be given or any action taken with respect thereto (if any), however, shall commence to run from the date of receipt if personally delivered, sent by overnight courier, or sent by facsimile transmission or telegraph, or if so deposited in the United States Mail, the earlier of three (3) Business Days following such deposit or the date of receipt as disclosed on the return receipt. Rejection or other refusal to accept or the inability to deliver because of changed address for which no Notice was given shall be deemed to be receipt of the Notice sent. By giving at least thirty (30) days prior Notice thereof, the Borrower, the Lender shall have the right from time to time and at any time during the term of this Agreement to change their respective addresses and each shall have the right to specify as its address any other address within the United States of America. Notwithstanding anything herein to the contrary, the "copy to" Notice to be given as set forth above is a courtesy copy only; and a Notice given to such person is not sufficient to effect giving a Notice to the principal party, nor does a failure to give such a courtesy copy of a Notice constitute a failure to give Notice to the principal party. 11.9. Governing Law. This Agreement and each of the other Loan Documents, ------------- except as otherwise specifically provided therein, are contracts under the laws of the State of Illinois and shall -36- for all purposes be construed in accordance with and governed by the laws of said State (excluding the laws applicable to conflicts or choice of law). 11.10. Consent to Jurisdiction; Waivers. THE BORROWER HEREBY IRREVOCABLY -------------------------------- AND UNCONDITIONALLY (A) SUBMITS TO PERSONAL JURISDICTION IN THE STATE OF ILLINOIS OVER ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, AND (B) WAIVES ANY AND ALL PERSONAL RIGHTS UNDER THE LAWS OF ANY STATE (I) TO THE RIGHT, IF ANY, TO TRIAL BY JURY, (II) TO OBJECT TO JURISDICTION WITHIN THE STATE OF ILLINOIS OR VENUE IN ANY PARTICULAR FORUM WITHIN THE STATE OF ILLINOIS, AND (III) TO THE RIGHT, IF ANY, TO CLAIM OR RECOVER ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN ACTUAL DAMAGES. THE BORROWER AGREES THAT, IN ADDITION TO ANY METHODS OF SERVICE OF PROCESS PROVIDED FOR UNDER APPLICABLE LAW, ALL SERVICE OF PROCESS IN ANY SUCH SUIT, ACTION OR PROCEEDING MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED DIRECTED TO THE BORROWER AT THE ADDRESS SET FORTH IN SECTION 118 ABOVE, AND SERVICE SO MADE SHALL BE COMPLETE FIVE (5) DAYS AFTER THE SAME SHALL BE SO MAILED. NOTHING CONTAINED HEREIN, HOWEVER, SHALL PREVENT THE LENDER FROM BRINGING ANY SUIT, ACTION OR PROCEEDING OR EXERCISING ANY RIGHTS AGAINST ANY COLLATERAL AND AGAINST THE BORROWER, AND AGAINST ANY PROPERTY OF THE BORROWER, IN ANY OTHER STATE. INITIATING SUCH SUIT, ACTION OR PROCEEDING OR TAKING SUCH ACTION IN ANY STATE SHALL IN NO EVENT CONSTITUTE A WAIVER OF THE AGREEMENT CONTAINED HEREIN THAT THE LAWS OF THE STATE OF ILLINOIS SHALL GOVERN THE RIGHTS AND OBLIGATIONS OF THE BORROWER, THE LENDER HEREUNDER OR THE SUBMISSION HEREIN BY THE BORROWER TO PERSONAL JURISDICTION WITHIN THE STATE OF ILLINOIS. 11.11. Headings. The captions in this Agreement are for convenience of -------- reference only and shall not define or limit the provisions hereof. 11.12. Counterparts. This Agreement and any amendment hereof may be ------------ executed in several counterparts and by each party on a separate counterpart, each of which when so executed and delivered shall be an original, and all of which together shall constitute one instrument. In proving this Agreement it shall not be necessary to produce or account for more than one such counterpart signed by the party against whom enforcement is sought. 11.13. Entire Agreement, Etc. The Loan Documents and any other documents --------------------- executed in connection herewith or therewith express the entire understanding of the parties with respect to the transactions contemplated hereby. Neither this Agreement nor any term hereof may be changed, waived, discharged or terminated, except as provided in Section 11.14. -37- 11.14. Consents, Amendments, Waivers, Etc. Except as otherwise expressly ---------------------------------- set forth in any particular provision of this Agreement, any consent or approval required or permitted by this Agreement to be given by the Lender may be given, and any term of this Agreement or of any other instrument related hereto or mentioned herein may be amended, and the performance or observance by the Borrower of any terms of this Agreement or such other instrument or the continuance of any Default or Event of Default may be waived (either generally or in a particular instance and either retroactively or prospectively) with, but only with, the written consent of the Lender. No waiver shall extend to or affect any obligation not expressly waived or impair any right consequent thereon. No course of dealing or delay or omission on the part of the Lender in exercising any right shall operate as a waiver thereof or otherwise be prejudicial thereto. No notice to or demand upon the Borrower shall entitle the Borrower to other or further notice or demand in similar or other circumstances. All rights and remedies of Lender are cumulative and concurrent and the exercise of one right or remedy shall not be deemed a waiver or release of any other right or remedy. 11.15. Time of the Essence. Time is of the essence with respect to each ------------------- and every covenant, agreement and obligation of the Borrower under this Agreement and the other Loan Documents. 11.16. Severability. The provisions of this Agreement are severable, and ------------ if any term, covenant or condition of this Agreement or the application thereof to any person or circumstance shall to any extent be invalid or unenforceable, the remainder of this Agreement or the application of such term, covenant, or condition to persons or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby and each term, covenant, and condition of this Agreement shall be valid and enforceable to the fullest extent permitted by law. 11.17. Assignments. Borrower may not assign its rights under this ----------- Agreement. Lender may transfer, assign, negotiate, pledge, sell, grant participations or otherwise hypothecate all or any portion of this Agreement, and/or the Loan contemplated herein, and any of its rights and security hereunder to additional parties (the "Additional Parties"). Within fifteen (15) days after receipt of written request from Lender specifically referring to this paragraph and indicating that a response must be received within such fifteen (15) day period, Borrower shall furnish to Lender a statement certifying the terms and conditions of the Loan. Borrower's failure to effectively respond to such request shall be conclusively construed as Borrower's consent and approval of the terms set forth therein, and Lender and all Additional Parties shall be entitled to rely conclusively upon such consent and approval. Borrower consents to the review of any loan documents, financial statements and other documents and information of Borrower for the purpose of evaluation and analysis of Borrower and the Property by such Additional Parties. 11.18. Waiver and Release by Borrower. To the maximum extent permitted by ------------------------------ applicable Laws, Borrower: 11.18.1. Waives: (1) protest of all commercial paper at any time held by Lender on which Borrower is any way liable; and (2) notice and opportunity to be heard, after acceleration in the manner provided in Section 10 before exercise by Lender of the remedies of self-help, set-off, or of other summary procedures permitted by any applicable Laws or by any agreement with -38- Borrower and, except where required hereby or by any applicable Laws, notice of any other action taken by Lender; and 11.18.2. Releases Lender and its officers, attorneys, agents and employees from all claims for loss or damage caused by any act or omission on the part of any of them except willful misconduct or gross negligence. 11.19. Construction. The provisions of this Agreement shall be in addition ------------ to those of the -39- EX-10.41 5 0005.txt OPEN-END-MORTGAGE DATED MAY 16, 2001 EXHIBIT 10.41 Schedule of documents substantially similar to Exhibit 10.40 1 Mortgage and Security Agreement; Assignment of Leases and Rents; Subordination Agreement; Tenant Estoppel Agreement for Signature Inn, Springfield, Illinois 2. Mortgage and Security Agreement; Assignment of Leases and Rents; Subordination Agreement; Tenant Estoppel Agreement for Signature Inn, Peoria, Illinois EX-10.42 6 0006.txt REAL ESTATE MORTGAGE DATED MAY 16, 2001 EXHIBIT 10.42 RECORDATION REQUESTED BY: tr:200005160096060 05/16/2000 Pages:6 Fee:$30.00 12@04PM Cornerstone Bank Richard B. Metcalf T20000063831 28 East Main Street Franklin County Recorder BXLAVINSKY PO Box 719 Springfield, OH 45501 WHEN RECORDED MAIL TO: Cornerstone Bank 28 East Main Street PO BOX 719 Springfield, OH 45501 SEND TAX NOTICES TO: Cornerstone Bank 28 East Main Street PO BOX 719 Springfield, OH 45501 SPACE ABOVE THIS LINE IS FOR RECORDER'S USE ONLY - ------------------------------------------------ OPEN-END MORTGAGE MAXIMUM LIEN: The Maximum Amount of Loan Indebtedness secured by this Open-End Mortgage is $3,900,000.00. The words "Maximum Amount of Loan Indebtedness' as used in this Mortgage mean the maximum unpaid balance of loan advances made under the Note which may be outstanding at any one time. The Maximum Amount of Loan Indebtedness does not include any (A) interest, (B) taxes, (C) assessments, (D) insurance premiums, or (E) costs incurred for the protection of the Property. Grantor and Lender intend that, in addition to any other indebtedness or obligations secured hereby, this Mortgage shall secure indebtedness arising from loan advances made by Lender after this Mortgage is delivered to the recorder for record. THIS MORTGAGE dated May 16, 2000, is made and executed between Jameson Inns, Inc., whose address Is 8 Perimeter Center East, Suite 8050, Atlanta, GA 30346 (referred to below as "Grantor") and Cornerstone Bank, whose address Is 28 East Main Street, PO Box 719, Springfield, OH 45501 (referred to below as "Lender"). GRANT OF MORTGAGE. For valuable consideration, Grantor grants, mortgages and conveys to Lender, with mortgage covenants and upon the statutory condition, all of Grantor's right, title, and Interest in and to the following described real property, together with all existing or subsequently erected or affixed buildings, improvements and fixtures; all easements, rights of way, and appurtenances; all water, water rights, watercourses and ditch rights (including stock in utilities with ditch or irrigation rights); and all other rights, royalties, and pr fits relating to the real party, including without limitation all minerals, oil, gas, geothermal and similar matters, (the "Real Property") located in Franklin County, State of Ohio: See Exhibit A, which is attached to this Mortgage and made a part of this Mortgage as If fully set forth herein. The Real Property or its address is commonly known as 6767 Schrock Hill Ct., Columbus, OH 43229. Grantor presently assigns to Lender all of Grantor's right, title, and interest in and to all present and future leases of the Property and all Rents from the Property. In addition, Grantor grants to Lender a Uniform Commercial Code security interest In the Personal Property and Rents. THIS MORTGAGE, INCLUDING THE ASSIGNMENT OF RENTS AND THE SECURITY INTEREST IN THE RENTS AND PERSONAL PROPERTY, IS GIVEN TO SECURE (A) PAYMENT OF THE INDEBTEDNESS AND (B) PERFORMANCE OF ANY AND ALL OBLIGATIONS UNDER THE NOTE, THE RELATED DOCUMENTS, AND THIS MORTGAGE. THIS MORTGAGE IS GIVEN AND ACCEPTED ON THE FOLLOWING TERMS: PAYMENT AND PERFORMANCE. Except as otherwise provided in this Mortgage, Grantor shall pay to Lender all amounts secured by this Mortgage as they become due and shall strictly perform all of Grantor's obligations under this Mortgage. POSSESSION AND MAINTENANCE OF THE PROPERTY. Grantor agrees that Grantor's possession and use of the Property shall be governed by the following provisions: Possession and Use. Until the occurrence of an Event of Default, Grantor may (1) remain in possession and control of the Property; (2) use, operate or manage the Property; and (3) collect the Rents from the Property. Duty to Maintain. Grantor shall maintain the Property in tenantable condition and promptly perform all repairs, replacements, and maintenance necessary to preserve its value. Compliance With Environmental Laws. Grantor represents and warrants to Lender that: (1) During the period of Grantor's ownership of the Property, there has been no use, generation, manufacture, storage, treatment, disposal, release or threatened release of any Hazardous Substance by any person on, under, about or from the Property; (2) Grantor has no knowledge of, or reason to believe that there has been, except as previously disclosed to and acknowledged by Lender in writing, (a) any breach or violation of any Environmental Laws, (b) any use, generation, manufacture, storage, treatment, disposal, release or threatened release of any Hazardous Substance on, under, about or from the Property by any prior owners or occupants of the Property, or (c) any actual or threatened litigation or claims of any kind by any person relating to such matters; and (3) Except as previously disclosed to and acknowledged by Lender in writing, (a) neither Grantor nor any tenant, contractor, agent or other authorized user of the Property shall use, generate, manufacture, store, treat, dispose of or release any Hazardous Substance on, under, about or from the Property; and lb) any such activity shall be conducted In compliance with all applicable federal, state, and local laws, regulations and ordinances, including without limitation all Environmental Laws. Grantor authorizes Lender and its agents to enter upon the Property to make such inspections and tests, at Grantor's expense, as Lender may deem appropriate to determine compliance of the Property with this section of the Mortgage. Any inspections or tests made by Lender shall be for Lender's purposes only and shall not be construed to create any responsibility or liability on the part of Lender to Grantor or to any other person. The representations and warranties contained herein are based on Grantor's due diligence in investigating the Property for Hazardous Substances. Grantor hereby (1) releases and waives any future claims against Lender for indemnity or contribution in the event Grantor becomes liable for cleanup or other costs under any such laws; and (2) agrees to indemnify and hold harmless Lender against any and all claims, losses, liabilities, damages, penalties, and expenses which Lender may directly or indirectly sustain or suffer resulting from a breach of this section of the Mortgage or as a consequence of any use, generation, manufacture, storage, disposal, release or threatened release occurring prior to Grantor's ownership or interest in the Property, whether or not the same was or should have been known to Grantor. The provisions of this section of the Mortgage, including the obligation to indemnify, shall survive the payment of the Indebtedness and the satisfaction and reconveyance of the lien of this Mortgage and shall not be affected by Lender's acquisition of any interest in the Property, whether by foreclosure or otherwise. Nuisance, Waste. Grantor shall not cause, conduct or permit any nuisance nor commit, permit, or suffer any stripping of or waste on or to the Property or any portion of the Property. Without limiting the generality of the foregoing, Grantor will not remove, or grant to any other party the right to remove, any timber, minerals (including oil and gas), coal, clay, scoria, soil, gravel or rock products without Lender's prior written consent. Removal of Improvements. Grantor shall not demolish or remove any Improvements from the Real Property without Lender's prior written consent. As a condition to the removal of any Improvements, Lender may require Grantor to make arrangements satisfactory to Lender to replace such Improvements with Improvements of at least equal value. Lender's Right to Enter. Lender and Lender's agents and representatives may enter upon the Real Property at all reasonable times to attend to Lender's interests and to inspect the Real Property for purposes of Grantor's compliance with the terms and conditions of this Mortgage. Compliance with Governmental Requirements. Grantor shall promptly comply with all laws, ordinances, and regulations, now or hereafter in effect, of all governmental authorities applicable to the use or occupancy of the Property, including without limitation, the Americans With Disabilities Act. Grantor may contest in good faith any such law, ordinance, or regulation and withhold compliance during any proceeding, including appropriate appeals, so long as Grantor has notified Lender in writing prior to doing so and so long as, in Lender's sole opinion, Lender's interests in the Property are not jeopardized. Lender may require Grantor to post adequate security or a surety bond, reasonably satisfactory to Lender, to protect Lender's interest. Duty to Protect. Grantor agrees neither to abandon nor leave unattended the Property. Grantor shall do all other acts, in addition to those acts set forth above in this section, which from the character and use of the Property are reasonably necessary to protect and preserve the Property. TAXES AND LIENS. The following provisions relating to the taxes and liens on the Property are part of this Mortgage: Payment. Grantor shall pay when due (and in all events prior to delinquency) all taxes, payroll taxes, special taxes, assessments, water charges and sewer service charges levied against or on account of the Property, and shall pay when due all claims for work done on or for services rendered or material furnished to the Property. Grantor shall maintain the Property free of any liens having priority over or equal to the interest of Lender under this Mortgage, except for those liens specifically agreed to in writing by Lender, and except for the lien of taxes and assessments not due as further specified In the Right to Contest paragraph. Right to Contest. Grantor may withhold payment of any tax, assessment, or claim in connection with a good faith dispute over the obligation to pay, so long as Lender's interest in the Property is not jeopardized. If a lien arises or is filed as a result of nonpayment, Grantor shall within fifteen (15) days after the lien arises or, if a lien is filed, within fifteen (15) days after Grantor has notice of the filing, secure the discharge of the lien, or if requested by Lender, deposit with Lender cash or a sufficient corporate surety bond or other security satisfactory to Lender in an amount sufficient to discharge the lien plus any costs and attorneys' fees, or other charges that could accrue as a result of a foreclosure or sale under the lien. In any contest, Grantor shall defend itself and Lender and shall satisfy any adverse judgment before enforcement against the Property. Grantor shall name Lender as an additional obligee under any surety bond furnished in the contest proceedings. Evidence of Payment. Grantor shall upon demand furnish to Lender satisfactory evidence of payment of the taxes or assessments and shall authorize the appropriate governmental official to deliver to Lender at any time a written statement of the taxes and assessments against the Property. Notice of Construction. Grantor shall notify Lender at least fifteen (15) days before any work is commenced, any services are furnished, or any materials are supplied to the Property, if any mechanic's lien, materialmen's lien, or other lien could be asserted on account of the work, services, or materials. Grantor will upon request of Lender furnish to Lender advance assurances satisfactory to Lender that Grantor can and will pay the cost of such improvements. PROPERTY DAMAGE INSURANCE. The following provisions relating to insuring the Property are a part of this Mortgage: Maintenance of Insurance. Grantor shall procure and maintain policies of fire insurance with standard extended coverage endorsements on a replacement basis for the full insurable value covering all Improvements on the Real Property in an amount sufficient to avoid application of any coinsurance clause, and with a standard mortgagee clause in favor of Lender. Grantor shall also procure and maintain comprehensive general liability insurance in such coverage amounts as Lender may request with Lender being named as additional insureds in such liability insurance policies. Additionally, Grantor shall maintain such other insurance, including but not limited to hazard, business interruption and boiler insurance as Lender may require. Policies shall be written by such insurance companies and in such form as may be reasonably acceptable to Lender. Grantor shall deliver to Lender certificates of coverage from each insurer containing a stipulation that coverage will not be cancelled or diminished without a minimum of thirty (30) days' prior written notice to Lender and not containing any disclaimer of the insurer's liability for failure to give such notice. Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Grantor or any other person. Should the Real Property be located in an area designated by the Director of the Federal Emergency Management Agency as a special flood hazard area, Grantor agrees to obtain and maintain Federal Flood Insurance, if available, within 45 days after notice is given by Lender that the Property is located in a special flood hazard area, for the full unpaid principal balance of the loan and any prior liens on the property securing the loan, up to the maximum policy limits set under the National Flood Insurance Program, or as otherwise required by Lender, and to maintain such insurance for the term of the loan. Application of Proceeds. Grantor shall promptly notify Lender of any loss or damage to the Property. Lender may make proof of loss if Grantor fails to do so within fifteen (15) days of the casualty. Whether or not Lender's security is impaired, Lender may, at Lender's election, receive and retain the proceeds of any insurance and apply the proceeds to the reduction of the Indebtedness, payment of any lien affecting the Property, or the restoration and repair of the Property. If Lender elects to apply the proceeds to restoration and repair, Grantor shall repair or replace the damaged or destroyed Improvements in a manner satisfactory to Lender. Lender shall, upon satisfactory proof of such expenditure, pay or reimburse Grantor from the proceeds for the reasonable cost of repair or restoration if Grantor is not in default under this Mortgage. Any proceeds which have not been disbursed within 180 days after their receipt and which Lender has not committed to the repair or restoration of the Property shall be used first to pay any amount owing to Lender under this Mortgage, then to pay accrued interest, and the remainder, if any, shall be applied to the principal balance of the Indebtedness. If Lender holds any proceeds after payment in full of the Indebtedness, such proceeds shall be paid to Grantor as Grantor's interests may appear. Unexpired Insurance at Sale. Any unexpired insurance shall inure to the benefit of, and pass to, the purchaser of the Property covered by this Mortgage at any trustee's sale or other sale held under the provisions of this Mortgage, or at any foreclosure sale of such Property. LENDER'S EXPENDITURES. If any action or proceeding is commenced that would materially affect Lender's interest in the Property or if Grantor fails to comply with any provision of this Mortgage or any Related Documents, including but not limited to Grantor's failure to discharge or pay when due any amounts Grantor is required to discharge or pay under this Mortgage or any Related Documents, Lender on Grantor's behalf may (but shall not be obligated to) take any action that Lender deems appropriate, including but not limited to discharging or paying all taxes, liens, security interests, encumbrances and other claims, at any time levied or placed on the Property and paying all costs for insuring, maintaining and preserving the Property All such expenditures Incurred or paid by Lender for such purposes will then bear interest at the rate charged under the Note from the date incurred or paid by Lender to the date of repayment by Grantor. All such expenses will become a part of the Indebtedness and, at Lender's option, will (A) be payable on demand; (B) be added to the balance of the Note and be apportioned among and be payable with any installment payments to become due during either (1) the term of any applicable insurance policy; or (2) the remaining term of the Note; or (C) be treated as a balloon payment which will be due and payable at the Note's maturity. The Property also will secure payment of these amounts. Such right shall be in addition to all other rights and remedies to which Lender may be entitled upon Default. WARRANTY; DEFENSE OF TITLE. The following provisions relating to ownership of the Property are a part of this Mortgage: Title. Grantor warrants that: (a) Grantor holds good and marketable title of record to the Property In fee simple, free and clear of all liens and encumbrances other than those set forth in the Real Property description or in any title insurance policy, title report, or final title opinion issued in favor of, and accepted by, Lender in connection with this Mortgage, and (b) Grantor has the full right, power, and authority to execute and deliver this Mortgage to Lender. Defense of Title. Subject to the exception in the paragraph above, Grantor warrants and will forever defend the title to the Property against the lawful claims of all persons. In the event any action or proceeding is commenced that questions Grantor's title or the interest of Lender under this Mortgage, Grantor shall defend the action at Grantor's expense. Grantor may be the nominal party In such proceeding, but Lender shall be entitled to participate in the proceeding and to be represented in the proceeding by counsel of Lender's own choice, and Grantor will deliver, or cause to be delivered, to Lender such instruments as Lender may request from time to time to permit such participation. Compliance With Laws. Grantor warrants that the Property and Grantor's use of the Property complies with all existing applicable laws, ordinances, and regulations of governmental authorities. Survival of Representations and Warranties. All representations, warranties, and agreements made by Grantor in this Mortgage shall survive the execution and delivery of this Mortgage, shall be continuing in nature, and shall remain in full force and effect until such time as Grantor's Indebtedness shall he paid in full. CONDEMNATION. The following provisions relating proceedings are a part - of this Mortgage: Proceedings. It any proceeding in condemnation is filed, Grantor shall promptly notify Lender in writing, and Grantor shall promptly take such steps as may be necessary to defend the action and obtain the award. Grantor may be the nominal party in such proceeding, but Lender shall be entitled to participate in the proceeding and to be represented in the proceeding by counsel of Its own choice, and Grantor will deliver or cause to be delivered to Lender such instruments and documentation as may be requested by Lender from time to time to permit such participation. Application of Net Proceeds. If all or any part of the Property is condemned by eminent domain proceedings or by any proceeding or purchase in lieu of condemnation, Lender may at its election require that all or any portion of the net proceeds of the award be applied to the Indebtedness or the repair or restoration of the Property. The net proceeds of the award shall mean the award after payment of all reasonable costs, expenses, and attorneys' fees incurred by Lender in connection with the condemnation. IMPOSITION OF TAXES, FEES AND CHARGES BY GOVERNMENTAL AUTHORITIES. The following provisions relating to governmental taxes, fees and charges are a part of this Mortgage: Current Taxes, Fees and Charges. Upon request by Lender, Grantor shall execute such documents in addition to this Mortgage and take whatever other action is requested by Lender to perfect and continue Lender's lien on the Real Property. Grantor shall reimburse Lender for all taxes, as described below, together with all expenses incurred in recording, perfecting or continuing this Mortgage, including without limitation all taxes, fees, documentary stamps, and other charges for recording or registering this Mortgage. Taxes. The following shall constitute taxes to which this section applies: (1) a specific tax upon this type of Mortgage or upon all or any part of the Indebtedness secured by this Mortgage; (2) a specific tax on Grantor which Grantor is authorized or required to deduct from payments on the Indebtedness secured by this type of Mortgage; (3) a tax on this type of Mortgage chargeable against the Lender or the holder of the Note; and (4) a specific tax on all or any portion of the Indebtedness or on payments of principal and interest made by Grantor. Subsequent taxes. If any tax to which this section applies is enacted subsequent to the date of this Mortgage, this event shall have the same effect as an Event of Default, and Lender may exercise any or all of its available remedies for an Event of Default as provided below unless Grantor either (1) pays the tax before it becomes delinquent, or (2) contests the tax as provided above in the Taxes and Liens section and deposits with Lender cash or a sufficient corporate surety bond or other security satisfactory to Lender. SECURITY AGREEMENT; FINANCING STATEMENTS. The following provisions relating to this Mortgage as a security agreement are a part of this Mortgage: Security Agreement. This instrument shall constitute a Security Agreement to the extent any of the Property constitutes fixtures or other personal property, and Lender shall have all of the rights of a secured party under the Uniform Commercial Code as amended from time to time. Security Interest. Upon request by Lender, Grantor shall execute financing statements and take whatever other action is requested by Lender to perfect and continue Lender's security interest in the Rents and Personal Property. In addition to recording this Mortgage in the real property records, Lender may, at any time and without further authorization from Grantor, file executed counterparts, copies or reproductions of this Mortgage as a financing statement. Grantor shall reimburse Lender for all expenses Incurred In perfecting or continuing this security interest. Upon default, Grantor shall assemble the Personal Property in a manner and at a place reasonably convenient to Grantor and Lender and make it available to Lender within three (3) days after receipt of written demand from Lender. Addresses. The mailing addresses of Grantor (debtor) and Lender (secured party) from which information concerning the security Interest granted by this Mortgage may be obtained (each as required by the Uniform Commercial Code) are as stated on the first page of this Mortgage. FURTHER ASSURANCES; ATTORNEY-IN-FACT. The following provisions relating to further assurances and attorney-in-fact are a part of this Mortgage: Further Assurances. At any time, and from time to time, upon request of Lender, Grantor will make, execute and deliver, or will cause to be made, executed or delivered, to Lender or to Lender's designee, and when requested by Lender, cause to be filed, recorded, refiled, or rerecorded, as the case may be, at such times and in such offices and places as Lender may deem appropriate, any and all such mortgages, deeds of trust, security deeds, security agreements, financing statements, continuation statements, instruments of further assurance, certificates, and other documents as may, in the sole opinion of Lender, be necessary or desirable in order to effectuate, complete, perfect, continue, or preserve (1) Grantor's obligations under the Note, this Mortgage, and the Related Documents, and (2) the liens and security interests created by this Mortgage as first and prior liens on the Property, whether now owned or hereafter acquired by Grantor. Unless prohibited by law or Lender agrees to the contrary in writing, Grantor shall reimburse Lender for all costs and expenses incurred in connection with the matters referred to in this paragraph. Attorney-in-Fact. If Grantor fails to do any of the things referred to in the preceding paragraph, Lender may do so for and in the name of Grantor and at Grantor's expense. For such purposes, Grantor hereby Irrevocably appoints Lender as Grantor's attorney-in-fact for the purpose of making, executing, delivering, filing, recording, and doing all other things as may be necessary or desirable, In Lender's sole opinion, to accomplish the matters referred to in the preceding paragraph. FULL PERFORMANCE. If Grantor pays all the Indebtedness when due, and otherwise performs all the obligations imposed upon Grantor under this Mortgage, Lender shall execute and deliver to Grantor a suitable satisfaction of this Mortgage and suitable statements of termination of any financing statement on file evidencing Lender's security Interest in the Rents and the Personal Property. Grantor will pay, if permitted by applicable law, any reasonable termination fee as determined by Lender from time to time. EVENTS OF DEFAULT. Each of the following, at Lender's option, shall constitute an Event of Default under this Mortgage: Payment Default. Grantor fails to make any payment when due under the Indebtedness. Default on Other Payments. Failure of Grantor within the time required by this Mortgage to make any payment for taxes or insurance, or any other payment necessary to prevent filing of or to effect discharge of any lien. Other Defaults. Grantor fails to comply with or to perform any other term, obligation, covenant or condition contained in this Mortgage or in any of the Related Documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Grantor. False Statements. Any warranty, representation or statement made or furnished to Lender by Grantor or on Grantor's behalf under this Mortgage, the Note, or the Related Documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter. Defective Collateralization. This Mortgage or any of the Related Documents ceases to be in full force and effect (including failure of any collateral document to create a valid and perfected security interest or lien) at any time and for any reason. Death or Insolvency. The dissolution or termination of Grantor's existence as a going business, the Insolvency of Grantor, the appointment of a receiver for any part of Grantor's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Grantor. Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Grantor or by any governmental agency against any property securing the Indebtedness. This includes a garnishment of any of Grantor's accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Grantor as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Grantor gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in Its sole discretion, as being an adequate reserve or bond for the dispute. Breach of Other Agreement. Any breach by Grantor under the terms of any other agreement between Grantor and Lender that is not remedied within any grace period provided therein, including without limitation any agreement concerning any Indebtedness or other obligation of Grantor to Lender, whether existing now or later. Events Affecting Guarantor. Any of the preceding events occurs with respect to any guarantor, endorser, surety, or accommodation party of any of the Indebtedness or any guarantor, endorser, surety, or accommodation party dies or becomes Incompetent, or revokes or disputes the validity of, or liability under, any Guaranty of the Indebtedness . In the event of a death, Lender, at its option, may, but shall not be required to, permit the guarantor's estate to assume unconditionally the obligations arising under the guaranty in a manner satisfactory to Lender, and, in doing so, cure any Event of Default. Adverse Change. A material adverse change occurs in Grantor's financial condition, or Lender believes the prospect of payment or performance of the Indebtedness is impaired. Insecurity. Lender in good faith believes itself insecure. Right to Cure. If such a failure is curable and if Grantor has not been given a notice of a breach of the same provision of this Mortgage within the preceding twelve (12) months, it may be cured (and no Event of Default will have occurred) if Grantor, after Lender sends written notice demanding cure of such failure: (a) cures the failure within fifteen (15) days; or (b) if the cure requires more than fifteen (15) days, immediately exercise any one or more of the following rights and remedies, In addition to any other rights or remedies provided by law: Accelerate Indebtedness. Lender shall have the right at its option without notice to Grantor to declare the entire Indebtedness immediately due and payable, including any prepayment penalty which Grantor would be required to pay. UCC Remedies. With respect to all or any part of the Personal Property, Lender shall have all the rights and remedies of a secured party under the Uniform Commercial Code. Collect Rents. Lender shall have the right, without notice to Grantor, to take possession of the Property and collect the Rents, including amounts past due and unpaid, and apply the net proceeds, over and above Lender's costs, against the Indebtedness. In furtherance of this right, Lender may require any tenant or other user of the Property to make payments of rent or use fees directly to Lender. If the Rents are collected by Lender, then Grantor irrevocably designates Lender as Grantor's attorney-in-fact to endorse instruments received in payment thereof in the name of Grantor and to negotiate the same and collect the proceeds. Payments by tenants or other users to Lender in response to Lender's demand shall satisfy the obligations for which the payments are made, whether or not any proper grounds for the demand existed. Lender may exercise its rights under this subparagraph either in person, by agent, or through a receiver. Appoint Receiver. Lender shall have the right to have a receiver appointed to take possession of all or any part of the Property, with the power to protect and preserve the Property, to operate the Property preceding foreclosure or sale, and to collect the Rents from the Property and apply the proceeds, over and above the cost of the receivership, against the Indebtedness. The receiver may serve without bond if permitted by law. Lender's right to the appointment of a receiver shall exist whether or not the apparent value of the Property exceeds the Indebtedness by a substantial amount. Employment by Lender shall not disqualify a person from serving as a receiver. Judicial Foreclosure. Lender may obtain a judicial decree foreclosing Grantor's interest in all or any part of the Property. Confession of Judgment. Grantor hereby irrevocably authorizes and empowers any attorney-at-law, including an attorney hired by Lender, to appear in any court of record and to confess judgment against Grantor for the unpaid amount of this Mortgage as evidenced by an affidavit signed by an officer of Lender setting forth the amount then due, attorneys' fees plus costs of suit, and to release all errors, and waive all rights of appeal. If a copy of this Mortgage, verified by an affidavit, shall have been filed In the proceeding, it will not be necessary to file the original as a warrant of attorney. Grantor waives the right to any stay of execution and the benefit of all exemption laws now or hereafter in effect. No single exercise of the foregoing warrant and power to confess judgment will be deemed to exhaust the power, whether or not any such exercise shall be held by any court to be invalid, voidable, or void; but the power will continue undiminished and may be exercised from time to time as Lender may elect until all amounts owing on this Mortgage have been paid in full. Grantor waives any conflict of interest that an attorney hired by Lender may have in acting on behalf of Grantor in confessing judgment against Grantor while such attorney Is retained by Lender. Grantor expressly consents to such attorney acting for Grantor in confessing judgment. Deficiency Judgment. If permitted by applicable law, Lender may obtain a judgment for any deficiency remaining in the Indebtedness due to Lender after application of all amounts received from the exercise of the rights provided in this section. Tenancy at Sufferance. If Grantor remains in possession of the Property after the Property is sold as provided above or Lender otherwise becomes entitled to possession of the Property upon default of Grantor, Grantor shall become a tenant at sufferance of Lender or the purchaser of the Property and shall, at Lender's option, either (1) pay a reasonable rental for the use of the Property, or (2) vacate the Property immediately upon the demand of Lender. Other Remedies. Lender shall have all other rights and remedies provided in this Mortgage or the Note or available at law or in equity. Sale of the Property. To the extent permitted by applicable law, Grantor hereby waives any and all right to have the property marshalled. In exercising its rights and remedies, Lender shall be free to sell all or any part of the Property together or separately, in one sale or by separate sales. Lender shall be entitled to bid at any public sale on all or any portion of the Property. Notice of Sale. Lender shall give Grantor reasonable notice of the time and place of any public sale of the Personal Property or of the time after which any private sale or other intended disposition of the Personal Property is to be made. Reasonable notice shall mean notice given at least tan (10) days before the time of the sale or disposition. Election of Remedies. A waiver by any party of a breach of a provision of this Mortgage shall not constitute a waiver of or prejudice the party's rights otherwise to demand strict compliance with that provision or any other provision. Election by Lender to pursue any remedy will not bar any other remedy, and an election to make expenditures or to take action to perform an obligation of Grantor under this Mortgage, after Grantor's failure to perform, shall not affect Lender's right to declare a default and exercise its remedies. Nothing under this Mortgage or otherwise shall be construed so as to limit or restrict the rights and remedies available to Lender following an Event of Default, or in any way to limit or restrict the rights and ability of Lender to proceed directly against Grantor and/or against any other co-maker, guarantor, surety or endorser and/or to proceed against any other collateral directly or indirectly securing the Indebtedness. Attorneys' Fees; Expenses. If Lender institutes any suit or action to enforce any of the terms of this Mortgage, Lender shall be entitled to recover such sum as the court may adjudge reasonable as attorneys' fees at trial and upon any appeal. Whether or not any court action is involved, and to the extent not prohibited by law, all reasonable expenses Lender incurs that in Lender's opinion are necessary at any time for the protection of its interest or the enforcement of its rights shall become a part of the Indebtedness payable on demand and shall bear interest at the Note rate from the date of the expenditure until repaid. Expenses covered by this paragraph include, without limitation, however subject to any limits under applicable law, Lender's attorneys' fees and Lender's legal expenses, whether or not there is a lawsuit, Including attorneys' fees and expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post- judgment collection services, the cost of searching records, obtaining title reports (including foreclosure reports), surveyors' reports, and appraisal fees and title insurance, to the extent permitted by applicable law. Grantor also will pay any court costs, In addition to all other sums provided by law. NOTICES. Any notice required to be given under this Mortgage, including without limitation any notice of default and any notice of sale shall be given in writing, and shall be effective when actually delivered, when actually received by telefacsimile (unless otherwise required by law), when deposited with a nationally recognized overnight courier, or, if mailed, when deposited in the United States mail, as first class, certified or registered mail postage prepaid, directed to the addresses shown near the beginning of this Mortgage. All copies of notices of foreclosure from the holder of any lien which has priority over this Mortgage shall be sent to Lender's address, as shown near the beginning of this Mortgage. Any party may change its address for notices under this Mortgage by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party's address. For notice purposes, Grantor agrees to keep Lender informed at all times of Grantor's current address. Unless otherwise provided or required by law, If there is more than one Grantor, any notice given by Lender to any Grantor is deemed to be notice given to all Grantors. MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Mortgage: Amendments. This Mortgage, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Mortgage. No alteration of or amendment to this Mortgage shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment. Annual Reports. If the Property is used for purposes other than Grantor's residence, Grantor shall furnish to Lender, upon request, a certified statement of not operating income received from the Property during Grantor's previous fiscal year in such form and detail as Lender shall require. "Net operating Income" shall mean all cash receipts from the Property less all cash expenditures made In connection with the operation of the Property. Caption Headings. Caption headings in this Mortgage are for convenience purposes only and are not to be used to interpret or define the provisions of this Mortgage. Governing Law. This Mortgage will be governed by, construed and enforced In accordance with federal law and the laws of the State of Ohio. This Mortgage has been accepted by Lender In the State of Ohio. Choice of Venue. If there is a lawsuit, Grantor agrees upon Lender's request to submit to the jurisdiction of the courts of Clark County, State of Ohio. No Waiver by Lender. Lender shall not be deemed to have waived any rights under this Mortgage unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Mortgage shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Mortgage. No prior waiver by Lender, nor any course of dealing between Lender and Grantor, shall constitute a waiver of any of Lender's rights or of any of Grantor's obligations as to any future transactions. Whenever the consent of Lender is required under this Mortgage, the granting of such consent by Lender in any Instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender. Severability. If a 6o 'of competent jurisdiction finds any provision of this Mortgage to be illegal, invalid, or unenforceable as to any circumstance, that finding shall not make the offending provision Illegal, invalid, or unenforceable as to any other circumstance. If feasible, the offending provision shall be considered modified so that it becomes legal, valid and enforceable. If the offending provision cannot be so modified, it shall be considered deleted from this Mortgage. Unless otherwise required by law, the illegality, invalidity, or unenforceability of any provision of this Mortgage shall not affect the legality, validity or enforceability of any other provision of this Mortgage. Merger. There shall be no merger of the Interest or estate created by this Mortgage with any other Interest or estate in the Property at any time held by or for the benefit of Lender in any capacity, without the written consent of Lender. Successors and Assigns. Subject to any limitations stated in this Mortgage on transfer of Grantor's interest, this Mortgage shall be binding upon and inure to the benefit of the parties, their successors and assigns. If ownership of the Property becomes vested in a person other than Grantor, Lender, without notice to Grantor, may deal with Grantor's successors with reference to this Mortgage and the Indebtedness by way of forbearance or extension without releasing Grantor from the obligations of this Mortgage or liability under the Indebtedness. Time Is of the Essence. Time is of the essence in the performance of this Mortgage. Waive Jury. All parties to this Mortgage hereby waive the right to any jury trial in any action, proceeding, or. counterclaim brought by any party against any other party. DEFINITIONS. The following capitalized words and terms shall have the following meanings when used in this Mortgage. Unless specifically stated to the contrary, all references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singular shall include the plural, and the plural shall include the singular, as the context may require. Words and terms not otherwise defined in this Mortgage shall have the meanings attributed to such terms in the Uniform Commercial Code: Borrower. The word "Borrower" means Jameson Inns, Inc., and all other persons and entities signing the Note in whatever capacity. Default. The word "Default" means the Default set forth in this Mortgage in the section titled "Default". Environmental Laws. The words "Environmental Laws" mean any and all state, federal and local statutes, regulations and ordinances relating to the protection of human health or the environment, Including without limitation the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, at seq. ("CERCLA), the Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., or other applicable state or federal laws, rules, or regulations adopted pursuant thereto. Event of Default. The words "Event of Default" mean any of the Events of Default set forth in this Mortgage in the Events of Default section of this Mortgage. Grantor. The word "Grantor" means Jameson Inns, Inc. Guaranty. The word "Guaranty" means the guaranty from guarantor, endorser, surety, or accommodation party to Lender, including without limitation a guaranty of all or part of the Note. Hazardous Substances. The words "Hazardous Substances" mean materials that, because of their quantity, concentration or physical, chemical or infectious characteristics, may cause or pose a present or potential hazard to human health or the environment when improperly used, treated, stored, disposed of, generated, manufactured, transported or otherwise handled. The words "Hazardous Substances" are used In their very broadest sense and include without limitation any and all hazardous or toxic substances, materials or waste as defined by or listed under the Environmental Laws. The term "Hazardous Substances" also includes, without limitation, petroleum and petroleum by-products or any fraction thereof and asbestos. Improvements. The word "Improvements" means all existing and future improvements, buildings, structures, mobile homes affixed on the Real Property, facilities, additions, replacements and other construction on the Real Property. Indebtedness. The word "Indebtedness" means all principal, interest, and other amounts, costs and expenses payable under the Note or Related Documents, together with all renewals of, extensions of, modifications of, consolidations of and substitutions for the Note or Related Documents and any amounts expended or advanced by Lender to discharge Grantor's obligations or expenses incurred by Lender to enforce Grantor's obligations under this Mortgage, together with interest on such amounts as provided In this Mortgage. Lender. The word "Lender" means Cornerstone Bank, its successors and assigns. Mortgage. The word "Mortgage' means this Mortgage between Grantor and Lender. Note. The word "Note" means the promissory note dated May 16, 2000, In the original principal amount of $3,900,000.00 from Grantor to Lender, together with all renewals of, extensions of, modifications of, refinancings of, consolidations of, and substitutions for the promissory note or agreement. The maturity date of the Note is May 16, 2007. Personal Property. The words "Personal Property" mean all equipment, fixtures, and other articles of personal property now or hereafter owned by Grantor, and now or hereafter attached or affixed to the Real Property; together with all accessions, parts, and additions to, all replacements of, and all substitutions for, any of such property; and together with all proceeds (including without limitation all Insurance proceeds and refunds of premiums) from any sale or other disposition of the Property. Property. The word "Property" means collectively the Real Property and the Personal Property. Real Property. The words "Real Property" mean the real property, interests and rights, as further described in this Mortgage. Related Documents. The words "Related Documents" mean all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, security deeds, collateral mortgages, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Indebtedness. Rents. The word "Rents" means all present and future rents, revenues, income, issues, royalties, profits, and other benefits derived from the Property. GRANTOR ACKNOWLEDGES H"ING READ ALL THE PROVISIONS OF THIS MORTGAGE, AND GRANTOR AGREES TO ITS TERMS. GRANTOR: JAMESON INNS, INC. By: Craig R. Kitchin, President & CFO of Jameson Inns, Inc. Signed, In the presence of: x Witness x Witness CORPORATE ACKNOWLEDGMENT STATE OF OHIO Ss COUNTY OF FRANKLIN On this day of 20 , before -- me, the undersigned Notary Public, personally appeared Craig R. Kitchin, President & CFO of Jameson Inns, Inc. and known to me to be an authorized agent --- corporation that executed the Mortgage and acknowledged before me the Mortgage to be the free and voluntary act and deed of the corporation, by authority of its Bylaws or by resolution of its board of directors, for the uses and purposes therein mentioned. Dated and executed Mortgage and in fact executed the Mortgage on behalf of the corporation. By: Craig R. Kitchin Residing at My commission expires EXHIBIT A DESCRIPTION OF A 3.612 ACRE TRACT SOUTH OF SCHROCK ROAD LOT 2 SCHROCK HILL CENTRE Situated in the State of Ohio, County of Franklin, City of Columbus, and being Lot two (2) of Schrock Hill Centre of record in Plot Book 62, Page 99, (all references to deeds and plats being to records in the Recorder's Office, Franklin County, Ohio) and being more particularly described as follows: Beginning at an existing iron pin at the northeast corner of said lot 2, being in the westerly right of way line of Schrock Hill Court; Thence South 11'27'46" East a distance of 43.76 feet along the westerly right of way line of said Schrock Hill Court, the easterly line of said Lot 2 to a point; Thence along the arc of a curve to the left (radius=330-00 feet, delta=19'34'01") a chord bearing South 21'14'46" East a distance of 112.15 to a point; Thence along the arc of a curve to the right (radius=320.00 feet, delta=19'34'00') a chord bearing South 21'14'46' East a distance of 108.75 feet; Thence South 11'27'46" East a distance of 309.66 feet along the easterly line of said lot 2, to on existing iron pin at the southeasterly corner of said Lot 2, the northerly right of way line of 1-270; Thence South 71'44'36' West a distance of 279.50 feet along the southerly line of said Lot 2, the northerly right of way line of said 1-270 to an existing iron pin at the southwesterly corner of said Lot 2; Thence North 11'27'46" West a distance of 604.17 feet along the westerly line of said Lot 2, the easterly line of Barrington Square Purchase Company (Official Record Volume 4685 815) to an existing iron pin at the northwesterly corner of said Lot 2; Thence North 78'32'14" East a distance of 240.00 feet along the northerly line of said Lot 2 to the Point of Beginning containing 3.612 acres more or less. SECURITY AGREEMENT EQUIPMENT, INVENTORY AND RECEIVABLES Jameson Inns, Inc., dba Signature Inns, Inc. - -------------------------------------------------------------------------------- Name 8 Perimeter Center East, Suite 8050 - -------------------------------------------------------------------------------- No. and Street Atlanta , Georgia 30364-1603 - ------------------------------------------------- ------------------------------ City State a corporation organized under the laws of the State of Georgia, and authorized to do business in the State of Ohio (hereinafter called "Debtor"), for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, hereby grants, pledges and assigns to Cornerstone Bank, 28 East Main Street, Springfield, Ohio (hereinafter called "Secured Party"), a security interest in the following property, whether Debtor's interest therein as owner, co-owner, lessee, consignee, secured party or otherwise be now owned or existing or hereafter arising or acquired, and wherever located, together with all substitutions, replacements, additions and accessions therefor or thereto, all replacement and repair parts therefor, all negotiable documents relating thereto, all products thereof and all cash and non-cash proceeds thereof including, but not limited to, notes, drafts, checks, instruments, insurance proceeds, indemnity proceeds, warranty and guaranty proceeds, and proceeds arising in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the following property by any governmental body, authority, bureau or agency (or any person acting under color of governmental authority): (i) All of Debtor's machinery, equipment, tools, furniture, furnishings and fixtures including, but not limited to, all manufacturing, fabricating, processing, transporting and packaging equipment, power systems, heating, cooling and ventilating systems, lighting and communication systems, electric, gas and water distribution systems, food service systems, fire prevention, alarm and security systems, laundry systems and computing and data processing systems (hereinafter sometimes called the "Equipment"), some of which Equipment may be more fully described in the schedule set forth at the end of this agreement or in a separate schedule attached hereto; (ii) All of Debtor's inventory including, but not limited to, parts, supplies, raw materials, work in process, finished goods, materials used or consumed in Debtor's business, repossessed and returned goods (hereinafter sometimes called the "Inventory"), some or all of which Inventory may be more fully described in the schedule set forth at the end of this agreement or in a separate schedule attached hereto; (iii) All of Debtor's accounts, accounts receivable, contract rights, chattel paper, general intangibles, income tax refunds, instruments, negotiable documents, notes, drafts, acceptances and other forms of obligations and receivables arising from or in connection with the operation of Debtor's business including, but not limited to, those arising from or in connection with Debtor's sale, lease or other disposition of Inventory (hereinafter sometimes called the "Receivables"); and (iv) All of Debtor's trade names, trademarks, deposit accounts and licenses (all of the foregoing hereinafter sometimes called the "Collateral"). The security interest hereby granted is to secure the prompt and full payment and complete performance of all Obligations of Debtor to Secured Party. The word "Obligations" is used in its most comprehensive sense and includes, without limitation, all indebtedness, debts and liabilities (including principal, interest, late charges, collection costs and attorneys' fees) of Debtor to Secured Party, whether now existing or hereafter arising, either created by Debtor alone or together with another or others, primary or secondary, secured or unsecured, absolute or contingent, liquidated or unliquidated, direct or indirect, whether evidenced by note, draft, agreement for letter of credit or otherwise, and any and all renewals of or substitutes therefor. It is Debtor's express intention that this agreement and the continuing security interest granted hereby, in addition to covering all present Obligations of Debtor to Secured Party, shall extend to all future Obligations of Debtor to Secured Party, whether or not such Obligations are reduced or entirely extinguished and thereafter increased or reincurred, whether or not such Obligations are related to the indebtedness identified above by class, type or kind and whether or not such Obligations are specifically contemplated by Debtor and Secured Party as of the date hereof. The absence of any reference to this agreement in any documents, instruments or agreements evidencing or relating to any Obligation secured hereby shall not limit or be construed to limit the scope or applicability of this agreement. i. General Covenants. Debtor represents, warrants and covenants as follows: (i) Except for such claims and interests, if any, shown in the schedule set forth at the end of this agreement or in any schedule attached hereto and signed by both Debtor and Secured Party and the security interest granted hereby, (i) Debtor is, or as to Collateral arising or to be acquired after the date hereof, shall be, the sole owner of the Collateral free from any and all liens, security interests, encumbrances, claims and interests; and (ii) no security agreement, financing statement, equivalent security or lien instrument or continuation statement covering any of the Collateral is on file or of record in any public office. (ii) Debtor shall not create, permit or suffer to exist, and shall take such action as is necessary to remove, any claim to or interest in or lien or encumbrance upon the Collateral, other than those, if any, shown in the schedule set forth at the end of this agreement or in any schedule attached hereto and signed by both Debtor and Secured Party and the security interest granted hereby, and shall defend the right, title and interest of Secured Party in and to the Collateral against all claims and demands of all persons and entities at any time claiming the same or any interest therein. (iii) Debtor's principal place of business and chief executive office is located at the address set forth at the beginning of this agreement; Debtor has no other place of business except as shown in the schedule set forth at the end of this agreement or in any schedule attached hereto and signed by both Debtor and Secured Party; and, unless Secured Party consents in writing to a change in the location of the Equipment, Inventory or Debtor's records concerning the Receivables prior to such a change in location, the Equipment, Inventory and Debtor's records concerning the Receivables shall be kept at that address or at the locations set forth in such schedules. (iv) At least thirty (30) days prior to the occurrence of any of the following events, Debtor shall deliver to the loan officer who is handling Debtor's Obligations on behalf of Secured Party written notice of such impending events: (i) a change in Debtor's principal place of business or chief executive office; (ii) the opening or closing of any place of business; or (iii) a change in Debtor's name, identity or corporate structure. (v) Subject to any limitation stated therein or in connection therewith, all information furnished by Debtor concerning the Collateral or otherwise in connection with the Obligations, is or shall be at the time the same is furnished, accurate, correct and complete in all material respects. (vi) The Collateral is and shall be used primarily for business purposes. ii. Collection of Receivables. Prior to the occurrence of any event of default under this agreement Debtor shall, unless otherwise directed by Secured Party, collect all of Debtor's Receivables. Amounts received by Secured Party representing payment of Receivables may be applied by Secured Party to the payment of the Obligations in such order or preference as Secured Party may determine, or Secured Party may, at is option, impound all or any portion of such amounts and retain said amounts as security for the payment of the Obligations, with the right on the part of Debtor, upon approval by Secured Party, to obtain the release of all or part of such impounded amounts. Secured Party may, however, at any time, without notice, apply all or any part of such impounded amounts as aforesaid. If any of Debtor's Receivables arise out of contracts with or orders from the United States or any State or any department, agency or instrumentality thereof, Debtor shall immediately notify Secured Party thereof in writing and shall execute any instrument and take any steps required by Secured Party in order that all money due and to become due under such contract or order shall be assigned to Secured Party and due notice thereof given to the appropriate governmental agency. Debtor agrees to execute, deliver, file and record all such notices, affidavits, assignments, financing statements and other instruments as shall in the judgment of Secured Party be necessary or desirable to evidence, validate and perfect the security interest of Secured Party in the Receivables. Secured Party shall have the right to notify any persons or entities owing any Receivables and to demand and receive payment, but Secured Party shall have no duty so to do. Upon request of Secured Party at any time, Debtor shall notify such account debtors and shall indicate on all invoices to such account debtors that the accounts are payable to Secured Party. iii. Insurance. Debtor shall have and maintain insurance at all times with respect to all Equipment and Inventory (i) insuring against risks of fire (including so-called extended coverage), explosion, theft, sprinkler leakage and such other casualties as Secured Party may designate, and (ii) insuring against liability for personal injury and property damage relating to the Equipment and Inventory, containing such terms, in such form, for such periods and written by such companies as may be satisfactory to Secured Party, such insurance to be payable to Secured Party and Debtor as their interests may appear. The carrier providing such insurance shall be chosen by Borrower, subject to approval by Secured Party provided that Secured Party shall not unreasonably withold such approval. All policies of insurance shall provide for twenty (20) days' written minimum cancellation notice to Secured Party and, at request of Secured Party, certificates or other evidence of such insurance shall be delivered to and held by it. After the occurrence and continuation of an event of default hereunder Secured Party may act as attorney for Debtor in obtaining, adjusting, settling and cancelling such insurance and indorsing any drafts. In the event of failure to provide insurance as herein provided, Secured Party may, at its option, provide such insurance and Debtor shall pay to Secured Party, upon demand, the cost thereof. Should Debtor fail to pay said sum to Secured Party upon demand, interest shall accrue thereon, from the date of demand until paid in full, at the highest rate set forth in any document or instrument evidencing any of the Obligations. iv. Inspection. Debtor shall at all times keep accurate and complete records of the Receivables and Debtor shall, at all reasonable times and from time to time, allow Secured Party, by or through any of its officers, agents, attorneys or accountants, to examine, inspect and make extracts from Debtor's books and records and to arrange for verification of the Receivables directly with account debtors or by other methods and to examine and inspect the Collateral wherever located. Debtor shall perform, do, make, execute and deliver all such additional and further acts, things, deeds, assurances and instruments as Secured Party may require to more completely vest in and assure to Secured Party its rights hereunder and in or to the Collateral. v. Preservation and Disposition of Collateral. (i) Except for such claims and interests, if any, shown in the schedule set forth at the end of this agreement or in any schedule attached hereto and signed by both Debtor and Secured Party and the security interest granted hereby, Debtor shall keep the Collateral free from any and all liens, security interests, encumbrances, claims and interests. Debtor shall advise Secured Party promptly, in writing and in reasonable detail, (i) of any material encumbrance upon or claim asserted against any of the Collateral; (ii) of any material change in the composition of the Collateral; and (iii) of the occurrence of any other event that would have a material effect upon the aggregate value of the Collateral or upon the security interest of Secured Party. (ii) Debtor shall not sell or otherwise dispose of the Collateral; provided, however, that until default, Debtor may use the Collateral in any lawful manner not inconsistent with this agreement or with the terms or conditions of any policy of insurance thereon and may also sell or otherwise dispose of the Inventory in the ordinary course of Debtor's business. A sale in the ordinary course of business shall not include a transfer in partial or total satisfaction of a debt. (iii) Debtor shall keep the Collateral in good condition and shall not misuse, abuse, secrete, waste or destroy any of the same. (iv) Debtor shall not use the Collateral in violation of any statute, ordinance, regulation, rule, decree or order. (v) Debtor shall pay promptly when due all taxes, assessments, charges or levies upon the Collateral or in respect to the income or profits therefrom, except that no such charge need be paid if (i) the validity thereof is being contested in good faith by appropriate proceedings; (ii) such proceedings do not involve any danger of sale, forfeiture or loss of any Collateral or any interest therein; and (iii) such charge is adequately reserved against in accordance with generally accepted accounting principles. (vi) At its option after notice to Debtor, Secured Party may discharge taxes, liens, security interests or other encumbrances at any time levied or placed on the Collateral and may pay for the maintenance and preservation of the Collateral. Debtor agrees to reimburse Secured Party upon demand for any payment made or any expense incurred (including reasonable attorneys' fees) by Secured Party pursuant to the foregoing authorization. Should Debtor fail to pay said sum to Secured Party upon demand, interest shall accrue thereon, from the date of demand until paid in full, at the highest rate set forth in any document or instrument evidencing any of the Obligations. (vii) Upon Secured Party's request at any time or times, Debtor shall assign and deliver to Secured Party any Collateral and shall furnish to Secured Party additional collateral of value and character satisfactory to Secured Party as security for the Obligations. vi. Extensions and Compromises. With respect to any Collateral held by Secured Party as security for the Obligations, Debtor assents to all extensions or postponements of the time of payment thereof or any other indulgence in connection therewith, to each substitution, exchange or release of Collateral, to the addition or release of any party primarily or secondarily liable, to the acceptance of partial payments thereon and to the settlement, compromise or adjustment thereof, all in such manner and at such time or times as Secured Party may deem advisable. Secured Party shall have no duty as to the collection or protection of Collateral or any income therefrom, nor as to the preservation of rights against prior parties, nor as to the preservation of any right pertaining thereto, beyond the safe custody of Collateral in the possession of Secured Party. vii. Financing Statements. At the request of Secured Party, Debtor shall join with Secured Party in executing one or more financing statements in a form satisfactory to Secured Party and shall pay the cost of filing the same in all public offices wherever filing is deemed by Secured Party to be necessary or desirable. A carbon, photographic or other reproduction of this agreement or of a financing statement shall be sufficient as a financing statement. viii. Secured Party's Appointment as Attorney-in-Fact. Debtor hereby irrevocably constitutes and appoints Secured Party and any officer or agent thereof, with full power of substitution, as Debtor's true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of Debtor and in the name of Debtor or in Secured Party's own name, from time to time in Secured Party's discretion, for the purpose of carrying out the terms of this agreement, to take any and all appropriate action and to execute any and all documents and instruments that may be necessary or desirable to accomplish the purposes of this agreement and, without limiting the generality of the foregoing, hereby grants to Secured Party the power and right, on behalf of Debtor, without notice to or assent by Debtor: (i) To execute, file and record all such financing statements, certificates of title and other certificates of registration and operation and similar documents and instruments, as Secured Party may deem necessary or desirable to protect, perfect and validate Secured Party's security interest in such Collateral. (ii) Upon the occurrence and continuance of any event of default under paragraph 9 hereof, (i) to sign and indorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications and notices in connection with accounts and other documents relating to the Collateral; (ii) to commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any part thereof and to enforce any other right in respect of any Collateral; (iii) to defend any suit, action or proceeding described above and, in connection therewith, to make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though Secured Party were the absolute owner thereof for all purposes, and to do, at Secured Party's option and Debtor's expense, at any time or from time to time, all acts and things which Secured Party deems necessary to protect, preserve or realize upon the Collateral and Secured Party's security interest therein, in order to effect the intent of this agreement, all as fully and effectively as Debtor might do. Debtor hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue hereof. This power of attorney is a power coupled with an interest and shall be irrevocable as long as this agreement remains in effect. The powers conferred upon Secured Party hereunder are solely to protect its interests in the Collateral and shall not impose any duty upon Secured Party to exercise such powers and neither Secured Party nor any of its officers, directors, employees or agents shall be responsible to Debtor for any act or failure to act, except for Secured Party's own gross negligence or willful misconduct. ix. Default. If any event of default in the payment or performance of any of the Obligations secured by this agreement or the performance of any covenant contained herein shall occur and be continuing; or if any warranty, representation or statement made or furnished to Secured Party by Debtor proves to have been false in any material respect when made or furnished: (i) Secured Party may, at its option and without notice, declare this agreement in default. (ii) All payments received by Debtor under or in connection with any of the Collateral shall be held by Debtor in trust for Secured Party, shall be segregated from other funds of Debtor and shall forthwith upon receipt by Debtor be turned over to Secured Party in the same form as received by Debtor (duly indorsed by Debtor to Secured Party, if required). Any and all such payments so received by Secured Party (whether from Debtor or otherwise) may, in the sole discretion of Secured Party, be held by Secured Party as collateral security for, and/or then or at any time thereafter be applied in whole or in part by Secured Party against, all or any part of the Obligations in such order as Secured Party may elect. Any balance of such payments held by Secured Party and remaining after payment in full of all the Obligations shall be paid over to Debtor or to whomsoever may be lawfully entitled to receive the same. Nothing set forth in this subparagraph (b) shall authorize or be construed to authorize Debtor to sell or otherwise dispose of any Collateral except as provided in subparagraph 5(b) hereof. (iii) Secured Party shall have the rights and remedies of a secured party under this agreement, under any other instrument or agreement securing, evidencing or relating to the Obligations and under the law of the State of Ohio. Without limiting the generality of the foregoing, Secured Party shall have the right to take possession of the Collateral and all books and records relating to the Collateral and for that purpose Secured Party may enter upon, with or without breaking into, any premises on which the Collateral or books and records relating to the Collateral or any part thereof may be situated and remove the same therefrom. Debtor expressly agrees that Secured Party, without demand of performance or other demand, advertisement or notice of any kind (except the notices specified below of time and place of public sale or disposition or time after which a private sale or disposition is to occur) to or upon Debtor or any other person or entity (all and each of which demands, advertisements and/or notices are hereby expressly waived), may forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give option or options to purchase or sell or otherwise dispose of and deliver the Collateral (or contract to do so), or any part thereof, in one or more parcels at public or private sale or sales, at any of Secured Party's offices or elsewhere at such prices as Secured Party may deem best, for cash or on credit or for future delivery without assumption of any credit risk. Secured Party shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption in Debtor. Debtor further agrees, at Secured Party's request, to assemble the Collateral and to make it available to Secured Party at such places as Secured Party may reasonably select, whether at Debtor's premises or elsewhere. Debtor further agrees to allow Secured Party to use or occupy Debtor's premises, without charge, for the purpose of effecting Secured Party's remedies in respect of the Collateral. Secured Party shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale, after deducting all reasonable costs and expenses of every kind incurred in connection therewith or incidental to the care or safekeeping of any or all of the Collateral or in any way relating to the rights of Secured Party hereunder, including reasonable attorneys' fees and legal expenses, to the payment in whole or in part of the Obligations, in such order as Secured Party may elect, and only after so paying over such net proceeds and after payment by Secured Party of any other amount required by any provision of law, including Ohio Revised Code Section 1309.47(A)(3), need Secured Party account for the surplus, if any, to Debtor. To the extent permitted by applicable law, Debtor waives all claims, damages and demands against Secured Party arising out of the repossession, retention, sale or disposition of the Collateral. Debtor agrees that Secured Party need not give more than five (5) days' notice (which notification shall be deemed given when mailed, postage prepaid, addressed to Debtor at Debtor's address set forth at the beginning of this agreement, or when telecopied or telegraphed to that address or when telephoned or otherwise communicated orally to Debtor or any agent of Debtor at that address) of the time and place of any public sale or of the time after which a private sale may take place and that such notice is reasonable notification of such matters. Debtor shall remain liable for any deficiency if the proceeds of any sale or disposition of the Collateral are insufficient to pay all amounts to which Secured Party is entitled. Debtor shall also be liable for the reasonable costs of collecting any of the Obligations or otherwise enforcing the terms thereof or of this agreement including reasonable attorneys' fees. x. General. Any provision of this agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Secured Party shall not be deemed to have waived any of its rights hereunder or under any other agreement, instrument or paper signed by Debtor unless such waiver be in writing and signed by Secured Party. No delay or omission on the part of Secured Party in exercising any right shall operate as a waiver of such right or any other right. All of Secured Party's rights and remedies, whether evidenced hereby or by any other agreement, instrument or paper, shall be cumulative and may be exercised singularly or concurrently. Any written demand upon or written notice to Debtor shall be effective when deposited in the mails addressed to Debtor at the address shown at the beginning of this agreement. This agreement and all rights and obligations hereunder including matters of construction, validity and performance, shall be governed by the law of the State of Ohio. The provisions hereof shall, as the case may require, bind or inure to the benefit of, the respective heirs, successors, legal representatives and assigns of Debtor and Secured Party. Schedule of Additional Places of Business* No. and Street City County State 8 Perimeter Center East, Suite 8050 Atlanta Georgia 30364-1603 - -------------------------------------------------------------------------------- 6767 Schrock Hill Ct. Ohio Franklin Columbus 43229 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- *(Include all places of business, residences and locations of Collateral.) Schedule of Additional Claims and Interests - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Supplemental Schedule of Collateral - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- IN WITNESS WHEREOF, Debtor has signed this agreement this 16th day of May, 2000. DEBTOR: JAMESON INNS, INC., dba Signature Inns, Inc. By: ---------------------------------- Craig R. Kitchin President ASSIGNMENT OF RENTS AS SECURITY ------------------------------- THIS AGREEMENT made this 16th day of May, 2000. WHEREAS, Jameson Inns, Inc., a Georgia corporation, as successor in interest by merger to Signature Inns, Inc. an Indiana corporation, whose address is 8 Perimeter Center East, Suite 8050, Atlanta, Georgia 30364-1603, (hereinafter referred to as "Owner"), is the present owner in fee simple of property located in Franklin County, City of Columbus, and State of Ohio, and more particularly described as: SEE EXHIBIT "A" ATTACHED HERETO AND MADE A PART HEREOF. WHEREAS, Cornerstone Bank, whose address is 28 East Main Street, Springfield, Ohio 45502-1306, (hereinafter called "Lender"), is, or is about to be, the holder of a mortgage executed by Owner covering the said property, which mortgage secures a guaranty which secures a note in the principal sum of $3,900,000.00 Dollars, and WHEREAS, a part or all of said property has been demised under Lease dated _____________ (hereinafter referred to as the "Lease") the Lessee being Jameson Hospitality LLC, a Georgia limited liability company, and WHEREAS, Lender, as a condition to making the aforesaid mortgage loan, has required an assignment of the said Lease, and the rents, issues and proof its therein provided, as additional security for said guaranty and mortgage loan, NOW, THEREFORE, in consideration of the foregoing, Owner hereby assigns, transfers, and sets over unto Lender the said Lease, and the rents, issues and profits therein provided, as additional security; and for the consideration aforesaid, owner hereby covenants and agrees to and with Lender that owner will not, without the written consent of Lender: (a) Cancel or forfeit said Lease (by summary proceedings or otherwise); (b) Accept a surrender thereof; (c) Reduce the rent; (d) Modify said Lease in any way, either orally or in writing; (e) Grant any concession, in connection with said Lease, either orally or in writing; (f) Consent to an assignment of the Lessee's interest in said Lease, or to a sub-letting; (g) Collect, or accept payment of, rent under said Lease in advance, except as required to be paid in advance by the terms of the Lease; (h) Subordinate, or consent to subordination of said Lease to the lien of said mortgage to Lender; and any of the above acts, if done without the written consent of Lender, shall be null and void. 1. Lender, by acceptance of this assignment, covenants and agrees to and with Owner, that, until a default shall occur in the performance of Owner's covenants or in the making of the payments provided for in said mortgage or note or in the terms and conditions of said mortgage or note, owner may receive, collect and enjoy the rents, issues, and profits accruing under said Lease; but it is covenanted and agreed by Owner that upon the happening of any default in the performance of the covenants or in the making of the payments provided for in said mortgage or note or in the event of any default in the terms and conditions in the said mortgage or note, Lender may, at its option, receive and collect all the said rents, issues, and profits so long as such default or defaults shall exist, and during the pendency of any foreclosure proceedings and during any redemption period. 2. Owner hereby covenants and agrees that Lender shall be entitled to all the rights, remedies and benefits of Michigan and Federal law. 3. Owner, in the event of any such default or defaults under said guaranty, mortgage or note, hereby authorizes Lender, at its option, to enter upon the said mortgaged premises, by its officers, agents or employees, for the collection of the rents and for the operation and maintenance of said mortgaged premises, owner hereby authorizing the Lender, in general, to perform all acts necessary for the operation and maintenance of said premises in the same manner and to the same extent that owner might reasonably so act. Lender shall, after payment of all proper charges and expenses, credit the net amount of income which it may receive by virtue of the within assignment and from the mortgaged premises, to any amounts due Lender from Owner under the terms and provisions of the aforesaid note and mortgage and in the event of any foreclosure sale, to any deficiency during any redemption period. The manner of application of such net income and the item which shall be credited shall be within the sole discretion of Lender. 4. Owner hereby covenants and warrants to Lender (a) that said Lease is in full force and effect according to its original terms and that there is no default now existing under said Lease, and (b) that owner has not, (1) executed any prior assignment of said Lease, or the rents thereunder, which is still subsisting, (2) performed any acts or executed any other instrument which might prevent Lender from operating under any of the terms or conditions of this Assignment or which would limit Lender in such operation, (3) executed or granted any modification whatever of said Lease, either orally or in writing, or (4) subordinated the said Lease to the lien of said mortgage. 5. Owner hereby irrevocably authorizes and directs Lessee and any successor to the interest of Lessee, upon receipt of any written request of Lender stating that a default exists in the payments due under, or in the performance of any of the terms, covenants or conditions of, the aforesaid mortgage or note, to pay to Lender the rents due and to become due under the Lease. owner agrees that Lessee shall have the right to rely upon any such statement and request by Lender that Lessee shall pay such rents to Lender without any obligation or right to inquire as to whether such default actually exists and notwithstanding any notice from or claim of Owner to the contrary, and that owner shall have no right or claim against Lessee for any such rents so paid by Lessee to Lender. Upon the curing of all defaults, Lender shall give written notice thereof to Lessee and thereafter, until the possible receipt of any further similar written requests of Lender, Lessee shall pay the rents to Owner. All of the covenants and agreements herein above contained on the part of either party shall apply to and bind their heirs, executors, or administrators, successors or assigns. The word "Owner" shall be construed to mean any one or more person, corporations, firms, or parties who are holders of the legal title or equity of redemption and those claiming under or through them to, or in, the aforesaid mortgaged premises. IN PRESENCE OF: Owner: JAMESON INNS, INC., a Georgia corporation, as successor in interest by merger to Signature Inns, Inc. an Indiana corporation By: - -------------------------- --------------------------------- Craig R. Kitchin President - -------------------------- STATE OF OHIO ) ss. COUNTY OF FRANKLIN ) The foregoing instrument was acknowledged before me this __ day of May, 2000, by Craig R. Kitchin, President of Jameson Inns, Inc., a Georgia corporation, as successor in interest by merger to Signature Inns, Inc. an Indiana corporation who acknowledged that same was his free act and deed. -------------------------------------- Notary Public Franklin County, Ohio My commission expires: Drafted By: After Recording Return To: John D. Jolley DINSMORE & SHOHL LLP 175 S. Third Street, Suite 1000 Columbus, Ohio 43215 (614) 628-6880 DEPOSITORY AGREEMENT -------------------- THIS DEPOSITORY AGREEMENT (the "Agreement") is made this 16th day of May, 2000, by, between and among Jameson Inns, Inc., a Georgia corporation, as successor in interest by merger to Signature Inns, Inc. an Indiana corporation, whose address is 8 Perimeter Center East, Suite 8050, Atlanta, Georgia 30364- 1603 ("Borrower"), and CORNERSTONE BANK, an Ohio corporation, whose principal place of business is 28 East Main Street, Springfield, Ohio 45502-1306 ("Lender"). R E C I T A L S: WHEREAS, Lender has agreed to lend to Borrower the sum of $3,900,000.00 (the "Loan") in accordance with a certain Commitment Letter dated April 11, 2000 issued by Lender to Borrower, and pertaining to the property commonly known as 6767 Schrock Hill Ct., Columbus, Ohio (the "Property"); and WHEREAS, more or less simultaneously with the execution hereof, Borrower has executed and delivered to Lender a Promissory Note, Mortgage Deed, and certain other documents (collectively the "Loan Documents") for the purpose of securing to Lender the repayment of the Loan by Borrower; and WHEREAS, as a condition of the Commitment Letter agreed to by Borrower, Borrower shall be required to retain an interest bearing account with Lender in order to ensure that necessary maintenance and refurbishing funds are available with respect to the Property; and WHEREAS, Borrower hereby desires to provide such a depository reserve by executing this Agreement. NOW, THEREFORE, as an inducement to Lender to make the aforesaid Loan to Borrower, and for valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the parties hereto, Lender and Borrower do hereby agree as follows: ESTABLISHMENT OF DEPOSITORY ACCOUNT 1. Borrower shall, more or less simultaneously with the execution hereof, establish with Lender a depository account upon such terms and conditions acceptable to Lender, and for the purposes and subject to the terms and conditions set forth hereinafter: A. Borrower shall open an account with Lender (the "Depository Account"), and agrees to maintain within such account a minimum balance of four percent (4%) of the average total annual revenues collected by Borrower resulting from the operation of the business located on the Property, as determined on a rolling basis in the sole discretion of the Lender (the "Minimum Balance"). In determining the Minimum Balance, Lender shall utilize the financial information of Borrower as is found on the monthly Summary Report of Income and Expenses pertaining to the business located on the Property, for which Borrower agrees to supply Lender with the same on at least a monthly basis. The Depository Account may be an interest-bearing account, and shall be allocated specifically for general items of maintenance and/or refurbishment of the Property during the term of the Loan. B. Borrower shall have the right to withdraw funds from the Depository Account at any time during the term of this Loan, subject to the standard withdrawal procedures of the Lender. The foregoing notwithstanding, Borrower agrees to maintain as an average monthly balance in this Depository Account funds equal to at least the Minimum Balance. 2. Lender shall not, except as is set forth in Paragraph 4 below, have the right to withdraw funds from the Depository Account, nor require Borrower to do the same. 3. Borrower shall be liable for the payment of any State, Federal and local income taxes or any other taxes attributable to the Depository Account. 4. The Loan Documents are hereby incorporated by reference as if fully rewritten herein. A default in the performance of this Agreement shall be deemed to be a default in the performance of the Loan Documents. Upon the occurrence of any default in the performance by Borrower of the terms and conditions of the Loan Documents or this Agreement and the expiration of any applicable notice period under the Loan Documents, and in addition to any other remedies for the benefit of Lender as may be set forth herein, in the Loan Documents, or in law or equity (including, but being not limited to, the right of set-off), Lender shall have the right to withdraw from the Depository Account such amount as may be necessary or appropriate to cure such default. The exercise by Lender of any one or more of the foregoing rights or remedies shall be mutually exclusive of one another, and not cumulative. TERMINATION OF AGREEMENT 5. Upon repayment of the Loan and performance in full of the Loan Documents, this Agreement shall be null, void and of no effect whatsoever, and each of the parties hereto agree to execute such documents as may be reasonably necessary and appropriate in order to effectuate the termination of this Agreement. MISCELLANEOUS 6. The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 7. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, executors, administrators, successors or assigns, as the case may be, and may not be modified in any way except by written instrument duly executed by the parties hereto. 8. Borrower is hereby prohibited from assigning to any third party the rights of Borrower in the Depository Account. 9. This Agreement shall remain in full force and effect for so long as the Loan remains unpaid in whole or in part, and for so long as the terms and conditions of the Loan Documents are not fully performed. 10. Neither the failure nor any delay on the part of Lender to exercise any right or power hereunder shall operate as a waiver thereof. 11. For purposes of State, Federal and local taxes, all funds in the Account shall be deemed to be the property of Borrower. 12. This Agreement shall be interpreted in accordance with the laws of the State of Ohio. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first written above. BORROWER: Jameson Inns, Inc., a Georgia corporation, as successor in interest by merger to Signature Inns, Inc. an Indiana corporation BY: ---------------------------- Craig R. Kitchin President LENDER: CORNERSTONE BANK, an Ohio corporation BY: ---------------------------- ITS: ---------------------------- PROMISSORY NOTE Borrower: Jameson Inns, Inc. Lender: Cornerstone Bank 8 Perimeter Center East, Suite 8050 28 East Main Street Atlanta, GA 30346 PO Box 71 9 Springfield, OH 45501 (937) 3254683 Principal Amount: $3,900,000.00 Initial Rate: 9.255% Date of Note: May 16, 2000 PROMISE TO PAY. Jameson Inns, Inc. ("Borrower") promises to pay to Cornerstone Bank ("Lender"), or order, In lawful money of the United States of America, the principal amount of Three Million Nine Hundred Thousand & 00/100 Dollars ($3,900,000.00), together with Interest on the unpaid principal balance from May 16, 2000, until paid In full. PAYMENT. Subject to any payment changes resulting from changes In the Index, Borrower will pay this loan In 83 regular payments of $36,077.42 each and one Irregular last payment estimated at $3,278,9SS.04. Borrower's first payment is due June 16, 2000, and all subsequent payments are due on the same day of each month after that. Borrower's final payment will be due on May 16, 2007, and will be for all principal and all accrued Interest not yet paid. Payments Include principal and Interest. Unless otherwise agreed or required by applicable law, payments will be applied first to accrued unpaid Interest, then to principal, and any remaining amount to any unpaid collection costs and late charges. The annual Interest rate for this Note Is computed on a 366/360 basis; that Is, by applying the ratio of the annual Interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance Is outstanding. Borrower will pay Lender at Lender's address shown above or at such other place as Lender may designate in writing. VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from time to time based on changes in an independent index which is the 1 YEAR US CONSTANT MATURITY TREASURY (the "Index"). The Index is not necessarily the lowest rate charged by Lender on its loans. If the Index becomes unavailable during the term of this loan, Lender may designate a substitute index after notice to Borrower. Lender will tell Borrower the current Index rate upon Borrower's request. The interest rate change will not occur more often than each Year. Borrower understands that Lender may make loans based on other rates as well. The Index currently Is 6.380% per annum. The Interest rate to be applied to the unpaid principal balance of this Note will be at a rate of 2.876 percentage points over the Index, resulting in an Initial rate of 9.255% per annum. NOTICE: Under no circumstances will the interest rate on this Note be more than the maximum rate allowed by applicable law. Whenever Increases occur in the interest rate, Lender, at its option, may do one or more of the following: (A) increase Borrower's payments to ensure Borrower's loan will pay off by its original final maturity date, (B) increase Borrower's payments to cover accruing interest, (C) increase the number of Borrower's payments, and (D) continue Borrower's payments at the same amount and increase Borrower's final payment. PREPAYMENT PENALTY. Upon prepayment of this Note, Lender Is entitled to the following prepayment penalty: In the event that the Borrower seeks to prepay this loan using proceeds acquired from other financing prior to May 16, 2003, the Borrower shall pay a prepayment penalty of 1% of the original loan balance. Except for the foregoing, Borrower may pay all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower's obligation to continue to make payments under the payment schedule. Rather, early payments will reduce the principal balance due and may result in Borrower's making fewer payments. Borrower agrees not to send Lender payments marked "paid in full", "without recourse", or similar language. If Borrower sends such a payment, Lender may accept it without losing any of Lender's rights under this Note, and Borrower will remain obligated to pay any further amount owed to Lender. All written communications concerning disputed amounts, including any check or other payment instrument that indicates that the payment constitutes "payment in full" of the amount owed or that is tendered with other conditions or limitations or as full satisfaction of a disputed amount must be mailed or delivered to: Cornerstone Bank, 28 East Main Street, PO Box 719, Springfield, OH 45501. LATE CHARGE. If a payment is 15 days or more late, Borrower will be charged 5.000% of the regularly scheduled payment or $45.00, whichever Is greater. INTEREST AFTER DEFAULT. Upon default, including failure to pay upon final maturity, Lender, at its option, may, If permitted under applicable law, increase the variable interest rate on this Note to 9.875 percentage points over the Index. The interest rate will not exceed the maximum rate permitted by applicable law. DEFAULT. Each of the following shall constitute an event of default ("Event of Default") under this Note: Payment Default. Borrower fails to make any payment when due under this Note. Other Defaults. Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Note or in any of the related documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower. False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower's behalf under this Note or the related documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter. Insolvency. The dissolution or termination of Borrower's existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower. Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the loan. This includes a garnishment of any of Borrower's accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute. Events Affecting Guarantor. Any of the preceding events occurs with respect to any guarantor, endorser, surety, or accommodation party of any of the indebtedness or any guarantor, endorser, surety, or accommodation party dies or becomes Incompetent, or revokes or disputes the validity of, or liability under, any guaranty of the indebtedness . In the event of a death, Lender, at its option, may, but shall not be required to, permit the guarantor's estate to assume unconditionally the obligations arising under the guaranty in a manner satisfactory to Lender, and, in doing so, cure any Event of Default. Change In Ownership. Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower. Adverse Change. A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of this Note is impaired. Insecurity. Lender in good faith believes itself insecure. Cure Provisions. If any default, other than a default in payment, is curable and if Borrower has not been given a notice of a breach of the same provision of this Note within the preceding twelve (12) months, it may be cured (and no event of default will have occurred) if Borrower, after receiving written notice from Lender demanding cure of such default: (1) cures the default within fifteen (15) days; or (2) if the cure requires more than fifteen (15) days, immediately initiates steps which Lender deems in Lender's sole discretion to be sufficient to cure the default and thereafter continues and completes all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical. LENDERIS RIGHTS. Upon default, Lender may declare the entire unpaid principal balance on this Note and all accrued unpaid interest immediately due, and then Borrower will pay that amount. ATTORNEYS' FEES; EXPENSES. Lender may hire or pay someone else to help collect the loan if Borrower does not pay. Borrower will pay Lender that amount. This includes, subject to any limits under applicable law, Lender's attorneys' fees and Lender's legal expenses, whether or not there is a lawsuit, including attorneys' fees, expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), and appeals. If not prohibited by applicable law, Borrower also will pay any court costs, in addition to all other sums provided by law. JURY WAIVER. Lender and Borrower hereby waive the right to any jury trial in any action, proceeding, or counterclaim brought by either Lender or Borrower against the other. GOVERNING LAW. This Note will be governed by, construed and enforced in accordance with federal law and the laws of the State of Ohio. This Note has been accepted by Lender in the State of Ohio. CHOICE OF VENUE. If there is a lawsuit, Borrower agrees upon Lender's request to submit to the jurisdiction of the courts of Clark County, State of Ohio. PROMISSORY NOTE (Continued) CONFESSION OF JUDGMENT. Borrower hereby irrevocably authorizes and empowers any attorney-at-law, including an attorney hired by Lender, to appear in any court of record and to confess judgment against Borrower for the unpaid amount of this Note as evidenced by an affidavit signed by an officer of Lender setting forth the amount then due, attorneys' fees plus costs of suit, and to release all errors, and waive all rights of appeal. If a copy of this Note, verified by an affidavit, shall have been filed in the proceeding, it will not be necessary to file the original as a warrant of attorney. Borrower waives the right to any stay of execution and the benefit of all exemption laws now or hereafter in effect. No single exercise of the foregoing warrant and power to confess judgment will be deemed to exhaust the power, whether or not any such exercise shall be held by any court to be invalid, voidable, or void; but the power will continue undiminished and may be exercised from time to time as Lender may elect until all amounts owing on this Note have been paid in full. Borrower waives any conflict of interest that an attorney hired by Lender may have in acting on behalf of Borrower in confessing judgment against Borrower while such attorney is retained by Lender. Borrower expressly consents to such attorney acting for Borrower in confessing judgment. RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Borrower's accounts with Lender (whether checking, savings, or some other account). This includes all accounts Borrower holds jointly with someone else and all accounts Borrower may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the Indebtedness against any and all such accounts, and, at Lender's option, to administratively freeze all such accounts to allow Lender to protect Lender's charge and setoff rights provided in this paragraph. COLLATERAL. Borrower acknowledges this Note is secured by a Mortgage dated May 16, 2000, to Lender on real property located in Franklin County, State of Ohio, all the terms and conditions of which are hereby incorporated and made a part of this Note. SUCCESSOR INTERESTS. The terms of this Note shall be binding upon Borrower, and upon Borrower's heirs, personal representatives, successors and assigns, and shall inure to the benefit of Lender and Lender's successors and assigns. GENERAL PROVISIONS. If any part of this Note cannot be enforced, this fact will not affect the rest of the Note. Borrower does not agree or intend to pay, and Lender does not agree or intend to contract for, charge, collect, take, reserve or receive (collectively referred to herein as "charge or collect"), any amount in the nature of interest or in the nature of a fee for this loan, which would in any way or event (including demand, prepayment, or acceleration) cause Lender to charge or collect more for this loan than the maximum Lender would be permitted to charge or collect by federal law or the law of the State of Ohio (as applicable). Any such excess interest or unauthorized fee shall, instead of anything stated to the contrary, be applied first to reduce the principal balance of this loan, and when the principal has been paid in full, be refunded to Borrower. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive presentment, demand for payment, and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender's security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made. The obligations under this Note are joint and several. PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE. BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE. NOTICE: FOR THIS NOTICE "YOU" MEANS THE BORROWER AND "CREDITOR" AND "HIS" MEANS LENDER. WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS. FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY OTHER CAUSE. BORROWER: JAMESON INNS, INC. By: - -Craig R. Kitchin, President & CFO of Jameson Inns, Inc. ADDENDUM TO PROMISSORY NOTE - --------------------------- Jameson Inns, Inc., a Georgia corporation, successor by merger to Signature Inns, Inc., an Indiana corporation ("Borrower") entered into a Promissory Note with Cornerstone Bank ("Lender") in the principal amount of Three Million Nine Hundred Thousand & 00/100 Dollars, ($3,900,000.00), together with interest on the unpaid balance from May 16, 2000, until paid in full (hereinafter, the Promissory Note may be referred to as the "Note"); The Borrower and Lender now wish to amend the Note in order to clarify the interest rate that will be charged in accordance with the Note; Now, Therefore, for valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. The following shall be added to the end of the Paragraph entitled Variable Interest Rate: The foregoing notwithstanding, the maximum increase to the annual adjustment to the annual interest rate to be charged under this Note shall be no more than one percent (1 %) above the interest rate charged and in effect for the loan year prior to the interest rate change. 2. In all other respects, the Note shall remain in full force and effect. In Witness Whereof, the undersigned Borrower executes this Addendum to Promissory Note effective the date as is set forth below. Dated: May 16, 2000 Borrower: Jameson Inns, Inc., a Georgia corporation, successor by merger to Signature Inns, Inc., an Indiana corporation By: Craig R. Kitchin President EX-10.43 7 0007.txt SCHEDULE OF DOCUMENTS SIMILAR EXHIBIT 10.43 EXHIBIT 10.43 SOURCE OF TITLE: Deed Book 1997, Page 10454 - --------------- PREPARED BY: CHARLES E. MOORE P.O. BOX 951 MILLEDGEVILLE, GA 31061 REAL ESTATE MORTGAGE (LEASEHOLD) ____________________________________________________ STATE OF ALABAMA COUNTY OF TUSCALOOSA THIS INDENTURE, made and entered into this _______ day of March, 2001, between JAMESON ALABAMA, INC., 8 Perimeter Center East, Suite 8050, Atlanta, Georgia 30346, hereinafter called "Borrower", whether singular or plural, and EMPIRE FINANCIAL SERVICES, INC., 121 Executive Parkway, Milledgeville, Georgia 31061, hereinafter called "Lender": I. WITNESSETH; That for and in consideration of the sum of ONE MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS evidenced by one certain promissory note of even date herewith payable to the order of Lender, receipt of said consideration being hereby acknowledged, and in order to secure the indebtedness and other obligations of Borrower hereinafter set forth, the Borrower does hereby bargain, sell, grant, and convey unto the Lender, its successors and assigns all of Borrower's right, title, interest, and possessory estate in an to the property described on "Exhibit A" hereto acquired pursuant to that certain lease and pursuant to any amendments or renewals thereof, which lease is also identified on "Exhibit A" (hereinafter "the Leasehold Interest" and "the Lease") together with any after-acquired right, title, and interest in the fee or other superior estate. There is also hereby conveyed: All buildings, structures and improvements of every kind and nature whatsoever now or hereafter situated on the above described lands (or that may hereafter be erected thereon); all rights and powers, easements, hereditaments and appurtenances in any way belonging, relating, or appertaining thereto; all right, title and interest of Borrower in all fixtures now or hereafter attached to said lands as well as any additions, improvements, replacements, substitutions, or proceeds from the sale of same; all income, rents, issues, profits and revenues of the Property from time to time accruing (including without limitation all payments under leases or tenancies, proceeds of insurance, condemnation payments, tenant security deposits whether held by Borrower or in a trust account, and escrow funds), and all the estate, right, title, interest, property, possession, claim and demand whatsoever at law, as well as in equity, of Borrower, in and to the same; reserving only the right to Borrower to collect the same so long as Borrower is not in default hereunder; all such property of every kind and description hereinabove granted and conveyed to be hereafter collectively identified as "the Property". Borrower also assigns and conveys to Lender any right, privilege or option to extend or renew the Lease as well as Borrower's right of first refusal or option to purchase the fee, if any. TO HAVE AND TO HOLD the Property unto the said Lender, its successors and assigns, forever. Upon condition, however, that if the Borrower shall well and truly pay and discharge the indebtedness hereby secured as it shall become due and payable and shall in all things do and perform all acts and agreements by Borrower herein agreed to be done according to the tenor and effect hereof, then and in that event only, this conveyance shall be and become null and void. II. Borrower covenants: that Borrower is lawfully seized and possessed of the Lease and the Leasehold Interest; that Borrower has good right to convey same; that the same is free from all encumbrances except such permitted matters as are listed on Exhibit "B" hereto; and Borrower warrants and will defend the title thereto, and every part thereof, against the claims of all persons whomsoever. Should it ever appear that good and marketable leasehold title to any part of the Property, free of all liens and unpermitted encumbrances, did not become vested in Lender by virtue of this Instrument, then all debts secured hereby shall become due and collectible at once, without notice, at Lender's option. III. THIS INSTRUMENT is intended to operate and is to be construed as a mortgage passing title to the Lease, the Leasehold Interest and any after - acquired interest in the Property to Lender and is made under those provisions of the existing laws of the State of Alabama relating to leasehold mortgages and is given to secure the payment of the following described indebtedness (hereinafter referred to collectively as the "Indebtedness"): (a) The debt evidenced by that certain promissory note (hereinafter referred to as the "Note") dated March ______, 2001, made by Borrower to the order of Lender in the principal face amount of One Million Five Hundred Thousand and No/100 Dollars ($1,500,000.00), with the final payment being due on or before March 1, 2007; together with any and all renewals, modifications, consolidations, replacements and extensions of the indebtedness evidenced by the Note; (b) All interest on the principal amount of all such debt (including interest that, but for the filing of a petition in bankruptcy, would accrue on any such principal); (c) Any and all additional advances made by Lender to protect or preserve the Property, the Leasehold Interest, the Lease, or the security interest created hereby in the Property, the Leasehold Interest and the Lease, or for taxes, assessments or insurance premiums as hereinafter provided or for performance of any of Borrower's obligations hereunder or for any other purpose provided herein (whether or not the original Borrower is a lessee or owner of the Property at the time of such advances); (d) Any and all other indebtedness now owing or which may hereafter be owing by Borrower to Lender, now existing or hereafter coming into existence, however and whenever incurred or evidenced, whether expressed or implied, direct or indirect, absolute or contingent, or due or to become due, 2 and all renewals, modifications, consolidations replacements and extensions thereof; and (e) Any and all costs, expenses, and attorneys' fees which Lender, its successors or assigns, may incur in the collection of all or any portion of said indebtedness. IV. To further secure said indebtedness, Borrower covenants to procure, and to maintain in full force and effect, for the benefit of Lender, its successors and assigns, the following types of insurance, in companies acceptable to Lender: (a) "All-risk" hazard insurance in an amount not less than 100% of the full replacement cost of the Property improvements, without deduction for depreciation; provided, however, that hazard insurance with respect to improvements under construction shall be in the form of "all-risk" builder's risk insurance satisfactory to Lender; (b) rent insurance against loss of income arising from hazards against which the Property is otherwise required to be insured, in an amount not less than 100% of one year's gross rental income from the Property; (c) such other insurance on the Property or any replacements or substitutions therefor, in such amounts as may from time to time be required by Lender against other insurable casualties which at the time are commonly insured against in the case of properties of similar character and location, due regard being given to the height and type of the improvements, their construction, location, use and occupancy, or any replacements or substitutions therefor; (d) and public liability insurance covering all liabilities incident to the construction, ownership, possession and operation of the Property and naming Lender as an additional insured thereunder. Lender is hereby authorized and empowered, at its option, to adjust or compromise any loss under any insurance policies maintained pursuant hereto, and to collect and receive the proceeds from any such policy or policies. Each insurance company is hereby authorized and directed to make payment for all such losses directly to Lender, instead of to Borrower and Lender jointly. In the event any insurance company fails to disburse directly and solely to Lender but disburses instead either solely to Borrower or to Borrower and Lender jointly, Borrower agrees immediately to endorse and transfer such proceeds to Lender. Upon the failure of Borrower to endorse and transfer such proceeds as aforesaid, Lender may execute such endorsements or transfers for and in the name of Borrower and Borrower hereby irrevocably appoints Lender as Borrower's agent and attorney-in-fact so to do. In the event of a loss of more than 50% of the pre- loss value of the Property improvements, Lender, after deducting from said insurance proceeds all of its expenses incurred in the collection and administration of such sums, including attorneys' fees, may apply the net proceeds or any part thereof, at its option, (a) to the payment of the Indebtedness, whether or not due and in whatever order Lender elects, (b) to the repair or restoration of the Property, or (c) for any other purposes or objects for which Lender is entitled to advance funds under this Instrument, all without affecting the security interest created by this Instrument; and any balance of such moneys then remaining shall be paid to Borrower or the person or entity lawfully entitled thereto. In the event of a loss of less than 50% of the pre- loss value of the Property improvements, and provided no event of default then exists, Borrower shall be entitled to have said proceeds applied to the repair or restoration of said improvements, upon consent of Lender, which consent shall not be unreasonably withheld. Lender shall not be held responsible for any failure to collect any insurance proceeds due under the terms of any policy regardless of the cause of such failure. At least thirty (30) days prior to the expiration date of each policy maintained pursuant hereto, a renewal or replacement thereof satisfactory to Lender shall be delivered to Lender. Borrower shall deliver to Lender receipts evidencing the payment for all such insurance policies and renewals or replacements. 3 The delivery of any insurance policies hereunder shall constitute an assignment of all unearned premiums as further security for the Indebtedness. In the event of the foreclosure of this Instrument or any other transfer of title to the Lease, the Leasehold Interest, or the Property in extinguishment or partial extinguishment of the Indebtedness, all right, title and interest of Borrower in and to all insurance policies then in force shall pass to the purchaser or to Lender, as the case may be, and Lender is hereby irrevocably appointed by Borrower as attorney-in-fact for Borrower to assign any such policy to said purchaser or to Lender, as the case may be, without accounting to Borrower for any unearned premiums thereon. All insurance policies maintained pursuant hereto shall provide that the insurer give the Lender at least thirty (30) days prior written notice of cancellation or termination, and provide that no act or thing done by the insured shall invalidate or diminish the insurance provided to Lender and, except for liability policies, contain mortgagee loss payable clauses satisfactory to Lender. V. Borrower shall pay, on or before the due date thereof; (a) all taxes, assessments, license or permit fees, and all other charges of every character whatsoever which may be a lien upon the Property, the Leasehold Interest, or the Lease, or any part thereof, and shall promptly submit to Lender such evidence of the payment thereof as Lender may require; (b) all premiums on policies of insurance covering, affecting, or relating to the Property, the Leasehold Interest and the Lease; (c) all premiums for mortgage insurance, if this Instrument and the Note are so insured, and (d) all ground rentals, other lease rentals and other sums, if any, owing by Borrower and becoming due under any lease or rental contract affecting the Property, and shall promptly submit to Lender such evidence of the payment of same as Lender may require. VI. At the option of Lender and to further secure the payment of the taxes, premiums and assessments hereinabove mentioned, Borrower shall deposit with Lender, on the due date of each installment under the Note, such amounts as, in the estimation of Lender, shall be necessary to pay such charges as they become due; said deposits to be held by Lender free of interest, and free of any liens or claims on the part of creditors of Borrower, as part of Lender's security. If said deposits are not sufficient to pay such charges in full as they become payable, Borrower will promptly deposit with Lender such additional sums as may be required to enable Lender to make full payment of same. VII. If all or any portion of the Property improvements or if all or a significant portion of the real estate shall be damaged or taken through condemnation, including transfer by private sale in lieu thereof, then the entire indebtedness shall, at the option of Lender, become immediately due and payable. Lender is hereby authorized, at its option, to commence, appear in, or prosecute, through counsel selected by it, in its own or Borrower's name, any action or proceeding relating to any such condemnation and to settle or compromise any claim in connection therewith. All compensation, awards, damages, claims, rights of action and proceeds arising from any such condemnation are hereby assigned by Borrower to Lender. Lender is authorized to apply any sums collected to the payment of expenses of obtaining same, including its attorney fees, and may, at its option, apply the remaining proceeds, or any portion thereof, to payment of Borrower's 4 then outstanding indebtedness, provided, however, that if no event of default then exists, and the damages involve less than 25% of the "pre-damage" value of the Property, Borrower shall be entitled to have said proceeds, or such portion thereof as may be required, applied to the repair and restoration of the Property, upon consent of Lender, which consent shall not be unreasonably withheld. VIII. Borrower will keep the buildings, parking areas, roads and walkways, recreational facilities, landscaping and all other improvements of any kind now or hereafter erected on the Property or any part thereof in good condition and repair, will not commit or suffer any waste and will not do or suffer to be done anything which would or could increase the risk of fire or other hazard to the Property or any part thereof or which would or could result in the cancellation of any insurance policy carried with respect to the Property. Borrower will not remove, demolish or alter the structural character of any improvements located on the Property without the written consent of Lender. Borrower shall not remove or permit to be removed from the Property any item or items which are or may hereafter be in any way attached or affixed to the Property or to any improvements thereon, provided, however, that Borrower may replace, with items of comparable or greater value and utility such items as require replacement due to normal wear and tear and routine obsolescence. Lender, its agents or representatives, are hereby authorized to enter upon and inspect the Property at any time during normal business hours. Borrower will promptly comply with all present and future laws, ordinances, rules and regulations of any governmental authority affecting the Property or any part thereof, including those laws, ordinances, rules, and regulations relating to the environment as set forth in the Environmental Warranty which is attached as an exhibit hereto and incorporated by reference herein. IX. If all or any part of the Property shall be damaged by fire or other casualty, Borrower will give immediate written notice thereof to Lender and will promptly restore the Property to the equivalent of its original condition. If a part of the Property shall be damaged through condemnation, Borrower will promptly restore, repair or alter the remaining portions of the Property in a manner satisfactory to Lender. Notwithstanding the foregoing, Borrower shall not be obligated so to restore, repair or alter unless in each instance, Lender agrees to make available to Borrower (pursuant to a procedure satisfactory to Lender) any net insurance or condemnation proceeds actually received by Lender hereunder in connection with such casualty loss or condemnation, to the extent such proceeds are required to defray the expense of such restoration, repair or alteration; provided, however that the insufficiency of any such insurance or condemnation proceeds to defray the entire expense of restoration, repair or alteration shall in no way relieve Borrower of its obligation to restore, repair or alter. In the event all or any portion of the Property shall be damaged or destroyed by fire or other casualty or by condemnation, Borrower shall promptly 5 deposit with Lender a sum equal to the amount by which the estimated cost of the restoration of the Property (as determined by Lender in its good faith judgment) exceeds the actual net insurance or condemnation proceeds with respect to such damage or destruction. X. Borrower will not suffer or permit any mechanics', materialmen's, laborer's, statutory or other lien to be filed of record or to remain outstanding against the Property, unless expressly subordinated to this security instrument, and, in no event will any such lien be allowed where the presence of same could result in a default in the Lease. Upon request by Lender, Borrower will execute, or cause to be executed, and delivered to Lender such other mortgages, assignments, security agreements or other documents as may, in the opinion of Lender, be necessary to perfect, continue or preserve the obligation of Borrower under the Note, this mortgage or any other security instrument executed in connection herewith, and, upon failure of Borrower so to do, Lender, as agent and attorney-in-fact of Borrower may execute, file, and record such documents. Borrower will pay or reimburse Lender, upon demand, for all attorneys' fees, costs and expenses incurred by Lender in any suit, action, legal proceeding or dispute of any kind in which Lender is made a party or appears as party Plaintiff or Defendant, affecting the Indebtedness, this Instrument or the interest created hereby, the Lease, Leasehold Interest or the Property, (including, but not limited to, the exercise of the power of sale contained in this Instrument), any condemnation action involving the Lease, Leasehold Interest or the Property, any federal bankruptcy proceeding or state insolvency proceeding or other proceeding involving the priorities or rights of creditors, or any action to protect the security hereof, and any such amounts paid by Lender shall be added to the Indebtedness and shall be secured by this Instrument. XI. Borrower shall keep and maintain or shall cause to be kept and maintained, at Borrower's cost and expense and in accordance with generally accepted accounting principles, proper and accurate books, records and accounts reflecting all items of income and expense in connection with the operation of the Property and in connection with any services, equipment or furnishings provided in connection with the operation of the Property. Lender, its agents, accountants, and attorneys shall have the right from time to time to examine such books, records and accounts at the office of the Borrower or wherever maintained, to make such copies or extracts thereof as Lender shall desire and to discuss Borrower's affairs, finances and accounts with Borrower and with the officers and principals of Borrower, at such reasonable times as may be requested by Lender. Upon request, Borrower will furnish to Lender, within ninety (90) days after the end of Borrower's fiscal year, an audited financial statement for the Property for such fiscal year prepared by an independent certified public accountant satisfactory to Lender containing a profit and loss statement and all supporting schedules covering the operation of the Property, all in reasonable detail, prepared in accordance with generally accepted accounting standards. XII. Borrower shall not be permitted to alter or change the use of the Property or to abandon the Property, or to modify, terminate, or surrender the Lease without prior written consent of Lender. 6 Borrower hereby acknowledges to Lender that: (a) the identity and expertise of Borrower were and continue to be material circumstances upon which Lender has relied in connection with, and which constitute valuable consideration to Lender for, the extending to Borrower of the funds evidenced by the Note and (b) any change in such identity or expertise could materially impair or jeopardize the security for the payment of the Note granted to Lender and secured by this Instrument. Borrower hereby covenants and agrees with Lender, as part of the consideration for the extending to Borrower of the funds evidenced by the Note, that Borrower shall not encumber, pledge, convey, transfer, assign or grant any option with regard to any or all of its interest in the Property without the prior written consent of Lender, and, if Borrower is a corporation, partnership or other artificial entity, there shall be no encumbrance, pledge, conveyance, transfer or assignment of any legal or beneficial interest including those incident to liquidation, dissolution, merger, consolidation, or share exchange. Such consent of Lender may be given or withheld by Lender at its sole discretion. XIII. In the event (a) of a default in the payment of principal and interest (including, without limitation, non-payment upon maturity) or default in any other monetary obligation of the Borrower which such default(s) continue for a period of five (5) days after notice of such default by Lender, or (b) upon failure of the Borrower to comply with any other conditions or covenants contained in the Note, this, or any other security instrument(s) which such default(s) continue for a period of fifteen (15) days after notice of such default by Lender, or (c) upon the liquidation or dissolution of a Borrower, endorser or guarantor that is a corporation, partnership, or limited liability company, or death of an individual Borrower, endorser or guarantor, or (d) upon termination of the Lease or Borrower's Leasehold Interest or occurrence of any default by Borrower under terms of the Lease, then, and in any such event(s) (hereinafter identified as "Event" or "Events of Default"), the principal indebtedness evidenced by the Note, all accrued interest thereon and any other sums advanced pursuant to the Note or pursuant to any other loan documents shall, at the option of Lender and, without further notice to the Borrower, at once become due and payable and may be collected forthwith, regardless of the stipulated date of maturity. No omission on the part of Lender to exercise such option, when entitled to do so, shall be construed a waiver of such right. XIV. If an Event of Default occurs, Borrower, upon demand of Lender, shall forthwith surrender to Lender the actual possession of the Property and, to the extent permitted by law, Lender may enter and take possession of all of the Property without the appointment of a receiver, or an application therefor, and may exclude Borrower and its agents and employees wholly therefrom, and may have joint access with Borrower to the books, papers and accounts of Borrower. Upon every such entering and taking of possession, Lender may hold, store, use, operate, manage and control the Property and conduct the business thereof, and, from time to time: (a) make all necessary and proper repairs, replacements, additions, and improvements thereto and thereon and purchase or otherwise acquire additional fixtures, personalty and other property; (b) insure or keep the Property insured; (c) manage and operate the Property and exercise all the rights and powers of Borrower to the same extent as Borrower could act with respect to the same; and (d) enter into any and all agreements with respect to the exercise by others of any of the powers herein granted to Lender, all as Lender from time to time may determine to be in its best interest. Lender may collect and receive all the income, rents, issues, profits and revenues from the Property, including those past due as well as those accruing thereafter, and Lender may apply any moneys and proceeds received by Lender, in whatever order or priority Lender in its sole 7 discretion may determine, to the payment of (i) all expenses of taking, holding, managing and operating the Property (including compensation for the services of all persons employed for such purposes); (ii) the cost of maintenance, repairs, renewals, replacements, additions, improvements, purchases and acquisitions; (iii) the cost of insurance; (iv) such taxes, assessments and other similar charges as Lender may at its option choose to pay; (v) other proper charges upon the Property or any part thereof; (vi) the reasonable compensation, expenses and disbursements of the attorneys and agents of Lender; (vii) accrued interest; (viii) deposits and other sums required to be paid under this Instrument; or (ix) overdue installments of principal. Anything herein to the contrary notwithstanding, Lender shall not be obligated to discharge or perform the duties of a landlord to any tenant or incur any liability as the result of any exercise by Lender of its rights under this Instrument, and Lender shall be liable to account only for the rents, incomes, issues, profits and revenues actually received by Lender. If an Event or Events of Default shall occur with regard to the payment, performance or observance of any term, covenant or condition of this Instrument or any other document or instrument evidencing, securing or otherwise relating to the Indebtedness, Lender may, at its option, pay, perform or observe the same, and all payments made or costs or expenses incurred by Lender in connection therewith shall be secured hereby and shall be, without demand, immediately repaid by Borrower to Lender with interest thereon at the default rate provided in the Note. Lender shall be the sole judge of the necessity for any such actions and of the amounts to be paid. Lender is hereby empowered to enter and to authorize others to enter upon the Property or any part thereof for the purpose of performing or observing any such defaulted term, covenant or condition without thereby becoming liable to Borrower or any person in possession holding under Borrower. If an Event or Events of Default shall have occurred, Lender, at Lender's option, upon application to a court of competent jurisdiction, shall be entitled as a matter of strict right, without notice and without regard to the adequacy or value of any security for the Indebtedness or the solvency of any party bound for its payment, to the appointment of a receiver to take possession of and to operate the Property and to collect and apply the incomes, rents, issues, profits and revenues thereof. The receiver shall have all the rights and powers permitted under the laws of the State of Alabama. Borrower will pay to Lender upon demand all expenses, including receiver's fees, attorneys' fees, costs and agent's compensation, incurred pursuant to the provisions of this Paragraph, and any such amounts paid by Lender shall be added to the Indebtedness and shall be secured by this Instrument. If an Event or Events of Default shall have occurred, then the whole of the unpaid Indebtedness hereby secured, with interest thereon, shall at once become due and payable and Lender, at its option, and without further notice to Borrower beyond that required by the Note or this Mortgage, (all such further or additional notice being hereby expressly waived), may sell the Lease, the Leasehold Interest, or the Property or any part of the Property at one or more public sales before the main entrance door of the courthouse of the county in which the land or any part of the land is situated, at public outcry, to the highest bidder for cash, in order to pay the Indebtedness, and all expenses of sale and of all proceedings in connection therewith, including reasonable attorneys' fees, after advertising the description of the Property to be sold and the time, place and terms of sale by publishing the same once a week for three (3) consecutive weeks preceding such sale in a newspaper published in the county in which the land or a part thereof is situated. At any such public sale, Lender may execute and deliver to the purchaser a good and sufficient deed of conveyance of the Lease, the Leasehold Interest, or the Property or any part of the Property, and to this end Borrower hereby constitutes and appoints Lender the agent and attorney-in-fact of Borrower to make such sale and conveyance, and all the acts and doings of said agent and attorney-in-fact are hereby ratified and confirmed and any recitals in said conveyance or conveyances as to facts essential to a valid sale shall be binding upon Borrower. The aforesaid power of sale and agency hereby granted are coupled with an 8 interest and are irrevocable by death or otherwise, are granted as cumulative of the other remedies provided hereby or by law for collection of the Indebtedness and shall not be exhausted by one exercise thereof but may be exercised until full payment of all of the Indebtedness. In the event of any sale under this Instrument by virtue of the exercise of the powers herein granted, or pursuant to any order in any judicial proceeding or otherwise, the Lease, Leasehold Interest and the Property may be sold as an entirety or in separate parcels and in such manner or order as Lender in its sole discretion may elect, and one or more exercises of the powers herein granted shall not extinguish nor exhaust such powers, until the entire Property and Property rights are sold or the Indebtedness is paid in full. If the Indebtedness is now or hereafter further secured by any chattel mortgages, pledges, contracts of guaranty, assignments of lease or other security instruments, Lender may, at its option, exhaust the remedies granted under any of said security instruments either concurrently or independently, and in such order as Lender may determine. If an Event or Events of Default shall have occurred, Lender may, in addition to and not in abrogation of the rights covered under the preceding paragraph, either with or without entry or taking possession as herein provided or otherwise, proceed by a suit or suits in law or in equity or by any other appropriate proceeding or remedy (a) to enforce payment of the Note or the performance of any term, covenant, condition or agreement of this Instrument or any other right, and (b) to pursue any other remedy available to it, all as Lender at its sole discretion shall elect. Upon any foreclosure sale or sales of all or any portion of the Property or Property rights under the power herein granted, Lender may bid for and purchase the Lease, the Leasehold Interest and the Property and shall be entitled to apply all or any part of the Indebtedness as a credit to the purchase price. In the event of a foreclosure or a sale of all or any portion of the Lease, the Leasehold Interest and the Property under the power herein granted, the proceeds of said sale shall be applied as follows: First, to the expenses of such sale and of all proceedings in connection therewith, including attorneys'fees; Second, to payment of insurance premiums, liens, assessments, taxes and charges including utility charges advanced by Lender; Third, to payment of the outstanding principal balance of the Indebtedness, and, where permitted by law, the accrued interest on all of the foregoing; and, Fourth, the remainder, if any, shall be paid to Borrower, or to the person or entity lawfully entitled thereto. In the event of any such foreclosure sale or sales under the power herein granted, Borrower shall be deemed a tenant holding over and shall forthwith deliver possession to the purchaser or purchasers at such sale or be summarily dispossessed according to provisions of law applicable to tenants holding over. Lender, at its option, is authorized to foreclose this Instrument subject to the rights of any tenants of the Property, and the failure to make any such tenants parties to any such foreclosure proceedings and to foreclose their rights will not be, nor be asserted to be by Borrower, a defense to any proceedings instituted by Lender to collect the Indebtedness. XV. No right, power or remedy conferred upon or reserved to Lender by this Instrument is intended to be exclusive of any other right, power or remedy, but each and every such right, power and remedy shall be cumulative and concurrent and shall be in addition to any other right, power and remedy given hereunder or now or hereafter existing at law, in equity or by statute. No delay or omission by Lender or by any holder of the Note to exercise any right, power or remedy accruing upon any breach or Event or Events of Default shall exhaust or impair any such right, 9 power or remedy or shall be construed to be a waiver of any such breach or default, or acquiescence therein, and every right, power and remedy given by this Instrument to Lender may be exercised from time to time and as often as may be deemed expedient by Lender. No consent or waiver, expressed or implied, by Lender to or of any breach or Event or Events of Default by Borrower in the performance of the obligations of Borrower hereunder shall be deemed or construed to be a consent or waiver to or of any other breach or default in the performance of the same or any other obligations of Borrower hereunder. Failure on the part of Lender to complain of any act or failure to act or to declare a default, irrespective of how long such failure continues, shall not constitute a waiver by Lender of its rights hereunder or impair any rights, powers or remedies of Lender hereunder. No act or omission by Lender shall release, discharge, modify, change or otherwise affect the original liability under the Note, this Instrument or any other obligation of Borrower or any subsequent purchaser of the Lease, the Leasehold Interest, the Property or any part thereof, or any maker, co-signer, endorser, surety or guarantor, or preclude Lender from exercising any right, power or privilege herein granted or intended to be granted upon the happening of any Event or Events of Default, or alter the security title, security interest or lien of this Instrument except as expressly provided in an instrument or instruments executed by Lender. Without limiting the generality of the foregoing, Lender may: (a) grant forbearance or an extension of time for the payment of all or any portion of the Indebtedness; (b) take other or additional security for the payment of the Indebtedness; (c) waive or fail to exercise any right granted hereunder or in the Note; (d) release any part of the Property or Leasehold Interest from the security interest or lien of this Instrument or otherwise change any of the terms, covenants, conditions or agreements of the Note or this Instrument; (e) consent to the filing of any map, plat or replat affecting the Property; (f) consent to the granting of any easement or other right affecting the Property; (g) make or consent to any agreement subordinating the security title, security interest or lien hereof; or (h) take or omit to take any action whatsoever with respect to the Note, this Instrument, the Lease, the Leasehold Interest, the Property or any document or instrument evidencing, securing or in any way relating to the Indebtedness; all without releasing, discharging, modifying, changing or affecting any such liability, or precluding Lender from exercising any such right, power or privilege or affecting the security title, security interest or lien of this Instrument. In the event of the sale or transfer by operation of law or otherwise of all or any part of the Lease, the Leasehold Interest or the Property, Lender, without notice, is hereby authorized and empowered to deal with any such vendee or transferee with reference to the Lease, the Leasehold Interest, or the Property or the Indebtedness, or with reference to any of the terms, covenants, conditions or agreements hereof, as fully and to the same extent as it might deal with the original parties hereto and without in any way releasing or discharging any liabilities, obligations or undertakings. XVI. This Instrument shall inure to the benefit of and be binding upon Borrower and Lender and their respective heirs, executors, legal representatives, successors, successors-in-title and assigns. Whenever a reference is made in this Instrument to "Borrower" or "Lender" such reference shall be deemed to include a reference to the heirs, executors, legal representatives, successors, successors-in-title and assigns of Borrower and Lender, as the case may be. However, the provisions of this Paragraph are subject to the restrictions on transfer contained herein. 10 XVII. If any provisions of this Instrument or the application thereof to any person or circumstance shall be invalid or unenforceable to any extent, the remainder of this Instrument and the application of such provisions to other persons or circumstances shall not be affected thereby and shall be enforced to the greatest extent permitted by law. XVIII. This Instrument shall be interpreted, construed and enforced according to the laws of the State of Alabama. XIX. Any and all notices, elections, demands, requests and responses thereto permitted or required to be given under this Instrument shall be in writing, signed by or on behalf of the party giving the same, and shall be deemed to have been properly given and shall be effective upon being personally delivered, or upon being deposited in the United States mail, postage prepaid, certified with return receipt requested, to the other party at the address of such other party set forth below or at such other address as such other party may designate by notice specifically designated as a notice of change of address. Personal delivery to a party or to any officer, or partner, or to any agent or employee specifically designated to receive notice at said address shall constitute receipt. Rejection or other refusal to accept or inability to deliver because of changed address of which no notice has been received shall also constitute receipt. Any such notice, election, demand, request or response, if given to Lender, shall be addressed as follows: EMPIRE FINANCIAL SERVICES, INC. 121 Executive Parkway Milledgeville, Georgia 31061 and, if given to Borrower, shall be addressed as follows: JAMESON ALABAMA, INC. 8 Perimeter Center East, Suite 8050 ATLANTA, GEORGIA 30346-1603 XX. In the event that Borrower is the owner of a leasehold estate with respect to any portion of the Property and, prior to the satisfaction of the Indebtedness and the cancellation of this Instrument of record, Borrower obtains a fee estate in such portion of the Property, then, such fee estate shall automatically, and without further action of any kind on the part of Borrower, be and become subject to the security title and lien of this Instrument, however, in no event shall there be a merger of the leasehold and fee estates without the Lender's express consent. 11 XXI. This Instrument is assignable by Lender, and any assignment hereof by Lender shall operate to vest in the assignee all rights and powers herein conferred upon and granted to Lender. XXII. Time is of the essence with respect to each and every covenant, agreement and obligation of Borrower under this Instrument, the Note and any and all other instruments now or hereafter evidencing, securing or otherwise relating to the Indebtedness. BY EXECUTION OF THIS INSTRUMENT BORROWER EXPRESSLY; (A) ACKNOWLEDGES THE RIGHT OF LENDER TO ACCELERATE THE INDEBTEDNESS EVIDENCED BY THE NOTE AND ANY OTHER INDEBTEDNESS AND THE POWER OF ATTORNEY GIVEN HEREIN TO LENDER TO SELL THE LEASE, THE LEASEHOLD INTEREST OR THE PROPERTY BY NONJUDICIAL FORECLOSURE UPON DEFAULT BY BORROWER WITHOUT ANY JUDICIAL HEARING AND WITHOUT ANY NOTICE OTHER THAN SUCH NOTICE (IF ANY) AS IS SPECIFICALLY REQUIRED TO BE GIVEN UNDER THE PROVISIONS OF THIS INSTRUMENT; (B) WAIVES ANY AND ALL RIGHTS WHICH BORROWER MAY HAVE UNDER THE CONSTITUTION OF THE UNITED STATES OF AMERICA (INCLUDING, WITHOUT LIMITATION, THE FIFTH AND FOURTEENTH AMENDMENTS THEREOF), THE VARIOUS PROVISIONS OF THE CONSTITUTIONS FOR THE SEVERAL STATES, OR BY REASON OF ANY OTHER APPLICABLE LAW, (1) TO NOTICE AND TO JUDICIAL HEARING PRIOR TO THE EXERCISE BY LENDER OF ANY RIGHT OR REMEDY HEREIN PROVIDED TO LENDER, EXCEPT SUCH NOTICE (IF ANY) AS IS SPECIFICALLY REQUIRED TO BE GIVEN UNDER THE PROVISIONS OF THIS INSTRUMENT AND (2) CONCERNING THE APPLICATION, RIGHTS OR BENEFITS OF ANY STATUTE OF LIMITATION OR ANY MORATORIUM, REINSTATEMENT, MARSHALLING, FORBEARANCE, APPRAISEMENT, VALUATION, STAY, EXTENSION, HOMESTEAD, EXEMPTION OR REDEMPTION LAWS; (C) ACKNOWLEDGES THAT BORROWER HAS READ THIS INSTRUMENT AND ANY AND ALL QUESTIONS OF BORROWER REGARDING THE LEGAL EFFECT OF THIS INSTRUMENT AND ITS PROVISIONS HAVE BEEN EXPLAINED FULLY TO BORROWER, AND BORROWER HAS CONSULTED WITH COUNSEL OF BORROWER'S CHOICE PRIOR TO EXECUTING THIS INSTRUMENT; AND (D) ACKNOWLEDGES THAT ALL WAIVERS OF THE AFORESAID RIGHTS OF BORROWER HAVE BEEN MADE KNOWINGLY, INTENTIONALLY AND WILLINGLY BY BORROWER AS PART OF A BARGAINED FOR LOAN TRANSACTION AND THAT THIS INSTRUMENT IS VALID AND ENFORCEABLE BY LENDER AGAINST BORROWER IN ACCORDANCE WITH ALL THE TERMS AND CONDITIONS HEREOF. 12 IN WITNESS WHEREOF, Borrower has executed this Instrument under seal, as of the day and year first above written. BORROWER: JAMESON ALABAMA, INC. (SEAL) An Alabama Corporation BY: __________________________ CRAIG R. KITCHIN President ATTEST: _______________________ STEVEN A. CURLEE Secretary STATE OF GEORGIA DEKALB COUNTY I, CHARLES E. MOORE, a Notary Public in and for said County, in said State, hereby certify that CRAIG R. KITCHIN and STEVEN A. CURLEE whose names are signed to the foregoing conveyance, respectively, as President and Secretary, and who are known to me, acknowledged before me on this day that, being informed of the contents of the conveyance, they, as such officers and, with full authority, executed the same voluntarily for and as the act of said corporation on the day the same bears date. Given under my hand this _______ day of __________________, 2001. ____________________________ NOTARY PUBLIC 13 SOURCE OF TITLE: Deed Book 1997, Page 10454 - ---------------- Prepared By: Charles E. Moore P.O. Box 951 Milledgeville, GA 31061 Return to Above ASSIGNMENT OF LEASE ________________________________________ THIS ASSIGNMENT, made and entered into this ______ day of March, 2001 by and between JAMESON ALABAMA, INC., an Alabama Corporation, 8 Perimeter Center East, Suite 8050, Atlanta, Georgia 30346 (hereinafter referred to as "Borrower"), and EMPIRE FINANCIAL SERVICES, INC., a Georgia Corporation, 121 Executive Parkway, Milledgeville, Georgia 31061 (hereinafter referred to as "Lender"); W I T N E S S E T H: THAT FOR AND IN CONSIDERATION of the sum of Ten and No/100ths Dollars ($10.00) and other good and valuable consideration, as evidenced by a promissory note of even date payable to the order of Lender, receipt of said consideration being hereby acknowledged, and in order to secure the indebtedness and other obligations of the Borrower, Borrower does hereby grant, transfer and assign to Lender, its successors, successors-in-title and assigns, all of Borrower's right, title and interest in, to and under that certain lease more particularly described in Exhibit "A" attached hereto and by this reference made a part ----------- hereof, including any and all extensions, renewals and modifications thereof (hereinafter referred to as the "Lease") which Lease covers certain property located in Tuscaloosa, Tuscaloosa County, Alabama more particularly described in Exhibit "A" attached hereto and by this reference made a part hereof - ----------- (hereinafter referred to as the "Premises"). Borrower also grants, transfers, and assigns to Lender any right, privilege or option to extend or renew the Lease as well as Borrower's right of first refusal or option to purchase the fee. TO HAVE AND TO HOLD unto Lender, its successors and assigns forever, subject to and upon the terms and conditions set forth herein. ARTICLE I --------- WARRANTIES AND COVENANTS ------------------------ 1.01 Warranties of Borrower. Borrower hereby warrants and represents as follows: ---------------------- (a) Borrower is the sole holder of the lessee's interest under the Lease, (hereinafter referred to as the "Leasehold Interests"), and has the right to sell, assign, transfer and set over the same and to grant to and confer upon Lender the rights, interests, powers, and authorities herein granted and conferred; 14 (b) There is no assignment having priority over this Assignment of any of the rights of Borrower under the Lease; (c) Borrower has neither done any act nor omitted to do any act which might prevent Lender from, or limit Lender in, acting under any of the provisions of this Assignment; (d) Rental will be paid in accordance with the terms of the Lease and there shall be no deferrals of rent without Lender's permission; (e) So far as is known to Borrower, there exists no default or event of default or any state of facts which would, with or without the passage of time or the giving of notice, or both, constitute a default or event of default on the part of Borrower or Lessor under the terms of the Lease, or under the terms of superior leases and/or subleases, if any; (f) Neither the execution and delivery of this Assignment nor the performance of each and every covenant of Borrower under this Assignment, nor the meeting of each and every condition contained in this Assignment, conflicts with, or constitutes a breach or default under any agreement, indenture or other instrument to which Borrower is a party, or any law, ordinance, administrative regulation or court decree which is applicable to Borrower; (g) No action has been brought or, so far as is known to Borrower, is threatened, which would interfere in any way with the right of Borrower to execute this Assignment and perform all of Borrower's obligations contained in this Assignment and in the Lease; and (h) The Lease is valid, enforceable and in full force and effect, and has not been modified or amended, except as may be expressly set forth in Exhibit "A". ----------- 1.02 Covenants of Borrower. Borrower hereby covenants and agrees as follows: --------------------- (a) Borrower shall (i) fulfill, perform and observe each and every condition and covenant of Lessee contained in the Lease; (ii) give prompt notice to Lender of any claim of default under the Lease, whether given by the Lessor to Borrower, or given by Borrower to the Lessor, together with a complete copy of any such notice; (iii) at no cost or expense to Lender, enforce, short of termination, the performance and observance of each and every covenant and condition of the Lease to be performed or observed by the Lessor thereunder; and (iv) appear in and defend any action arising out of, or in any manner connected with the Lease, or the obligations or liabilities of Borrower thereunder, or of the Lessor; (b) Borrower shall not, without the prior written consent of Lender, (i) modify the Lease; (ii) terminate or surrender the Lease; (iii) waive or release the Lessor from the performance or observance by the Lessor of any obligation or condition of the Lease; (iv) defer the payment of any rents under the Lease; (v) give any assignment or sublease; or (vi) assign its interest in, to or under the Lease to any person or entity other than Lender; (c) Borrower shall take no action which will cause or permit the leasehold estate to merge with the fee without the Lender's consent; 15 (d) Borrower shall protect, indemnify and save harmless Lender from and against all liabilities, obligations, claims, damages, penalties, causes of action, costs and expenses (including, without limitation, attorneys' fees and expenses) imposed upon or incurred by Lender by reason of this Agreement and any claim or demand whatsoever which may be asserted against Lender by reason of any alleged obligation or undertaking to be performed or discharged by Lender under this Assignment. In the event Lender incurs any liability, loss, or damage by reason of this Assignment, or in the defense of any claim or demand arising out of or in connection with this Assignment, the amount of such liability, loss, or damage shall be added to the Indebtedness, shall bear interest at the interest rate specified in the Note from the date incurred until paid and shall be payable on demand; (e) Borrower shall insure that the Lessor will recognize as its Lessee any person or entity succeeding to the interest of the Borrower upon any foreclosure, or other acquisition by the Lender of the Leasehold Interests. 1.03 Covenants of Lender. Lender covenants and agrees with Borrower as follows: ------------------- (a) So long as there shall exist no Event of Default, as defined in Paragraph 2.01, below, on the part of Borrower. Borrower shall be entitled to possession of the Premises and the use and enjoyment thereof; (b) For purposes of this Assignment, "The Indebtedness" is identified as a loan of even date herewith, as well as any renewals, modifications, consolidations, or extensions thereof; (c) Upon the payment in full of the Indebtedness, as evidenced by the recording or filing of an instrument of satisfaction or full release of the Security Instruments without the recording of another security instrument in favor of Lender affecting the Premises, this Assignment shall be terminated and released of record by Lender and shall thereupon be of no further force or effect. ARTICLE II ---------- DEFAULT ------- 2.01 Event of Default. The term, "Event of Default", wherever used in this ---------------- Assignment, shall mean any one or more of the following events: (a) The occurrence of any "default" or "event of default" under any of the Security Instruments. For purposes of this Assignment, the Security Instruments shall include a Promissory Note, Leasehold Mortgage, Security Agreement, and any and all other documents of even date herewith evidencing or securing Borrower's indebtedness to Lender in the original principal amount of $1,500,000.00 as well as any renewals, modifications, consolidations, and extensions thereof; (b) The failure by Borrower to comply, in all respects, with any covenant, condition or agreement of this Assignment; or 16 (c) The breach of any warranty by Borrower contained in this Assignment. 2.02 Remedies. Upon the occurrence of any Event of Default, Lender may, at its -------- option, after giving such notice or demand as may be required by this Assignment or other Security Instruments, exercise any or all of the following remedies: (a) Declare any part or all of the Indebtedness to be due and payable, whereupon the same shall become immediately due and payable; (b) Perform any and all obligations of Borrower under the Lease or this Assignment and exercise any and all rights of Borrower herein or therein as fully as Borrower could do, including without limiting the generality of the foregoing: enforcing, modifying, extending or terminating the Lease; entering into a new lease on the Premises on any terms and conditions deemed desirable by Lender, and, to the extent Lender shall incur any costs in connection with the performance of any such obligations of Borrower, including costs of litigation, then all such costs shall become a part of the Indebtedness, shall bear interest from the incurring thereof at the interest rate specified in the Note, and shall be due and payable on demand; (c) In Borrower's or Lender's name, institute any legal or equitable action which Lender in its sole discretion deems desirable to preserve The Lease. Lender shall have full right to exercise any or all of the foregoing remedies without regard to the adequacy of security for any or all of the Indebtedness, and with or without the commencement of any legal or equitable action or the appointment of any receiver or trustee, and shall have full right to enter upon, take possession of, use and operate all or any portion of the Premises which Lender in its sole discretion deems desirable to effectuate any or all of the foregoing remedies. ARTICLE III ----------- GENERAL PROVISIONS ------------------ 3.01 Successors and Assigns. This Assignment shall inure to the benefit of and be ---------------------- binding upon Borrower and Lender and their respective legal representatives, successors and assigns. Whenever a reference is made in this Assignment to "Borrower" or "Lender", such reference shall be deemed to include a reference to the legal representatives, successors and assigns of Borrower or Lender. 3.02 Severability. If any provision of this Assignment or the application thereof ------------ to any person or circumstance shall be invalid or unenforceable to any extent, the remainder of this Assignment and 17 the application of such provisions to other persons or circumstances shall not be affected thereby and shall be enforced to the greatest extent permitted by law. 3.03 Applicable Law. This Assignment shall be interpreted, construed and enforced -------------- according to the laws of the State of Alabama. 3.04 No Third Party Beneficiaries. This Assignment is made solely for the benefit ---------------------------- of Lender and its assigns. No other person or entity shall have standing to bring any action against Lender as the result of this Assignment, or to assume that Lender will exercise any remedies provided herein, and no person other than Lender shall under any circumstances be deemed to be a beneficiary of any provision of this Assignment. 3.05 Cumulative Remedies. The remedies herein provided shall be in addition to and ------------------- not in substitution for the rights and remedies vested in Lender in any of the Security Instruments or in law or equity, all of which rights and remedies are specifically reserved by Lender. The remedies herein provided or otherwise available to Lender shall be cumulative and may be exercised concurrently. The failure to exercise any of the remedies herein provided shall not constitute a waiver thereof, nor shall use of any of the remedies herein provided prevent the subsequent or concurrent resort to any other remedy or remedies. It is intended that this clause be broadly construed so that all remedies herein provided or otherwise available to Lender shall continue and be each and all available to Lender until the Indebtedness shall have been paid in full. 3.06 Cross-Default. An Event of Default by Borrower under this Assignment shall ------------- constitute an Event of Default under all other Security Instruments. 3.07 The provisions of this Assignment shall extend and be applicable to all renewals, amendments, extensions, consolidations and modifications of the Security Instruments and the Lease, and any and all references herein to the Security Instruments or the Lease shall be deemed to include any such renewals, amendments, extensions, consolidations or modifications thereof. 18 IN WITNESS WHEREOF, Borrower and Lender have executed this Assignment under seal, as of the date first above written. BORROWER: JAMESON ALABAMA, INC. [SEAL] An Alabama Corporation By: ___________________________________ CRAIG R. KITCHIN President Attest: ___________________________________ STEVEN A. CURLEE Secretary STATE OF GEORGIA DEKALB COUNTY I, CHARLES E. MOORE, a Notary Public in and for said County, in said State, hereby certify that CRAIG R. KITCHIN and STEVEN A. CURLEE whose names are signed to the foregoing conveyance, respectively, as President and Secretary, and who are known to me, acknowledged before me on this day that, being informed of the contents of the conveyance, they, as such officers and, with full authority, executed the same voluntarily for and as the act of said corporation on the day the same bears date. Given under my hand this _______ day of ________________, 2001. ____________________________ NOTARY PUBLIC Signatures continued on following page 19 Signatures continued from previous page LENDER: EMPIRE FINANCIAL SERVICES, INC. (SEAL) A Georgia Corporation By: __________________________________ Its President Attest: ______________________________ Its Secretary STATE OF GEORGIA BALDWIN COUNTY I, CHARLES E. MOORE, a Notary Public in and for said County, in said State, hereby certify that J. DAVID DYER, JR. and LAVERNE C. ALLISON whose names are signed to the foregoing conveyance, respectively, as President and Secretary, and who are known to me, acknowledged before me on this day that, being informed of the contents of the conveyance, they, as such officers and, with full authority, executed the same voluntarily for and as the act of said corporation on the day the same bears date. Given under my hand this _____ day of ____________, 2001. ____________________________ NOTARY PUBLIC 20 SOURCE OF TITLE: Deed Book 1997, Page 10454 - ---------------- Prepared By: Charles E. Moore P.O. Box 951 Milledgeville, GA 31061 Return to Above ASSIGNMENT OF LEASE ________________________________________ THIS ASSIGNMENT, made and entered into this ______ day of March, 2001 by and between JAMESON ALABAMA, INC., an Alabama Corporation, 8 Perimeter Center East, Suite 8050, Atlanta, Georgia 30346 (hereinafter referred to as "Borrower"), and EMPIRE FINANCIAL SERVICES, INC., a Georgia Corporation, 121 Executive Parkway, Milledgeville, Georgia 31061 (hereinafter referred to as "Lender"); W I T N E S S E T H: THAT FOR AND IN CONSIDERATION of the sum of Ten and No/100ths Dollars ($10.00) and other good and valuable consideration, as evidenced by a promissory note of even date payable to the order of Lender, receipt of said consideration being hereby acknowledged, and in order to secure the indebtedness and other obligations of the Borrower, Borrower does hereby grant, transfer and assign to Lender, its successors, successors-in-title and assigns, all of Borrower's right, title and interest in, to and under that certain lease more particularly described in Exhibit "A" attached hereto and by this reference made a part ----------- hereof, including any and all extensions, renewals and modifications thereof (hereinafter referred to as the "Lease") which Lease covers certain property located in Tuscaloosa, Tuscaloosa County, Alabama more particularly described in Exhibit "A" attached hereto and by this reference made a part hereof - ----------- (hereinafter referred to as the "Premises"). Borrower also grants, transfers, and assigns to Lender any right, privilege or option to extend or renew the Lease as well as Borrower's right of first refusal or option to purchase the fee. TO HAVE AND TO HOLD unto Lender, its successors and assigns forever, subject to and upon the terms and conditions set forth herein. ARTICLE I --------- WARRANTIES AND COVENANTS ------------------------ 1.01 Warranties of Borrower. Borrower hereby warrants and represents as follows: ---------------------- (a) Borrower is the sole holder of the lessee's interest under the Lease, (hereinafter referred to as the "Leasehold Interests"), and has the right to sell, assign, transfer and set over the same and to grant to and confer upon Lender the rights, interests, powers, and authorities herein granted and conferred; 21 (b) There is no assignment having priority over this Assignment of any of the rights of Borrower under the Lease; (c) Borrower has neither done any act nor omitted to do any act which might prevent Lender from, or limit Lender in, acting under any of the provisions of this Assignment; (d) Rental will be paid in accordance with the terms of the Lease and there shall be no deferrals of rent without Lender's permission; (e) So far as is known to Borrower, there exists no default or event of default or any state of facts which would, with or without the passage of time or the giving of notice, or both, constitute a default or event of default on the part of Borrower or Lessor under the terms of the Lease, or under the terms of superior leases and/or subleases, if any; (f) Neither the execution and delivery of this Assignment nor the performance of each and every covenant of Borrower under this Assignment, nor the meeting of each and every condition contained in this Assignment, conflicts with, or constitutes a breach or default under any agreement, indenture or other instrument to which Borrower is a party, or any law, ordinance, administrative regulation or court decree which is applicable to Borrower; (g) No action has been brought or, so far as is known to Borrower, is threatened, which would interfere in any way with the right of Borrower to execute this Assignment and perform all of Borrower's obligations contained in this Assignment and in the Lease; and (h) The Lease is valid, enforceable and in full force and effect, and has not been modified or amended, except as may be expressly set forth in Exhibit "A". ----------- 1.02 Covenants of Borrower. Borrower hereby covenants and agrees as follows: --------------------- (a) Borrower shall (i) fulfill, perform and observe each and every condition and covenant of Lessee contained in the Lease; (ii) give prompt notice to Lender of any claim of default under the Lease, whether given by the Lessor to Borrower, or given by Borrower to the Lessor, together with a complete copy of any such notice; (iii) at no cost or expense to Lender, enforce, short of termination, the performance and observance of each and every covenant and condition of the Lease to be performed or observed by the Lessor thereunder; and (iv) appear in and defend any action arising out of, or in any manner connected with the Lease, or the obligations or liabilities of Borrower thereunder, or of the Lessor; (b) Borrower shall not, without the prior written consent of Lender, (i) modify the Lease; (ii) terminate or surrender the Lease; (iii) waive or release the Lessor from the performance or observance by the Lessor of any obligation or condition of the Lease; (iv) defer the payment of any rents under the Lease; (v) give any assignment or sublease; or (vi) assign its interest in, to or under the Lease to any person or entity other than Lender; (c) Borrower shall take no action which will cause or permit the leasehold estate to merge with the fee without the Lender's consent; 22 (d) Borrower shall protect, indemnify and save harmless Lender from and against all liabilities, obligations, claims, damages, penalties, causes of action, costs and expenses (including, without limitation, attorneys' fees and expenses) imposed upon or incurred by Lender by reason of this Agreement and any claim or demand whatsoever which may be asserted against Lender by reason of any alleged obligation or undertaking to be performed or discharged by Lender under this Assignment. In the event Lender incurs any liability, loss, or damage by reason of this Assignment, or in the defense of any claim or demand arising out of or in connection with this Assignment, the amount of such liability, loss, or damage shall be added to the Indebtedness, shall bear interest at the interest rate specified in the Note from the date incurred until paid and shall be payable on demand; (e) Borrower shall insure that the Lessor will recognize as its Lessee any person or entity succeeding to the interest of the Borrower upon any foreclosure, or other acquisition by the Lender of the Leasehold Interests. 1.03 Covenants of Lender. Lender covenants and agrees with Borrower as follows: ------------------- (a) So long as there shall exist no Event of Default, as defined in Paragraph 2.01, below, on the part of Borrower. Borrower shall be entitled to possession of the Premises and the use and enjoyment thereof; (b) For purposes of this Assignment, "The Indebtedness" is identified as a loan of even date herewith, as well as any renewals, modifications, consolidations, or extensions thereof; (c) Upon the payment in full of the Indebtedness, as evidenced by the recording or filing of an instrument of satisfaction or full release of the Security Instruments without the recording of another security instrument in favor of Lender affecting the Premises, this Assignment shall be terminated and released of record by Lender and shall thereupon be of no further force or effect. ARTICLE II ---------- DEFAULT ------- 2.01 Event of Default. The term, "Event of Default", wherever used in this ---------------- Assignment, shall mean any one or more of the following events: (a) The occurrence of any "default" or "event of default" under any of the Security Instruments. For purposes of this Assignment, the Security Instruments shall include a Promissory Note, Leasehold Mortgage, Security Agreement, and any and all other documents of even date herewith evidencing or securing Borrower's indebtedness to Lender in the original principal amount of $1,500,000.00 as well as any renewals, modifications, consolidations, and extensions thereof; (b) The failure by Borrower to comply, in all respects, with any covenant, condition or agreement of this Assignment; or 23 (c) The breach of any warranty by Borrower contained in this Assignment. 2.02 Remedies. Upon the occurrence of any Event of Default, Lender may, at its -------- option, after giving such notice or demand as may be required by this Assignment or other Security Instruments, exercise any or all of the following remedies: (a) Declare any part or all of the Indebtedness to be due and payable, whereupon the same shall become immediately due and payable; (b) Perform any and all obligations of Borrower under the Lease or this Assignment and exercise any and all rights of Borrower herein or therein as fully as Borrower could do, including without limiting the generality of the foregoing: enforcing, modifying, extending or terminating the Lease; entering into a new lease on the Premises on any terms and conditions deemed desirable by Lender, and, to the extent Lender shall incur any costs in connection with the performance of any such obligations of Borrower, including costs of litigation, then all such costs shall become a part of the Indebtedness, shall bear interest from the incurring thereof at the interest rate specified in the Note, and shall be due and payable on demand; (c) In Borrower's or Lender's name, institute any legal or equitable action which Lender in its sole discretion deems desirable to preserve The Lease. Lender shall have full right to exercise any or all of the foregoing remedies without regard to the adequacy of security for any or all of the Indebtedness, and with or without the commencement of any legal or equitable action or the appointment of any receiver or trustee, and shall have full right to enter upon, take possession of, use and operate all or any portion of the Premises which Lender in its sole discretion deems desirable to effectuate any or all of the foregoing remedies. ARTICLE III ----------- GENERAL PROVISIONS ------------------ 3.01 Successors and Assigns. This Assignment shall inure to the benefit of and be ---------------------- binding upon Borrower and Lender and their respective legal representatives, successors and assigns. Whenever a reference is made in this Assignment to "Borrower" or "Lender", such reference shall be deemed to include a reference to the legal representatives, successors and assigns of Borrower or Lender. 3.02 Severability. If any provision of this Assignment or the application thereof ------------ to any person or circumstance shall be invalid or unenforceable to any extent, the remainder of this Assignment and 24 the application of such provisions to other persons or circumstances shall not be affected thereby and shall be enforced to the greatest extent permitted by law. 3.03 Applicable Law. This Assignment shall be interpreted, construed and enforced -------------- according to the laws of the State of Alabama. 3.04 No Third Party Beneficiaries. This Assignment is made solely for the benefit ---------------------------- of Lender and its assigns. No other person or entity shall have standing to bring any action against Lender as the result of this Assignment, or to assume that Lender will exercise any remedies provided herein, and no person other than Lender shall under any circumstances be deemed to be a beneficiary of any provision of this Assignment. 3.05 Cumulative Remedies. The remedies herein provided shall be in addition to and ------------------- not in substitution for the rights and remedies vested in Lender in any of the Security Instruments or in law or equity, all of which rights and remedies are specifically reserved by Lender. The remedies herein provided or otherwise available to Lender shall be cumulative and may be exercised concurrently. The failure to exercise any of the remedies herein provided shall not constitute a waiver thereof, nor shall use of any of the remedies herein provided prevent the subsequent or concurrent resort to any other remedy or remedies. It is intended that this clause be broadly construed so that all remedies herein provided or otherwise available to Lender shall continue and be each and all available to Lender until the Indebtedness shall have been paid in full. 3.06 Cross-Default. An Event of Default by Borrower under this Assignment shall ------------- constitute an Event of Default under all other Security Instruments. 3.07 The provisions of this Assignment shall extend and be applicable to all renewals, amendments, extensions, consolidations and modifications of the Security Instruments and the Lease, and any and all references herein to the Security Instruments or the Lease shall be deemed to include any such renewals, amendments, extensions, consolidations or modifications thereof. 25 IN WITNESS WHEREOF, Borrower and Lender have executed this Assignment under seal, as of the date first above written. BORROWER: JAMESON ALABAMA, INC. [SEAL] An Alabama Corporation By: ___________________________________ CRAIG R. KITCHIN President Attest: ___________________________________ STEVEN A. CURLEE Secretary STATE OF GEORGIA DEKALB COUNTY I, CHARLES E. MOORE, a Notary Public in and for said County, in said State, hereby certify that CRAIG R. KITCHIN and STEVEN A. CURLEE whose names are signed to the foregoing conveyance, respectively, as President and Secretary, and who are known to me, acknowledged before me on this day that, being informed of the contents of the conveyance, they, as such officers and, with full authority, executed the same voluntarily for and as the act of said corporation on the day the same bears date. Given under my hand this _______ day of ________________, 2001. ____________________________ NOTARY PUBLIC Signatures continued on following page 26 Signatures continued from previous page LENDER: EMPIRE FINANCIAL SERVICES, INC. (SEAL) A Georgia Corporation By: __________________________________ Its President Attest: ______________________________ Its Secretary STATE OF GEORGIA BALDWIN COUNTY I, CHARLES E. MOORE, a Notary Public in and for said County, in said State, hereby certify that J. DAVID DYER, JR. and LAVERNE C. ALLISON whose names are signed to the foregoing conveyance, respectively, as President and Secretary, and who are known to me, acknowledged before me on this day that, being informed of the contents of the conveyance, they, as such officers and, with full authority, executed the same voluntarily for and as the act of said corporation on the day the same bears date. Given under my hand this _____ day of ____________, 2001. ____________________________ NOTARY PUBLIC 27 SOURCE OF TITLE: Deed Book 1997, Page 10454 - ---------------- Prepared By: Charles E. Moore P.O. Box 951 Milledgeville, GA 31061 Return to Above ASSIGNMENT OF FEES AND INCOME ----------------------------- THIS ASSIGNMENT, made and entered into this _______ day of March, 2001, by and between JAMESON ALABAMA, INC., an Alabama Corporation, C/o Jameson Inns, Inc., 8 Perimeter Center East, Suite 8050, Atlanta, Georgia 30346 (hereinafter referred to as "Borrower"), and EMPIRE FINANCIAL SERVICES, INC., a Georgia Corporation, 121 Executive Parkway, Milledgeville, Georgia 31061 (hereinafter referred to as "Lender"); W I T N E S S E T H: THAT FOR AND IN CONSIDERATION of the sum of Ten and No/100 Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency whereof are hereby acknowledged, Borrower does hereby grant, transfer and assign to Lender, its successors, successors-in-title and assigns, all of Borrower's right, title and interest in and to all of those certain fees and items of income more particularly described in Exhibit B attached hereto and by this --------- reference made a part hereof (said fees and income being hereinafter referred to collectively as the "Income", and which is generated by, or results from the operation of an assisted living facility and related facilities and amenities on certain property (the "Premises") more particularly described in Exhibit A --------- attached hereto and by this reference made a part hereof). TO HAVE AND TO HOLD unto Lender, its successors and assigns forever, subject to and upon the terms and conditions set forth herein. ARTICLE I WARRANTIES AND COVENANTS 1.01 Warranties of Borrower. Borrower hereby warrants and represents as ---------------------- follows: (a) Borrower is and will continue to be the sole recipient of the Income from the Premises, and has good right to sell, assign, transfer and set over the same and to grant to 28 and confer upon Lender the rights, interests, powers, and authorities herein granted and conferred; (b) There is no assignment having priority over this Assignment of any of the rights of Borrower in and to the Income or any part thereof; (c) Borrower has neither done any act nor omitted to do any act which might prevent Lender from, or limit Lender in, acting under any of the provisions of this Assignment; (d) Neither the execution and delivery of this Assignment, nor the performance of each and every covenant of Borrower under this Assignment, nor the meeting of each and every condition contained in this Assignment, conflicts with, or constitutes a breach or default under any agreement, indenture or other instrument to which Borrower is a party, or any law, ordinance, administrative regulation or court decree which is applicable to Borrower; and (e) No action has been brought or, so far as is known to Borrower, is threatened, which would interfere in any way with the right of Borrower to execute this Assignment and perform all of Borrower's obligations contained in this Assignment. 1.02 Covenants of Borrower. Borrower hereby covenants and agrees as follows: --------------------- (a) Borrower shall, in keeping with the general plan of development proposed for the Premises, aggressively market and promote its fee-generating services; (b) Borrower shall, consistent with good business practices applicable to similar operations, charge and collect the Income promptly as same becomes due; (c) Borrower shall, at no cost or expense to Lender, enforce the performance and observance of each and every obligation required of persons utilizing the Premises; (d) Borrower shall protect, indemnify and save harmless Lender from and against all liabilities, obligations, claims, damages, penalties, causes of action, costs and expenses (including, without limitation, attorneys' fees and expenses) imposed upon or incurred by Lender by reason of this Agreement and any claim or demand whatsoever which may be asserted against Lender by reason of any alleged obligation or undertaking to be performed or discharged by Lender under this Assignment. In the event Lender incurs any liability, loss or damage by reason of this Assignment, or in the defense of any claim or demand arising out of or in connection with this Assignment, the amount of such liability, loss or damage shall be added to the Indebtedness, shall bear interest at the interest rate specified in the Note from the date incurred until paid and shall be payable on demand; 29 (e) Borrower hereby authorizes and directs each and every individual or entity responsible for payment of any of said fees and charges to pay same directly to Lender upon written demand from Lender to so pay the same and further covenants that Borrower's officers, agents, and representatives will, without the necessity for further authorization, cooperate fully in collecting and remitting the Income to Lender promptly upon receipt of written demand from Lender to so pay the same; and (f) Borrower acknowledges that this instrument represents a present assignment of fees and income, effective as of the date hereof. In the event Borrower ever seeks any form of debt relief under provisions of State or Federal law, including, but not limited to, the United States Bankruptcy Code, Borrower agrees that Borrower will not consider any such fees and income as an asset of Borrower nor claim any of said fees and income, nor authorize or support any such claim by a receiver, trustee in bankruptcy or any other person or entity. 1.03 Covenants of Lender. Lender covenants and agrees with Borrower as ------------------- follows: (a) Although this Assignment constitutes a present, current, absolute, unconditional, irrevocable assignment of the Income from the Premises, so long as there shall exist no Event of Default, as defined in Paragraph 2.01, below, on the part of Borrower, Lender shall not demand that the Income be paid directly to Lender, and Borrower shall have the right to collect same; (b) For purposes of this Assignment, the Indebtedness is identified as a loan of even date herewith, as well as any renewals, modifications, consolidations or extensions thereof; and (c) Upon the payment in full of the Indebtedness, as evidenced by the recording or filing of an instrument of satisfaction or full release of the Security Documents this Assignment shall be terminated and shall thereupon be of no further force or effect. ARTICLE II DEFAULT 2.01 Event of Default. The term, "Event of Default", wherever used in this ---------------- Assignment, shall mean any one or more of the following events: (a) The occurrence of any "default" or "event of default" under any of the Loan Documents. For purposes of this Assignment, the Loan Documents shall include a Promissory Note, Mortgage, Security Agreement, and any and all other documents of even date evidencing Borrower's indebtedness to Lender in the original principal amount of ONE MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS as well as any renewals, modifications, consolidations and extensions thereof; (b) The failure by Borrower to comply with any covenant, condition or agreement of this Assignment; or 30 (c) The breach of any warranty by Borrower contained in this Assignment. 2.02 Remedies. Upon the occurrence of any Event of Default, Lender may, at its -------- option, after giving such notice or demand as may be required by this Assignment or other Loan Documents, exercise any or all of the following remedies: (a) Declare any part or all of the Indebtedness to be due and payable, whereupon the same shall become immediately due and payable; (b) In Borrower's or Lender's name, institute any legal or equitable action which Lender in its sole discretion deems desirable to collect and receive any or all of the Income assigned herein; (c) Collect the Income and apply the same in such order as Lender in its sole discretion may elect against (i) all costs and expenses, including reasonable attorneys' fees, incurred in connection with the operation of the Premises; (ii) all the costs and expenses, including reasonable attorneys' fees, incurred in the collection of any or all of the Indebtedness, including all costs, expenses and attorneys' fees incurred in seeking to realize on or to protect or preserve Lender's interest in any collateral securing any or all of the Indebtedness; and (iii) any or all unpaid principal and interest on the Indebtedness. Lender shall have full right to exercise any or all of the foregoing remedies without regard to the adequacy of any security for any or all of the Indebtedness, and with or without the commencement of any legal or equitable action or the appointment of any receiver or trustee, and shall have full right to enter upon, take possession of, use and operate all or any portion of the Premises which Lender in its sole discretion deems desirable to effectuate any or all of the foregoing remedies. Lender's right to the Income assigned hereby shall not be dependent upon any further action, including the necessity of taking possession of the Income. ARTICLE III GENERAL PROVISIONS 3.01 Successors and Assigns. This Assignment shall inure to the benefit of and ---------------------- be binding upon Borrower and Lender and their respective legal representatives, successors and assigns. Whenever a reference is made in this Assignment to "Borrower" or "Lender", such reference shall be deemed to include a reference to the legal representatives, successors and assigns of Borrower or Lender. 3.02 Severability. If any provision of this Assignment or the application ------------ thereof to any person or circumstance shall be invalid or unenforceable to any extent, the remainder of this Assignment and the application of such provisions to other persons or circumstances shall not be affected thereby and shall be enforced to the greatest extent permitted by law. 31 3.03 Applicable Law. This Assignment shall be interpreted, construed and -------------- enforced according to the laws of the State of Alabama. 3.04 No Third Party Beneficiaries. This Assignment is made solely for the ---------------------------- benefit of Lender and its assigns. No other person shall have standing to bring any action against Lender as the result of this Assignment, or to assume that Lender will exercise any remedies provided herein, and no person other than Lender shall under any circumstances be deemed to be a beneficiary of any provision of this Assignment. 3.05 Cumulative Remedies. The remedies herein provided shall be in addition to ------------------- and not in substitution for the rights and remedies vested in Lender in any of the Loan Documents or in law or equity, all of which rights and remedies are specifically reserved by Lender. The remedies herein provided or otherwise available to Lender shall be cumulative and may be exercised concurrently. The failure to exercise any of the remedies herein provided shall not constitute a waiver thereof, nor shall use of any of the remedies herein provided prevent the subsequent or concurrent resort to any other remedy or remedies. It is intended that this clause be broadly construed so that all remedies herein provided or otherwise available to Lender shall continue and be each and all available to Lender until the Indebtedness shall have been paid in full. 3.06 Cross-Default. An Event of Default by Borrower under this Assignment ------------- shall constitute an Event of Default under all other Loan Documents. 3.07 The provisions of this Assignment shall extend and be applicable to all renewals, amendments, extensions, consolidations and modifications of the Loan Documents, and any and all references herein to the Loan Documents shall be deemed to include any such renewals, amendments, extensions, consolidations or modifications thereof. IN WITNESS WHEREOF, Borrower and Lender have executed this Assignment under seal, as of the date first above written. BORROWER: JAMESON ALABAMA, INC. [SEAL] An Alabama Corporation By: ___________________________________________ CRAIG R. KITCHIN, President Attest: __________________________________________ STEVEN A. CURLEE, Secretary 32 STATE OF GEORGIA COUNTY OF DeKALB I, ______________, a Notary Public in and for said County, in said State, hereby certify that __________________ and __________________ whose names are signed to the foregoing conveyance, respectively, as ______________ and _________________, and who are known to me, acknowledged before me on this day that, being informed of the contents of the conveyance, they, as such officers and, with full authority, executed the same voluntarily for and as the act of said ______________ on the day the same bears date. Given under my hand this _____ day of ___________, 2001. ______________________________________ Notary Public LENDER: EMPIRE FINANCIAL SERVICES, INC. [SEAL] A Georgia Corporation By: _____________________________________________ President Attest: _________________________________________ Secretary STATE OF GEORGIA COUNTY OF BALDWIN I, Charles E. Moore, a Notary Public in and for said County, in said State, hereby certify that ________________________________ and __________________________________ whose names are signed to the foregoing conveyance, respectively, as ___________________ and _____________________, and who are known to me, acknowledged before me on this day that, being informed of the contents of the conveyance, they, as such officers and, with full authority, executed the same voluntarily for and as the act of said corporation on the day the same bears date. Given under my hand this _____ day of ______________, 2001. ______________________________________ Notary Public 33 SECURITY AGREEMENT JAMESON ALABAMA, INC., hereinafter called "Borrower", (whether singular or plural), for value received, hereby grants to EMPIRE FINANCIAL SERVICES, INC., hereinafter called "Secured Party", a security interest in all that Property more fully described on Exhibit B which is attached hereto and by reference made a part hereof and also any and all replacements of any such property (all of which is hereinafter called "Collateral"), to secure the payment of that certain indebtedness evidenced by a promissory note executed by Borrower in the amount of ONE MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS, of even date herewith, and any and all extensions or renewals thereof, and any and all other liabilities or obligations of the Borrower to the Secured Party, direct or indirect, absolute or contingent, now existing or hereafter arising, now due or hereafter to become due (all hereinafter called the "Obligations"). Borrower hereby warrants and agrees that: 1. The Collateral is used primarily for business use at a motel located in Tuscaloosa County, Alabama on property more fully described on Exhibit A hereto. --------- 2. Except for the security interest granted hereby, Borrower is the owner of the Collateral free from any superior lien, security interest, or encumbrance, and Borrower will defend the Collateral against all claims and demands of all persons at any time claiming the same or any interest therein. 3. No superior Financing Statement covering any Collateral or any proceeds thereof is on file in any public office, and Borrower authorizes Secured Party to file, in jurisdictions where this authorization will be given effect, a Financing Statement signed only by the Secured party describing the collateral in the same manner as it is described herein; and from time to time at the request of Secured Party, Borrower will execute one or more Financing Statements and such other documents (and pay the cost of filing or recording the same in all public offices deemed necessary or desirable by the Secured Party) and do such other acts and things, all as the Secured Party may request to establish and maintain a valid security interest in the Collateral (free of or superior to all other liens and claims whatsoever) to secure the payment of the Obligations. 4. Borrower will not sell, transfer, lease, or otherwise dispose of any of the Collateral or any interest therein, or offer so to do, without the prior written consent of Secured Party. However, Borrower shall be entitled to replace, with items of like quality and quantity, any collateral that requires replacement in the ordinary course of business due to normal wear and tear or obsolescence. 34 5. Borrower will at all times keep the Collateral insured against loss, damage, theft, and such other risks as Secured Party may require in such amounts and with such conditions as shall be satisfactory to Secured Party. Each such policy shall provide that proceeds payable thereunder shall be payable to Secured Party as its interest may appear (and Secured Party may apply any proceeds of such insurance which may be received by Secured Party toward payment of the Obligations, whether or not due, in such order of application as Secured Party may determine) Each such policy shall also provide for thirty (30) days' written minimum cancellation notice to Secured Party. Upon request, the policy or a true copy thereof shall be deposited with Secured Party. Secured Party may act as attorney for Borrower in obtaining, settling, and canceling such insurance and endorsing any drafts. Borrower agrees to assign to Secured Party any proceeds it may receive from policies of insurance on the Collateral which do not name Secured Party as a "loss payee", if Secured Party so directs, and to the extent that Secured Party may have an interest therein. 6. Borrower shall at all times keep the Collateral free from any superior lien, security interest, or encumbrances and in good order and repair and will not waste or destroy the Collateral or any part thereof; and Borrower will not use or allow others to use the Collateral in violation of any statute, ordinance, or applicable Franchise Agreement; and Secured Party may examine and inspect the Collateral at any time. 7. Borrower will pay promptly when due all taxes and assessments upon the Collateral or for its use or operation or upon this Agreement or upon any note or notes evidencing the obligations, or any of them. 8. At its option, Secured Party may discharge taxes, liens or security interests or other encumbrances at any time levied or placed on the Collateral, may pay for insurance on the Collateral, and may pay for the maintenance and preservation of the Collateral. Borrower agrees to reimburse Secured Party on demand for any payment made, or any expense incurred, by Secured Party, pursuant to the foregoing authorization. Until default, Borrower may have possession of the Collateral and use it in any lawful manner not inconsistent with this Agreement and not inconsistent with any policy of insurance thereon. 9. Borrower shall be in default under this Agreement upon the happening of any of the following events or conditions: (a) failure or omission to pay when due any Obligation (or any installment thereof or interest thereon), or default in the payment or performance of any obligation contained herein, or in any other document evidencing or securing Borrower's obligations to Secured Party; (b) any warranty, representation, or statement made or furnished to Secured Party by or on behalf of any Borrower proves to have been false in any material respect when made or furnished; (c) loss, theft, substantial damage, destruction, sale or encumbrances to or of any of the Collateral, or the making of any levy, seizure, or attachment thereof or thereon; (d) any Obligor (which term, as used herein, shall mean each Borrower and each other party primarily or secondarily or contingently liable on any of the obligations) becomes insolvent or unable to pay debts as they mature or makes an assignment for the benefit of creditors, or any proceeding is instituted by or against any Obligor alleging that such Obligor is insolvent or unable to pay debts as they mature; (e) entry of any 35 judgment against any Obligor; (f) violation by Borrower of any term of any existing Franchise Agreement or any amendment thereto; (g) dissolution, disassociation, merger, consolidation, or transfer of a substantial part of the property of any Obligor which is a corporation, partnership, or limited liability company; (h) appointment of a receiver for the Collateral or any part thereof or for any property in which any Borrower has an interest. 10. Upon the occurrence of (a) any default(s) involving a monetary obligation of the Borrower, which such default(s) continue for a period of five (5) days after notice of such default(s) by Secured Party; or (b) upon any non-monetary default(s) or failure of the undersigned to comply with any other conditions or covenants contained in this Security Agreement or any instrument(s) evidencing or securing the indebtedness of Borrower which such default(s) continue for a period of fifteen (15) days after notice of such default by Secured Party, Secured Party may, at its option, declare all obligations secured hereby, or any of them (notwithstanding any provisions thereof), immediately due and payable without further demand or notice of any kind and the same thereupon shall immediately become and be due and payable without further demand or notice (but with such adjustments, if any, with respect to interest or other charges as may be provided for in the promissory note or other writing evidencing such liability), and Secured Party shall have and may exercise from time to time any and all rights and remedies of a Secured Party under the Uniform Commercial Code and any and all rights and remedies available to it under any other applicable law; and upon request or demand of Secured party, Borrower shall, at its expense, make the Collateral available to the Secured Party; and Borrower shall promptly pay all costs of Secured party of collection of any and all of the obligations, and enforcement of rights hereunder, including reasonable attorney's fees and legal expenses and expenses of any repairs to any of the Collateral and expenses of repairs to any realty or other property to which any of the Collateral may be affixed or be a part. Unless the Collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, Secured Party will give Borrower reasonable notice of the time and place of any public sale thereof or of the time after which any private sale or any other intended disposition thereof is to be made. The requirements of reasonable notice shall be met if such notice is mailed, postage prepaid, to any Borrower at the address of Borrower shown on this Agreement or at any other address shown on the records of Secured Party, at least (5) days before the time of the sale or disposition. The Secured Party may bid and buy at any public sale or other public disposition of the Collateral. Proceeds from disposition of the Collateral will be applied in the order following to: (a) the reasonable expenses of retaking, holding, preparing for sale or lease, selling, leasing, and the like and, where not prohibited by law, to payment of the reasonable attorneys' fees and legal expenses incurred by the Secured Party; and (b) the satisfaction of the indebtedness secured by this Agreement. Upon disposition of any Collateral after the occurrence of any default hereunder, or if Secured Party feels insecure for any reason, Borrower shall be and remain liable for any deficiency; and Secured Party shall account to Borrower for any surplus, but Secured Party shall have the right to apply all or any part of such surplus (or to hold the same as a reserve against) all or any obligations of Borrower to Secured Party, whether or not they, or any of them, be then due, and in such order of application as Secured Party may from time to time elect. 36 11. No waiver by Secured Party of any default shall operate as a waiver of any other default or of the same default on a future occasion. No delay or omission on the part of Secured Party in exercising any right or remedy shall operate as a waiver thereof, and no single or partial exercise by Secured Party of any right or remedy shall preclude any other or further exercise thereof or the exercise of any other right or remedy. Time is of the essence of this Agreement. The provisions of this Agreement are cumulative and in addition to the provisions of any note secured hereby. If more than one party shall execute this Agreement the term "Borrower" shall mean all parties signing this Agreement and each of them, and all such parties shall be jointly and severally obligated and liable hereunder. The singular pronoun when used herein, shall include the plural. If this Agreement is not dated when executed by the Borrower, the Secured Party is authorized, without notice to the Borrower, to date this Agreement. This Agreement shall become effective as of the date of this Agreement. All rights of Secured Party hereunder shall inure to the benefit of its successors and assigns; and all obligations of Borrower shall bind the heirs, executors, administrators, successors and assigns of each Borrower. 12. This Agreement shall be construed in accordance with the laws of Alabama. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. IN WITNESS WHEREOF, this Agreement has been duly executed and the Borrower's seal affixed on the _____ day of March, 2001. JAMESON ALABAMA, INC. [SEAL] An Alabama Corporation By: _____________________________________________ Craig R. Kitchin President Attest: _________________________________________ Steven A. Curlee Secretary Borrower's Address: 8 Perimeter Center, East, Suite 8050, Atlanta, Georgia 30346 Lender's Address: Empire Financial Services, Inc., 121 Executive Parkway, Milledgeville, Georgia 31061 37 ADJUSTABLE RATE NOTE $1,500,000.00 March ______, 2001 FOR AND IN CONSIDERATION OF THE LOAN EVIDENCED BY THIS NOTE, the undersigned promises to pay to the order of EMPIRE FINANCIAL SERVICES, INC., at its main office in Milledgeville, Georgia, or at such place as the holder may designate, the principal sum of ONE MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($1,500,000.00) plus interest from date on that part of the outstanding principal which has not been paid. Beginning on the date of this Note, the undersigned will pay interest at a yearly rate of eight and seven-eighths percent (8.875%) (the "Initial Interest Rate") based on a 365-day year. Interest shall accrue on all monies disbursed from closing and all monies advanced from the Construction Loan Account from the date of each such disbursement. The Construction Period shall run from March ______, 2001 through December 31, 2001. During that period, Borrower shall pay, monthly, on or before the 15th day of each month, all interest accumulated during the previous calendar month on monies disbursed, with the first payment (due April 1, 2001) to be paid on or before April 15, 2001. All such interest shall be fully paid on or before January 15, 2002. Between the first and fifth day of each month, Noteholder will notify Borrower of the amount of interest due on the 15th day of that month. Beginning with the payment due on the first day of February, 2002, monthly payments will be calculated on the basis of a twenty (20) year amortization of the total principal balance outstanding at the end of the Construction Period at the Initial Interest Rate, and shall be paid on the first day of February, 2002, and on the first day of each month thereafter continuing through the payment due on April 1, 2002. Beginning on the first day of April, 2002, and on that day of the month every twelve (12) months thereafter (the "Loan Adjustment Date"), the interest rate applicable to the principal balance then outstanding will equal the "Prime Rate" plus three-eighths of one 38 percent (.375%). Each annually adjusted interest rate will be in effect from each Loan Adjustment Date (April 1st) through March 30th of the following year, with monthly payments, at the adjusted rate, to be paid on the first day of each month, beginning on the first day of May and continuing through the payment due on the first day of April of the following year. For purposes of this Note, the term "Prime Rate" shall mean the interest rate published in the Wall Street Journal, Eastern Edition, identified therein as the ------------------- "Prime Rate" and currently described as "the base rate on corporate loans posted by at least 75% of the nation's 30 largest banks". The "Prime Rate" published on the last publication date prior to each Loan Adjustment Date shall be the index for interest rate adjustments. In the event that the Wall Street Journal ------------------- abandons the practice of publishing the Prime Rate, the Noteholder will designate a comparable reference or index which shall thereafter be the Prime Rate for this Note. The Noteholder will round the amount of the change to the nearest one-eighth (1/8) of one (1) percentage point. Noteholder will notify Borrower of the adjustment to be made and such notification, even if given after the due date of the next monthly installment, shall apply to all monthly installments due after each Loan Adjustment Date. The monthly payments calculated at each Loan Adjustment Date shall be in the amount that would completely amortize the principal amount owed on each Loan Adjustment Date by the first day of January, 2022, if such monthly payments were to continue until that date. Monthly payments shall continue until all of said interest and principal have been paid in full except that any balance remaining unpaid on the first day of March, 2007, shall be due and payable, with all accrued interest thereon, on that date. Each payment shall be applied first to accrued interest and to other charges or fees accruing under this Note or the Mortgage of even date herewith and the residue to principal (except as heretofore specified for the Construction Period). Any amount may be prepaid on this Note at any time without premium or fee; however, the monthly payments shall continue to be due without interruption. Time is of the essence of this contract. Lender may collect a late charge of 5 cents for each One Dollar ($1.00) of each principal 39 and interest payment, with a minimum charge of Five Dollars ($5.00), for each such payment fifteen (15) days or more in arrears to cover the extra expense involved in handling delinquent payment. In the event (a) of a default in the payment of principal and interest as stipulated herein (including, without limitation, non-payment upon maturity) or default in any other monetary obligation of the undersigned which such default(s) continue for a period of five (5) days after notice of such default by Noteholder, or (b) upon failure of the undersigned to comply with any other conditions or covenants contained in this Note or any instrument(s) securing it which such default(s) continue for a period of fifteen (15) days after notice of such default by Noteholder, or (c) upon the liquidation or dissolution of a Borrower, endorser or guarantor that is a corporation, partnership or limited liability company, then, and in any such event(s), the principal indebtedness evidenced hereby, all accrued interest and any other sums advanced hereunder or pursuant to any other loan documents shall, at the option of Noteholder and, without further notice to the undersigned, at once become due and payable and may be collected forthwith, regardless of the stipulated date of maturity. No omission on the part of Noteholder to exercise such option, when entitled to do so, shall be construed a waiver of such right. Upon the happening of any event of default the entire unpaid principal balance shall bear interest at the contract rate then in effect until the entire amounts in default have been paid by the undersigned. If this Note is collected by law or through an attorney at law, the undersigned shall pay all costs of collection, including reasonable attorney's fees. The undersigned (whether maker, endorser, surety, guarantor, or other party hereto) severally waives demand, protest and notice of demand, protest and non-payment. It is agreed that this Note may be renewed or extended from time to time, in whole or in part, without the consent of or notice to any endorser, maker, guarantor, surety, or other party hereto and without affecting or lessening the liability of any such person. The powers granted herein are coupled with an interest, and are irrevocable by death or otherwise. This Note is the joint and several obligation of all makers, sureties, guarantors, endorsers and other parties hereto, and shall be binding upon them, their heirs, personal representatives and assigns. In this Note and any instrument securing it, the singular shall include the plural, and the masculine shall include the feminine and neuter. 40 If from any circumstances whatsoever, fulfillment of any provision of this Note or of any other instrument securing the indebtedness evidenced hereby, at the time performance of such provision shall be due, shall involve transcending the limit of validity presently prescribed by any applicable usury statute or any other applicable law, with regard to obligations of like character and amount, then ipso facto, the obligation to be fulfilled shall be reduced to the limit of such validity, so that in no event shall any exaction be possible under this Note or under any other instrument securing the indebtedness evidenced hereby, that is in excess of the current limit of such validity, but such obligation shall be fulfilled to the limit of such validity. This Note is secured by a Mortgage, Assignment of Operating Lease, Assignment of Fees and Income, and Security Agreement of even date executed by the undersigned to Empire Financial Services, Inc. CAUTION: IT IS IMPORTANT THAT YOU THOROUGHLY READ THE CONTRACT BEFORE YOU SIGN IT. Executed and given under the hand and seal of the undersigned. JAMESON ALABAMA, INC. [SEAL] An Alabama Corporation By: _____________________________________________ Craig R. Kitchin President Attest: _________________________________________ Steven A. Curlee Secretary 41 The undersigned guarantor and surety hereby guarantees payment and performance and, to the extent allowed by law, waives the right to require the Noteholder to proceed first against the Maker/Borrower. JAMESON INNS, INC. [SEAL] A Georgia Corporation By: _____________________________________________ Craig R. Kitchin President Attest: _________________________________________ Steven A. Curlee Secretary 42 UNCONDITIONAL GUARANTY OF PAYMENT AND PERFORMANCE FOR AND IN CONSIDERATION of the sum of Ten and No/100 Dollars and other good and valuable considerations, paid or delivered to JAMESON INNS, INC. (hereafter referred to, collectively, if more than one, as "Guarantor"), the receipt and sufficiency whereof are hereby acknowledged by Guarantor, and for the purpose of seeking to induce EMPIRE FINANCIAL SERVICES, INC. (hereinafter referred to as "Lender") to extend credit to JAMESON ALABAMA, INC. (hereinafter referred to as "Borrower"), which extension of credit will be to the direct interest, benefit, and advantage of Guarantor, Guarantor, jointly and severally, if more than one, does hereby unconditionally and absolutely guarantee to Lender and its successors, successors-in-title and assigns (a) the full and prompt payment when due, whether by acceleration or otherwise, with such interest as may accrue thereon, either before or after maturity thereof, of that certain promissory note dated March ________, 2001 made by Borrower to the order of Lender in the principal amount of ONE MILLION FIVE HUNDRED THOUSAND AND N0/100 DOLLARS ($1,500,000.00) (hereinafter referred to as the "Note) together with any renewals, modifications, consolidations and extensions thereof, (b) the full and prompt payment and performance of any and all obligations of Borrower or any other party to Lender under the terms of any and all deeds to secure debt, mortgages, deeds of trust, collateral assignments, and security agreements now or hereafter securing the indebtedness evidenced by the Note (hereinafter referred to, collectively, if more than one, as the "Security Instrument"), (c) the full and prompt payment and performance of all obligations of Borrower to Lender under the terms of any construction loan agreement relating to the loan evidenced by the Note (hereinafter referred to as the "Construction Loan Agreement"), including, without limitation, the obligation to complete the improvements described in the Construction Loan Agreement, if any, fully paid for and free and clear of all mechanics' and materialmen's liens, (d) the full and prompt payment and performance of any and all other obligations of Borrower to Lender under any other documents or instruments now or hereafter evidencing, securing, or otherwise relating to the indebtedness evidenced by the Note (the Security Instrument, the Construction Loan Agreement, and said other documents and instruments being hereinafter referred to collectively as the "Loan Documents"), and (e) the full and prompt payment and performance of any and all other obligations of Borrower to Lender currently in existence or arising while this Guaranty is in effect. Guarantor does hereby agree that if the Note is not paid by Borrower in accordance with its terms, or if any and all sums which are now or may hereafter become due from Borrower to Lender under the Loan Documents are not paid by Borrower in accordance with their terms, Guarantor will immediately make such payments. Guarantor further agrees to pay Lender all expenses (including reasonable attorneys' fees) paid or incurred by Lender in endeavoring to collect the indebtedness, to enforce the obligations of Borrower guaranteed hereby, or any portion thereof, or to enforce this Guaranty. Guarantor hereby consents and agrees that Lender may at any time, and from time to time, without notice to or further consent from Guarantor, either with or without consideration, surrender any property or other security of any kind or nature whatsoever held by it or by any person, firm or corporation on its behalf or for its account, securing any indebtedness or liability hereby guaranteed, substitute for any collateral so held by it, other collateral of like kind, or of any kind; agree to modify the terms of the Note or the Loan Documents; extend or renew the Note for any period; grant releases, compromises and indulgences with respect to the Note, or the Loan Documents and to any person or entities now or hereafter liable thereunder or hereunder; release any Guarantor or any other guarantor or endorser of the Note, the Security Instrument, the Construction Loan Agreement, or any other of the Loan Documents; or take or fail to take any action of any type whatsoever. No such action which Lender shall take or fail to take in connection with the Loan Documents, or any of them, or any security for the payment of the indebtedness of Borrower to Lender or for the performance of any obligations or undertakings of Borrower, nor any course of dealing with Borrower or any other person, shall release Guarantor's obligations hereunder, affect this Guaranty in any way or afford Guarantor any recourse against Lender. The provisions of this Guaranty shall extend and be applicable to all renewals, amendments, extensions, consolidations and modifications of the Loan Documents, and any and all references herein to Loan Documents shall be deemed to include any such renewals, extensions, amendments, consolidations or modifications thereof. This Guaranty absolutely and unconditionally guarantees the performance of all obligations to Lender made on behalf of Borrower by any officer, partner, or agent of Borrower. 43 Guarantor hereby subordinates any and all indebtedness of Borrower now or hereafter owed to any Guarantor to all indebtedness of Borrower to Lender, and agrees with Lender that Guarantor shall not demand or accept any payment of principal or interest from Borrower, shall not claim any offset or other reduction of Guarantor's obligations hereunder because of any such indebtedness and shall not take any action to obtain any of the security described in and encumbered by the Security Instrument; provided, however, that, if Lender so requests, such indebtedness shall be collected, enforced and received by Guarantor as trustee for Lender and be paid over to Lender on account of the indebtedness of Borrower to Lender, but without reducing or affecting in any manner the liability of Guarantor under the other provisions of this Guaranty. Guarantor hereby waives and agrees not to assert or take advantage of (a) the defense of the statute of limitations in any action hereunder or for the collection of the indebtedness or the performance of any obligations hereby guaranteed; (b) any defense that may arise by reason of the incapacity, lack of authority, death or disability of Guarantor or any other person or entity, or the failure of Lender to file or enforce a claim against the estate (either in administration, bankruptcy, or any other proceedings) of Borrower or any other person or entity; (c) any defense based on the failure of Lender to give notice of the existence, creation or incurring of any new or additional indebtedness or obligation or of any action or non-action on the part of any other person whomsoever, in connection with any obligation hereby guaranteed; (d) any defense based upon an election of remedies by Lender which destroys or otherwise impairs any subrogation rights of Guarantor or the right of Guarantor to proceed against Borrower for reimbursement; or both; (e) any defense based upon a failure of Lender to commence an action against Borrower; (f) any duty on the part of Lender to disclose to Guarantor any facts it may now or hereafter know regarding Borrower; (g) acceptance or notice of acceptance of this Guaranty by Lender; (h) notice of presentment and demand for payment of any of the indebtedness or performance of any of the obligations hereby guaranteed; (i) protest and notice of dishonor or of default to Guarantor or to any other party with respect to the indebtedness or performance of obligations hereby guaranteed; (j) any and all other notices whatsoever to which Guarantor might otherwise be entitled; (k) any defense based on lack of due diligence by Lender in collection, protection or realization upon any collateral securing the indebtedness evidenced by the Note; and (l) any other legal or equitable defenses whatsoever to which Guarantor might otherwise be entitled. This Guaranty shall not be affected by any litigation between Borrower and Lender nor shall it be impaired because of termination of any relationship between Guarantor and Borrower. This is a guaranty of payment and performance and not of collection. The liability of Guarantor under this Guaranty shall be direct and immediate and not conditional or contingent upon the pursuit of any remedies against Borrower or any other person, nor against securities or liens available to Lender, its successor, successors-in-title, endorsees or assigns. Guarantor waives any right to require that an action be brought against Borrower or any other person or to require that resort be had to any security or to any balance of any deposit account or credit on the books of Lender in favor of Borrower or any other person. In the event of a default under the Loan Documents, or any of them, Lender shall have the right to enforce its rights, powers and remedies thereunder or hereunder or under any other instrument now or hereafter evidencing, securing or otherwise relating to the indebtedness evidenced by the Note or secured by the Security Instrument or relating to the transactions contemplated by the Loan Agreement, in any order, and all rights, powers and remedies available to Lender in such event shall be nonexclusive and cumulative of all other rights, powers and remedies provided thereunder or hereunder by law or in equity. Accordingly, Guarantor hereby authorizes and empowers Lender upon acceleration of the maturity of the Note, at its sole discretion, and without notice to Guarantor, to exercise any right or remedy which Lender may have, including, but not limited to, judicial foreclosure, exercise of rights of power of sale, acceptance of a deed or assignment in lieu of foreclosure, appointment of a receiver to collect rents and profits, exercise of remedies against personal property, or enforcement of any assignment of leases, as to any security, whether real, personal or intangible. If the indebtedness guaranteed hereby is partially paid by reason of the election of Lender, its successors, endorsees or assigns, to pursue any of the remedies available to Lender, or if such indebtedness is otherwise partially paid, this Guaranty shall nevertheless remain in full force and effect, and Guarantor shall remain liable for the entire unpaid balance of the indebtedness guaranteed hereby, even though any rights which Guarantor may have against Borrower may be destroyed or diminished by the exercise of any such remedy. Until all of the obligations of Borrower to Lender have been paid and performed in full, Guarantor shall have no right of subrogation to Lender against 44 Borrower, and Guarantor hereby waives any rights to enforce any remedy which Lender may have against Borrower and any rights to participate in any security for the Note. In the event that the Lender selects non-judicial foreclosure as a remedy for Borrower's default, the Guarantor's rights to subrogation can be destroyed and Guarantor may, as a result thereof, be entitled to a defense against a deficiency action. Guarantor, nevertheless, knowingly and voluntarily waives any such defense and acknowledges liability for any deficiency. Guarantor hereby authorizes Lender, without notice to Guarantor, to apply all payments and credits received from Borrower or from Guarantor or realized from any security in such manner and in such priority as Lender in its sole judgment shall see fit to the indebtedness, obligations and undertakings which are the subject of this Guaranty. The books and records of Lender showing the accounts between Lender and Borrower shall be admissible in evidence in any action or proceeding hereon as prima facie proof of the items set forth therein. Guarantor acknowledges that this Guaranty was negotiated, executed and delivered in the State of Georgia, and shall be governed and construed in accordance with the law of the State of Georgia, regardless of the situs of any other Loan Documents. Guarantor hereby (a) submits to personal jurisdiction in the State of Georgia for the enforcement of this Guaranty, and (b) waives any and all personal rights under the law of any state to object to jurisdiction within the State of Georgia for the purposes of litigation to enforce this Guaranty. In the event that such litigation is commenced, and Guarantor is not otherwise deemed a resident of the State of Georgia, Guarantor agrees that service of process may be made and personal jurisdiction over Guarantor obtained, by the serving of a copy of the summons and complaint upon Guarantor's appointed agent for service of process in the State of Georgia, who, unless otherwise designated as provided herein, shall be the person then serving as President or Chief Executive Officer of Lender. Nothing contained herein, however, shall prevent Lender from bringing any action or exercising any rights against any security or against Guarantor personally, or against any property of Guarantor, within any other state. Initiating such proceeding or taking such action in any other state shall in no event constitute a waiver of the agreement contained herein that the law of the State of Georgia shall govern the rights and obligations of Guarantor and Lender hereunder or of the submission herein made by Guarantor to personal jurisdiction within the State of Georgia. The aforesaid means of obtaining personal jurisdiction and perfecting service of process are not intended to be exclusive but are cumulative and in addition to all other means of obtaining personal jurisdiction and perfecting service of process now or hereafter provided by the law of the State of Georgia. Each Guarantor warrants and represents to Lender that all financial statements heretofore delivered by him to Lender are true and correct in all respects as of the date hereof. Each Guarantor waives any and all homestead and exemption rights available by virtue of the Constitution or the laws of the United States of America or of any state as against this Guaranty, and renewal hereof, or any indebtedness represented hereby, and does transfer, convey and assign to Lender a sufficient amount of such homestead or exemption as may be allowed, including such homestead or exemption as may be set apart in bankruptcy, to pay all amounts due hereunder in full, with all costs of collection, and does hereby direct any trustee in bankruptcy having possession of such homestead or exemption to deliver to Lender a sufficient amount of property or money set apart as exempt to pay the indebtedness guaranteed hereby, or any renewal thereof, and does hereby, jointly and severally, appoint Lender the attorney-in-fact for each of them, to claim any and all homestead exemptions allowed by law. As security for the liabilities and obligations of Guarantor hereunder, each Guarantor hereby transfers and conveys to Lender any and all balances, credits, deposits, accounts, items and monies of each Guarantor now or hereafter in the possession or control of or otherwise with Lender, and Lender is hereby given a lien upon, security 45 title to and a security interest in all property of Guarantor of every kind and description now or hereafter in the possession or control of Lender for any reason, including all dividends and distributions on or other rights in connection therewith. Lender may, without demand or notice of any kind, at any time, or from time to time, when any amount shall be due and payable hereunder by such Guarantor, appropriate and apply toward the payment of such amount, and in such order of application as Lender may from time to time elect, any property, balances, credits, deposits, accounts, items or monies of any Guarantor in the possession or control of Lender for any purpose. This Guaranty may not be changed orally, and no obligation of Guarantor can be released or waived by Lender or any officer or agent of Lender, except by a writing signed by a duly authorized officer of Lender and bearing the seal of Lender. This Guaranty shall be irrevocable by Guarantor so long as the Loan Agreement shall remain in effect and until all indebtedness guaranteed hereby has been completely repaid and all obligations and undertakings of Borrower under, by reason of, or pursuant to the Loan Documents have been completely performed. Any and all notices, elections, demands, requests and responses thereto permitted or required to be given under this Guaranty shall be in writing, signed by or on behalf of the party giving the same, and shall be deemed to have been properly given and shall be effective upon being personally delivered, or upon being deposited in the United States mail, postage prepaid, certified with return receipt requested, to the party at the address of such party set forth below or at such other address within the continental United States as such other party may designate by notice specifically designated as a notice of change of address and given in accordance herewith; provided, however, that the time period in which a response to any such notice, election, demand or request must be given shall commence on the date of receipt thereof; and provided further that no notice of change of address shall be effective until the date of receipt thereof. Personal delivery to a party or to any officer, partner, agent or employee of such party at said address shall constitute receipt. Rejection or other refusal to accept or inability to deliver because of changed address of which no notice has been received shall also constitute receipt. Any such notice, election, demand, request or response, if given to Lender, shall be addressed as follows: EMPIRE FINANCIAL SERVICES, INC. 121 EXECUTIVE PARKWAY MILLEDGEVILLE, GEORGIA 31061 and, if given to Guarantor, shall be addressed as follows: JAMESON INNS, INC. 8 PERIMETER CENTER EAST SUITE 8050 ATLANTA, GEORGIA 30346 The provisions of this Guaranty shall be binding upon each Guarantor and each Guarantor's successors, successors-in-title, heirs, legal representatives and assigns and shall inure to the benefit of Lender, its successors, successors-in- title, heirs, legal representatives and assigns. This Guaranty shall in no event be impaired by any change which may arise by reason of the death of Borrower or Guarantor, if individuals, or by reason of the dissolution of Borrower or Guarantor, if Borrower or Guarantor is a corporation, or partnership. As used herein, the terms "each Guarantor" and "any Guarantor" shall refer to the undersigned single Guarantor, or, if more than one, shall refer respectively to each or any separate member of the undersigned collective Guarantor. If more than one person or entity constitutes, collectively, Borrower, all of the foregoing provisions referring to Borrower shall be construed to refer to each such person or entity individually as well as collectively. For example, if there are two persons who are, collectively, Borrower, this Guaranty shall guarantee the full and prompt payment and performance of all obligations under the Loan Documents of Borrower, and of each of said two persons constituting Borrower. Each Guarantor has executed this Guaranty individually and not as a partner of Borrower or any other member of Guarantor. 46 If from any circumstances whatsoever fulfillment of any provisions of this Guaranty, at the time performance of such provision shall be due, shall involve transcending the limit of validity presently prescribed by any applicable usury statute or any other applicable law, with regard to obligations of like character and amount, then ipso facto the obligation to be fulfilled shall be reduced to the limit of such validity, so that in no event shall any exaction be possible under this Guaranty that is in excess of the current limit of such validity, but such obligation shall be fulfilled to the limit of such validity. The provisions of this paragraph shall control every other provision of this Guaranty. Any provisions of this Agreement to the contrary notwithstanding, Guarantor hereby absolutely and unconditionally waives Guarantor's right to reimbursement, contribution and subrogation with regard to any payments made by Guarantor pursuant to the terms of this Unconditional Guaranty of Payment and Performance. Guarantor further agrees to reimburse Lender for any payments made to Lender that Lender is required to pay over to Borrower's Trustee in a bankruptcy case or as a result of any other judicial proceeding. Notwithstanding the payment and satisfaction of the Note, Guarantor's obligation to reimburse Lender for any payments that are avoided as a result of being characterized, for bankruptcy purposes, as preferential, shall continue for period of one year beyond the date of Borrower's last payment to Lender. Guarantor warrants and represents to Lender that all financial statements given to Lender are accurate and that Guarantor is currently solvent and will not be rendered insolvent by virtue of financial obligations, contingent or otherwise, arising under terms of this Unconditional Guaranty of Payment and Performance. The Guaranty is assignable by Lender, and any full or partial assignment hereof by Lender shall operate to vest in the assignee all rights and powers herein conferred upon and granted to Lender and so assigned by Lender. This Unconditional Guaranty and Payment of Performance contains the entire -------------------------------------------------------------------------- agreement between the parties hereto and there are no promises, agreements, - --------------------------------------------------------------------------- conditions, undertakings, warranties and representations, whether written or - ---------------------------------------------------------------------------- oral, express or implied, between the parties, other than as set forth herien. - ------------------------------------------------------------------------------ IN WITNESS WHEREOF, Guarantor has executed this Guaranty under seal as of the _____ day of March, 2001. JAMESON INNS, INC. [SEAL] _____________________________ CRAIG R. KITCHIN President _____________________________ STEVEN A. CURLEE Secretary Guarantor designates the following individual, or entity, a resident of the State of Georgia, as Guarantor's agent for service of process for purposes of any litigation for enforcement of this Guaranty: ________________________ ________________________ ________________________ 47 EX-10.44 8 0008.txt SCHEDULE OF DOCUMENTS SIMILAR TO EXHIBIT 10.43 EXHIBIT 10.44 Schedule of documents substantially similar to Exhibit 10.43 1. Real Estate Mortgage dated June 30, 2000 for Jameson Inn, Oakridge, Tennessee; Assignment of Lease; Assignment of Operating Lease; Assignment of Fees and Income; Security Agreement; Adjustable Rate Note for $2,850,000; Unconditional Guaranty of Payment and Performance 2. Real Estate Mortgage dated January 19, 2000 for Jameson Inn, Rome, Georgia; Assignment of Lease; Assignment of Operating Lease; Assignment of Fees and Income; Security Agreement; Adjustable Rate Note for $2,400,000 3. Real Estate Mortgage dated January 19, 2000 for Jameson Inn, Bessemer, Alabama; Assignment of Lease; Assignment of Operating Lease; Assignment of Fees and Income; Security Agreement; Adjustable Rate Note for $1,850,000; Unconditional Guaranty of Payment and Performance 4. Real Estate Mortgage dated May 26, 2000 for Jameson Inn, Warner Robins, Georgia; Assignment of Lease; Assignment of Operating Lease; Assignment of Fees and Income; Security Agreement; Adjustable Rate Note for $1,850,000 5. Real Estate Mortgage dated March 28, 2000 for Jameson Inn, Oakridge, Tennessee; Assignment of Lease; Assignment of Operating Lease; Assignment of Fees and Income; Security Agreement; Adjustable Rate Note for $1,775,000; Unconditional Guaranty of Payment and Performance 6. Real Estate Mortgage dated May 26, 2000 for Jameson Inn, Lagrange, Georgia; Assignment of Lease; Assignment of Operating Lease; Assignment of Fees and Income; Security Agreement; Adjustable Rate Note for $2,000,000 7. Real Estate Mortgage dated March 31, 2000 for Jameson Inn, Lafayette, Louisiana; Assignment of Lease; Assignment of Operating Lease; Assignment of Fees and Income; Security Agreement; Adjustable Rate Note for $2,900,000 8. Real Estate Mortgage dated June 16, 2000 for Jameson Inn, Pearl, Mississippi; Assignment of Lease; Assignment of Operating Lease; Assignment of Fees and Income; Security Agreement; Adjustable Rate Note for $2,400,000; Unconditional Guaranty of Payment and Performance 9. Real Estate Mortgage dated March 16, 2000 for Jameson Inn, Florence, Alabama; Assignment of Lease; Assignment of Operating Lease; Assignment of Fees and Income; Security Agreement; Adjustable Rate Note for $1,850,000; Unconditional Guaranty of Payment and Performance 10. Real Estate Mortgage dated March 16, 2000 for Jameson Inn, Oakridge, Tennessee; Assignment of Lease; Assignment of Operating Lease; Assignment of Fees and Income; Security Agreement; Adjustable Rate Note for $1,850,000; Unconditional Guaranty of Payment and Performance EX-21.1 9 0009.txt SCHEDULE OF SUBSIDIARIES EXHIBIT 21.1 Schedule of Subsidiaries Name of Subsidiary State of Incorporation or Organization - ------------------ -------------------------------------- Jameson Alabama, Inc. Alabama Jameson Outdoor Advertising Company Georgia Jameson Properties, LLC Georgia Jameson Properties of Tennessee, L.P. Tennessee SIE Corporation Indiana EX-23.1 10 0010.txt CONSENT OF INDEPENDENT AUDITORS EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-3 No. 333-20143, Form S-3 No. 333-55916, Form S-8 No. 333-3310 and Form S-8 No. 333-42735) of Jameson Inns, Inc. of our reports dated February 8, 2001, with respect to the consolidated financial statements and schedule III of Jameson Inns, Inc. and March 8, 2001 with respect to the consolidated financial statements of Jameson Hospitality, LLC included in this Annual Report on Form 10-K of Jameson Inns, Inc. for the year ended December 31, 2000. Ernst & Young LLP Atlanta, Georgia April 2, 2001 -----END PRIVACY-ENHANCED MESSAGE-----