10-Q: Quarterly report pursuant to Section 13 or 15(d)

EXHIBIT 10.2

Amount: L.30,000,000.00

PROMISSORY NOTE
SECURED BY DEED OF LEGAL MORTGAGE

Date: July 1, 1997 Due: December 31, 1997
Ann Arbor, Michigan


1. Promise to Pay. The undersigned, Principal Healthcare Finance Limited,
a company incorporated with limited liability under the laws of Jersey, having
its principal office at Cater Allen House, Commercial Street, St. Helier,
Jersey JE2 3RU, Channel Islands (hereinafter, "Borrower"), promises to pay to
Omega Healthcare Investors, Inc., a Maryland corporation, at its principal
office at 905 W. Eisenhower Circle, Suite 110, Ann Arbor, Michigan
48103 (hereinafter "Lender"), or at such other place as the Lender may designate
in writing, or to order, in lawful money of the United Kingdom, the principal
sum equal to the aggregate unpaid principal amount of loans outstanding up to a
total of loans outstanding of Thirty Million Pounds (L.30,000,000) at any time,
which amounts may be prepaid pursuant to Section 7, and if so repaid,
reborrowed, with interest thereon as provided in Section 3 hereof and all other
amounts which may become owing hereunder.

2. Definitions. For all purposes of this Promissory Note Secured by Deed
of Legal Mortgage ("Note") except as otherwise expressly provided or unless the
context otherwise requires: (i) the terms defined in this Section have the
meanings assigned to them in this Section and include the plural as well as the
singular; (ii) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with United Kingdom generally accepted
accounting principles as at the time applicable; (iii) all capitalized terms
used herein and not defined in this Note shall have the meaning for such terms
set forth in the Loan Agreement dated as of July 21, 1995 between the Lender
and the Borrower ("Loan Agreement"); and (iv) the words "herein", "hereof" and
"hereunder" and other words of similar import refer to this Note as a whole and
not to any particular Section or other subdivision:
Default Interest Rate: Subject to the limitations set forth in Section 5
of this Note, the Interest Rate plus three percent (3%).

Due Date: December 31, 1997.

Event of Default: As defined in Section 9 below.

Interest Rate: As defined in Section 3.2.



3. Payments and Interest Rates.

3.1 Interest at the Interest Rate shall be due and payable by the Borrower
to the Lender on the first day of each month at a rate of 9.25% per anum.

3.2 The entire sum of principal sum outstanding on this Note, as
determined under Section 1 of this Note, together with accrued and unpaid
interest, shall be due and payable on the Due Date.

4. Method of Payment. Except as set forth below, all payments to be paid
by the Borrower to the Lender under this Note shall be made in lawful money of
the United Kingdom which shall be legal tender for the payment of public and
private debts at the address set forth in this Note or at such other place or
to such other person, firm, or corporation as the Lender may designate in a
subsequent notice. The Borrower shall pay all payments of principal and
interest by electronic funds transfer debit transactions through wire transfer
of immediately available funds, initiated by the Borrower for payment on or
before the first day of each calendar month; provided, however, if such day is
not a Business Day, then payment shall be made on the next succeeding day which
is a Business Day. The Lender shall provide the Borrower in writing with
appropriate wire transfer information. Once given, such information shall
remain in effect until changed by subsequent written instructions. The
Borrower shall inform the Lender of payment by sending a facsimile transmission
of the Borrower's wire transfer confirmation not later than noon, eastern
daylight time on each Payment Date.

5. Payment on Due Date. The entire sum of principal, together with all
accrued and unpaid interest under Section 3 hereof, and any other amounts owing
to the Lender under this Note or any other Loan Documents, shall be due and
payable on the Due Date.

6. Payments to be Made Without Regard to Setoffs and Counterclaims. All
payments by the Borrower shall be paid in full without setoff or counterclaim
and without reduction for and free from any and all taxes, levies, imposts,
duties, fees, charges, deductions or withholdings of any type or nature imposed
by any government or any political subdivision or taxing authority thereof.

7. Prepayment Permitted. Following notice provided 30 days in advance,
borrowings outstanding on this Note may be prepaid in whole or in part by the
Borrower.

Promissory Note Secured by Deed of Legal Mortgage - Page 2



8. Security. This Note is secured by that Deed of Legal Mortgage dated 01
July 1997 between Principal Healthcare Finance Limited, as the Mortgagor and
Omega Healthcare Investors, Inc., as the Mortgagee.

9. Events of Default. Upon the occurrence of any of the following ("each
an Event of Default"), Omega may elect to declare the entire balance of
principal, interest and other sums outstanding under this Note immediately due
and payable, without demand, presentment, protest or notice of any kind:

(i) If the Borrower shall fail to make payment of interest or principal
payable by the Borrower under this Note when the same becomes due and payable
and such failure is not cured by the Borrower within a period of three (3)
Business Days after Notice thereof from Omega; or

(ii) An Event of Default shall occur under the Loan Agreement ("Loan
Agreement Default"), and Omega elects to treat such Loan Agreement Default as a
default hereunder.

10. Acceleration Upon Event of Default. Upon the occurrence of any Event
of Default, the entire sum of principal owing under this Note together with all
accrued and unpaid interest, and any other amounts owing under this Note and
any other Loan Documents, at the Lender's option, will become immediately due
and payable, all without formal demand, presentment or notice of any kind, all
of which are expressly waived.

Acceptance by the Lender of any payment in an amount less than the amount
then due shall be deemed an acceptance on account only, and the Lender's
acceptance of any such partial payment shall not constitute a waiver of the
Lender's right to receive the entire amount due. Upon any Event of Default,
neither the failure of the Lender to promptly exercise its right to declare the
entire sum of principal and accrued unpaid interest hereunder to be immediately
due and payable, nor the failure of the Lender to demand strict performance of
any other obligation of the Borrower or any other person who may be liable
hereunder, shall constitute a waiver of any such rights, nor a waiver of such
rights in connection with any future default on the part of the Borrower or any
other person who may be liable hereunder.

11. Transaction Costs. The Borrower shall pay all costs and expenses
incurred by the Lender in connection with the negotiation, preparation and
execution of this Note and all other Loan Documents, as provided in Section
11.3 of the Loan Agreement.


Promissory Note Secured by Deed of Legal Mortgage - Page 3



12. Application of Payments. Unless an Event of Default has occurred and
not been fully cured, all payments received by the Lender hereunder shall be
applied first against interest which has accrued and not been paid under
Section 3, with the balance applied against any other amounts which may be
owing to the Lender hereunder. Following the occurrence of an Event of
Default, and until such Event of Default is fully cured, the Lender may apply
any payment which it receives, whether directly from the Borrower or as a
consequence of realizing upon any security which it holds, in its sole and
absolute discretion, to any amount owing to it under this Note or any other
Loan Documents.

13. CHOICE OF LAW; VENUE; JURISDICTION. THIS NOTE SHALL BE GOVERNED AND
CONTROLLED AS TO VALIDITY, ENFORCEMENT, INTERPRETATIONS, CONSTRUCTION, EFFECT
AND IN ALL OTHER RESPECTS, INCLUDING, BUT NOT LIMITED TO, THE LEGALITY OF THE
INTEREST CHARGED HEREUNDER, BY THE STATUTES, LAWS AND DECISIONS OF THE STATE OF
MICHIGAN. THE BORROWER CONSENTS TO IN PERSONAM JURISDICTION BEFORE THE STATE
AND FEDERAL COURTS IN THE STATE OF MICHIGAN AND AGREES THAT ALL DISPUTES
CONCERNING THIS NOTE MAY BE LITIGATED, IN THE LENDER'S SOLE DISCRETION AND AT
THE LENDER'S SOLE ELECTION, ONLY IN COURTS LOCATED IN THE STATE OF MICHIGAN.
THE BORROWER AGREES THAT SERVICE OF PROCESS MAY BE EFFECTED UPON IT UNDER ANY
METHOD PERMISSIBLE UNDER THE LAWS OF THE STATE OF MICHIGAN AND IRREVOCABLY
WAIVES ANY OBJECTION TO VENUE IN STATE OR FEDERAL COURTS OF THE STATE OF
MICHIGAN.

14. Miscellaneous Provisions.

14.1 This Note may not be amended or modified, and revision hereto shall
not be effective, except by an instrument in writing executed by the Borrower
and approved by the Lender.

14.2 Any notice to be given hereunder shall be given in the manner
provided in the Loan Agreement.

14.3 The Borrower shall pay to the Lender, immediately upon demand, any
and all taxes assessed against the Lender by reason of its holding of this Note
and the receipt by it of interest payments hereunder (other than income and
other similar taxes assessed by the United States Government or any political
subdivision thereof, or by any foreign government or political subdivision
thereof having jurisdiction over the Lender, on such interest

Promissory Note Secured by Deed of Legal Mortgage - Page 4


payments), and any and all other sums and charges that may at any time become
due and payable hereunder.

14.4 Nothing contained in this Note shall be deemed or construed as
creating a partnership or joint venture between the Borrower and the Lender or
any other person, or cause the holder hereof to be responsible in any way for
the debts or obligations of the Borrower or any other person.

14.5 Except as set forth elsewhere herein, the Borrower hereby waives
diligence, presentment, protest and demand, notice of protest, dishonor and
nonpayment of this Note, and expressly agrees that, without in any way
affecting the liability of the Borrower hereunder, the Lender may extend the
time for payment of any amount due hereunder, accept additional security,
release any party liable hereunder and release any security securing this Note
without in any other way affecting the liability and obligation of the
Borrower.

14.6 Every provision of this Note is intended to be severable. In the
event any term or provision hereof is declared by a court of competent
jurisdiction to be illegal or invalid for any reason whatsoever, such
illegality or invalidity shall not affect the balance of the terms and
provision hereof, which terms and provisions shall remain binding and
enforceable.

14.7 Headings at the beginning of each numbered Section of this Note are
intended solely for convenience of reference and are not to be deemed or
construed to be a part of this Note.

14.8 The Borrower and any other person who may be liable hereunder in any
capacity, agree(s) to pay all costs of collection and any litigation, including
attorneys' fees (including any appeals relating to such enforcement or
collection proceedings), in case the principal of the Note or any payment of
interest thereon is not paid as it becomes due, or in case it becomes necessary
to protect any security for this Note, whether suit is brought or not.

14.9 IT IS SPECIFICALLY AGREED THAT TIME IS OF THE ESSENCE OF THIS NOTE.

15. WAIVER OF TRIAL BY JURY. THE LENDER, BY ITS ACCEPTANCE HEREOF, AND
THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT
EITHER MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON,
OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE AND ANY OTHER
AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH, OR ANY

Promissory Note Secured by Deed of Legal Mortgage - Page 5


COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN),
OR ACTIONS OF EITHER PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE
LENDER MAKING THE LOAN TO THE BORROWER.

PRINCIPAL HEALTHCARE FINANCE
LIMITED, a company incorporated with
limited liability in Jersey



By: s/ Essel W. Bailey, Jr.
---------------------------------
Name: Essel W. Bailey, Jr.
Title: Managing Director







Promissory Note Secured by Deed of Legal Mortgage - Page 6



FINAL: 01 July 1997


DEED OF LEGAL
MORTGAGE
between



PRINCIPAL HEALTHCARE FINANCE
LIMITED
as the Mortgagor


and



OMEGA HEALTHCARE INVESTORS, INC.
as the Mortgagee

SIMMONS & SIMMONS
21 Wilson Street London EC2M 2TX
Tel: 0171-628 2020 / 528 9292 Fax: 0171-628 2070 DX Box No 12


CONTENTS







i



THIS DEED OF LEGAL MORTGAGE is dated 01 July 1997 and made


BETWEEN:

(1) PRINCIPAL HEALTHCARE FINANCE LIMITED (registered in Jersey, Channel
Islands under company number 62304) the registered office of which is
at Cater Allen House, Commercial Street, St Helier, Jersey JE2 3RU,
Channel Islands (the "Mortgagor"); and

(2) OMEGA HEALTHCARE INVESTORS, INC., a company incorporated in Maryland of
905 West Eisenhower Circle, Suite 110, Ann Arbor, Michigan, United
States of America 48103 (the "Mortgagee")

1. DEFINITIONS

In this Legal Mortgage the following expressions have the following meanings,
unless the context otherwise requires:

"Excluded Liabilities" means all monies, debts, liabilities and obligations
whether present or future, actual or contingent and whether incurred as
principal or surety due, owing or incurred by the Mortgagor to the Mortgagee
under a loan agreement dated 21 July 1995 between (1) the Mortgagee and (2) the
Mortgagor including under all promissory notes from time to time evidencing
such monies, debts, liabilities and obligations;

"Existing Security" means a debenture containing fixed and floating charges
over all of the present and future assets and undertaking of the Mortgagor
between (1) the Mortgagor and (2) The Governor and Company of the Bank of
Scotland and dated 25 August 1995;

"Mortgaged Property" shall have the meaning ascribed thereto in Clause 3;

"Operating Leases" means the operating leases dated 19 July 1996 and the date
of this Legal Mortgage and each between (1) the Mortgagor and (2) Exceler
Healthcare Services Limited (together with its successors and assigns the
"Lessee") in respect of the Mortgaged Property and includes (without prejudice
to the generality of clause 21) any lease or underlease whether or not in
relation to the Mortgaged Property which in any such case is supplemental to,
or entered into pursuant to, any such operating lease including, without
limitation, any lease entered into supplemental thereto or any guarantee
entered into by the Lessee in relation to any assignment of any such operating
lease;

"Secured Liabilities" means all monies, debts, liabilities and obligations from
time to time due, owing or incurred by the Mortgagor to the Mortgagee in any
manner whatsoever, in each case:-

(i) whether present or future;





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(ii) whether alone or jointly with any other persons;

(iii) whether actual or contingent;

(iv) whether as principal or surety; and

(v) in whatsoever currency denominated

other than the Excluded Liabilities.

2. COVENANT TO PAY

The Mortgagor will pay or discharge the Secured Liabilities as the same shall
fall due and this Legal Mortgage shall be a continuing security to the
Mortgagee for the payment or discharge by the Mortgagor of the Secured
Liabilities.

3. CHARGES

The Mortgagor as a continuing security for the payment and discharge of the
Secured Liabilities hereby charges in favour of the Mortgagee by way of legal
mortgage the property specified in the Schedule hereto (hereinafter called the
"Mortgaged Property" which expression shall where the context admits or
requires include either the whole or any part thereof) with the benefit of the
Operating Leases and all other existing and future leases, underleases,
tenancies, agreements for lease, rights, covenants, undertakings, warranties,
guarantees, indemnities and conditions from time to time affecting the same
(subject to the provisions hereof) but otherwise free from encumbrances and
charges (other than the Existing Security) in favour of the Mortgagee, by way
of fixed charge all its rights, title and interest in and to, and in the
proceeds of, all present and future insurances in respect of the Mortgaged
Property (including, without limitation, any rights of subrogation arising
therefrom) and all the benefit of, and rights under, or in respect of, all
contracts, agreements, deeds, undertakings, guarantees, warranties,
indemnities, other documents, compositions, accommodations and other
transactions or arrangements now or hereafter entered into by or granted to, or
vested in, or novated or assigned to, the Mortgagor in relation to or in
respect of or in connection with any present or future insurance in respect of
the Mortgaged Property (including, without prejudice to the generality of the
foregoing, all the benefit, and rights in respect of, any ex gratia payment)
and all other present or future rights and claims in relation to the Mortgaged
Property and by way of floating charge all assets now or hereafter situate at
or leased by the Mortgagor or otherwise used in connection with the Mortgaged
Property.


The Mortgaged Property and all the other property, assets, rights and claims of
the Mortgagor charged by or pursuant to any provision of this Legal Mortgage
are hereinafter referred to as the "Secured Property" which expression shall
where the context admits or requires include either the whole or any part
thereof.





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4. COVENANTS

The Mortgagor hereby covenants with and represents, warrants and undertakes to
the Mortgagee as follows:-

(i) Disposals - not without the prior consent in writing of the
Mortgagee to convey, assign, transfer or otherwise dispose
of or agree to convey, assign, transfer or otherwise dispose
of the Secured Property or any interest therein or to
exercise or agree to exercise any of the powers of leasing
or of accepting surrenders of leases conferred by sections
99 and 100 of the Law of Property Act, 1925 or by common law
or otherwise to grant any lease, tenancy or licence for
occupation or other right or interest to occupy the
Mortgaged Property;

(ii) Security - not without the prior consent in writing of the
Mortgagee create, purport to create, or allow to subsist any
mortgage, charge, pledge, lien, encumbrance, or any
arrangement which has substantially the same commercial or
substantive effect as the creation of security, over the
Secured Property other than the Existing Security and any
security from time to time granted in favour of the
Mortgagee or agree to do any such thing;

(iii) Information - to give to the Mortgagee, any receiver
appointed by the Mortgagee or to such person as the
Mortgagee or any such receiver shall from time to time in
writing appoint for that purpose such information as the
Mortgagee or receiver or such person shall require as to
all matters relating to the Secured Property;

(iv) Operating Leases - to use its best endeavours to procure
that the Lessee complies with its obligations under the
Operating Leases and not to waive or release any material
breach of any material obligation, nor to vary any material
obligation, of the Lessee under the Operating Leases;

(v) Indemnity to the Mortgagee in Possession - in the event of
the Mortgagee entering into possession of the Mortgaged
Property, to indemnify and keep indemnified the Mortgagee
against all actions, proceedings, damages, costs, claims and
demands which may be incurred by or made against the
Mortgagee under any of the undertakings, covenants,
agreements or obligations contained in or imposed by any
conveyance, transfer, lease, licence or agreement for
tenancy or building agreement or other deed or document
affecting the Mortgaged Property and against all actions,
proceedings, damages, costs, claims and demands whatsoever
in consequence of any claim by any tenant or occupier of the
Mortgaged Property or any other person arising out of any
defect in or want of repair to the Mortgaged Property or out
of any failure to perform any such undertaking, covenant,
agreement or obligation or out of any harm to





3

persons or property or nuisance or impairment of the
environment resulting from (or allegedly resulting from) any
activities on, or the state and condition of, the Mortgaged
Property and in the event of the Mortgagor failing upon the
request in writing of the Mortgagee to keep it so
indemnified as aforesaid the Mortgagee shall be entitled to
settle, liquidate or compound or to contest any such claim
(as it may, in its absolute discretion, think fit) and
expend such moneys and incur such costs as it may deem
necessary for that purpose and any such expenditure and
costs shall become part of the liabilities of the Mortgagor
hereby secured.

5. CONSOLIDATION

Section 93 of the Law of Property Act, 1925 (restricting the Mortgagee's right
of consolidation) shall not apply to this Legal Mortgage.

6. POWER OF SALE

Section 103 of the Law of Property Act, 1925 (regulating the exercise of the
Mortgagee's power of sale) shall not apply to this Legal Mortgage and all of
the Secured Liabilities shall be immediately due on demand at any time and
failing payment immediately of any moneys so demanded (or if so requested by
the Mortgagor) this security shall become immediately enforceable and the power
of sale and the other powers conferred upon mortgagees by the Law of Property
Act, 1925 and by this Legal Mortgage shall become immediately exercisable
without the restrictions contained in that Act with respect to the whole or any
part of the Secured Property as to the giving of notice or otherwise. All such
moneys shall also become immediately payable without any demand and this
security shall also become immediately enforceable and such powers exercisable
without such restrictions, if any steps shall be taken for the presentation of
a petition for the making of an administration order in relation to the
Mortgagor notwithstanding the terms of any other agreement, express or implied,
between the Mortgagor and the Mortgagee or if such moneys shall be due under
the terms of any other agreement, express or implied, between the Mortgagor and
the Mortgagee.

7. REMOVAL OF FURNITURE ETC

In the event of the Mortgagee taking possession of the Mortgaged Property the
Mortgagee is hereby authorised as agent for the Mortgagor to remove, store,
sell or otherwise deal with any furniture or goods which the Mortgagor shall
fail or refuse to remove from the Mortgaged Property within seven days of being
requested so to do by notice from the Mortgagee and the Mortgagee shall not
be liable for any loss or damage occasioned to the Mortgagor. The Mortgagor
shall indemnify the Mortgagee against all expenses incurred by the Mortgagee
in relation to such furniture or goods and the Mortgagee shall account to the
Mortgagor for the proceeds of any such sale after deducting any such expenses.





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8. NEW ACCOUNTS

If the Mortgagee receives notice of any subsequent mortgage, pledge, charge,
lien, encumbrance or other security or other interest affecting the Secured
Property, the Mortgagee may open a new account or accounts in the name of the
Mortgagor; if the Mortgagee does not open a new account it shall nevertheless
be treated as if it had done so at the time when it received notice and as from
that time all payments made by or on behalf of the Mortgagor to the Mortgagee
shall be credited or be treated as having been credited to the new account or
such of the new accounts as the Mortgagee may determine and shall not operate
to reduce the amount(s) due from the Mortgagor to the Mortgagee at the time
when it received such notice.

9. RECEIVERS

(A) At any time after this security shall have become enforceable or at the
request of the Mortgagor the Mortgagee may by writing under the hand
of any officer of the Mortgagee appoint any person or persons to be
receiver or receivers of the Secured Property and, in the case of an
appointment of more than one person, to perform and carry out any act
required or authorised under any enactment together or independently of
the other or others upon such terms as the Mortgagee may think fit and
none of the restrictions imposed by the Law of Property Act, 1925 in
relation to the appointment of receivers or to the giving of notice or
otherwise shall apply. The Mortgagee may at any time and from time to
time in like manner and in accordance with applicable law remove any
receiver so appointed and appoint another in his place or appoint an
additional person as receiver and may either at the time of appointment
or at any time thereafter and from time to time fix the remuneration of
any receiver so appointed. Any receiver so appointed shall be the agent
of the Mortgagor for all purposes and the Mortgagor shall be solely
responsible for his acts or defaults and for his remuneration. Any
receiver so appointed shall have the following powers, whether
immediately or at any later time (and before as well as after the
winding up or liquidation of the Mortgagor) in addition and without
limitation to any powers conferred upon a receiver by statute or common
law:-

(i) to grant any lease or tenancy or right or easement of,
relating to or affecting the Secured Property for such term
or terms of years at any or no rent and with or without any
fine or premium and generally on such terms as he shall in
his absolute discretion think fit and accept the surrender
of any lease or tenancy or right or easement on such terms
as he shall in his absolute discretion think fit and give an
effectual and valid receipt for any fine or premium payable
on any such grant or surrender as aforesaid and to amend or
vary on such terms as he shall in his absolute discretion
think fit any lease, licence, agreement or other arrangement
in any way relating to or affecting the Secured Property;

(ii) to sell (whether by public auction or private contract or
otherwise) or





5


otherwise convey the Secured Property on such terms as he
shall in his absolute discretion think fit;

(iii) to grant options to purchase, lease, license or dispose of
the Secured Property on such terms as he shall in his
absolute discretion think fit and whether such option shall
be contained in any lease or tenancy the receiver shall
grant or otherwise;

(iv) to enter upon or otherwise take possession of the Secured
Property, to repair, decorate, alter, improve, add to or
develop the same, to complete any development or building
thereon which may be unfinished and to settle, compound,
compromise or submit to arbitration any accounts or claims
arising out of the commencement, carrying on, completion or
determination of any such development or building;

(v) to redeem any mortgage, charge or other encumbrance on, over
or affecting the Secured Property or any part thereof on
such terms as he may think fit;

(vi) to effect, renew and maintain all such insurances in
relation to the Secured Property or in respect of any other
matter or thing in relation to his powers as he shall in his
absolute discretion think fit;

(vii) to take possession of, collect and get in the Secured
Property and, for these purposes, to take such proceedings
as he may, in his absolute discretion, think fit;

(viii) to raise or borrow money from any person (including the
Mortgagee) and to secure payment of money (whether or not
in priority to the moneys hereby secured) for any of the
purposes set out in this Clause in such manner as he shall
in his absolute discretion think fit;

(ix) generally to use the Mortgagor's seal and the name of the
Mortgagor in the exercise of all or any of the powers
conferred hereby or by statute or common law and to execute
in the name of the Mortgagor and on its behalf any deed,
receipt or other document and to do all such other acts and
things as he may consider necessary or desirable in his
absolute discretion for the protection, improvement or
realisation of the Secured Property;

(x) to make or exercise an election pursuant to paragraph 2 of
Schedule 10 to the Value Added Tax Act 1994 in relation to
the Secured Property or any option or right of election
available to the Mortgagor or the Mortgagee or the receiver
that the supplies made in respect of any lease or tenancy of
any part of the Secured Property shall be supplies
chargeable or taxable for value added tax purposes at the
standard or other applicable rate provided





6


always that neither the Mortgagee nor the receiver shall be
liable for any loss suffered by the Mortgagor as a result
thereof and to execute and do all documents, acts and things
as may be necessary to permit any disposal of the Secured
Property to be zero-rated for the purposes of value added
tax;

(xi) to exercise all such powers as may be expressed to be
conferred upon any receiver by the terms of any mortgage,
charge or other security at any time held by the Mortgagee
in respect of or in connection with all or any part of the
Secured Liabilities;

(xii) to employ for the purposes aforesaid such persons as he
shall in his absolute discretion think fit and to apply for
and obtain such approvals, permissions, consents and
licences to enter into and perform such contracts and
arrangements, to purchase such materials and to incur such
obligations as he shall in his absolute discretion think
fit; and

(xiii) to do all other things incidental to the exercise of all or
any of the powers conferred hereby or by statute or common
law.

Notwithstanding the granting of any petition or the passing of any
resolution for the winding up or liquidation of the Mortgagor, or any
other event, no such receiver shall act as agent of the Mortgagee
(unless the Mortgagee shall expressly appoint the receiver in writing
as its agent).

In this Legal Mortgage, any reference to a receiver shall be deemed to
include a reference to all or any one or more of any person or persons
appointed (and any additional person or persons appointed or
substituted) as receiver or administrative receiver or other receiver
or receiver and manager or manager.

(B) All moneys expended by the receiver shall be expenses of the
receivership and shall on demand be repaid by the Mortgagor with
interest thereon computed and compounded according to the usual
practice of the Mortgagee (so that interest shall be payable at such
rate as well after as before any judgment) and the Secured Property
shall in all respects stand as security for such sums and interest.

(C) The Mortgagor shall indemnify and keep indemnified the Mortgagee and
every receiver, attorney, manager, agent and other person appointed by
the Mortgagee pursuant to this Legal Mortgage and the Mortgagee , and
every such receiver, attorney, manager, agent and other person, shall
be entitled to be indemnified out of the Secured Property in respect of
all liabilities and expenses incurred directly or indirectly by any of
them in the execution or purported execution of any of the powers,
authorities or discretions vested in them or him hereunder and against
all actions, proceedings, claims, demands, damages, charges, costs,
expenses, losses and liabilities in respect of any matter or thing done
or omitted in the exercise or purported exercise of the powers
contained herein or in any relevant statute,





7


including the enforcement of this security, or occasioned by any breach
(whether before or after the enforcement of this security) by the
Mortgagor of any of its covenants or other obligations to the Mortgagee
under this Legal Mortgage and the Mortgagee and any such receiver,
attorney, manager, agent or other person may retain and pay all sums in
respect of the same out of any moneys received under the powers hereby
conferred save where such liabilities, expenses, actions, proceedings,
costs, claims and demands arise as a result of the negligence of or
wilful default by the person claiming to be so indemnified.

(D) All the powers, authorities and discretions conferred on a receiver
(whether or not an administrative receiver) appointed hereunder by the
provisions of, or pursuant to, this Legal Mortgage, shall (in addition)
be conferred on, and may be exercised by, the Mortgagee as mortgagee,
at any time after the security hereby created shall have become
enforceable (in whole or in part), free from all restrictions excluded
by this Legal Mortgage (including, without limitation, those
restrictions imposed on mortgagees by the Law of Property Act, 1925).

10. SALE OF FIXTURES

In the exercise of the powers hereby conferred the Mortgagee or any receiver
appointed by the Mortgagee may sever and sell plant and machinery and other
fixtures separately from the property to which they may be annexed without the
consent of the Mortgagor being obtained thereto.

11. APPLICATION OF MONEYS

All moneys received by any receiver appointed hereunder shall be applied by him
in the following order:-

(i) in payment of the costs, charges and expenses of and
incidental to the appointment of the receiver and the
exercise of all or any of his powers and of all outgoings
paid by him (including, where so required by statute, the
payment of preferential debts and all liabilities having
priority to this security);

(ii) in payment to the receiver of such remuneration as may be
agreed between him and the Mortgagee at or at any time and
from time to time after his appointment or such other
remuneration as is determined by the court;

(iii) in or towards satisfaction of the amount owing on this
security in such order as the Mortgagee in its absolute
discretion may from time to time determine (which
determination shall be conclusive) save that if so required
by the Mortgagee the same shall be credited to a suspense
account for so long and in such manner as the Mortgagee may
from time to time determine and the receiver may retain the
same for such period as the Mortgagee considers expedient
without any obligation to apply the





8

same or any part thereof in or towards the discharge of any
of the Secured Liabilities;

and the surplus (if any) shall be paid to the Mortgagor or other
persons entitled to it.

12. INCORPORATION OF POWERS

The powers conferred on mortgagees or receivers by the Law of Property Act,
1925, the Insolvency Act 1986, the Insolvency Rules 1986 (as amended) or by any
other statute (or orders, regulations, instruments or other subordinate
legislation made thereunder) now or hereafter in force shall apply to the
Mortgagee and any receiver appointed hereunder as if such powers were
incorporated herein except in so far as they are expressly or impliedly
excluded and where there is any ambiguity or conflict between the powers
contained in either such Act or such other statute or subordinate legislation
and those contained in this security, the terms of this security shall prevail.

13. COVENANT FOR FURTHER ASSURANCE AND POWER OF ATTORNEY

(A) The Mortgagor will upon notice in writing by the Mortgagee and at the
cost of the Mortgagor execute such documents and such further or other
mortgages, charges, assignments or assurances in such form and on such
terms as the Mortgagee may reasonably require in respect of the
Secured Property, and deliver all conveyances, deeds, certificates and
documents and do such acts, matters or things as the Mortgagee may
reasonably require to perfect or protect the security hereby created or
any of it and after the moneys hereby secured shall have become payable
for facilitating the realisation of the Secured Property and for
exercising all powers, authorities and discretions hereby conferred
upon the Mortgagee or any receiver appointed by it.

(B) The Mortgagor hereby irrevocably and by way of security appoints the
Mortgagee and any person nominated in writing under the hand of any
officer of the Mortgagee including every receiver appointed hereunder
as joint and several attorney of the Mortgagor for the Mortgagor and in
its name and on its behalf and as its act and deed and with full power
of substitution and delegation (before as well as after the winding up,
liquidation, dissolution, receivership, administration, insolvency or
bankruptcy of the Mortgagor) to execute, seal and deliver or perfect
and do or make any deed, assurance, agreement, instrument, act or thing
which the Mortgagor ought to execute and do under the covenants,
undertakings and provisions herein contained or which may be required
or deemed proper by the Mortgagee , in its absolute discretion, for any
of the proper purposes of this security including (without
limitation):-

(i) instituting, prosecuting, defending or contesting in the
name of the Mortgagor and on its behalf any litigation,
arbitration, or proceedings (by whomsoever and wheresoever
commenced) relating to the whole or any





9


part or parts of the Secured Property and/or taking any
other step in the name of the Mortgagor and on its behalf in
relation thereto; and/or

(ii) in the name of the Mortgagor and on its behalf, applying for
relief (or contesting or defending any application for
relief) against forfeiture of any lease or underlease under
which the Mortgagor holds the Secured Property (or to which
the Mortgagor's right, title or interest in such property
is, at any time, subject), registering a pending land action
and/or caution (as appropriate) in relation to such
application and/or taking such other steps and doing such
other acts or things or executing such deeds or other
documents in relation to such application as the Mortgagee
may in its absolute discretion think fit.

The Mortgagor hereby ratifies and confirms, and agrees to ratify and
confirm, whatsoever its attorneys appointed hereunder (and any of them)
shall do, or purport to do, in the exercise, or purported exercise, of
all or any of the rights or powers vested in them hereunder.

14. NO LIABILITY

Neither the Mortgagee nor any receiver, attorney, manager, agent or other
person appointed hereunder shall be liable to account as mortgagee in
possession in respect of the Secured Property or be liable for any loss upon
realisation or for any neglect or default of any nature whatsoever in
connection with the Secured Property for which a mortgagee in possession might
as such be liable or be under any duty of care or other obligations of
whatsoever description to the Mortgagor in relation to or in connection with
the exercise of any power, authority or discretion conferred upon the Mortgagee
or any receiver, attorney, manager, agent or other person as aforesaid and any
liability on the part of the Mortgagee or any such receiver, attorney,
manager, agent or other person to the Mortgagor arising as the result of or in
consequence of any breach of any duty or obligation that may arise
notwithstanding the provisions hereof is hereby excluded (save in the case of
negligence or wilful default and save insofar as and to the extent that any
such exclusion shall be prohibited or rendered invalid by law).

15. NOTICES

(A) Any notice, demand or other communication to be served under this Legal
Mortgage will be in writing and will be served only by posting by
airmail or by personally delivering the same or sending the same by
facsimile to the address of the relevant party appearing on the
signature page below or at such other address as shall ne notified from
time to time in writing to the other party.

(B) A notice or demand shall be deemed duly served only on receipt unless
received on a non-business day or after 5.00pm in the place of receipt
in which case it will be deemed served at 9.00am on the following
business day in the place of receipt.





10


(C) Any notice to be served by the Mortgagor on the Mortgagee shall be
deemed duly served if served, in all other respects in accordance with
this Clause 20, on a member of the Mortgagor's board of directors who
has been appointed to the board by the Mortgagee.

16. NO WAIVER

No delay or omission of the Mortgagee in exercising any right, power,
privilege or remedy hereunder shall impair such right, power, privilege or
remedy or be construed as a waiver of such right, power, privilege or remedy
nor shall any single or partial exercise of any right, power, privilege or
remedy preclude any further exercise thereof or the exercise of any other
right, power, privilege or remedy. The rights and remedies of the Mortgagee
herein provided are cumulative and not exclusive of any rights, powers,
privileges or remedies provided by law. Any waiver by the Mortgagee of any
term of this Legal Mortgage, and any consent or approval given by the Mortgagee
under or in relation to it, shall only be effective if given in writing and
then only for the purpose for which, and upon the terms and conditions (if any)
on which, it is given.

17. CONTINUING SECURITY

This security shall be a continuing security notwithstanding the death,
bankruptcy, winding-up, dissolution or incapacity of the Mortgagor or any
settlement of account or other matter whatsoever and is in addition to and
shall not merge with or otherwise release, prejudice or affect any contractual
or other right or remedy or any other security now or hereafter held by or
available to the Mortgagee and shall not be in any way released, prejudiced or
affected thereby or by the invalidity thereof or by the Mortgagee now or
hereafter dealing with, exchanging, releasing, varying or abstaining from
perfecting or enforcing any of the same or any rights which it may now or
hereafter have or giving time for payment or indulgence or compounding with the
Mortgagor or any other person or making or abstaining from making any demand
for payment on the Mortgagor or any other person.

18. NO DUTY TO ENQUIRE

No purchaser, receiver, mortgagor or other person or company shall be concerned
to inquire whether any power exercised or purported to be exercised by the
Mortgagee or any receiver appointed by it or any of the Mortgagee 's or such
receiver's officers, agents or attorneys has arisen or become exercisable or
whether any money is due on the security hereof or whether any demand has been
made hereunder or as to the propriety or regularity of any demand, notice, sale
or other dealing or action by the Mortgagee or any receiver appointed by it or
any of the Mortgagee 's or such receiver's officers, agents or attorneys but
shall be entitled to rely for all purposes on a certificate of the Mortgagee as
to the validity, propriety and regularity thereof.





11


19. THE MORTGAGEE'S CERTIFICATE

The certificate of the Mortgagee as to the amount at any time secured hereby
shall save in the case of manifest error to be conclusive as against the
Mortgagor.

20. SEVERABILITY OF PROVISIONS

The illegality, invalidity, unenforceability or lack of binding effect of any
provision of this Legal Mortgage under the law of any jurisdiction shall not
affect its legality, validity, enforceability or binding effect under the law
of any other jurisdiction or the legality, validity, enforceability or binding
effect of any other provision of this Legal Mortgage.

21. INTERPRETATION

(A) In this Legal Mortgage, unless the context otherwise requires:-

(i) any reference to a "person" shall include any person, firm,
body corporate or unincorporated body of persons;

(ii) any reference to the masculine gender shall include the
feminine gender and the neuter gender and vice versa;

(iii) any reference to the singular shall include the plural and
vice versa;

(iv) any reference to a statutory or other legislative provision
shall be construed as a reference thereto as amended,
varied, re-enacted or substituted (whether before or after
the date hereof) and shall include any provision of which it
is a re-enactment or substitute;

(v) any reference to winding up, liquidation, dissolution,
receivership, administration, insolvency or bankruptcy or
any other insolvency or bankruptcy event shall be deemed to
constitute a reference also to any event which, in the
opinion of the Mortgagee , appears to correspond thereto or
appears to be similar thereto in any country or territory in
which the Mortgagor is incorporated or carries on business
or to the jurisdiction of whose courts the Mortgagor or any
part of the assets of the Mortgagor is subject; and

(vi) any reference to this Legal Mortgage or to any other
agreement, deed or document shall be to the same as it may
have been or may be amended, varied, modified, supplemented,
assigned or novated.

(B) Clause headings and sub-headings in this Legal Mortgage are for
convenience only and shall not affect its interpretation.

(C) Each term in any document relating to the Secured Liabilities is, to
the extent not





12


set out in or otherwise incorporated into this Legal Mortgage,
incorporated into this Legal Mortgage insofar as is necessary to comply
with Section 2 of the Law of Property (Miscellaneous Provisions) Act
1989.

22. GOVERNING LAW AND SUBMISSION TO JURISDICTION

(A) This Legal Mortgage shall be governed by and construed in accordance
with English law.

(B) The Mortgagor hereby irrevocably agrees for the sole benefit of the
Mortgagee that the English courts are to have jurisdiction to settle
any suit, action or proceedings which may arise out of or in connection
with this Legal Mortgage and, accordingly, any suit, action or
proceedings so arising (in this Clause referred to as "Proceedings")
may be brought in such courts and the Mortgagor hereby submits to the
jurisdiction of such courts. Without limitation, the parties further
irrevocably agree that any Proceedings may be brought in the courts of
such other jurisdiction or jurisdictions as the Mortgagee may from time
to time select and the Mortgagor hereby waives absolutely any immunity
to which it or its assets may be entitled in any jurisdiction and any
objection which it may have now or in the future to the English or any
such other courts being nominated for the purpose of this Clause on the
ground of venue or otherwise and agrees not to claim that any such
court is not a convenient or appropriate forum. The Mortgagor hereby
appoints Omega (UK) Limited of 145 Cannon Street, London EC4N 5BP as
its agent for the service of process in the United Kingdom in
connection with this Legal Mortgage.

IN WITNESS WHEREOF the Mortgagor and the Mortgagee have executed this Legal
Mortgage as a deed on the day and year first before written.





13


THE SCHEDULE

MORTGAGED PROPERTY



1. HEATH HOUSE NURSING HOME

The freehold land known as 81 Walkers Heath Road, Kings Norton
registered under title number WM462217.

2. WOODBURY HOUSE NURSING AND RESIDENTIAL CARE HOME

The freehold land lying to the east of Jouldings Lane, Swallowfield
registered under title number BK305851 and that part of the land on the
east side of the said Jouldings Lane registered under title number
BK255956 as is more particularly described in the Operating Lease dated
the date of this Legal Mortgage.

3. MILLWATER NURSING HOME

The freehold land being 164, 166 and 168 Waterloo Road, Haymills
registered under title number WM381069 and WM371223.

4. WYNCROFT HOUSE NURSING AND RESIDENTIAL CARE HOME

The freehold land being land lying to the west of Penzer Street,
Kingswinford registered under title number WM455533; 16 Moss Grove,
Kingswinford registered under title number WM229662; land at the rear
21 Penzer Street, Kingswinford registered under title number WM455056;
land lying to the east side of Moss Grove, Kingswinford registered
under title number WM455534; and land lying to the west of Penzer
Street Kingsford registered under title number WM455536

5. MURDOCH HOUSE RESIDENTIAL CARE HOME

The freehold land being 1 Murdoch Road, Wokingham registered under
title number BK121361.

6. RUGBY NURSING AND RESIDENTIAL CARE HOME

The freehold land being 53 Clifton Road, Rugby registered under title
number WK295672.

7. OAKLANDS NURSING HOME

The freehold land being 4 Oakland Road, Moseley, Birmingham registered
under title numbers WM384485 and WM76247, the land lying to the north
west of





14


Anderton Park Road, Moseley, Birmingham registered under title numbers
WM427547, WM448608 and 6a, 6b and 6c Oakland Road, Moseley, Birmingham
registered respectively under title numbers WK94998, WM400896 and
WK49890


8. RUSHALL NURSING HOME

The freehold land being 204 Lichfield Road, Rushall, Walsall WS4 1SA
registered under title number WM422598.

9. SELLY PARK NURSING HOME

The freehold land being 133 and 157 Selly Park Road, Selly Park,
Birmingham registered under title number WM389154 and land at the back
of 133 and 157 Selly Park Road, Selly Park, Birmingham registered under
title number WM389152.

10. TUDOR HILL NURSING HOME

The freehold land being 11 Tudor Hill, Sutton, Coldfield registered
under title number WM159338.

11. TUDOR GRANGE RESIDENTIAL CARE HOME

The freehold land being Tudor Grange, Main Road, Radcliffe-on-Trent,
Nottingham registered under title number NT155409.

12. WOOD VIEW NURSING AND RESIDENTIAL CARE HOME

The freehold land being Wood View, 127 Lincoln Road, Branston,
Lincolnshire registered under title numbers LT93202 and LL91827.

13. CRANMER HOUSE NURSING HOME

The freehold land being Cranmer House, 50-55 Beeton Road, Winson Green,
Birmingham registered under title number WM205354.

14. THE ROYD NURSING HOME

The freehold land being 23, Selborne Road, Handsworth Wood, Birmingham
registered under title number WM111056; 23 and 25 Selborne Road,
Handsworth Wood, Birmingham registered under title number WM85461; 27
Selborne Road, Handsworth Wood, Birmingham registered under title
number WK91695.





15



15. PORTLAND HOUSE RESIDENTIAL CARE HOME

The freehold land being Portland House, 113 & 146 Portland Road,
Nottingham registered under title numbers NT231614 and NT95784.

16. BARLEYCOMBE RESIDENTIAL CARE HOME

The freehold land being Barleycombe Residential Home, Sudbury Road,
Long Melford, Suffolk registered under title number SK117879.

17. FRIDAY HOUSE RESIDENTIAL CARE HOME

The freehold land being Friday House, Cambridgeshire registered under
title number CB197176.

18. ST. GERMANS HALL RESIDENTIAL CARE HOME

The freehold land being St. Germans Hall, Wiggenhall St Germans, Kings
Lynn registered under title number NK192942; Abbotsford, Wiggenhall St
Germans, Kings Lynn registered under title NK112337 and land at
Whitehall, Wiggenhall St Germans, Kings Lynn registered under title
number NK148826.

19. SUNBRIDGE NURSING HOME

The freehold land on the south side of Hickory Close, Edmonton
registered under title number EGL346949.

20. HOPES GREEN CARE CENTRE

The freehold land being 10 Brook Road, South Benfleet, Castlepoint,
Essex registered under title number EX85951.

21. DURBAN HOUSE NURSING HOME

The freehold land being Durban House Nursing Home, Hodgson's Road,
Blyth, Northumberland registered under title number ND24096.

22. PARKLANDS NURSING HOME

The freehold land being Parklands Nursing Home, Broom Lane, Salford,
Greater Manchester registered under title number GM420140.





16


SIGNED by )
acting under the authority )
of PRINCIPAL HEALTHCARE )
FINANCE LIMITED )
and thereby EXECUTED )
by PRINCIPAL HEALTHCARE )
FINANCE LIMITED as a DEED )

[SIG]
.............................. Director in the presence of Isabella Roberts

and also thereby SIGNED by such person on behalf of PRINCIPAL HEALTHCARE
FINANCE LIMITED.



SIGNED by )
acting under the authority of )
OMEGA HEALTHCARE )
INVESTORS, INC. )
and thereby EXECUTED by )
OMEGA HEALTHCARE )
INVESTORS, INC. as a DEED )

.............................. Director

and also thereby SIGNED by such person on behalf of OMEGA HEALTHCARE INVESTORS,
INC.





17