10-K: Annual report pursuant to Section 13 and 15(d)

COMPENSATION AGREEMENT



This Agreement is made this 15th day of June, 2000, by and between
Omega Healthcare Investors, Inc., a Maryland corporation (the "Company"), and F.
Scott Kellman (the "Officer" or "you") and describes certain compensation and
benefits to which you will become entitled following the purchase on or before
August 31, 2000, by Explorer Holdings, L.P. from the Company of preferred stock
for at least $100,000,000 (the "Transaction").

1. Effectiveness. The effectiveness of this Agreement is contingent upon the
completion of the Transaction and the approval of the Company's
shareholders of the "2000 Plan" (as defined in paragraph 10) and the
approval of the Compensation Committee contemplated by paragraphs 5 and 6
below. You must be employed on the date of the Transaction to receive any
of the compensation or benefits described in this Agreement. The
compensation and benefits pursuant to this Agreement, including without
limitation the transaction bonus and severance pay provided herein, are in
part consideration for your agreement to terminate the Change in Control
Agreement described in paragraph 9 hereof as of the date of the occurrence
of the Transaction.

2. Continued Services. The compensation and benefits under this Agreement are
to be provided to you, in part, to assure your continued services.
Accordingly, you agree that you will work for the Company for at least six
months after the Transaction, except if your employment is terminated by
the Company without Cause or you Quit with Good Reason, or die or become
disabled (within the meaning of any Company disability plan or policy).

3. Transaction Bonus. You will receive a cash bonus of $200,000 upon
completion of the Transaction.

4. Annual Salary and Annual Bonus. As of the date of the Transaction, your
annual salary will be $285,000 with an increase to at least $300,000
effective January 1, 2001. Your annual salary will be reviewed by the
Compensation Committee for possible adjustment as of January 1, 2002, and
will be reviewed by the Compensation Committee for possible adjustment at
least annually thereafter. You will have an annual bonus opportunity for up
to 100% of annual salary. The bonus criteria for 2000 will generally be
consistent with past practice and will not be offset by the Transaction
Bonus. The bonus criteria for 2001 and thereafter will be established by
the Compensation Committee, in consultation with you, within the first
ninety (90) days of the fiscal year for which the bonus is earned.

5. Stock Option. A nonqualified stock option will be granted to you, in
substantially the form attached hereto as an Exhibit, subject to
shareholder approval of the 2000 Plan and Compensation Committee approval
of the option, and completion of the Transaction, to purchase 500,000
shares of common stock of the Company. The option will vest as to 30% of
the shares at December 31, 2001, and as to 1/60th (one-sixtieth) of the
shares each month thereafter, provided that (except as provided in
paragraph 10 below) no further vesting will occur after the date your
employment is terminated. The exercise price will be the greater of the
opening trading price per share of the Company's common stock as of the
date of closing of the Transaction or the dollar amount per share of common
stock into which each share of the Series C preferred stock purchased in
the Transaction is convertible as of the date of the closing of the
Transaction. Notwithstanding any other provision hereof, in the event of
any inconsistency between the terms of this Agreement and the stock option
agreement, the terms of the stock option agreement will govern. The Company
will register the 2000 Plan with the SEC pursuant to a Form S-8 or other
registration within a reasonable period (no later than six months)
following the date of the Transaction.

6. Dividend Equivalent Rights. Dividend equivalent rights will be granted to
you, in substantially the form attached hereto as an Exhibit, at the same
date as the stock option in paragraph 5 hereof is granted to you, and
subject to shareholder approval of the 2000 Plan and Compensation Committee
approval of the dividend equivalent rights, with respect to 500,000 shares
of common stock of the Company. The dividend equivalent rights will be
subject to the same vesting schedule as applies to the stock option in
paragraph 5 hereof. The dividend equivalent right with respect to each such
share will entitle you to accrue the dividends per share of common stock of
the Company paid to common shareholders of the Company in accordance with
the terms of the dividend equivalent rights agreement, provided that your
dividend equivalent rights per share will not exceed the greater of the
opening trading price of the Company's common stock as of the date of
closing of the Transaction or the dollar amount per share of common stock
into which each share of the Series C preferred stock purchased in the
Transaction is convertible as of the date of the closing of the
Transaction. Your dividend equivalent rights will not accrue in, or with
respect to dividends paid in, a fiscal quarter of the Company if the
Company does not achieve the "DER Performance Goal" in the preceding four
fiscal quarters. The DER Performance Goal means that funds from operations
available to holders of the Company's common stock and Class C preferred
stock as a percentage of the Company's average common and Class C preferred
equity (calculated in a manner consistent with NAREIT guidelines,
historical practices in presenting reports to the Board of Directors and in
establishing budget plans) equals or exceeds 6%. The accrued dividend
equivalent rights will be payable in cash and will be terminated in
accordance with the terms of the dividend equivalent rights agreement.
Notwithstanding any other provision of this Agreement, in the event of any
inconsistency between the terms of this Agreement and the dividend
equivalent rights agreement, the terms of the dividend equivalent rights
agreement will govern.

7. Restricted Stock Vesting. This Agreement confirms that your restricted
stock grant for 35,258 shares that you received as of February 10, 2000
will be 25% vested as of August 10, 2000 and will be 50% vested as of
February 10, 2001 as a result of the stock's trading price reaching the $8
level for the required period, subject to your satisfying the service
requirements (i.e., you work for the Company at least through the
applicable date, a "Change of Control" as defined in the Company's 1993
Stock Option and Restricted Stock Plan, as amended, occurs before then, or
you become vested pursuant to paragraph 10 of this Agreement).

8. Other Incentive Compensation. You will be eligible to participate in all
incentive compensation plans and programs that the Company offers to all or
substantially all of its executive officers.

9. Change in Control Agreement. You and the Company agree that: the occurrence
of the Transaction does not cause a "Change in Control" (as defined in the
Change in Control Agreement dated March 22, 2000, between you and the
Company (the "Change in Control Agreement"), a "Change of Control" (as
defined in the Company's 1993 Stock Option and Restricted Stock Plan), or a
change in control under any other plan, program, or arrangement of the
Company, to occur; such occurrence will not be deemed to result in a Change
in Control, Change of Control, or change in control, respectively,
thereunder; and you will not be entitled to any payment or benefits
thereunder. You and the Company agree that if you remain employed by the
Company as of the date of the occurrence of the Transaction, and the
approval of the Company's shareholders of the 2000 Plan and the approval of
the Compensation Committee contemplated by paragraphs 5 and 6 above are
obtained, the Change in Control Agreement is terminated and is void and of
no further force and effect as of the date of occurrence of the
Transaction.

10. Severance. In the event your employment is terminated by the Company
without Cause, or you Quit with Good Reason, in either event within five
years after the date of the Transaction, you will receive, in part as
severance pay and in part for the consulting services described in
paragraph 11 hereof, 200% of an amount equal to the sum of your highest
rate of annual base salary within the three years prior to your termination
of employment plus the average of your annual bonuses paid or payable
(determined without regard to any portion thereof that you may have elected
to defer) in the three fiscal years immediately before the date of your
termination of employment. The amount of your annual bonus for any such
fiscal year will not include any amount attributable to the transaction
bonus described in paragraph 3 hereof, or the dividend equivalent rights
described in paragraph 6 hereof, or the portion of the Cash Value of the
Restricted Stock Award with respect to the restricted stock award described
in paragraph 7 hereof as to which the price hurdle for vesting has not been
met, but will include the Cash Value of such Restricted Stock Award as to
which the price hurdle for vesting has been met, the Cash Value of the
Restricted Stock Award with respect to any other restricted stock award you
received that was paid before June 5, 2000 and during such year, and the
Cash Value of the Restricted Stock Award with respect to any other
restricted stock award you received that was paid after June 4, 2000 and
during such year to the extent that the Compensation Committee determines
prior to your receiving such award that the award directly offsets your
annual cash bonus that otherwise would have been paid to you. A portion of
your severance pay in an amount equal to your highest rate of annual base
salary within the three years prior to your termination will be paid to you
in substantially equal installments according to the Company's normal
payroll cycle in the 12 months after your termination of employment and the
balance of your severance pay will be paid to you in a lump sum within
fifteen days following your execution of the general release described
below. In addition, all of your deferred compensation units under the
Company's 1993 Deferred Compensation Plan, as amended ("Deferred
Compensation Units"), unvested restricted stock grants (other than any
portion of the restricted stock grant described in paragraph 7 hereof as to
which the price hurdle for vesting is not met), stock options and dividend
equivalent rights under the Company's 1993 Stock Option and Restricted
Stock Plan, as amended (the "1993 Plan") or the Company's 2000 Stock
Incentive Plan (the "2000 Plan") (and unless prohibited by the terms of any
other plan or agreement, unvested restricted stock grants and stock options
under such plan or agreement) will be fully vested in such event. In such
event, your stock options will be exercisable for such period after your
termination of employment as may be established pursuant to the terms of
the applicable stock option agreement. Your Deferred Compensation Units
will be paid pursuant to the terms of the 1993 Deferred Compensation Plan,
as amended.

The payment of all of the severance pay and vesting of all of the benefits
provided for in this paragraph 10 are expressly contingent upon your
executing and returning to the Company, within such period as may be
designated by the Company, a general release of all claims and covenant not
to sue in favor of the Company, its officers, directors, shareholders,
affiliates, successors and assigns and other related parties designated by
the Company, in such form as may be provided to you by the Company and your
not revoking such release within a seven day revocation period to be
provided for under the terms of such release. Such release will not apply
to any of the payments or benefits to which you are entitled to hereunder,
under any employee benefit plan (within the meaning of the Employee
Retirement Income Security Act of 1974), or any rights to indemnification
that you may have as an officer or former officer of the Company.

11. Consulting Services. In the event your employment is terminated by you or
the Company in circumstances entitling you to severance pay and benefits
pursuant to paragraph 10 hereof, you agree to be available for consultation
at times mutually convenient to you and the Company for a period of up to
one year following the date your employment terminates. The consideration
in paragraph 10 hereof is in part consideration for services and in part
severance pay.

12. Gross-Up Payment. In the event a severance payment is made to you under
paragraph 10 of this Agreement and it is determined that any payment (other
than the Gross-Up Payments provided for herein) or distribution by the
Company or any of its affiliates to or for your benefit, whether paid or
payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise pursuant to or by reason of any other agreement,
policy, plan, program or arrangement, or the lapse or termination of any
restriction on, or the vesting or exercisability of any of the foregoing (a
"Payment"), would be subject to the excise tax imposed by Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code") (or any
successor provision thereto) by reason of being "contingent on a change in
ownership or control" of the Company, within the meaning of Section 280G of
the Code (or any successor provision thereto) or to any similar tax imposed
by state or local law, or any interest or penalties with respect to such
excise tax (such tax or taxes, together with any such interest and
penalties, are hereafter collectively referred to as the "Excise Tax"),
then you will be entitled to receive an additional payment or payments (a
"Gross-Up Payment") in an amount such that, after payment by you of all
taxes (including any interest or penalties imposed with respect to such
taxes), including any Excise Tax, imposed upon the Gross-Up Payment, you
retain an amount of the Gross-Up Payment equal to the Excise Tax imposed
upon the Payments. For purposes of calculating the Gross-Up Payment, it
will be assumed that all taxable Payments you receive are taxed at the
highest marginal federal income tax rate and the highest state income tax
rate in which you reside, but without regard to any reduction in personal
exemptions or deductions associated with your level of income. All
determinations required to be made under this paragraph 12, including
whether an excise tax is payable by you and the amount of such excise tax
and any Gross-Up Payment, will be made by a nationally recognized firm of
certified public accountants selected by the Company in its sole
discretion.

13. Nonduplication. This Agreement is not intended to duplicate any
compensation or benefits to which you are entitled under any other plan,
program, agreement or arrangement. Therefore, in the event you are entitled
to any similar payments under the terms of any other plan, program,
agreement, or arrangement of the Company, your payments under this
Agreement will be correspondingly reduced.

14. No Mitigation. Except as provided in paragraph 13 hereof, no amounts or
benefits payable to you hereunder shall be subject to mitigation or
reduction by income or benefits you receive from other sources.

15. Nondisclosure Of Confidential Information. You agree not to disclose,
directly or indirectly to any third person any (a) Confidential Information
relating to Company's business during the term of your employment and for
two years after termination or (b) Trade Secrets for so long as they may be
protected by Michigan law.

16. Return of Materials. All Trade Secrets and Confidential Information,
including documents or tangible or intangible materials, including computer
data, provided to or obtained by you during the course of employment by the
Company which contain Trade Secrets and Confidential Information, are the
property of the Company (collectively, the "Materials"). You will not
remove from the Company's premises or copy or reproduce any Materials
(except as your employment by the Company shall require), and at the
termination of your employment, regardless of the reason for such
termination, you will leave with the Company, or immediately return to the
Company, all Materials or copies or reproductions thereof in your
possession, custody or control.

17. Not an Employment Agreement. This Agreement does not constitute an
employment agreement or an agreement to employ you for any definite period,
and you will remain an employee at-will.

18. Assignment. The rights and obligations of the Company under this Agreement
shall inure to the benefit of the Company's successors and assigns. This
Agreement may be assigned by the Company to any legal successor to the
Company or to an entity which purchases all or substantially all of the
assets of the Company. In the event the Company assigns this Agreement as
permitted by this Agreement and you remain employed by the assignee, the
"Company" as defined herein will refer to the assignee and you will not be
deemed to have terminated employment hereunder until you terminate
employment from the assignee.

19. Attorneys' Fees. If you prevail in such dispute, the Company will pay and
be financially responsible for all costs, expenses and reasonable
attorneys' fees incurred by you (or your estate in the event of your death)
in connection with any dispute associated with the interpretation,
enforcement or defense of your rights under this Agreement by litigation or
otherwise.

20. Withholding of Taxes. The Company may withhold from any amounts payable
under this Agreement all federal, state, city or other taxes as the Company
is required to withhold pursuant to any law or government regulation or
ruling.

21. Entire Agreement. This Agreement contains the entire understanding of the
parties with respect to the subject matter hereof.

22. Severability. In the event that one or more of the provisions of this
Agreement shall be or become invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not be affected thereby.

23. Governing Law. To the full extent controllable by stipulation of the
parties, this Agreement shall be interpreted and enforced under Michigan
law.

24. Amendment. This Agreement may not be modified, amended, supplemented or
terminated except by a written agreement between the Company and you.

25. Definitions. The capitalized terms used in this Agreement have the meanings
set forth below.

"Cause" means

(i) willful refusal to follow a lawful written order of the Board of
Directors of the Company;

(ii) willful misconduct or reckless disregard of your duties or of the
interest or property of the Company;

(iii intentional disclosure to an unauthorized person of Confidential
Information or Trade Secrets, which causes material harm to the
Company;

(iv) any act of fraud, misappropriation, dishonesty or act involving
moral turpitude; or

(v) conviction of a felony.

"Quit With Good Reason" means you resign within ninety (90) days
following the occurrence of any of the following events which occurs
without your written consent:

(i) the failure of the Board of Directors of the Company to reelect
you to your then existing office;

(ii) a substantial diminution in your title, position, authority or
responsibility or assignment to you of substantial duties or
substantial work responsibilities which are inconsistent with
your title, position, authority or responsibility;

(iii) any reduction in your base salary, annual bonus opportunity or a
material reduction in employee benefits; or

(iv) the relocation of the Company's headquarters or the primary place
at which you perform your duties to a location more than fifty
(50) miles from the location at which you previously performed
your duties;

provided, however, that you must give the Company written notice within
thirty (30) days following the occurrence of the event and the Company
will have fifteen (15) days to cure the same. If you fail to give such
notice or if the Company provides such cure, you will not be entitled
to terminate your employment due to a Quit with Good Reason.

Each separate event meeting the above requirements will allow you to
terminate your employment due to a Quit With Good Reason and your
failure to do so within ninety (90) days from the occurrence of such
event in any given case will act as a waiver with respect to your
rights to terminate your employment due to a Quit with Good Reason with
respect to the occurrence of that specific event, but will not prevent
you from terminating your employment due to a Quit With Good Reason if
a later event occurs which entitles you to do so, subject to the notice
and cure provisions.

"Cash Value of the Restricted Stock Award" means the trading price per
share of the class of stock subject to the restricted stock award
determined as of the grant date, multiplied by the number of shares of
restricted stock subject to that grant.

"Confidential Information" means data and information relating to the
business of the Company (which does not rise to the status of a Trade
Secret) which is or has been disclosed to you or of which the you
became aware as a consequence of or through your relationship to the
Company and which has value to the Company and is not generally known
to its competitors. Confidential Information shall not include any data
or information that has been voluntarily disclosed to the public by the
Company (except where such public disclosure has been made by you
without authorization) or that has been independently developed and
disclosed by others, or that otherwise enters the public domain through
lawful means.

"Trade Secrets" means Company information including, but not limited
to, technical or nontechnical data, formulas, patterns, compilations,
programs, devices, methods, techniques, drawings, processes, financial
data, financial plans, product plans or lists of actual or potential
customers or suppliers which: (i) derives economic value, actual or
potential, from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can obtain economic
value from its disclosure or use; and (ii) is the subject of efforts
that are reasonable under the circumstances to maintain its secrecy.

Agreed to as of the date first set forth above.



By: /s/ Essel W. Bailey, Jr.
--------------------------
Essel W. Bailey, Jr.
President and Chief Executive Officer
Omega Healthcare Investors, Inc.


By: /s/ F. Scott Kellman
-------------------------
F. Scott Kellman