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

Exhibit 10.2


EMPLOYMENT AGREEMENT
--------------------


THIS AGREEMENT (the "Agreement") to be effective as of 30th day of August,
2001 (the "Effective Date"), between Omega Healthcare Investors, Inc. (the
"Company"), Robert O. Stephenson (the "Executive").

INTRODUCTION
------------

The Company and the Executive desire to enter into this Agreement
confirming the terms of the Executive's employment.

NOW, THEREFORE, the parties agree as follows:

1. Terms and Conditions of Employment.
-----------------------------------

(a) Employment. During the Term, Company will employ the Executive, and the
Executive will serve as the Chief Financial Officer of the Company on a
full-time basis and will have such responsibilities and authority as may from
time to time be assigned to the Executive by the Chief Executive Officer of the
Company. The Executive will report to the Chief Executive Officer of the
Company. The Executive's primary office will be at the Company's headquarters in
such geographic location within the United States as may be determined by the
Company. The parties acknowledge that, although the Company's current
headquarters is in Ann Arbor, Michigan, it is anticipated that the headquarters
will be moved to Baltimore, Maryland on or before January 31, 2002.

(b) Exclusivity. Throughout the Executive's employment hereunder, the
Executive shall devote substantially all of the Executive's time, energy and
skill during regular business hours to the performance of the duties of the
Executive's employment, shall faithfully and industriously perform such duties,
and shall diligently follow and implement all management policies and decisions
of the Company; provided, however, that this provision is not intended to
prevent the Executive from managing his investments, so long as he gives his
duties to the Company first priority and such investment activities do not
interfere with his performance of duties for the Company. Notwithstanding the
foregoing,other than with regard to the Executive's duties to the Company, the
Executive will not accept any other employment during the Term, perform any
consulting services during the Term, or serve on the board of directors or
governing body of any other business, except with the prior written consent of
the Board of Directors. Further, the Executive agrees not to make any healthcare
related investments during the Term except as a passive investor.

2. Compensation.
-------------

(a) Base Salary. Beginning on the date of this Agreement, the Company shall
pay the Executive a base salary of $215,000 per annum, which base salary will be
subject to review effective as of January 1, 2003, and at least annually
thereafter, by the Company for possible increases. The base salary shall be
payable in equal installments, no less frequently than bi-monthly, in accordance
with the Company's regular payroll practices.

(b) Bonus. The Executive shall be eligible for an annual bonus of up to 50%
of the Executive's annual base salary ("Bonus"), which Bonus, if any, shall be
payable as soon as feasible following the year the Bonus is earned. The Bonus
criteria shall be determined in the discretion of the Compensation Committee of
the Board of Directors of the Company and shall consist of such objective,
subjective and personal performance goals as the Compensation Committee shall
determine appropriate. The Compensation Committee may prorate the Bonus for the
year ending December 31, 2001, for the partial year the Executive works in 2001.
The Bonus for any calendar year will be earned and accrued for that year only if
the Executive remains employed by the Company through the last day of the year.

(c) Stock Option. As of the Effective Date, the Company shall grant the
Executive stock options to purchase 200,000 shares of the common stock of the
Company at an exercise price per share equal to the weighted average trading
price of the Company's common stock as of the trading day immediately preceding
the Effective Date. A portion of the options will be designated as an "incentive
stock option" (within the meaning of Section 422 of the Internal Revenue Code
(the "Code")) as of the date of grant as to the maximum number of shares
permitted under Section 422(d) of the Code, based on the assumption, solely for
purposes of determining such maximum number, that the Executive remains employed
with the Company during the contemplated term of this Agreement and vests
accordingly pursuant to the vesting schedule set forth in the form of incentive
stock option agreement attached hereto as an Exhibit. The balance will be
designated as a nonqualified stock option as of the date of grant and vests
accordingly pursuant to the vesting schedule set forth in the form of
non-qualified stock option agreement attached hereto as an Exhibit. [With a
deemed exercise price of $2.76 per share and continuous employment through the
ISO Vesting Schedule (defined below), the portion of the options designated as
incentive stock options as of the date of grant would be for 181,155 shares
(i.e. 36,231 shares (or $100,000/$2.76) first vesting and exercisable in each of
2002, 2003, 2004, 2005 and 2006, as set forth below)] The "ISO Vesting Schedule"
shall mean (1) 36,231 shares vesting on December 31, 2002, (2) 36,231 shares
vesting each year thereafter on August 1, 2003, 2004 and 2005 and (3) 36,231
shares vesting on January 1, 2006. Such stock options shall be subject to the
terms of the stock option award agreements (attached hereto as Exhibits) and the
terms of the applicable stock option plan maintained by the Company.

(d) Expenses. The Executive shall be entitled to be reimbursed in
accordance with Company policy for reasonable and necessary expenses incurred by
the Executive in connection with the performance of the Executive's duties
hereunder on behalf of the Company; provided, however, the Executive shall, as a
condition of such reimbursement, submit verification of the nature and amount of
such expenses in accordance with the reasonable reimbursement policies from time
to time adopted by the Company. Until June 12, 2002, or the date the Company
relocates its headquarters to the Baltimore, Maryland area, if earlier, the
Company will reimburse the Executive for his reasonable travel expenses between
the Baltimore area and the Company's headquarters, and the Executive's
reasonable lodging and living expenses in the area of the Company's
headquarters.

(e) Vacation. The Executive shall be entitled to a minimum of three weeks
vacation in accordance with the terms of Company policy.

(f) Benefits. In addition to the benefits payable to the Executive
specifically described herein, the Executive shall be entitled to such benefits
as generally may be made available to all other executives of the Company from
time to time, including, but not limited to medical insurance; provided,
however, that nothing contained herein shall require the establishment or
continuation of any particular plan or program.

(g) Withholding. All payments pursuant to this Agreement shall be reduced
for any applicable state, local, or federal tax withholding obligations.

3. Term, Termination and Termination Payments.
-------------------------------------------

(a) Term. The term of this Agreement shall begin as of the Effective Date.
It shall continue through January 1, 2006 (the "Term").

(b) Termination. This Agreement and the employment of the Executive by the
Company hereunder may only be terminated: (i) by expiration of the Term; (ii) by
mutual agreement of the parties; (ii) by the Company without Cause; (iii) by the
Executive for Good Reason; (iv) by the Company or the Executive due to the
Disability of the Executive; (v) by the Company for Cause; or (vi) by the
Executive for any reason in his sole discretion, upon at least sixty (60) days
prior written notice to the Company. This Agreement shall also terminate
immediately upon the death of the Executive. Notice of termination by any party
shall be given prior to termination in writing and shall specify the basis for
termination and the effective date of termination. Notice of termination for
Cause by the Company or Good Reason by the Executive shall specify the basis for
termination for Cause or Good Reason, as applicable. The Executive shall not be
entitled to any payments or benefits after the effective date of the termination
of this Agreement, other than the base salary pursuant to Section 2(a) accrued
up to the effective date of termination, any unpaid earned and accrued Bonus, if
any, pursuant to Section 2(b), as provided under the terms of the stock option
referred to in Section 2(c), and expenses required to be reimbursed pursuant to
Section 2(d). The expiration of the Term shall not be deemed to result in
termination without Cause by the Company or termination for Good Reason by the
Executive.

(c) Termination by the Company without Cause or by the Executive for Good
Reason. In the event the employment of the Executive is terminated by the
Company without Cause or by the Executive for Good Reason, the Company will
continue to pay the Executive the sum of (i) his base salary pursuant to Section
2(a) hereof for a period of the shorter of (1) twelve months following the date
of termination or (2) the then remaining Term, in either case on the same
schedule as if the Executive had continued to perform services for such period
and (ii) an amount equal to the Bonus actually paid to Executive during the
prior year, paid in twelve monthly equal installments. In the event a
termination occurs under this Section 3(c) prior to the calculation of the
Executive's Bonus for 2001, then a deemed Bonus equal to $107,500 will be used
strictly for the purpose of calculating the severance payment hereunder. As a
condition to the payment of any severance pay hereunder, the Executive shall be
required to execute and not revoke within the revocation period provided
therein, the Release.

(d) Survival. The covenants in Sections 3(c), 4, 5, and 6 hereof shall
survive the termination of this Agreement and shall not be extinguished thereby.

4. Ownership and Protection of Proprietary Information.
----------------------------------------------------

(a) Confidentiality. All Confidential Information and Trade Secrets and all
physical embodiments thereof received or developed by the Executive while
employed by the Company are confidential to and are and will remain the sole and
exclusive property of the Company. Except to the extent necessary to perform the
duties assigned by the Company hereunder, the Executive will hold such
Confidential Information and Trade Secrets in trust and strictest confidence,
and will not use, reproduce, distribute, disclose or otherwise disseminate the
Confidential Information and Trade Secrets or any physical embodiments thereof
and may in no event take any action causing or fail to take the action necessary
in order to prevent, any Confidential Information and Trade Secrets disclosed to
or developed by the Executive to lose its character or cease to qualify as
Confidential Information or Trade Secrets.

(b) Return of Company Property. Upon request by the Company, and in any
event upon termination of this Agreement for any reason, as a prior condition to
receiving any final compensation hereunder (including any payments pursuant to
Section 3 hereof), the Executive will promptly deliver to the Company all
property belonging to the Company, including, without limitation, all
Confidential Information and Trade Secrets (and all embodiments thereof) then in
the Executive's custody, control or possession.

(c) Survival. The covenants of confidentiality set forth herein will apply
on and after the date hereof to any Confidential Information and Trade Secrets
disclosed by the Company or developed by the Executive prior to or after the
date hereof. The covenants restricting the use of Confidential Information will
continue and be maintained by the Executive for a period of two years following
the termination of this Agreement. The covenants restricting the use of Trade
Secrets will continue and be maintained by the Executive following termination
of this Agreement for so long as permitted by the governing law.

5. Non-Competition and Non-Solicitation Provisions.
------------------------------------------------

(a) The Executive agrees that during the Applicable Period, the Executive
will not (except on behalf of or with the prior written consent of the Company,
which consent may be withheld in Company's sole discretion), within the Area
either directly or indirectly, on his own behalf, or in the service of or on
behalf of others, engage in or provide managerial services or management
consulting services to, any Competing Business. The Executive acknowledges and
agrees that the Business of the Company will be conducted in the Area.

(b) The Executive agrees that during the Applicable Period, he will not,
either directly or indirectly, on his own behalf or in the service of or on
behalf of others solicit, divert or appropriate, or attempt to solicit, divert
or appropriate, to a Competing Business, any individual or entity which is an
actual or, to his knowledge, actively sought prospective client or customer of
the Company or any of its Affiliates (determined as of the date of termination
of employment) with whom he had material contact while he was an Executive of
the Company.

(c) The Executive agrees that during the Applicable Period, he will not,
either directly or indirectly, on his own behalf or in the service of or on
behalf of others, solicit, divert or attempt to solicit divert or encourage to
go to work for anyone other than the Company or its Affiliates, any person that
is a management level employee of the Company or an Affiliate.

(d) The Executive agrees that during the Applicable Period, he will not
take any action that is adverse to the commercial interests of the Company or
any of its Affiliates or make any statement (written or oral) that could
reasonably be perceived as disparaging to the Company or any person or entity
that he reasonably should know is an Affiliate of the Company or any statement
(written or oral) that is damaging to the commercial interests of the Company or
any person or entity that he reasonably should know is an Affiliate of the
Company.

(e) In the event that this Section 5 is determined by a court which has
jurisdiction to be unenforceable in part or in whole, it shall be deemed to be
revised to the minimum extent necessary to be enforceable to the maximum extent
permitted by law.

(f) Notwithstanding anything to the contrary contained herein, no provision
of this Section 5 will be enforceable if the Executive is terminated by the
Company without Cause.

6. Agreements with Former Employer or Business/Noninterference with Duties
-----------------------------------------------------------------------
/No Litigation.
---------------

The Executive hereby represents, warrants, and covenants that he is not and
shall not be, during the period of time which begins as of the Effective Date
and extends through the Term, subject to any employment or consulting agreement
or other document, with another employer or with any business as to which the
Executive's employment by the Company and provision of services in the capacity
contemplated herein would be a breach. The Executive hereby represents,
warrants, and covenants that he is not and shall not be subject to any agreement
which prohibits the Executive during the period of time which begins as of the
Effective Date and extends through the Term from any of the following: (i)
providing services for the Company in the capacity contemplated by this
Agreement; (ii) competing with, or in any way participating in a business which
includes the Company's business; (iii) soliciting personnel of such former
employer or other business to leave such former employer's employment or to
leave such other business; or (iv) soliciting customers of such former employer
or other business on behalf of another business. Further, the Executive is not
aware of the existence of any circumstances that could materially interfere with
his duties under this Agreement, and the Executive represents and warrants that
there is no pending or threatened litigation against him unrelated to
Executive's role as an officer at Integrated Health Services, Inc. and its
subsidiaries.

7. Remedies and Enforceability.
----------------------------

The Executive agrees that the covenants, agreements, and representations
contained in Sections 4, 5, and 6 hereof are of the essence of this Agreement;
that each of such covenants are reasonable and necessary to protect and preserve
the interests and properties of the Company; that irreparable loss and damage
will be suffered by the Company should the Executive breach any of such
covenants and agreements; that each of such covenants and agreements is
separate, distinct and severable not only from the other of such covenants and
agreements but also from the other and remaining provisions of this Agreement;
that the unenforceability of any such covenant or agreement shall not affect the
validity or enforceability of any other such covenant or agreements or any other
provision or provisions of this Agreement; and that, in addition to other
remedies available to it, including, without limitation, termination of the
Executive's employment for Cause, the Company shall be entitled to seek both
temporary and permanent injunctions to prevent a breach or contemplated breach
by the Executive of any of such covenants or agreements. Notwithstanding the
foregoing, in the event of a breach of the representation and warranty set forth
in Section 6 above (but not the covenant contained therein), the Company's sole
remedy shall be termination of the Executive's employment and such termination
shall be deemed to be for Cause.

8. Notice.
-------

All notices, requests, demands and other communications required hereunder
shall be in writing and shall be deemed to have been duly given if delivered or
if mailed, by United States certified or registered mail, prepaid to the party
to which the same is directed at the following addresses (or at such other
addresses as shall be given in writing by the parties to one another):

If to the Company: Omega Healthcare Investors, Inc.
900 Victors Way
Suite 350
Ann Arbor, MI 48108
Attn: Chairman

If to the Executive: Robert O. Stephenson
1401 Thorndon Drive
Bel Air, Maryland 21015

Notices delivered in person shall be effective on the date of delivery.
Notices delivered by mail as aforesaid shall be effective upon the third
calendar day subsequent to the postmark date thereof.

9. Miscellaneous.
--------------

(a) 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's business or to an entity that purchases all or substantially all of
the assets of the Company, but not otherwise without the prior written consent
of the Executive. In the event the Company assigns this Agreement as permitted
by this Agreement and the Executive remains employed by the assignee, the
"Company" as defined herein will refer to the assignee and the Executive will
not be deemed to have terminated his employment hereunder until the Executive
terminates his employment with the assignee. In addition, in the event the
Company assigns this Agreement as permitted, both the Company and assignee shall
remain liable to Executive for all payments to be made to Executive hereunder.
The Executive may not assign this Agreement.

(b) Waiver. The waiver of any breach of this Agreement by any party shall
not be effective unless in writing, and no such waiver shall constitute the
waiver of the same or another breach on a subsequent occasion.

(c) Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Michigan. The parties agree
that any appropriate state or federal court located in Ann Arbor, Michigan shall
have jurisdiction of any case or controversy arising under or in connection with
this Agreement and shall be a proper forum in which to adjudicate such case or
controversy. The parties consent to the jurisdiction of such courts.
Notwithstanding the foregoing, if requested by the Executive or the Company, in
connection with any relocation of the Company's headquarters to another state,
the parties will enter into an amendment to this Agreement to make it governed
by such state's laws and subject to the jurisdiction of the appropriate state or
federal courts located in such state.

(d) Entire Agreement. This Agreement embodies the entire agreement of the
parties hereto relating to the subject matter hereof and supersedes all oral
agreements, and to the extent inconsistent with the terms hereof, all other
written agreements.

(e) Amendment. This Agreement may not be modified, amended, supplemented or
terminated except by a written instrument executed by the parties hereto.

(f) Severability. Each of the covenants and agreements hereinabove
contained shall be deemed separate, severable and independent covenants, and in
the event that any covenant shall be declared invalid by any court of competent
jurisdiction, such invalidity shall not in any manner affect or impair the
validity or enforceability of any other part or provision of such covenant or of
any other covenant contained herein.

(g) Captions and Section Headings. Except as set forth in Section 10
hereof, captions and section headings used herein are for convenience only and
are not a part of this Agreement and shall not be used in construing it.

10. Definitions
-----------

(a) "Affiliate" means any person, firm, corporation, partnership,
association or entity that, directly or indirectly or through one or more
intermediaries, controls, is controlled by or is under common control with the
Company.

(b) "Applicable Period" means the period commencing as of the date of this
Agreement and ending the earlier of (i) twelve months after the termination of
the Executive's employment with the Company or any of its Affiliates or (ii) the
end of the Term.

(c) "Area" means such states where the Company and its Subsidiaries are, at
the time of Executive's termination, materially doing business, which states
presently include Alabama, Arizona, Arkansas, California, Colorado, Florida,
Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana,
Massachusetts, Michigan, Missouri, Nevada, New Hampshire, North Carolina, Ohio,
Oklahoma, Pennsylvania, Tennessee, Texas, Utah, Washington, and West Virginia,.

(d) "Business of the Company" means any business with the primary purpose
of leasing assets to healthcare operators, or financing the ownership or
operation of, senior housing, long-term care facilities, assisted living
facilities, retirement housing facilities, or other healthcare related real
estate.

(e) "Cause" the occurrence of any of the following events:

(i) willful refusal by the Executive to follow a lawful direction
of the CEO and/or the Board of Directors of the Company, provided the
direction is not materially inconsistent with the duties or
responsibilities of the Executive's position as Chief Financial
Officer of the Company, which refusal continues for a period of ten
(10) days after the CEO and/or the Board of Directors has again given
the direction in writing;

(ii) willful misconduct or reckless disregard by the Executive of
his duties or of the interest or property of the Company;

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

(iv) any act by the Executive of fraud, material
misappropriation, or crime involving moral turpitude;

(v) commission by the Executive of a felony; or

(vi) a material breach of this Agreement by the Executive,
provided that the nature of such breach shall be set forth with
reasonable particularity in a written notice to the Executive who
shall have ten (10) days following delivery of such notice to cure
such alleged breach, provided that such breach is, in the reasonable
discretion of the Board of Directors, susceptible to a cure.

(f) "Competing Business" means any person, firm, corporation, joint
venture, or other business that is engaged in the Business of the Company.

(g) "Confidential Information" means data and information relating to the
Business of the Company or an Affiliate (which does not rise to the status of a
Trade Secret) which is or has been disclosed to the Executive or of which the
Executive became aware as a consequence of or through his relationship to the
Company or an Affiliate and which has value to the Company or an Affiliate 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 or an Affiliate (except where such public disclosure has
been made by the Executive without authorization) or that has been independently
developed and disclosed by others, or that otherwise enters the public domain
through lawful means without breach of any obligations of confidentiality owed
to the Company or any of its Affiliates.

(h) "Disability" means the inability of the Executive to perform the
material duties of his position as Chief Executive Officer hereunder due to a
physical, mental, or emotional impairment, for a ninety (90) consecutive day
period or for aggregate of one hundred eighty (180) days during any three
hundred sixty-five (365) day period.

(i) "Good Reason" means the occurrence of all of the events listed in
either (i) or (ii) below:

(i) (A) the Company materially breaches this Agreement, including
without limitation, a material diminution of the Executive's
responsibilities as CFO as established in the sole discretion of the
CEO of the Company within the first 180 days of the Executive's
employment hereunder, as reasonably modified by the CEO from time to
time thereafter, such that the Executive would no longer have
responsibilities substantially equivalent to those of other CFO's at
companies with similar revenues and market capitalization;

(B) the Executive gives written notice to the Company of
the facts and circumstances constituting the breach of the Agreement
within ten (10) days following the occurrence of the breach;

(C) the Company fails to remedy the breach within ten (10)
days following the Executive's written notice of the breach; and

(D) the Executive terminates his employment and this
Agreement within ten (10) days following the Company's failure to
remedy the breach.

(ii)(A) the Company relocates the Executive's primary place of
employment to a new location (other than a location in the Ann Arbor,
Michigan area, or the Baltimore, Maryland area), that is more than
fifty (50) miles from its current location, without the Executive's
consent; or

(B) the Company fails to relocate its headquarters from Ann
Arbor, Michigan to Baltimore, Maryland prior to January 31, 2002; and

(C) the Executive provides the Company with written notice of
intent to terminate employment for a reason specified by the Executive
pursuant to Sections 10(ii)(A) or (B) above at least thirty (30) days
prior to the effective date of termination of employment.

(j) "Release" means a comprehensive release, covenant not to sue, and
non-disparagement agreement from the Executive in favor of the Company, its
executives, officers, directors, Affiliates, and all related parties, in such
form as the parties shall mutually agree .

(k) "Term" has the meaning as set forth in Section 3(a) hereof.

(l) "Trade Secrets" means information including, but not limited to,
technical or nontechnical data, formulae, 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.


[SIGNATURES ON FOLLOWING PAGE]





IN WITNESS WHEREOF, the Company and the Executive have each executed and
delivered this Agreement as of the date first shown above.

COMPANY:

OMEGA HEALTHCARE INVESTORS, INC.


By:/s/ C. TAYLOR PICKETT
----------------------------
C. Taylor Pickett, CEO


THE EXECUTIVE:



/S/ ROBERT O. STEPHENSON
----------------------



Exhibit
-------


INCENTIVE STOCK OPTION AWARD
PURSUANT TO THE OMEGA HEALTHCARE INVESTORS, INC.
2000 STOCK INCENTIVE PLAN

THIS AWARD is made as of the Grant Date, by OMEGA HEALTHCARE INVESTORS,
INC. (the "Company") to Robert O. Stephenson (the "Optionee").

Upon and subject to the Terms and Conditions attached hereto and
incorporated herein by reference, the Company hereby awards as of the Grant Date
to Optionee an incentive stock option (the "Option"), as described below, to
purchase the Option Shares.

A. Grant Date: August 30, 2001.

B. Type of Option: Incentive Stock Option.

C. Plan (under which Option is granted): Omega Healthcare Investors, Inc. 2000
Stock Incentive Plan.

D. Option Shares: All or any part of 181,155 shares of the Company's common
stock (the "Stock"), subject to adjustment as provided in the attached Terms and
Conditions.

E. Exercise Price: $2.76 per share, subject to adjustment as provided in the
attached Terms and Conditions. The Exercise Price is, in the judgment of the
Committee, not less than 100% of the Fair Market Value of a share of Stock on
the Grant Date.

F. Option Period: The Option may be exercised only during the Option Period
which commences on the Grant Date and ends, generally, on the earliest of:

(i) the tenth (10th) anniversary of the Grant Date;

(ii) ninety (90) days following the date the Optionee ceases to be an
employee of the Company or director of or consultant to the Company or an
"Affiliate" (as defined in the Plan) for any reason other than death,
"Disability" (as defined in the Plan) or termination of the Optionee's
service by the Company or an Affiliate with Cause;

(iii) the first anniversary of the date the Optionee ceases to be an
employee or director of or consultant to the Company or an Affiliate due to
death or Disability; or

(iv) ten (10) days after the date the Optionee is given notice by the
Company or an Affiliate that it is terminating his service for Cause;

provided, however, that the Option may only be exercised as to the vested
Option Shares determined pursuant to the Vesting Schedule. Note that other
restrictions to exercising the Option, as described in the attached Terms
and Conditions, may apply.

G. Vesting Schedule: The Option shall become vested in accordance with the
vesting schedule attached hereto as Schedule 1.

[Signature Page Follows]




IN WITNESS WHEREOF, the Company and Optionee have executed this Award as of
the Grant Date set forth above.

OMEGA HEALTHCARE INVESTORS, INC.


By: /s/ DANIEL DECKER
-------------------------
Daniel Decker, Chairman


OPTIONEE


/s/ ROBERT O. STEPHENSON
---------------------------




TERMS AND CONDITIONS TO THE
INCENTIVE STOCK OPTION AWARD
PURSUANT TO THE
OMEGA HEALTHCARE INVESTORS, INC.
2000 STOCK INCENTIVE PLAN

1. Exercise of Option. Subject to the provisions provided herein or in the
Award made pursuant to the Omega Healthcare Investors, Inc. 2000 Stock Incentive
Plan:

(a) The Option may be exercised with respect to all or any portion of
the vested Option Shares at any time during the Option Period by the
delivery to the Company, at its principal place of business, of (i) a
written notice of exercise in substantially the form attached hereto as
Exhibit 1, which shall be actually delivered to the Company no earlier than
thirty (30) and no later than ten (10) days prior to the date upon which
Optionee desires to exercise all or any portion of the Option (unless such
prior notice is waived by the Company) and (ii) payment to the Company of
the Exercise Price multiplied by the number of shares being purchased (the
"Purchase Price") in the manner provided in Subsection (b).

(b) The Purchase Price shall be paid in full upon the exercise of an
Option and no Option Shares shall be issued or delivered until full payment
therefor has been made. Payment of the Purchase Price for all Option Shares
purchased pursuant to the exercise of an Option shall be made in cash,
certified check, or, alternatively, as follows:

(i) by delivery to the Company of a number of shares of Stock
which have been owned by the Optionee for at least six (6) months
prior to the date of the Option's exercise, having a Fair Market
Value, as determined under the Plan, on the date of exercise either
equal to the Purchase Price or in combination with cash to equal the
Purchase Price; or

(ii) by receipt of the Purchase Price in cash from a broker,
dealer or other "creditor" as defined by Regulation T issued by the
Board of Governors of the Federal Reserve System following delivery by
the Optionee to the Committee (defined in the Plan) of instructions in
a form acceptable to the Committee regarding delivery to such broker,
dealer or other creditor of that number of Option Shares with respect
to which the Option is exercised.

Upon acceptance of such notice and receipt of payment in full of the Purchase
Price and any tax withholding liability, to the extent applicable, Company shall
cause to be issued a certificate representing the Option Shares purchased.

2. Withholding. To the extent the Option is deemed to be a Non-Qualified
Stock Option in accordance with Section 17, the Optionee must satisfy his
federal, state, and local, if any, withholding taxes imposed by reason of the
exercise of the Option either by paying to the Company the full amount of the
withholding obligation (i) in cash; (ii) by tendering shares of Stock which have
been owned by the Optionee for at least six (6) months prior to the date of
exercise having a "Fair Market Value" (as defined in plan) equal to the
withholding obligation; (iii) by electing, irrevocably and in writing (the
"Withholding Election"), to have the smallest number of whole shares of Stock
withheld by the Company which, when multiplied by the Fair Market Value of the
Stock as of the date the Option is exercised, is sufficient to satisfy the
amount of withholding tax; or (iv) by any combination of the above. Optionee may
make a Withholding Election only if the following conditions are met:

(a) The Withholding Election is made on or prior to the date on which
the amount of tax required to be withheld is determined (the "Tax Date") by
executing and delivering to the Company a properly completed Notice of
Withholding Election in substantially the form attached hereto as Exhibit
2; and

(b) any Withholding Election will be irrevocable; however, the
Committee (as defined in the Plan) may, in its sole discretion, disapprove
and give no effect to the Withholding Election.

3. Rights as Shareholder. Until the stock certificates reflecting the
Option Shares accruing to the Optionee upon exercise of the Option are issued to
the Optionee, the Optionee shall have no rights as a shareholder with respect to
such Option Shares. The Company shall make no adjustment for any dividends or
distributions or other rights on or with respect to Option Shares for which the
record date is prior to the issuance of that stock certificate, except as the
Plan or this Award otherwise provides.

4. Restriction on Transfer of Option and Option Shares. The Option
evidenced hereby is nontransferable other than by will or the laws of descent
and distribution, and, shall be exercisable during the lifetime of the Optionee
only by the Optionee (or in the event of his Disability, by his legal
representative) and after his death, only by legal representative of the
Optionee's estate or by a person who acquired the right to exercise such option
by bequest or inheritance or by reason of the death of the decedent,

5. Changes in Capitalization.

(a) The number of Option Shares and the Exercise Price shall be
proportionately adjusted for any increase or decrease in the number of
issued shares of Stock resulting from a subdivision or combination of
shares or the payment of a stock dividend in shares of Stock to holders of
outstanding shares of Stock or any other increase or decrease in the number
of shares of Stock outstanding effected without receipt of consideration by
the Company.

(b) In the event of a merger, consolidation, extraordinary dividend,
spin-off, sale of substantially all of the Company's assets or other
material change in the capital structure of the Company or a tender offer
for shares of Stock, or a Change in Control (each a "Corporate
Transaction"), the Committee shall take such action to make such
adjustments in the Option or the terms of this Award as the Committee, in
its sole discretion, determines in good faith is necessary to reflect the
terms of such Corporate Transaction so as to preserve the economic value of
the Option determined as of the date of the Corporate Transaction or the
Committee action, as the case may be, including, without limitation,
adjusting the number and class of securities subject to the Option, with a
corresponding adjustment made in the Exercise Price; substituting a new
option to replace the Option; or accelerating the termination of the Option
Period; or, terminating the Option in consideration of payment to Optionee
of the excess of the then Fair Market Value of the Option Shares over the
aggregate Exercise Price of the Option Shares. In determining economic
value, the Committee need not take into account the possibility of future
appreciation. Any determination made by the Committee pursuant to this
Section 5(b) will be final and binding on the Optionee. Any action taken by
the Committee need not treat all optionees equally.

(c) The existence of the Plan and this Award shall not affect in any
way the right or power of the Company to make or authorize any adjustment,
reclassification, reorganization or other change in its capital or business
structure, any merger or consolidation of the Company, any issue of debt or
equity securities having preferences or priorities as to the Stock or the
rights thereof, the dissolution or liquidation of the Company, any sale or
transfer of all or any part of its business or assets, or any other
corporate act or proceeding.

6. Special Limitations on Exercise. Any exercise of the Option is subject
to the condition that if at any time the Committee, in its discretion, shall
determine that the listing, registration or qualification of the shares covered
by the Option upon any securities exchange or under any state or federal law is
necessary or desirable as a condition of or in connection with the delivery of
shares thereunder, the delivery of any or all shares pursuant to the Option may
be withheld unless and until such listing, registration or qualification shall
have been effected. The Optionee shall deliver to the Company, prior to the
exercise of the Option, such information, representations and warranties as the
Company may reasonably request in order for the Company to be able to satisfy
itself that the Option Shares being acquired in accordance with the terms of an
applicable exemption from the securities registration requirements of applicable
federal and state securities laws.

7. Legend on Stock Certificates. Certificates evidencing the Option Shares,
to the extent appropriate at the time, shall have noted conspicuously on the
certificates a legend intended to give all persons full notice of the existence
of the conditions, restrictions, rights and obligations set forth in this Award
and in the Plan such as:

TRANSFER IS RESTRICTED

THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED,
OR HYPOTHECATED UNLESS (1) THERE IS AN EFFECTIVE REGISTRATION UNDER SUCH ACT
COVERING SUCH SECURITIES, (2) THE TRANSFER IS MADE IN COMPLIANCE WITH RULE 144
PROMULGATED UNDER SUCH ACT, OR (3) THE ISSUER RECEIVES AN OPINION OF COUNSEL,
REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER,
ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF SUCH
ACT.

Optionee agrees that the Company may also endorse any other legends it
deems necessary and advisable or as may be required by applicable federal or
state securities laws.

8. Governing Laws. This Award shall be construed, administered, and
enforced according to the laws of the State of Michigan; provided, however, no
option may be exercised except, in the reasonable judgment of the Board of
Directors, in compliance with exemptions under applicable state securities laws
of the state in which the Optionee resides, and/or any other applicable
securities laws.

9. Successors. This Award shall be binding upon and inure to the benefit of
the heirs, legal representatives, successors, and permitted assigns of the
parties.

10. Notice. Except as otherwise specified herein, all notices and other
communications under this Award shall be in writing and shall be deemed to have
been given if personally delivered or if sent by registered or certified United
States mail, return receipt requested, postage prepaid, addressed to the
proposed recipient at the last known address of the recipient. Any party may
designate any other address to which notices shall be sent by giving notice of
the address to the other parties in the same manner as provided herein.

11. Severability. In the event that any one or more of the provisions or
portion thereof contained in this Award shall for any reason be held to be
invalid, illegal or unenforceable in any respect, the same shall not invalidate
or otherwise affect any other provisions of this Award, and this Award shall be
construed as if the invalid, illegal or unenforceable provision or portion
thereof had never been contained herein.

12. Entire Agreement. Subject to the terms and conditions of the Plan, this
Award expresses the entire understanding and agreement of the parties. This
Award may be executed in two or more counterparts, each of which shall be deemed
an original but all of which shall constitute one and the same instrument.

13. Violation. Any transfer, pledge, sale, assignment, or hypothecation of
the Option or any portion thereof shall be a violation of the terms of this
Award and shall be void and without effect.

14. Headings. Paragraph headings used herein are for convenience of
reference only and shall not be considered in construing this Award.

15. Specific Performance. In the event of any actual or threatened default
in, or breach of, any of the terms, conditions, and provisions of this Award,
the party or parties who are thereby aggrieved shall have the right to specific
performance and injunction in addition to any and all other rights and remedies
at law or in equity, and all such rights and remedies shall be cumulative.

16. No Right to Continued Employment. Neither the establishment of the Plan
nor the award of Option Shares hereunder shall be construed as giving the
Optionee the right to continued employment.

17. Qualified Status of Option. The aggregate fair market value (determined
as of the date an Incentive Stock Option is granted) of the shares of Stock with
respect to which an Incentive Stock Option first becomes exercisable for the
first time by an individual during any calendar year (under all plans of the
individual's employer corporation and its parent and subsidiary corporations)
shall not exceed $100,000 (determined as of the date of grant). The Exercise
Price per share multiplied by the total number of Option Shares represents the
aggregate fair market value of the Option Shares. To the extent the foregoing
limitation is exceeded with respect to any portion of the Option Shares, such
portion of the Option shall be deemed a Non-Qualified Stock Option.

18. Definitions. As used in these Terms and Conditions and this Award,

(a) "Cause" has the definition set forth in the Employment Agreement
between the Company and the Employee dated August 1, 2001, as amended.

(b) Other undefined and capitalized terms shall have the meaning set
forth in the Omega Healthcare Investors, Inc. 2000 Stock Incentive Plan,
where the context reasonably permits.










EXHIBIT 1

NOTICE OF EXERCISE OF
STOCK OPTION TO PURCHASE
COMMON STOCK OF
OMEGA HEALTHCARE INVESTORS, INC.


Name:
---------------------------
Address:
------------------------

------------------------
Date:
------------------------

Omega Healthcare Investors, Inc.
900 Victors Way, Suite 350
Ann Arbor, Michigan 48108

Re: Exercise of Incentive Stock Option

Dear Sir or Madam:

Subject to acceptance hereof in writing by Omega Healthcare Investors,
Inc. (the "Company") pursuant to the provisions of the Omega Healthcare
Investors, Inc. 2000 Stock Incentive Plan, I hereby give at least ten (10) days
but not more than thirty (30) days prior notice of my election to exercise
options granted to me to purchase ______________ shares of Stock of the Company
under the Incentive Stock Option Award (the "Award") pursuant to the Omega
Healthcare Investors, Inc. 2000 Stock Incentive Plan dated as of ____________,
______. The purchase shall take place as of ____________, _____ (the "Exercise
Date").

On or before the Exercise Date, I will pay the applicable purchase
price as follows:

[ ] by delivery of cash or a certified check for $___________
for the full purchase price payable to the order of the
Company.

[ ] by delivery of a certified check for $___________
representing a portion of the purchase price with the balance
to consist of shares of Stock that I have owned for at least
six (6) months and that are represented by a stock certificate
I will surrender to the Company with my endorsement. If the
number of shares of Stock represented by such stock
certificate exceed the number to be applied against the
purchase price, I understand that a new stock certificate will
be issued to me reflecting the excess number of shares.

[ ] by delivery of a stock certificate representing shares of
Stock that I have owned for at least six (6) months which I
will surrender to the Company with my endorsement as payment
of the purchase price. If the number of shares of Stock
represented by such certificate exceed the number to be
applied against the purchase price, I understand that a new
certificate will be issued to me reflecting the excess number
of shares.

[ ] by delivery of the purchase price by ________________, a
broker, dealer or other "creditor" as defined by Regulation T
issued by the Board of Governors of the Federal Reserve
System. I hereby authorize the Company to issue a stock
certificate in the number of shares indicated above in the
name of said broker, dealer or other creditor or its nominee
pursuant to instructions received by the Company and to
deliver said stock certificate directly to that broker, dealer
or other creditor (or to such other party specified in the
instructions received by the Company from the broker, dealer
or other creditor) upon receipt of the purchase price.

As soon as the stock certificate is registered in my name, please deliver
it to me at the above address.

If the Stock being acquired is not registered for issuance to and resale by
the Optionee pursuant to an effective registration statement on Form S-8 (or
successor form) filed under the Securities Act of 1933, as amended (the "1933
Act"), I hereby represent, warrant, covenant, and agree with the Company as
follows:

The shares of the Stock being acquired by me will be acquired for my own
account without the participation of any other person, with the intent of
holding the Stock for investment and without the intent of participating,
directly or indirectly, in a distribution of the Stock and not with a view to,
or for resale in connection with any distribution of the Stock, nor am I aware
of the existence of any distribution of the Stock;

I am not acquiring the Stock based upon any representation, oral or
written, by any person with respect to the future value of, or income from, the
Stock but rather upon an independent examination and judgment as to the
prospects of the Company;

The Stock was not offered to me by means of any publicly disseminated
advertisements or sales literature, nor am I aware of any offers made to other
persons by such means;

I am able to bear the economic risks of the investment in the Stock,
including the risk of a complete loss of my investment therein;

I understand and agree that the Stock will be issued and sold to me without
registration under any state law relating to the registration of securities for
sale, and will be issued and sold in reliance on the exemptions from
registration under the 1933 Act, provided by Sections 3(b) and/or 4(2) thereof
and the rules and regulations promulgated thereunder;

The Stock cannot be offered for sale, sold or transferred by me other than
pursuant to: (A) an effective registration under the 1933 Act or in a
transaction otherwise in compliance with the 1933 Act; and (B) evidence
satisfactory to the Company of compliance with the applicable securities laws of
other jurisdictions. The Company shall be entitled to rely upon an opinion of
counsel satisfactory to it with respect to compliance with the above laws;

The Company will be under no obligation to register the Stock or to comply
with any exemption available for sale of the Stock without registration or
filing, and the information or conditions necessary to permit routine sales of
securities of the Company under Rule 144 under the 1933 Act may not now be
available and no assurance has been given that it or they will become available.
The Company is under no obligation to act in any manner so as to make Rule 144
available with respect to the Stock;

I have and have had complete access to and the opportunity to review and
make copies of all material documents related to the business of the Company,
including, but not limited to, contracts, financial statements, tax returns,
leases, deeds and other books and records. I have examined such of these
documents as I wished and am familiar with the business and affairs of the
Company. I realize that the purchase of the Stock is a speculative investment
and that any possible profit therefrom is uncertain;

I have had the opportunity to ask questions of and receive answers from the
Company and any person acting on its behalf and to obtain all material
information reasonably available with respect to the Company and its affairs. I
have received all information and data with respect to the Company which I have
requested and which I have deemed relevant in connection with the evaluation of
the merits and risks of my investment in the Company;

I have such knowledge and experience in financial and business matters that
I am capable of evaluating the merits and risks of the purchase of the Stock
hereunder and I am able to bear the economic risk of such purchase; and

The agreements, representations, warranties, and covenants made by me
herein extend to, and apply to, all of the Stock of the Company issued to me
pursuant to this Award. Acceptance by me of the certificate representing such
Stock shall constitute a confirmation by me that all such agreements,
representations, warranties, and covenants made herein shall be true and correct
at that time.

I understand that the certificates representing the shares being purchased
by me in accordance with this notice shall bear a legend referring to the
foregoing covenants, representations, warranties and restrictions on transfer,
and I agree that a legend to that effect may be placed on any certificate which
may be issued to me as a substitute for the certificates being acquired by me in
accordance with this notice.

Very truly yours,

-------------------------

AGREED TO AND ACCEPTED:

Omega Healthcare Investors, Inc.

By:
--------------------------
Title:
-----------------------
Number of Shares Exercised:
------------------------
Number of Shares Remaining: Date:___________
------------------------




EXHIBIT 2

NOTICE OF WITHHOLDING ELECTION
Omega Healthcare Investors, Inc.


TO: Omega Healthcare Investors, Inc.

FROM:
-----------------------
RE: Withholding Election


This election relates to the Option identified in Paragraph 3 below. I hereby
certify that:

(1) My correct name and social security number and my current
address are set forth at the end of this document.

(2) I am (check one, whichever is applicable)

[ ] the original recipient of the Option.

[ ] the legal representative of the estate of the original
recipient of the Option.

[ ] a legatee of the original recipient of the Option.

[ ] the legal guardian of the original recipient of the Option.

(3) The Option to which this election relates was issued under the Omega
Healthcare Investors, Inc. 2000 Stock Incentive Plan (the "Plan") in
the name of _________________________ for the purchase of a total of
_________ shares of Stock of the Company. This election relates to
_______________ shares of Stock issuable upon exercise of the Option,
provided that the numbers set forth above shall be deemed changed as
appropriate to reflect the applicable Plan provisions.

(4) In connection with any exercise of the Option with respect to the
Stock, I hereby elect:

[ ] To have certain of the shares issuable pursuant to the
exercise withheld by the Company for the purpose of having the
value of the shares applied to pay federal, state, and local,
if any, taxes arising from the exercise.

[ ] To tender shares held by me for a period of at least six (6)
months prior to the exercise of the Option for the purpose of
having the value of the shares applied to pay such taxes.

The shares to be withheld or tendered, as applicable, shall have, as of
the Tax Date applicable to the exercise, a Fair Market Value equal to
the minimum statutory tax withholding requirement under federal, state,
and local law in connection with the exercise.

(5) This Withholding Election is made no later than the Tax Date and is
otherwise timely made pursuant to the Plan.

(6) I understand that this Withholding Election may not be revised, amended
or revoked by me.

(7) I further understand that the Company shall withhold from the shares a
whole number of shares having the value specified in Paragraph 4 above,
as applicable.

(8) The Plan has been made available to me by the Company. I have read and
understand the Plan and I have no reason to believe that any of the
conditions to the making of this Withholding Election have not been
met.

(9) Capitalized terms used in this Notice of Withholding Election without
definition shall have the meanings given to them in the Plan.


Dated:
-------------- ---------------------------
Signature

---------------------- ---------------------------
Social Security Number Name (Printed)

---------------------------
Street Address

---------------------------
City, State, Zip Code











SCHEDULE 1

VESTING SCHEDULE FOR INCENTIVE
STOCK OPTION AWARD ISSUED PURSUANT TO THE
Omega Healthcare Investors, Inc.
2000 INCENTIVE STOCK OPTION PLAN


Vesting Schedule

The Option shall become vested as to 36,231 Option Shares (i.e., a number of
Option Shares equal to $100,000 divided by the Exercise Price per share) on each
of December 31, 2002, August 1, 2003, August 1, 2004, August 1, 2005, and
January 1, 2006, in each case provided the Optionee continues to be employed by
the Company through the applicable date.

Notwithstanding the foregoing, in the event of the Optionee's termination of
employment (i) by the Optionee for "Good Reason" (as defined in the Employment
Agreement between the Company and the Employee dated August 1, 2001 (the
"Employment Agreement")) within one year following a Change in Control or (ii)
by the Company without "Cause" (as defined in the Employment Agreement), 100% of
the Option Shares shall become vested. The vesting provided for in this
paragraph is expressly contingent upon the Employee executing and not revoking
the release, covenant not to sue, and non-disparagement agreement referred to in
Section 3(c) of the Employment Agreement.

"Change in Control" means the occurrence of any of the following events:

(i) any "Person" (as defined in Section 3(a)(9) of the Securities Exchange
Act of 1934 (the "Exchange Act") as modified and used in Sections 13(d)
and 14(d) of the Exchange Act), other than Explorer Holdings, L.P. or
Hampstead Investment Partners III, L.P. or either of their successors
or affiliates, is or becomes the "beneficial owner" (as defined in Rule
13d-3 of the Exchange Act), directly or indirectly, of equity
securities of the Company representing more than fifty percent (50%) of
the voting power or value of the Company's then outstanding voting
equity securities and controls the right to elect a majority of the
Board of Directors of the Company;

(ii) The consummation of a merger, consolidation, share exchange or other
reorganization in which the shareholders of the Company immediately
prior to the transaction do not own equity securities of the surviving
entity representing at least fifty percent (50%) of the combined voting
power or value of the surviving entity's then outstanding voting
securities immediately after the transaction and do not control the
right to elect a majority of the Board of Directors of the Company;

(iii) The sale or transfer of all or substantially all of the value of the
assets of the Company, in a single transaction, in a series of related
transactions, or in a series of transactions over any one year period;
or

(iv) A dissolution or liquidation of the Company.


Except as otherwise expressly provided above, the Optionee shall continue to
vest in the Option Shares only for those periods during which the Optionee
continues to be an employee of the Company or an Affiliate and any portion of
the Option Shares in which the Optionee is not vested as of his termination of
employment shall be forfeited.

Exhibit
-------


NON-QUALIFIED STOCK OPTION AWARD
PURSUANT TO THE OMEGA HEALTHCARE INVESTORS, INC.
2000 STOCK INCENTIVE PLAN


THIS AWARD is made as of the Grant Date, by OMEGA HEALTHCARE INVESTORS,
INC. (the "Company") to Robert O. Stephenson (the "Optionee").

Upon and subject to the Terms and Conditions attached hereto and
incorporated herein by reference, the Company hereby awards as of the Grant Date
to Optionee a non-qualified stock option (the "Option"), as described below, to
purchase the Option Shares.

A. Grant Date: August 30, 2001

B. Type of Option: Non-Qualified Stock Option.

C. Plan under which granted: Omega Healthcare Investors, Inc. 2000 Stock
Incentive Plan (the "Plan").

D. Option Shares: All or any part of 18,845 shares of the Company's common stock
(the "Common Stock"), subject to adjustment as provided in the attached Terms
and Conditions.

E. Exercise Price: $2.76 per share, subject to adjustment as provided in the
attached Terms and Conditions.

F. Option Period: The Option may be exercised only during the Option Period
which commences on the Grant Date and ends, subject to earlier termination as
provided in the attached Terms and Conditions, on the earliest of the following:

(i) the tenth (10th) anniversary of the Grant Date;

(ii) ninety (90) days following the date the Optionee ceases to be an
employee or director of or consultant to the Company or an "Affiliate" (as
defined in the Plan) for any reason other than death, Disability or
termination of the Optionee's service by the Company or an Affiliate for
Cause;

(iii) the first anniversary of the date the Optionee ceases to be an
employee or director of or consultant to the Company or an Affiliate due to
death or Disability; or

(iv) ten (10) days after the date the Optionee is given notice by the
Company or an Affiliate that it is terminating his service for Cause;

provided, however, that the Option may only be exercised as to the vested
Option Shares determined pursuant to the Vesting Schedule. Note that other
restrictions to exercising the Option, as described in the attached Terms
and Conditions, may apply.


G. Vesting Schedule: The Option Shares shall vest in accordance with the Vesting
Schedule attached hereto as Schedule 1.

[Signature Page Follows]




IN WITNESS WHEREOF, the Company and Optionee have executed this Award as of
the Grant Date set forth above.

OMEGA HEALTHCARE INVESTORS, INC.


By: /s/ DANIEL DECKER
---------------------------
Daniel Decker, Chairman


OPTIONEE

/s/ ROBERT O. STEPHENSON
-------------------------------







TERMS AND CONDITIONS TO THE
NON-QUALIFIED STOCK OPTION AWARD
PURSUANT TO THE
OMEGA HEALTHCARE INVESTORS, INC.
2000 STOCK INCENTIVE PLAN

1. Exercise of Option. Subject to the provisions provided herein or in the
Award made pursuant to the Omega Healthcare Investors, Inc. 2000 Stock Incentive
Plan:

(a) The Option may be exercised with respect to all or any portion of
the vested Option Shares at any time during the Option Period by the
delivery to the Company, at its principal place of business, of (i) a
written notice of exercise in substantially the form attached hereto as
Exhibit 1, which shall be actually delivered to the Company no earlier than
thirty (30) days and no later than ten (10) days prior to the date upon
which Optionee desires to exercise all or any portion of the Option and
(ii) payment to the Company of the Exercise Price multiplied by the number
of shares being purchased (the "Purchase Price") in the manner provided in
Subsection (b).

(b) The Purchase Price shall be paid in full upon the exercise of an
Option and no Option Shares shall be issued or delivered until full payment
therefor has been made. Payment of the Purchase Price for all Option Shares
purchased pursuant to the exercise of an Option shall be made in cash,
certified check, or, alternatively, as follows:

(i) by delivery to the Company of a number of shares of Common
Stock which have been owned by the Optionee for at least six (6)
months prior to the date of the Option's exercise, having a Fair
Market Value, as determined under the Plan, on the date of exercise
either equal to the Purchase Price or in combination with cash to
equal the Purchase Price; or

(ii) by receipt of the Purchase Price in cash from a broker,
dealer or other "creditor" as defined by Regulation T issued by the
Board of Governors of the Federal Reserve System following delivery by
the Optionee to the Committee (defined in the Plan) of instructions in
a form acceptable to the Committee regarding delivery to such broker,
dealer or other creditor of that number of Option Shares with respect
to which the Option is exercised.

Upon acceptance of such notice and receipt of payment in full of the
Purchase Price and any tax withholding liability, the Company shall
cause to be issued a certificate representing the Option Shares
purchased.

2. Withholding. The Optionee must satisfy federal, state and local, if any,
withholding taxes imposed by reason of the exercise of the Option either by
paying to the Company the full amount of the withholding obligation (i) in cash;
(ii) by tendering shares of Common Stock which have been owned by the Optionee
for at least six (6) months prior to the date of exercise having a "Fair Market
Value" (as defined in the Plan) equal to the withholding obligation; (iii) by
electing, irrevocably and in writing (the "Withholding Election"), to have the
smallest number of whole shares of Common Stock withheld by the Company which,
when multiplied by the Fair Market Value of the Common Stock as of the date the
Option is exercised, is sufficient to satisfy the amount of withholding tax; or
(iv) by any combination of the above. Optionee may make a Withholding Election
only if the following conditions are met:

(a) the Withholding Election is made on or prior to the date on which
the amount of tax required to be withheld is determined (the "Tax Date") by
executing and delivering to the Company a properly completed Notice of
Withholding Election in substantially the form attached hereto as Exhibit
2; and

(b) any Withholding Election will be irrevocable; however, the
Committee may, in its sole discretion, disapprove and give no effect to the
Withholding Election.

3. Rights as Shareholder. Until the stock certificates reflecting the
Option Shares accruing to the Optionee upon exercise of the Option are issued to
the Optionee, the Optionee shall have no rights as a shareholder with respect to
such Option Shares. The Company shall make no adjustment for any dividends or
distributions or other rights on or with respect to Option Shares for which the
record date is prior to the issuance of that stock certificate, except as the
Plan or this Award otherwise provides.

4. Restriction on Transfer of Option and Option Shares. Unless otherwise
permitted by the "Committee" (as defined in the Plan), the Option evidenced
hereby is nontransferable other than by will or the laws of descent and
distribution, and, shall be exercisable during the lifetime of the Optionee only
by the Optionee (or in the event of his Disability, by his legal representative)
and after his death, only by the legal representative of the Optionee's estate
or, if no legal representative is appointed, the successor in interest
determined under the Optionee's will.

5. Changes in Capitalization.

(a) The number of Option Shares and the Exercise Price shall be
proportionately adjusted for any increase or decrease in the number of
issued shares of Common Stock resulting from a subdivision or combination
of shares or the payment of a stock dividend in shares of Common Stock to
holders of outstanding shares of Common Stock or any other increase or
decrease in the number of shares of Common Stock outstanding effected
without receipt of consideration by the Company.

(b) In the event of a merger, consolidation, extraordinary dividend,
spin-off, sale of substantially all of the Company's assets or other
material change in the capital structure of the Company, or a tender offer
for shares of Common Stock, or a Change in Control (each, a "Corporate
Transaction") , the Committee shall take such action to make such
adjustments in the Option or the terms of this Award as the Committee, in
its sole discretion, determines in good faith is necessary to reflect the
terms of such Corporate Transaction so as to preserve the economic value of
the Option determined as of the date of the Corporate Transaction or
Committee action, as the case may be, including, without limitation,
adjusting the number and class of securities subject to the Option, with a
corresponding adjustment in the Exercise Price, substituting a new option
to replace the Option, accelerating the termination of the Option Period or
terminating the Option in consideration of a cash payment to the Optionee
in an amount equal to the excess of the then Fair Market Value of the
Option Shares over the aggregate Exercise Price of the Option Shares. In
determining economic value, the Committee need not take into account the
possibility of future appreciation. Any determination made by the Committee
pursuant to this Section 5(b) will be final and binding on the Optionee.
Any action taken by the Committee need not treat all optionees equally.

(c) The existence of the Plan and this Award shall not affect in any
way the right or power of the Company to make or authorize any adjustment,
reclassification, reorganization or other change in its capital or business
structure, any merger or consolidation of the Company, any issue of debt or
equity securities having preferences or priorities as to the Common Stock
or the rights thereof, the dissolution or liquidation of the Company, any
sale or transfer of all or any part of its business or assets, or any other
corporate act or proceeding.

6. Special Limitations on Exercise. Any exercise of the Option is subject
to the condition that if at any time the Committee, in its discretion, shall
determine that the listing, registration or qualification of the shares covered
by the Option upon any securities exchange or under any state or federal law is
necessary or desirable as a condition of or in connection with the delivery of
shares thereunder, the delivery of any or all shares pursuant to the Option may
be withheld unless and until such listing, registration or qualification shall
have been effected. The Optionee shall deliver to the Company, prior to the
exercise of the Option, such information, representations and warranties as the
Company may reasonably request in order for the Company to be able to satisfy
itself that the Option Shares being acquired in accordance with the terms of an
applicable exemption from the securities registration requirements of applicable
federal and state securities laws.

7. Legend on Stock Certificates. Certificates evidencing the Option
Shares, to the extent appropriate at the time, shall have noted conspicuously on
the certificates a legend intended to give all persons full notice of the
existence of the conditions, restrictions, rights and obligations set forth
herein and in the Plan such as:

TRANSFER IS RESTRICTED
----------------------

THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, OR HYPOTHECATED UNLESS
(1) THERE IS AN EFFECTIVE REGISTRATION UNDER SUCH ACT COVERING
SUCH SECURITIES, (2) THE TRANSFER IS MADE IN COMPLIANCE WITH
RULE 144 PROMULGATED UNDER SUCH ACT, OR (3) THE ISSUER
RECEIVES AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE
COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR
HYPOTHECATION IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF
SUCH ACT.

Optionee agrees that the Company may also endorse any other legends it
deems necessary and advisable or as may be required by applicable federal or
state securities laws.

8. Governing Laws. This Award shall be construed, administered and enforced
according to the laws of the State of Michigan; provided, however, no option may
be exercised except, in the reasonable judgment of the Board of Directors, in
compliance with exemptions under applicable state securities laws of the state
in which the Optionee resides, and/or any other applicable securities laws.

9. Successors. This Award shall be binding upon and inure to the benefit of
the heirs, legal representatives, successors and permitted assigns of the
parties.

10. Notice. Except as otherwise specified herein, all notices and other
communications under this Award shall be in writing and shall be deemed to have
been given if personally delivered or if sent by registered or certified United
States mail, return receipt requested, postage prepaid, addressed to the
proposed recipient at the last known address of the recipient. Any party may
designate any other address to which notices shall be sent by giving notice of
the address to the other parties in the same manner as provided herein.

11. Severability. In the event that any one or more of the provisions or
portion thereof contained in this Award shall for any reason be held to be
invalid, illegal or unenforceable in any respect, the same shall not invalidate
or otherwise affect any other provisions of this Award, and this Award shall be
construed as if the invalid, illegal or unenforceable provision or portion
thereof had never been contained herein.

12. Entire Agreement. Subject to the terms and conditions of the Plan, this
Award expresses the entire understanding and agreement of the parties. This
Award may be executed in two or more counterparts, each of which shall be deemed
an original but all of which shall constitute one and the same instrument.

13. Violation. Any transfer, pledge, sale, assignment, or hypothecation of
the Option or any portion thereof shall be a violation of the terms of this
Award and shall be void and without effect.

14. Headings. Paragraph headings used herein are for convenience of
reference only and shall not be considered in construing this Award.

15. Specific Performance. In the event of any actual or threatened default
in, or breach of, any of the terms, conditions and provisions of this Award, the
party or parties who are thereby aggrieved shall have the right to specific
performance and injunction in addition to any and all other rights and remedies
at law or in equity, and all such rights and remedies shall be cumulative.

16. No Right to Continued Employment. Neither the establishment of the Plan
nor the award of Option Shares hereunder shall be construed as giving the
Optionee the right to continued employment.

17. Definitions. As used in these Terms and Conditions and this Award,

(a) "Cause" has the definition set forth in the Employment Agreement
between the Company and the Employee dated August 1, 2001, as amended.

(b) Other undefined and capitalized terms shall have the meaning set
forth in the Omega Healthcare Investors, Inc. 2000 Stock Incentive Plan,
where the context reasonably permits.








EXHIBIT 1

NOTICE OF EXERCISE OF
STOCK OPTION TO PURCHASE
COMMON STOCK OF
OMEGA HEALTHCARE INVESTORS, INC.


Name
---------------------------------
Address
---------------------------------

----------------------------------
Date
----------------------------------

Omega Healthcare Investors, Inc.
900 Victors Way, Suite 350
Ann Arbor, Michigan 48108

Re: Exercise of Non-Qualified Stock Option

Gentlemen:

Subject to acceptance hereof in writing by Omega Healthcare Investors, Inc.
(the "Company") pursuant to the provisions of the Omega Healthcare Investors,
Inc. 2000 Stock Option and Equity Incentive Plan, I hereby give at least ten
days but not more than thirty days prior notice of my election to exercise
options granted to me to purchase ______________ shares of Common Stock of the
Company under the Non-Qualified Stock Option Award (the "Award") pursuant to the
Omega Healthcare Investors, Inc. 2000 Stock Option and Equity Incentive Plan
dated as of _____________. The purchase shall take place as of __________ (the
"Exercise Date").

On or before the Exercise Date, I will pay the applicable purchase price as
follows:

[ ] by delivery of cash or a certified check for $___________
for the full purchase price payable to the order of Omega
Healthcare Investors, Inc..

[ ] by delivery of a certified check for $___________
representing a portion of the purchase price with the balance
to consist of shares of Common Stock that I have owned for at
least six months and that are represented by a stock
certificate I will surrender to the Company with my
endorsement. If the number of shares of Common Stock
represented by such stock certificate exceed the number to be
applied against the purchase price, I understand that a new
stock certificate will be issued to me reflecting the excess
number of shares.

[ ] by delivery of a stock certificate representing shares of
Common Stock that I have owned for at least six months which I
will surrender to the Company with my endorsement as payment
of the purchase price. If the number of shares of Common Stock
represented by such certificate exceed the number to be
applied against the purchase price, I understand that a new
certificate will be issued to me reflecting the excess number
of shares.

[ ] by delivery of the purchase price by ________________, a
broker, dealer or other "creditor" as defined by Regulation T
issued by the Board of Governors of the Federal Reserve
System. I hereby authorize the Company to issue a stock
certificate in number of shares indicated above in the name of
said broker, dealer or other creditor or its nominee pursuant
to instructions received by the Company and to deliver said
stock certificate directly to that broker, dealer or other
creditor (or to such other party specified in the instructions
received by the Company from the broker, dealer or other
creditor) upon receipt of the purchase price.

The required federal, state and local income tax withholding obligations,
if any, on the exercise of the Award shall also be paid in cash or by certified
check on or before the Exercise Date, or will be satisfied in the manner
provided in the Withholding Election previously tendered or to be tendered to
the Company no later than the indicated date of purchase.

As soon as the stock certificate is registered in my name, please deliver
it to me at the above address.

If the Common Stock being acquired is not registered for issuance to and
resale by the Optionee pursuant to an effective registration statement on Form
S-8 (or successor form) filed under the Securities Act of 1933, as amended (the
"1933 Act"), I hereby represent, warrant, covenant, and agree with the Company
as follows:

The shares of the Common Stock being acquired by me will be acquired
for my own account without the participation of any other person, with the
intent of holding the Common Stock for investment and without the intent of
participating, directly or indirectly, in a distribution of the Common
Stock and not with a view to, or for resale in connection with, any
distribution of the Common Stock, nor am I aware of the existence of any
distribution of the Common Stock;

I am not acquiring the Common Stock based upon any representation,
oral or written, by any person with respect to the future value of, or
income from, the Common Stock but rather upon an independent examination
and judgment as to the prospects of the Company;

The Common Stock was not offered to me by means of publicly
disseminated advertisements or sales literature, nor am I aware of any
offers made to other persons by such means;

I am able to bear the economic risks of the investment in the Common
Stock, including the risk of a complete loss of my investment therein;

I understand and agree that the Common Stock will be issued and sold
to me without registration under any state law relating to the registration
of securities for sale, and will be issued and sold in reliance on the
exemptions from registration under the 1933 Act, provided by Sections 3(b)
and/or 4(2) thereof and the rules and regulations promulgated thereunder;

The Common Stock cannot be offered for sale, sold or transferred by me
other than pursuant to: (A) an effective registration under the 1933 Act or
in a transaction otherwise in compliance with the 1933 Act; and (B)
evidence satisfactory to the Company of compliance with the applicable
securities laws of other jurisdictions. The Company shall be entitled to
rely upon an opinion of counsel satisfactory to it with respect to
compliance with the above laws;

The Company will be under no obligation to register the Common Stock
or to comply with any exemption available for sale of the Common Stock
without registration or filing, and the information or conditions necessary
to permit routine sales of securities of the Company under Rule 144 under
the 1933 Act are not now available and no assurance has been given that it
or they will become available. The Company is under no obligation to act in
any manner so as to make Rule 144 available with respect to the Common
Stock;

I have and have had complete access to and the opportunity to review
and make copies of all material documents related to the business of the
Company, including, but not limited to, contracts, financial statements,
tax returns, leases, deeds and other books and records. I have examined
such of these documents as I wished and am familiar with the business and
affairs of the Company. I realize that the purchase of the Common Stock is
a speculative investment and that any possible profit therefrom is
uncertain;

I have had the opportunity to ask questions of and receive answers
from the Company and any person acting on its behalf and to obtain all
material information reasonably available with respect to the Company and
its affairs. I have received all information and data with respect to the
Company which I have requested and which I have deemed relevant in
connection with the evaluation of the merits and risks of my investment in
the Company;

I have such knowledge and experience in financial and business matters
that I am capable of evaluating the merits and risks of the purchase of the
Common Stock hereunder and I am able to bear the economic risk of such
purchase; and

The agreements, representations, warranties and covenants made by me
herein extend to and apply to all of the Common Stock of the Company issued
to me pursuant to this Award. Acceptance by me of the certificate
representing such Common Stock shall constitute a confirmation by me that
all such agreements, representations, warranties and covenants made herein
shall be true and correct at that time.

I understand that the certificates representing the shares being
purchased by me in accordance with this notice shall bear a legend
referring to the foregoing covenants, representations and warranties and
restrictions on transfer, and I agree that a legend to that effect may be
placed on any certificate which may be issued to me as a substitute for the
certificates being acquired by me in accordance with this notice.

Very truly yours,


--------------------------

AGREED TO AND ACCEPTED

OMEGA HEALTHCARE INVESTORS, INC.


By:
----------------------
Title:
----------------------
Number of Shares
Exercised:
------------------
Number of Shares
Remaining: Date:
------------------- ----------------------











EXHIBIT 2

NOTICE OF WITHHOLDING ELECTION
OMEGA HEALTHCARE INVESTORS, INC.


TO: Omega Healthcare Investors, Inc.

FROM:
------------------------------
RE: Withholding Election


This election relates to the Option identified in Paragraph 3 below. I hereby
certify that:

(1) My correct name and social security number and my current
address are set forth at the end of this
document.

(2) I am (check one, whichever is applicable).

[ ] the original recipient of the Option.

[ ] the legal representative of the estate of the original
recipient of the Option.

[ ] a legatee of the original recipient of the Option.

[ ] the legal guardian of the original recipient of the Option.

(3) The Option to which this election relates was issued under the Omega
Healthcare Investors, Inc. 2000 Stock Incentive Plan (the "Plan") in the
name of _________________________ for the purchase of a total of
_______________ shares of Common Stock of the Company. This election
relates to _______________ shares of Common Stock issuable upon exercise
of the Option, provided that the numbers set forth above shall be deemed
changed as appropriate to reflect the applicable Plan provisions.

(4) In connection with any exercise of the Option with respect to the
Common Stock, I hereby elect:

[ ] to have certain of the shares issuable pursuant to the
exercise withheld by the Company for the purpose of having the
value of the shares applied to pay federal, state, and local,
if any, taxes arising from the exercise.

[ ] to tender shares held by me for a period of at least six (6)
months prior to the exercise of the option for the purpose of
having the value of the shares applied to pay such taxes.

The shares to be withheld or tendered, as applicable, shall have, as of
the Tax Date applicable to the exercise, a Fair Market Value equal to
the minimum statutory tax withholding requirement under federal, state,
and local law in connection with the exercise.

(5) This Withholding Election is made no later than the Tax Date and is
otherwise timely made pursuant to the Plan.

(6) I understand that this Withholding Election may not be revised, amended
or revoked by me.

(7) I further understand that the Company shall withhold from the shares a
whole number of shares having the value specified in Paragraph 4 above,
as applicable.

(8) The Plan has been made available to me by the Company. I have read and
understand the Plan and I have no reason to believe that any of the
conditions to the making of this Withholding Election have not been
met.

(9) Capitalized terms used in this Notice of Withholding Election without
definition shall have the meanings given to them in the Plan.


Dated:
--------------------- ----------------------------
Signature

------------------------ ----------------------------
Social Security Number Name (Printed)

----------------------------
Street Address

----------------------------
City, State, Zip Code













SCHEDULE 1
NON-QUALIFIED STOCK OPTION AWARD
ISSUED PURSUANT TO THE
OMEGA HEALTHCARE INVESTORS, INC.
2000 STOCK INCENTIVE PLAN



Vesting Schedule
----------------


The Option shall become vested as to 100% of the Option Shares on August 1,
2003, provided the Optionee continues to be employed by the Company through that
date.

Notwithstanding the foregoing, in the event of the Optionee's termination of
employment (i) by the Optionee for "Good Reason" (as defined in the Employment
Agreement between the Company and the Employee dated August 1, 2001 (the
"Employment Agreement")) within one year following a Change in Control or (ii)
by the Company without "Cause" (as defined in the Employment Agreement), 100% of
the Option Shares shall become vested. The vesting provided for in this
paragraph is expressly contingent upon the Employee executing and not revoking
the Release, as provided in Section 3(c) of the Employment Agreement.

Change in Control means the occurrence of any of the following events:

(i) any "Person" (as defined in Section 3(a)(9) of the Securities Exchange
Act of 1934 (the "Exchange Act") as modified and used in Sections 13(d) and
14(d) of the Exchange Act), other than Explorer Holdings, L.P. or Hampstead
Investment Partners III, L.P. or either of their successors or affiliates,
is or becomes the "beneficial owner" (as defined in Rule 13d-3 of the
Exchange Act), directly or indirectly, of equity securities of the Company
representing more than fifty percent (50%) of the voting power or value of
the Company's then outstanding voting equity securities and elects a
majority of the Board of Directors of the Company;

(ii) The consummation of a merger, consolidation, share exchange or other
reorganization in which the shareholders of the Company immediately prior
to the transaction do not own equity securities of the surviving entity
representing at least fifty percent (50%) of the combined voting power or
value of the surviving entity's then outstanding voting securities
immediately after the transaction and has not elected a majority of the
Board of Directors of the Company;

(iii) The sale or transfer of all or substantially all of the value of the
assets of the Company, in a single transaction, in a series of related
transactions, or in a series of transactions over any one year period; or

(iv) A dissolution or liquidation of the Company.


Except as otherwise expressly provided above, the Optionee shall continue to
vest in the Option Shares only for those periods during which the Optionee
continues to be an employee of the Company or an Affiliate and any portion of
the Option Shares in which the Optionee is not vested as of his termination of
employment shall be forfeited.