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]



<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
                                                        ----------------------



<PAGE>
                                                                         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]


<PAGE>


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


<PAGE>


                           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.







<PAGE>



                                    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:___________
                           ------------------------

<PAGE>



                                    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







<PAGE>




                                   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.

<PAGE>
                                                                       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]


<PAGE>


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


<PAGE>





                           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.




<PAGE>




                                    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:
          -------------------                             ----------------------






<PAGE>





                                    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









<PAGE>




                                   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.