Document:

CONSULTING AND SEVERANCE AGREEMENT

         This Agreement ("this  Agreement") is made this 18th day of July, 2000,
by and between Omega Healthcare  Investors,  Inc. (the "Company"),  and Essel W.
Bailey,  Jr.  (the  "Officer"  or "you")  and  describes  certain  compensation,
benefits  and  severance  which you will  become  entitled  to receive  upon the
happening of certain  events and the purchase on or before  August 31, 2000,  by
Explorer  Holdings,  L.P.  from the  Company  of  preferred  stock  for at least
$90,000,000 (the "Transaction").

                                  INTRODUCTION:

         The Officer is a valued  employee of the Company and is terminating his
employment with the Company,  conditioned  upon and effective upon completion of
the Transaction.

         The  Company  values  the  Officer's  significant  contribution  to the
Company and desires to maintain  and  increase  the  goodwill  between  them and
desires to continue to retain the Officer as a consultant.

NOW, THEREFORE, the parties agree as follows:

1.       Resignation; Effectiveness of Agreement.

                  (a)  Effective  as of the  close  of  business  on the date of
         closing of the Transaction (the "Resignation  Date"), you hereby resign
         as an employee,  officer, and director and from all other positions you
         hold with the  Company.  Effective  as of the close of  business on the
         first  business day following  the date of closing of the  Transaction,
         you  hereby  resign  as an  officer  and  director,  and from all other
         positions  you hold with all direct and  indirect  subsidiaries  of the
         Company (the  "Subsidiaries").  The parties  acknowledge and agree that
         Omega  Worldwide,  Inc.  is  not a  Subsidiary  for  purposes  of  this
         Agreement.

                  (b) This Agreement is expressly contingent upon the closing of
         the  Transaction  by  August  31,  2000,  and  the  provisions  of this
         Agreement will become  effective  upon such closing,  and, in the event
         that the  Transaction  does not close by such date, this Agreement will
         be null and void and of no force or effect whatsoever.

2.  Compensation  Prior to  Termination.  The Company will  continue to pay your
regular base salary through the Resignation Date with all benefits as an officer
and on the same  terms  and  conditions  as apply to other  executive  officers.
During this period, you will perform such duties, consistent with your position,
as requested by the Board of Directors of the Company, and you agree to vote all
shares of common  stock,  par value  $.10 per  share,  of the  Company  ("Common
Stock") as to which you possess voting authority in favor of the Transaction and
in favor of the Company's 2000 Stock  Incentive  Plan at the special  meeting of
the  stockholders of the Company held to vote on such matters or any adjournment
of such meeting.

3.  Severance  Payment.  Within two (2) business  days  following the end of the
Revocation  Period,  the  Company  will pay you,  in cash by wire  transfer  (in
accordance with wire transfer instructions to be provided by you) of immediately
available funds, a lump sum severance benefit in the amount of $1,555,000.

4.  Directors'  Retirement  Plan; 1993 Deferred  Compensation  Plan. All amounts
credited to you under the  Directors'  Retirement  Plan which was  terminated in
1998,  including  $35,000  of  your  own  contributions,  have  previously  been
deposited in Account Number  186-01103-19 of Omega  Healthcare  Investors,  Inc.
with the Palisade Capital Securities,  L.L.C. and Bear, Stearns Securities Corp.
as  clearance  agent (the  "Account").  As of June 30,  2000,  the dollar  value
attributable  to 13,000  Deferred  Compensation  Units credited to you under the
Company's  1993  Deferred  Compensation  Plan,  as amended (the  "Plan"),  which
represents  all of your units  under the Plan,  is  $248,218.  The dollar  value
attributable  to such units will be  adjusted  pursuant to the terms of the Plan
through  the date of  payment  and will be  deposited  by the  Company  into the
Account (in accordance with the wire transfer  instructions set forth on Exhibit
A) in a single  lump sum within  two days  following  the end of the  Revocation
Period.  Immediately thereafter,  legal ownership and all rights in the Account,
together with the corresponding  liabilities  associated  therewith,  are hereby
assigned by the Company to Alpha Capital, Inc., a Michigan corporation,  and, on
the delivery of any  documents  required by the broker to reflect such  transfer
and  assignment,  you hereby agree that all of the  Company's  obligations  with
respect  to the  foregoing  balances  and the two  foregoing  plans  are  hereby
released and  extinguished and thereafter you will look solely to Alpha Capital,
Inc. with respect to its continued  administration of the Plans for any recovery
or rights you may have  therein;  and you will  indemnify  and hold the  Company
harmless  from any cost or  liability it may incur as a result of its taking the
actions described above in this paragraph.

5. Restricted  Stock.  All vesting  requirements  applicable to 12,218 shares of
restricted  stock  granted  to you  before  February  10,  2000  will be  deemed
fulfilled as of the  expiration of the  Revocation  Period.  With respect to the
63,321  shares of  restricted  stock  granted to you on February 10,  2000,  all
vesting  requirements  applicable  to  47,490  of such  shares  will  be  deemed
fulfilled as of the  expiration  of the  Revocation  Period,  and the  remaining
15,831  of such  shares  will  automatically  immediately  vest  if the  Company
achieves  (a) a price  per share of Common  Stock (as  reported  on the New York
Stock Exchange ("NYSE")) at or above $10 and the stock price remains at or above
that price for ten (10)  consecutive  business  days  between  July 11, 2000 and
February  10,  2001,  or (b) an  average  price per share of  Common  Stock,  as
reported on the NYSE,  of $10 or more for any thirty (30)  consecutive  business
days between July 11, 2000 and February 10, 2001. The number of shares of Common
Stock and the $10 price target will be proportionately adjusted for any increase
or  decrease  in the number of issued  and  outstanding  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.

6. Stock Options. You have previously been granted options to purchase shares of
Common Stock.  Options to purchase  85,000 shares of Common Stock are not vested
and  those  options  are  hereby  terminated  as of the  Resignation  Date.  The
remainder of your stock  options will expire and cease to be  exercisable  as of
the earlier of three months after your  Resignation Date or such earlier date as
may apply pursuant to the terms of the applicable stock option agreement.

7. Borrowing Program.  On or before the date which is thirty (30) days following
the Resignation Date, you may tender to the Company 6,627 shares of Common Stock
purchased by you pursuant to the  Company's  Borrowing  Program,  as amended and
restated  by the Board of  Directors  of the Company on June 15,  2000,  in full
satisfaction of the principal amount of your indebtedness of $191,802.74 and all
accrued interest  outstanding under the Borrowing Program.  If you do not tender
back those shares of Common Stock within such 30 day period,  the  principal and
interest  outstanding  under the Borrowing  Program will  immediately be due and
payable in cash as of the expiration of such thirty (30) day period.

8.  Life,  Health,  Long-Term  Disability.  For  the  twenty-four  month  period
following the  Resignation  Date,  the Company will continue to offer to you the
same  group  health,  group  life  insurance,  and  group  long-term  disability
insurance  coverage  that the  Company  offers to its other  executive  officers
during such  period,  at the same cost as applies to other  executive  officers;
provided, however, that to the extent the applicable insurer will not permit the
Company to continue  coverage for you under (a) the applicable health policy for
the period following your period of coverage  required to be offered pursuant to
Section 601 et seq. of the Employee  Retirement  Income Security Act of 1974, as
amended  ("COBRA") and up to the expiration of the twenty-four  month period, or
(b) under the applicable group life or long-term disability insurance policy for
any portion of the twenty-four month period, the Company will pay you during the
period of such  disallowed  coverage an amount equal to the amount it would have
contributed  towards  your cost of coverage  had you remained an employee of the
Company during such period; and provided further,  that in the event you receive
other health insurance,  life insurance,  or long-term disability  coverage,  or
receive payment or reimbursement  therefor, from another employer or business or
any other source during such twenty-four month period, the Company will cease to
be obligated to provide you such coverage or  reimbursement in lieu of coverage.
In the event you receive any other such coverage,  you shall,  no later than the
effective  date of such  other  coverage,  notify the  Company of the same.  The
period  for  which  you are  entitled  to group  health  insurance  continuation
hereunder  will count  towards  any  required  period of  continuation  coverage
pursuant to COBRA.

9. Office,  Secretary,  Support.  For the twenty-four month period following the
Resignation  Date,  the Company will  reimburse you for your cost, not to exceed
$75,000  in the  aggregate  per  twelve  months,  of the  following:  your rent,
utilities and other related  occupancy costs of an office similar to your office
at the Company,  the compensation  for your secretary,  and the compensation for
such  other  staff as the  Company  and you  determine  are  appropriate  to the
rendering of your  services to the Company  pursuant to paragraph 10  hereunder;
provided,  however,  that if the Company  retains a full-time  secretary  who is
available to perform services on a full-time basis for you at your office, which
secretary is reasonably  acceptable to you, the Company's  cost of  compensation
for such secretary will reduce its  reimbursement  obligation to you by the cost
of such  compensation;  provided,  further,  that to the extent an office and/or
secretary,  or payment or reimbursement  therefor, is provided to you by another
employer or business  during such  twenty-four  month  period,  the Company will
cease  to be  obligated  to  provide  you  reimbursement  for an  office  and/or
secretary,  as applicable.  In the event an office or a secretary is so provided
to you,  you shall,  no later  than the  effective  date the same are  initially
provided to you, notify the Company of the same.

10.  Consulting and  Litigation  Support  Services.  For a period of twelve (12)
months  following  the  close of the  Transaction,  you will  render  consulting
services  requested by the Company and reasonably  agreed to by you at times and
places agreed to by you and the Company.  In addition,  until all the Litigation
Matters are definitively disposed of or settled, you will assist the Company and
cooperate  with the Company in the defense  of, and  assertion  of any claims in
connection  with,  (a) the Res-Care Inc. v. Omega  Healthcare  Investors,  Inc.,
United States District Court for the Western District of Kentucky,  Civil Action
No.  95-42-LS;  the Omega  Healthcare  Investors,  Inc. v.  Res-Care,  Inc.; the
Karrington Health, Inc. v. Omega Healthcare Investors, Inc.; and the Madison/OHI
Liquidity  Investors,  LLC v. Omega Healthcare  Investors,  Inc.,  United States
District Court for the Eastern District of Michigan,  Civil Action No. 00-72793;
and the Ronald  Dickerman filed June 21, 2000,  United States District Court for
the Southern District of New York,  litigation matters; (b) all other litigation
matters referenced in Exhibit B hereto, and the Wolf Halderstein Adler Freeman &
Hertz LLP litigation matter; and (c) any other litigation matters related to any
of the foregoing  litigation matters or arising therefrom,  as well as any other
litigation matters, provided that in the case of any of the matters described in
clause (b) or clause (c) and not also described in clause (a), your  cooperation
will be required if such matters are based on facts and circumstances arising on
or before  the  Resignation  Date as to which you were  involved  in a  material
manner or have particular  information or  understanding of the underlying facts
or  circumstances   not  generally  known  to  other  officers  of  the  Company
(collectively,  all the  litigation  matters  described  in this  paragraph  are
referred to as the "Litigation Matters").

11. Noncompete/Nonsolicitation.

     (a)  You agree that  during the  Applicable  Period you 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 your own behalf,  or in the
          service  of  or  on  behalf  of  others,  as  either  an  employee  or
          independent  contractor,  engage in or provide managerial  services or
          management  consulting  services to, or own (other than any  ownership
          existing on the date hereof and other than ownership of less than five
          percent (5%) of the outstanding  voting  securities of an entity whose
          voting  securities  are traded on a national  securities  exchange  or
          quoted on Nasdaq) a beneficial  interest in, any Competing Business or
          otherwise  take any action  that is adverse  to the  interests  of the
          Company or any of its  Subsidiaries or make any statement  (written or
          oral) that could reasonably be perceived as disparaging to the Company
          or any  person  or  entity  that  you  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 you reasonably should know is an affiliate of the Company.
          You  represent and warrant to the Company that, to the extent that you
          have,  on the date  hereof,  any  direct or  indirect  ownership  of a
          beneficial  interest  in any  entity  that  engages  in any  Competing
          Business, such interest constitutes less than five percent (5%) of the
          outstanding  voting  securities of such entity,  and you also covenant
          that, during the Applicable  Period, you will not increase your direct
          or indirect beneficial ownership in any such entity or become actively
          involved  in the  management  or  operation  of any such  entity.  You
          acknowledge and agree that the Business of the Company is conducted in
          the Area.

     (b)  You agree that  during the  Applicable  Period,  you will not,  either
          directly or indirectly,  on your 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 your  knowledge,
          actively sought  prospective  client or customer of the Company or any
          of its Subsidiaries  (determined as of the Resignation Date) with whom
          you had material contact while you were an employee of the Company.

     (c)  You agree that  during the  Applicable  Period,  you will not,  either
          directly or indirectly,  on your own behalf or in the service of or on
          behalf of others,  solicit,  divert or hire,  or  attempt to  solicit,
          divert or hire any  employee  employed  by the  Company  or any of its
          Subsidiaries  with  whom you had  material  contact  while you were an
          employee of the Company or who is a management employee of the Company
          or a Subsidiary. This subparagraph 11(c) will not apply with regard to
          Linda Turner and/or Ruth Bardua.

12. Nondisclosure of Confidential Information.  You will not disclose,  directly
or indirectly, to any third person any (a) Confidential  Information,  including
without limitation any customer lists relating to the business of the Company or
any  Subsidiary,  or (b) Trade  Secrets for so long as they may be  protected by
Michigan law.

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

14.  Non-Disparagement.  During the  Applicable  Period,  the Company shall (and
shall  cause  its  officers  and  directors  in  their   capacity  as  such  and
Subsidiaries to) refrain from making any statements (written or oral) that could
reasonably  be perceived as  disparaging  to you or any persons or entities that
the Company reasonably should know are your affiliates or statements (written or
oral) that are damaging to your commercial interests.

<PAGE>

15. Compensation for Consulting and Noncompete/Nonsolicitation.

     (a)  In exchange for the services and your continuing  obligations pursuant
          to  paragraphs  10  and 11  hereof,  the  Company  agrees  to pay  you
          $1,770,000 in twelve installments of $147,500 per month, in cash, over
          the twelve month period following the Resignation Date, with the first
          payment  being  made one  month  after the  Resignation  Date and each
          successive payment being made one month after the preceding payment.

     (b)  Notwithstanding  anything  to the  contrary in this  Agreement,  in no
          event will the  Company  have the right to withhold  payments  due you
          under  subparagraph  15(a) except in the event of a "Material  Breach"
          (as  defined  below).  If  the  Board  of  Directors  of  the  Company
          reasonably  determines in good faith (by a vote of at least two-thirds
          of the Board) that you are violating the provisions of paragraph 10 or
          11 of this  Agreement,  the Board will provide  written  notice to you
          specifying  with   particularity  how  your  activities  violate  such
          provisions,  and if you cease such alleged  violations within ten (10)
          calendar days of the date of such notice, then there will be deemed to
          have been no Material Breach for purposes solely of this  subparagraph
          15(b).  In addition,  you will have the option of having an arbitrator
          determine  the issue of whether you are  violating  the  provisions of
          paragraph 10 or 11 of this Agreement as alleged by the Company's Board
          of  Directors  in such  notice,  in  accordance  with the  arbitration
          provisions of this Agreement. Notwithstanding anything to the contrary
          in this Agreement  (including  paragraph 31 below),  such  arbitration
          will be completed  within  thirty (30) calendar days after the date of
          such notice from the Company's  Board of Directors.  If the arbitrator
          determines  that your  activities  do not  violate the  provisions  of
          paragraph  10 or 11 of this  Agreement,  then you will be permitted to
          continue  your  alleged  violative  activities,  and there will not be
          deemed to have occurred a Material  Breach for purposes solely of this
          subparagraph 15(b). If the arbitrator  determines that your activities
          violate the  provisions of paragraph 10 or 11 of this  Agreement,  and
          you  do  not   thereafter   within  two  (2)  calendar  days  of  such
          determination cease engaging in such violative activities,  then there
          will be deemed to have  occurred a Material  Breach.  In the event the
          arbitrator  has not rendered a  determination  within such thirty (30)
          day period,  the Company may suspend payments under subparagraph 15(a)
          of this  Agreement  until such  determination  is  rendered  and shall
          thereafter   immediately   recommence   payments  (together  with  any
          suspended  payments) in the event it is  determined  that you have not
          violated the  provisions of paragraph 10 or 11 of this  Agreement,  or
          you otherwise shall cease such activity as violates paragraph 10 or 11
          of this  Agreement,  within the  required  two (2) calendar day period
          referenced  above.  The Company and you will  cooperate  to attempt to
          ensure that the arbitration is completed as  expeditiously as possible
          with the intent to avoid such  suspension.  If you  voluntarily  cease
          engaging in  activities  alleged by the Board of  Directors to violate
          paragraph 10 or 11 or if an arbitrator  determines (in accordance with
          this subparagraph  15(b)) that your activities violate paragraph 10 or
          11, you will use your  reasonable  efforts to cure the negative effect
          of such  violations,  but in no event will your failure to comply with
          such obligation  give the Company the right to suspend  payments or to
          fail to  recommence  payments as would  otherwise  be required by this
          subparagraph 15(b).

     (c)  The  provisions  of  subparagraph   15(b)  are  not  exclusive  remedy
          provisions or liquidated damages provisions and in no way preclude the
          Company from  seeking  legal or equitable  relief,  including  without
          limitation  damages  or  injunctive  relief,  for any  breach  of this
          Agreement by you. Further, the definition of "Material Breach" used in
          subparagraph  15(b) is solely for the purpose of  determining  whether
          the  Company  is  contractually  obligated  to  continue  to make  the
          payments set forth in subparagraph  15(a) to you, and the fact that an
          activity by you may not  represent  a "Material  Breach" as defined in
          subparagraph  15(b) will not  necessarily  preclude  the Company  from
          establishing that you have nonetheless breached this Agreement or from
          enforcing  its  rights  as  described  in this  subparagraph  15(c) or
          enforcing  any other  rights it may have  pursuant to this  Agreement,
          including  without   limitation   pursuing  a  claim  for  damages  or
          injunctive relief as a result of such breach.

16.  Indemnification.  The Company will indemnify you to the extent permitted by
applicable law and the Company's Articles of Incorporation and Bylaws, including
in accordance with the Indemnity Agreement dated as of November 13, 1998 between
the Company and you, which  agreement  will survive the execution,  delivery and
performance of this Agreement, and will continue to provide you with the benefit
of directors and officers liability insurance coverage with respect to your acts
as an officer,  director  or agent of the  Company (or in any other  capacity to
which you would be entitled to insurance coverage thereunder) to the same extent
as the same is provided to other non-continuing directors of the Company.

17. Gross-Up Payment. In the event it is determined that any payment (other than
the Gross-Up Payments provided for herein) or distribution by the Company or any
of its affiliates to or for your benefit, whether paid or payable or distributed
or distributable  pursuant to the terms of this Agreement or otherwise  pursuant
to or by reason of any other agreement, policy, plan, program or arrangement, or
the lapse or termination of any restriction on, or the vesting or exercisability
of any of the  foregoing  (a  "Payment"),  would be  subject  to the  excise tax
imposed by Section  4999 of the Internal  Revenue Code of 1986,  as amended (the
"Code") (or any successor  provision  thereto) or any interest or penalties with
respect to such  excise  tax (such  tax,  together  with any such  interest  and
penalties, are hereafter collectively referred to as the "Excise Tax"), then you
will be entitled  to receive an  additional  payment or  payments  (a  "Gross-Up
Payment") in an amount such that,  after payment by you of all taxes  (including
any interest or penalties  imposed  with respect to such taxes),  including  any
Excise  Tax,  imposed  upon the  Gross-Up  Payment,  you retain an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Such amounts
shall be paid by the Company to you within ten (10) days after payment by you of
taxes described in the prior sentence.  For purposes of calculating the Gross-Up
Payment,  it will be assumed that all taxable  payments you receive are taxed at
the highest  marginal  federal  income tax rate and the highest state income tax
rate in the state in which you reside,  but without  regard to any  reduction in
personal  exemptions or  deductions  associated  with your level of income.  All
determinations required to be made under this paragraph 17, including whether an
excise tax is payable by you and the amount of such excise tax and any  Gross-Up
Payment,  will be made  by a  nationally  recognized  firm of  certified  public
accountants selected by the Company in its sole discretion,  provided,  however,
that if the Internal  Revenue Service  determines that an Excise Tax is owing by
you, such determination  shall be conclusive and binding on the Company,  unless
the Company  elects to engage at its sole  expense  such an  accounting  firm to
contest such  determination,  in which case the final resolution of such contest
shall be conclusive and binding on the Company.

18.  Bayside  Street  II.  Effective  no later than  thirty  (30) days after the
Resignation  Date, you will transfer good title,  free and clear of any liens or
encumbrances,  to an officer or  director of the  Company  designated  to you by
written  notice  from the  Company,  of twelve  (12)  shares of common  stock of
Bayside Street II, Inc. which represents all of the equity in Bayside Street II,
Inc. beneficially owned by you as of the date hereof, in consideration of a cash
payment to you by such designee of $22,500,  which represents an amount equal to
your purchase price of such equity.

19. Attorneys' Fees. The Company will reimburse you for your attorneys' fees and
expenses in negotiating and preparing this Agreement in an aggregate  amount not
to exceed  $10,000  promptly  following  receipt of a written  invoice from your
attorneys.

20. General Release. The payment of all of the amounts and the vesting of all of
the benefits  provided for in this Agreement are expressly  contingent upon your
executing  and  returning  to  the  Company,   within  twenty-one  days  of  the
Resignation  Date, a general  release of all claims and a covenant not to sue in
favor of the Company,  Explorer Holdings,  L.P., and their respective  officers,
directors, stockholders, successors and assigns, and any other parties listed in
the release in the form attached hereto as Exhibit C (the  "Release"),  and your
not revoking the Release within a seven-day revocation period provided for under
the terms of the Release (the "Revocation  Period").  The Release will not apply
to any of the  payments  or  benefits  to which you are  entitled  to under this
Agreement or under any employee benefit plan (within the meaning of the Employee
Retirement  Income  Security Act of 1974).  The Company hereby agrees to execute
the Release immediately upon your delivery of the Release executed by you to the
Company and deliver to you a copy of the Release promptly upon the expiration of
the Revocation Period.

21.  Termination of Employment  Agreement and Change in Control  Agreement.  The
Employment  Agreement dated as of June 15, 2000, between you and the Company and
the Change in Control  Agreement  dated March 22, 2000,  between the Company and
you are terminated and are void and of no force and effect.

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

23. No Mitigation.  Except as otherwise  provided herein, no amounts or benefits
payable to you hereunder will be subject to mitigation or reduction by income or
benefits you receive from other sources.

24.  Not  an  Employment  Agreement.  This  Agreement  does  not  constitute  an
employment  agreement or an  agreement  to employ you for any  definite  period.
During the period you perform  services for the Company pursuant to paragraph 10
hereof following the Resignation Date, you will be an independent contractor and
not an employee of the Company.

25.      Withholding of Taxes.

     (a)  The Company may withhold from any amounts payable under  paragraphs 2,
          3, 5, 6, 8, 17, or 19 of this  Agreement all federal,  state,  city or
          other taxes as the Company is required to withhold pursuant to any law
          or  government  regulation or ruling and report such payment on a Form
          W-2 or 1099 to the extent  required  pursuant to any law or government
          regulation or ruling. In addition,  the Company may report any amounts
          payable under  paragraphs 9 and 15 of this Agreement on a Form 1099 to
          the extent  required  pursuant to any law or government  regulation or
          ruling.

     (b)  To the extent that the Company's outside accountants reasonably and in
          good faith determine that the Company is required to report any direct
          or indirect  payment,  transfer,  assignment  of  ownership,  or other
          action (other than payments  described in subparagraph  25(a) hereof),
          as compensation to you, the Company will issue you a Form W-2 or 1099,
          as appropriate.  To the extent that the Company's outside  accountants
          reasonably and in good faith determine that the Company is required to
          withhold  any federal,  state,  city or other taxes on account of such
          direct or indirect payment to you, transfer,  assignment of ownership,
          or other  action,  the Company may withhold such taxes from such other
          direct or indirect  payment,  transfer,  assignment of  ownership,  or
          other  action or from any other  payment  to be made to you under this
          Agreement.  To the  extent  that  the  Company's  outside  accountants
          determine that there is a reasonable basis not to issue you a Form W-2
          or 1099 or not to  withhold  taxes  with  regard  to  such  direct  or
          indirect payment, transfer,  assignment of ownership, or other action,
          then the Company will not do so; provided,  however,  that, unless the
          Company's  outside  accountants  issue an  unqualified  opinion to the
          Company  that the  Company is not  required to issue you a Form W-2 or
          1099 and that the  Company  is not  required  to  withhold  taxes with
          regard to such direct or indirect  payment,  transfer,  assignment  of
          ownership,  or other  action,  then you  will  indemnify  and hold the
          Company harmless from any cost (including without limitation,  loss or
          delay in the income deduction that it otherwise would have received if
          it issued a Form W-2 or 1099 and  withheld  taxes) or liability it may
          incur as a result of not issuing a Form W-2 or 1099 or not withholding
          taxes.

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

27. Officer's  Estate.  All payments and rights under this Agreement are payable
to your estate and accrue to its benefit in the event of your death.

28.  Governing  Law.  To the full  extent  controllable  by  stipulation  of the
parties,  this Agreement  will be  interpreted  and enforced under Michigan law,
without regard to principles of conflicts of laws.

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

30.  Remedies.  You  agree  that  the  covenants  and  agreements  contained  in
paragraphs  10,  11,  12,  13,  14 and 18  hereof  are of the  essence  of  this
Agreement;  that each of such  covenants is reasonable  and necessary to protect
and preserve the interests and properties of the Company and the Business of the
Company;  that the Company is engaged in and throughout the Area in the Business
of the Company; that irreparable loss and damage will be suffered by the Company
should  you  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  will 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, the Company will be
entitled  to specific  performance  of such  covenants  and  agreements  of this
Agreement and to both temporary and permanent injunctions to prevent a breach or
contemplated  breach by you of any of such covenants or agreements.  If any part
of paragraphs 10, 11, 12, 13, 14 or 18 is unenforceable because of the duration,
geographic,  or product scope of such provision,  or for any other reason,  such
provision will be deemed  modified to the minimum extent  necessary to make such
provision enforceable.  Further, any court or arbitrator shall have the power to
make such  modification.  If any such court or arbitrator  declines to so modify
such provision,  the parties agree to negotiate in good faith such  modification
that will make such provision enforceable.

31.  Arbitration.  Any  controversy  or claim arising out of or relating to this
Agreement,   or  the  breach  thereof,  shall  be  adjudicated  through  binding
arbitration  before a  single  arbitrator  in  accordance  with  the  Commercial
Arbitration Rules of the American  Arbitration  Association  ("AAA") in Detroit,
Michigan;  provided,  however, the provisions of this paragraph will not prevent
the Company from  instituting  an action in a court of law under this  Agreement
for specific  performance of this Agreement or injunctive  relief as provided in
paragraph 30 hereof.  Except as provided in  paragraph 15 hereof,  any party who
desires to submit a claim to arbitration in accordance with this paragraph shall
file its demand for arbitration with AAA within thirty (30) days of the event or
incident  giving rise to the claim. A copy of said demand shall be served on the
other party in  accordance  with the notice  provisions  in paragraph 32 of this
Agreement.  The parties agree that they shall attempt in good faith to select an
arbitrator  by mutual  agreement  within  twenty (20) days after the  responding
party's  receipt of the demand for  arbitration.  If the parties do not agree on
the selection of an arbitrator  within that  timeframe,  the selection  shall be
made pursuant to the rules from the panels of arbitrators maintained by the AAA.
Unless otherwise  designated by the arbitrator as a result of fault,  each party
shall pay its own attorneys' fees and expenses of arbitration,  and the expenses
of the arbitrator shall be equally shared.  Any award rendered by the arbitrator
shall be accompanied by a written  opinion  providing the reasons for the award.
The arbitrator's award shall be final and non-appealable.  Any such arbitrator's
award may be entered in and enforced by any court having  jurisdiction  thereof,
and the parties consent and commit  themselves to the exclusive  jurisdiction of
the courts of the State of Michigan for the purposes of the  enforcement  of any
such  arbitrator's  award.  Nothing in this paragraph  shall prevent the parties
from  settling  any  dispute or  controversy  by mutual  agreement  at any time.
Notwithstanding  anything to the contrary in this  Agreement  (including in this
paragraph 31), none of the foregoing time periods or time frames will apply with
regard to any arbitration  contemplated  by paragraph 15 above,  and the parties
will take all actions  necessary  or  appropriate  to attempt to  complete  such
arbitration  within the thirty day calendar period  contemplated by subparagraph
15(b) with the intent to avoid a suspension of payment as  contemplated  by such
subparagraph.

32.      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 in person or by a nationally recognized overnight courier service with
all  applicable  fees  prepaid  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:    General Counsel

         If to the Officer:                 Essel W. Bailey, Jr.
                                            133 South Beach Road
                                            Hobe Sound, FL 33455

Notices delivered in person shall be effective on the date of delivery.  Notices
delivered by an overnight courier service shall be effective on the business day
immediately  following  the date of delivery  thereof to such  courier.  Notices
delivered by mail as aforesaid  shall be effective  upon the third  calendar day
subsequent to the postmark date thereof.

33. Definitions.  The capitalized terms used in this Agreement and not otherwise
defined in this Agreement have the meanings set forth below.

                 "Area" means the following states:

                           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
                           West Virginia

                 "Applicable   Period"  means  the  period   commencing  on  the
        Resignation  Date and ending  twenty-four  months after the  Resignation
        Date.

                 "Business  of the  Company"  means  any  business  that has the
        primary  purpose of  financing  the  ownership or operation of long-term
        care facilities.

                 "Competing Business" means any person, firm, corporation, joint
        venture,  or other  business  that is  engaged  in the  Business  of the
        Company,  but does not include  Omega  Worldwide,  Inc. or any  business
        engaged primarily in the operation of long term care facilities.

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

                 "Litigation Matters" is defined in paragraph 10 of this
        Agreement.

                 "Revocation Period" is defined in paragraph 20 of this
        Agreement.

                 "Trade Secrets" means Company  information  including,  but not
        limited  to,  technical  or  nontechnical  data,   formulas,   patterns,
        compilations,   programs,   devices,  methods,   techniques,   drawings,
        processes,  financial data,  financial plans,  product plans or lists of
        actual or, to your  knowledge,  actively sought  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.

34.      Miscellaneous.

     (a)  This  Agreement  (including  the  Exhibits to this  Agreement)  is the
          entire  agreement of the parties with regard to its subject matter and
          supersedes  all other  agreements  between the parties  with regard to
          such  subject  matter,  including  the term  sheet for  severance  and
          consulting agreement for you.

     (b)  This Agreement may be executed in counterparts, each of which shall be
          deemed an  original,  but both of which shall  constitute  one and the
          same instrument.

                [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

<PAGE>

         IN WITNESS WHEREOF, you and the Company have executed this Agreement as
of the date first written above.

                                             OMEGA HEALTHCARE INVESTORS, INC.

                                            By:    /s/ Susan Allene Kovach
                                                  -----------------------------
                                            Name:  Susan Allene Kovach
                                                  -----------------------------
                                            Title: Vice President
                                                  ------------------------------
                                                   /s/ Essel W. Bailey, Jr.
                                                  ------------------------------
                                                       Essel W. Bailey, Jr.

<PAGE>

                                    Exhibit A
                                    ---------

Wire Transfer Instructions for Plans Balance

         Pay to:           Citibank
                           111 Wall Street
                           New York, NY

         ABA #:            021 000 089
         Acct #:           09253186
         Acct Name:        Bear, Stearns Securities Corp.
         Reference:        Sub A/C Omega Healthcare Investors, Inc.
         Sub A/C:          186-01103-19

<PAGE>

                                    Exhibit B
                                    ---------

                               Litigation Matters

                                   [Attached]

<PAGE>

                                    Exhibit C
                                    ---------

                                RELEASE AGREEMENT

     This Release  Agreement  (this  "Agreement") is made this 18th day of July,
2000, by Omega Healthcare  Investors,  Inc., a Maryland corporation (referred to
as "Employer"), and Essel W. Bailey, Jr. ("Employee" or "you").

                                  INTRODUCTION

         Employee  has  agreed  to resign as the  Chief  Executive  Officer  and
Chairman of the Board of Directors  of Employer and as an employee,  officer and
director of Employer, all to be effective upon the closing of the purchase on or
before August 31, 2000, by Explorer  Holdings,  L.P., from Employer of preferred
stock for at least  $90,000,000  (the  "Transaction"),  in exchange  for certain
payments and benefits set forth in the Consulting  and Severance  Agreement (the
"Severance Agreement") between Employer and Employee dated July 18, 2000.

         NOW, THEREFORE, the parties agree as follows:

1. The effective  date of this  Agreement  will be the date eight (8) days after
the date on which Employee signs this Agreement (the "Effective Date"). Employer
will execute this  Agreement on the same date as Employee  returns the Agreement
executed by him to the Employer.  As of the Effective  Date, if Employee has not
revoked this Agreement, it will be fully effective and enforceable.

2. In  exchange  for  Employee's  execution  of this  Agreement  and in full and
complete  settlement of any and all claims,  Employer will provide Employee with
the payments and benefits set forth in the Severance Agreement.

3. Employee  acknowledges  and agrees that this Agreement is in compliance  with
the  Age  Discrimination  in  Employment  Act  and  the  Older  Workers  Benefit
Protection  Act and that  the  releases  set  forth  in this  Agreement  will be
applicable, without limitation, to any claims brought under these Acts.

                  The  release  given by  Employee  in this  Agreement  is given
solely in exchange for the  consideration  set forth in this  Agreement and such
consideration  is in addition to anything of value that Employee was entitled to
receive prior to entering into this Agreement.

                  Employee  has been  advised to consult  an  attorney  prior to
entering into this Agreement,  and this provision of the Agreement satisfies the
requirement  of the Older  Workers  Benefit  Protection  Act that Employee be so
advised in writing.

                  Employee  has been  offered  twenty-one  (21)  days  from
receipt  of this Agreement within which to consider this Agreement.

                  By entering into this Agreement, neither Employee nor Employer
waive rights or claims that may arise after the date this Agreement is executed.

4.  For a period  of  seven  (7) days  following  Employee's  execution  of this
Agreement,  Employee  may revoke this  Agreement,  and this  Agreement  will not
become  effective  or  enforceable  until such seven (7) day period has expired.
Employee  must  communicate  the desire to revoke  this  Agreement  in  writing.
Employee  understands  that he may sign the  Agreement  at any time  before  the
expiration of the  twenty-one  (21) day review  period.  To the degree  Employee
chooses  not to wait  twenty-one  (21) days to  execute  this  Agreement,  it is
because  Employee  freely and  unilaterally  chooses to execute  this  Agreement
before that time.  Employee's signing of the Agreement triggers the commencement
of the seven (7) day revocation period.

5. This  Agreement  will in no way be  construed as an admission by either party
that it has acted wrongfully with respect to the other party or any other person
or that either party has any rights  whatsoever  against the other  party.  Each
party specifically disclaims any liability to or wrongful acts against the other
party or any other person on the part of itself, its employees or its agents.

6. As a material  inducement to Employer to enter into this Agreement,  Employee
hereby irrevocably releases (a) Employer and Explorer Holdings, L.P. ("Explorer"
and together with Employer, the "Direct Releasees"), and (b) each of the owners,
stockholders,   predecessors,   successors,   directors,   officers,  employees,
representatives,  and  attorneys of Employer or Explorer  (in their  capacity as
such),  any persons or entities  that the  Employee  reasonably  should know are
affiliates of Employer or Explorer,  (provided that Omega  Worldwide,  Inc. will
not be  deemed an  affiliate  of  Employer  or  Explorer  for  purposes  of this
Agreement)  ("Direct  Releasee  Affiliates") (and agents,  directors,  officers,
employees,  representatives and attorneys of Direct Releasee Affiliates) and all
persons acting by,  through,  under or in concert with them (all such persons or
entities  in  this  clause  (b)  collectively   referred  to  as  the  "Indirect
Releasees", and together with the Direct Releasees, collectively referred to as,
the "Releasees"),  from any and all charges,  claims,  liabilities,  agreements,
damages,  causes of action,  suits, costs, losses, debts and expenses (including
attorneys' fees and costs actually incurred) of any nature whatsoever,  known or
unknown, including, but not limited to, rights arising out of alleged violations
of any contracts (including without limitation the Employment Agreement dated as
of June 15, 2000  between the Company and the Employer and the Change in Control
Agreement dated March 22, 2000 between the Company and the Employee), express or
implied, any covenant of good faith and fair dealing, express or implied, or any
tort, or any legal restrictions on Employer's right to terminate  employees,  or
any federal,  state or other  governmental  statute,  regulation,  or ordinance,
including, without limitation: (1) Title VII of the Civil Rights Act of 1964, as
amended  by the Civil  Rights  Act of 1991  (race,  color,  religion,  sex,  and
national origin  discrimination);  (2) 42 U.S.C. ss. 1981 (discrimination);  (3)
the Americans with  Disabilities  Act (disability  discrimination);  (4) the Age
Discrimination in Employment Act; (5) the Older Workers Benefit  Protection Act;
(6) the Equal Pay Act; (7) Executive Order 11246 (race,  color,  religion,  sex,
and  national   origin   discrimination);   (8)   Executive   Order  11141  (age
discrimination);  (9) Section 503 of the  Rehabilitation Act of 1973 (disability
discrimination);   (10)  negligence;  (11)  negligent  hiring  and/or  negligent
retention;  (12)  intentional or negligent  infliction of emotional  distress or
outrage;  (13) defamation;  (14)  interference  with  employment;  (15) wrongful
discharge;  (16)  invasion of privacy;  or (17)  violation of any other legal or
contractual  duty arising  under the laws of any state or the laws of the United
States  ("Claim" or  "Claims"),  which  Employee now has, or claims to have,  or
which Employee at any time heretofore had, or claimed to have, or which Employee
at any time  hereinafter may have, or claim to have,  against each or any of the
Releasees,  in each case as to acts or omissions by each or any of the Releasees
occurring up to and including the Effective  Date.  Subject to the last sentence
of this Paragraph 6, notwithstanding anything to the contrary in this Agreement,
any release of any of the Indirect  Releasees pursuant to this Agreement will be
only with  regard to Claims  relating  directly  or  indirectly  to, or  arising
directly or indirectly out of their  relationship  to, Employer and/or Explorer.
Employee  agrees not to allow to be  initiated  any  action of any  nature  with
respect  to any Claim  released  herein.  This  Agreement  in no way  affects or
releases  any claims which  Employee  may have under any  employee  benefit plan
(within the meaning of the Employee  Retirement  Income Security Act of 1974, as
amended),  other  than any such plan for which a  settlement  provision  is made
under the Severance  Agreement,  or which Employee may have if Employer breaches
any of the provisions of the Severance Agreement or Employer breaches any of the
provisions of this Agreement.

7. Employer  hereby  irrevocably  releases  Employee and his heirs,  successors,
assigns,  agents and persons or entities that the Company reasonably should know
are  Employee's  affiliates  from  any and  all  charges,  claims,  liabilities,
agreements, damages, causes of action, suits, costs, losses, debts and expenses,
(including attorneys' fees and costs actually incurred), (collectively "Employer
Claims"),  but only to the extent that  indemnification is permitted pursuant to
applicable law and the Employer's Articles of Incorporation or Bylaws.  Employer
agrees not to initiate any action of any nature with the respect to any Employer
Claims released herein.  This Agreement in no way affects or releases any claims
which  Employer may have if Employee  breaches any  provisions  of the Severance
Agreement or Employee breaches any of the provisions of this Agreement.

8. In the event  Employee  breaches  any of the  provisions  of this  Agreement,
Employee will fully indemnify  Releasees for any charges,  claims,  liabilities,
damages,  causes of action,  suits, costs,  losses,  debts,  expenses (including
attorneys' fees and costs actually  incurred)  (collectively  "Releasee Losses")
incurred as a result of any breach of this  Agreement by Employee.  In the event
Employer  breaches any of the provisions of this Agreement,  Employer will fully
indemnify  Employee and his heirs,  successors,  assigns,  agents and persons or
entities that the Company  reasonably should know are Employee's  affiliates for
any charges,  claims,  liabilities,  damages,  causes of action,  suits,  costs,
losses,  debts, expenses (including attorneys' fees and costs actually incurred)
(collectively  "Employee  Losses")  incurred  as a result of any  breach of this
Agreement by Employer.

9. Any dispute  relating  to this  Agreement  will be  resolved  pursuant to the
dispute resolution provisions of the Severance Agreement.

10.  Employer and Employee  agree that the terms of this Agreement will be final
and binding and that this Agreement will be  interpreted,  enforced and governed
under the laws of the State of  Michigan,  without  regard to conflicts of laws.
The  provisions  of  this  Agreement  can be  severed,  and if any  part of this
Agreement is found to be  unenforceable,  the remainder of this  Agreement  will
continue to be valid and effective.

11. This  Agreement and the Severance  Agreement set forth the entire  agreement
between  Employer and Employee and fully supersedes any and all prior agreements
or understandings, written and/or oral, between Employer and Employee pertaining
to the subject matter of this Agreement and the Severance Agreement.

         Your signature  below indicates your  understanding  and agreement with
all of the terms in this Agreement.

         Please  take this  Agreement  home and  carefully  consider  all of its
provisions  before signing it. You may take up to twenty-one (21) days to decide
whether  you want to accept  and sign  this  Agreement.  Also,  if you sign this
Agreement,  you will then have an  additional  seven (7) days in which to revoke
your  acceptance of this Agreement after you have signed it. This Agreement will
not be effective or enforceable, nor will any consideration be paid, until after
the  seven  (7) day  revocation  period  has  expired.  Again,  you are free and
encouraged to discuss the contents and  advisability  of signing this  Agreement
with an attorney of your choosing.

         PLEASE  READ  CAREFULLY.  THIS  AGREEMENT  INCLUDES A RELEASE OF ALL
KNOWN AND UNKNOWN  CLAIMS.  YOU ARE  STRONGLY  ADVISED TO CONSULT WITH AN
ATTORNEY BEFORE EXECUTING THIS DOCUMENT.

         IN WITNESS WHEREOF,  Employee and Employer have executed this Agreement
effective as of the date first written above.

                                               EMPLOYEE
                                               /s/ Essel W. Bailey, Jr.
                                               ---------------------------------
                                                   Essel W. Bailey, Jr.

                                                   July 18, 2000
                                               ---------------------------------
                                               Date Signed

                                               OMEGA HEALTHCARE INVESTORS, INC.

                                              By:    /s/ Susan Allene Kovach
                                                    ---------------------------

                                              Title:   Vice President
                                                    ----------------------------COMPENSATION AGREEMENT

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

         "Cause" means

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

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

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

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

          (v)  conviction of a felony.

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

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

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

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

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

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

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

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

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

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

         Agreed to as of the date first set forth above.

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

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

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