DEF 14A: Definitive proxy statements

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934

OMEGA HEALTHCARE INVESTORS, INC.

900 Victors Way, Suite 350

To our Shareholders:

      The Annual Meeting of Shareholders of Omega Healthcare Investors, Inc. will be held at the Sheraton Inn, 3200 Boardwalk, Ann Arbor, Michigan 48108 on May 22, 2001, at 10:00 a.m., for the following purposes:

      The nominees for election as Group III directors are Edward Lowenthal, Christopher W. Mahowald and Stephen D. Plavin, each of whom presently serve as a director of the Company.

      The nominees for election to complete the remainder of the terms of the two Group I directors that resigned prior to the completion of their terms are Thomas W. Erickson and Donald J. McNamara. The nominee for election to complete the remainder of the term of the one Group II director that resigned prior to the completion of his term is Daniel A. Decker. Each nominee who is standing for election to complete the term of a director who resigned from the Board of Directors is currently serving as a director.

      The Board of Directors has fixed the close of business on April 13, 2001 as the record date for the determination of shareholders who are entitled to notice of and to vote at the meeting or any adjournments thereof.

      We encourage you to attend the meeting. Whether you are able to attend or not, we urge you to indicate your vote on the enclosed proxy card FOR the election of directors as set forth in the attached Proxy Statement. Please sign, date and return the proxy card promptly in the enclosed envelope. If you attend the meeting, you may vote in person even if you previously have mailed a proxy card.

April 18, 2001

OMEGA HEALTHCARE INVESTORS, INC.

900 Victors Way, Suite 350

      The accompanying proxy is solicited by the Board of Directors of Omega Healthcare Investors, Inc. (the “Company”) to be voted at the Annual Meeting of Shareholders to be held May 22, 2001, and any adjournments of the meeting (the “Annual Meeting”). It is anticipated that this proxy material will be mailed on or about April 20, 2001 to shareholders of record on April 13, 2001.

      A copy of the Annual Report of the Company for the year ended December 31, 2000, including financial statements, is enclosed.

      A shareholder giving a proxy has the power to revoke it at any time before it is exercised. A proxy may be revoked by filing with the Secretary of the Company (i) a signed instrument revoking the proxy or (ii) a duly executed proxy bearing a later date. A proxy also may be revoked if the person executing the proxy is present at the Annual Meeting and elects to vote in person. If the proxy is not revoked, it will be voted by those named in the proxy.

VOTING SECURITIES

      The outstanding voting securities of the Company, as of April 13, 2001, consisted of 19,989,956 shares of common stock, par value $.10 per share (“Common Stock”) and 1,048,420 shares of Series C Convertible Preferred Stock (the “Series C Preferred”). Each holder of record of Common Stock and Series C Preferred as of the close of business on April 13, 2001 is entitled to notice of and to vote at the Annual Meeting or any adjournments thereof. Each holder of shares of Common Stock is entitled to one vote per share on all matters properly brought before the Annual Meeting. The Holder of the Company’s Series C Preferred will vote as a single class with holders of Common Stock on all matters properly brought before the Annual Meeting on an as-converted basis, except as expressly required by law. The 1,048,420 shares of Series C Preferred outstanding as of April 13, 2001 are convertible into 16,774,722 shares of Common Stock and accordingly an aggregate of 36,764,678 votes are entitled to be cast by the holders of Common Stock and Series C Preferred at the meeting. Shareholders are not permitted to cumulate votes for the purpose of electing directors or otherwise.

PROPOSAL 1 — ELECTION OF DIRECTORS

Director Nominees and Voting Requirements.

      Pursuant to the Company’s Articles of Incorporation, the directors have been divided into three groups. At this year’s Annual Meeting, three Group III directors will be elected to hold office for a term of three years or, in each case, until their respective successors have been duly elected and qualified.

      Three directors currently serving on the Board of Directors have been appointed to fill vacancies created by the resignation of directors whose terms extended beyond 2001. Under Maryland law these directors are required to stand for election in order to serve out the remainder of the term of the director that they have replaced. Two of the replaced directors were Group I directors whose terms were to expire in 2002 and one was a Group II director whose term was to expire in 2003. The three directors to be elected to serve as replacements for the directors who resigned will serve the remainder of the terms of the directors they

      The nominees for election to the three positions as Group III directors are Edward Lowenthal, Christopher W. Mahowald and Stephen D. Plavin. The nominees for election to the two positions created by the resignation of the two Group I directors are Thomas W. Erickson and Donald J. McNamara. The nominee for election to the one position created by the resignation of the one Group II director is Daniel A. Decker.

      If elected, the Group III nominees, Messrs. Lowenthal, Mahowald and Plavin will serve three year terms that expire in 2004. If elected, the Group I nominees, Messrs. Erickson and McNamara will serve terms that expire in 2002. If elected, the Group II nominee, Mr. Decker, will serve a term that expires in 2003. Unless authority to vote for the election of directors has been specifically withheld, the persons named in the accompanying proxy card intend to vote FOR the election of the nominees named above to hold office for the terms indicated above or until their respective successors have been duly elected and qualified.

      Under the Company’s Bylaws directors are elected by a plurality of the votes cast at the Annual Meeting. As a result, broker non-votes and the decision to withhold authority to vote for any or all of the director nominees named above will have no impact on the outcome of the voting.

      If any nominee becomes unavailable for any reason (which event is not anticipated), the shares represented by the enclosed proxy may (unless the proxy contains instructions to the contrary) be voted for such other person or persons as may be determined by the holders of the proxies. In no event would the proxy be voted for more than six nominees.

Shareholders Agreement with Explorer

      On July 14, 2000, Explorer Holdings, L.P. (“Explorer”), an affiliate of Hampstead Investment Partners III, L.P. (“Hampstead”), a private equity investor, completed an investment (the “Series C Investment”) of $100.0 million in exchange for 1,000,000 shares of the Company’s Series C Preferred. In connection with Explorer’s Series C Investment, the Company entered into a Shareholders Agreement with Explorer dated July 14, 2000 (the “Shareholders Agreement”) pursuant to which Explorer is entitled to designate up to four members of the Company’s Board of Directors depending on the percentage of total voting securities (consisting of Common Stock and Series C Preferred) acquired from time to time by Explorer pursuant to the documentation entered into by Explorer in connection with the Series C Investment. Explorer is entitled to designate at least one director of the Company’s Board of Directors as long as it owns at least five (5%) percent of the total voting power of the Company and to approve one “independent director” as long as it owns at least twenty-five (25%) percent of the shares it acquired at the time it completed the Series C Investment (or Common Stock issued upon the conversion of the Series C Preferred acquired by Explorer at such time). Explorer has the right to elect additional preferred stock directors if the dividends on shares of the Series C Preferred are in arrears for four or more dividend periods. Explorer has waived such right through December 31, 2002 provided that dividends on any shares of Series C Preferred are not in arrears for six or more dividend periods from January 31, 2001 through December 31, 2002. See “Certain Transactions — Dividend and Governance Right Deferral.” Explorer’s director designation rights will terminate upon the tenth anniversary of the Shareholders Agreement.

Information Regarding Directors

      The following information relates to the nominees for election as directors of the Company and the other persons whose terms as directors continue after this meeting. The information appearing below regarding director nominees is organized according to the director group to which such person is nominated. Individuals not standing for election at the Annual Meeting are presented under the heading “Continuing Directors.” The

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      The Board of Directors of the Company unanimously recommends that shareholders vote FOR the election of Messrs. Lowenthal, Mahowald, Plavin, Decker, Erickson and McNamara.

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PRINCIPAL SHAREHOLDERS

      The Company believes that, at December 31, 2000 the following holders beneficially owned more than 5% of the outstanding shares of the Company’s Common Stock:

DIRECTORS AND EXECUTIVE OFFICERS

      The following table sets forth certain information regarding beneficial ownership of the Company’s Common Stock as of March 1, 2001 (i) by each of the Company’s directors and the named executive officers appearing in the table “Compensation of Executive Officers” below and (ii) by all directors and executive officers as a group. Except as indicated in the footnotes to this table, the persons named in the table have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them, subject to community property laws where applicable.

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The business address of all the above persons is 900 Victors Way, Suite 350, Ann Arbor, Michigan 48108.

Board of Directors and Committees of the Board

      The Board of Directors held 24 meetings during 2000. Henry H. Greer, a former member of the Company’s Board of Directors attended 11 of the 21 meetings held during the time he was director. All other members of the Board of Directors attended more than 75% of the Board or Committee meetings held during 2000.

      The Board of Directors has an Audit Committee consisting of Messrs. Korman, Kloosterman and Plavin, a Compensation Committee consisting of Messrs. Kloosterman, McNamara and Franke, an Independent Directors Committee consisting of Messrs. Franke, Kloosterman, Korman and Lowenthal, and an Executive Committee consisting of Messrs. Decker and Korman.

      The Board of Directors does not have a standing Nominating Committee and the functions that would typically be performed by this Committee are performed by the entire Board of Directors, except that each nominee that is not designated by Explorer pursuant to the Shareholders Agreement will be designated by the Independent Directors Committee.

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      The Audit Committee, met two times in 2000. Its primary function is to assist the Board of Directors in fulfilling its oversight responsibilities with respect to (i) the annual financial information to be provided to shareholders and the Securities and Exchange Commission; (ii) the system of internal controls that management has established; and (iii) the external audit process. In addition, the Audit Committee provides an avenue for communication between the independent accountants, financial management and the Board.

      The Compensation Committee met three times during 2000 and has responsibility for the compensation of the Company’s key management personnel and administration of the Company’s 2000 Stock Incentive Plan and the Company’s 1993 Deferred Compensation Plan. Prior to its termination in 2000, the Compensation Committee also administered the Company’s Amended and Restated Stock Option and Restricted Stock Plan (the “Amended and Restated Plan”).

      The Independent Directors Committee, which did not meet during 2000, has responsibility for passing upon those issues with respect to which a conflict may exist between the Company and Explorer and/or Hampstead, including issues with respect to the allocation of costs between the Company and Explorer pursuant to the Advisory Agreement between the Company and Explorer. The Independent Directors Committee is expected to meet in the near future in connection with the review of fees to be paid pursuant to the Advisory Agreement. See “Certain Transactions — Advisory Agreement” below.

      The Executive Committee, which met four times during 2000, has the responsibility to act on behalf of the Board of Directors in between meetings of the Board of Directors.

Compensation of Directors

      For the year ended December 31, 2000, the Company paid each non-employee director a fee of $20,000 per year for services as a director, plus $3,000 for services as a Committee Chairperson and $500 for attendance at a meeting of the Board of Directors, or any Committee thereof during the first and second quarters of Fiscal 2000 and $1,000 for attendance at such a meeting during the third and fourth quarters of Fiscal 2000 as well as $500 for each teleconference meeting. In addition, the Company reimbursed the directors for travel expenses incurred in connection with their duties as directors. Employee directors received no compensation for service as directors. The cash compensation (not including reimbursement for expenses) paid by the Company in consideration of Mr. Decker’s and Mr. McNamara’s service on the Board of Directors as Explorer designees was paid directly to Hampstead, an affiliate of Explorer.

      The Committee plans to change the manner in which non-employee directors will be awarded cash compensation for 2001 and thereafter. Going forward, each non-employee director will receive a cash payment equal to $10,000 per year, payable in quarterly installments of $2,500. In addition, each non-employee director will also be entitled to receive fees equal to $1,000 per meeting for attendance at each regularly scheduled meeting of the Board of Directors. For each teleconference or called special meeting of the Board of Directors, each non-employee director will receive $1,000 for meetings with a duration in excess of 15 minutes and $500 for meetings with a duration of less than 15 minutes. The Company will also continue to reimburse directors for travel expenses incurred in connection with their duties as directors. In addition, the Company expects to continue paying this cash compensation and expense reimbursement in connection with Mr. Decker’s and Mr. McNamara’s service on the Board directly to Hampstead.

      Mr. Erickson is compensated through payments made to an entity controlled by Mr. Erickson under the Management Service Agreement. Under the Management Services Agreement, Mr. Erickson may also receive awards of stock options and dividend equivalent rights. See “Compensation and Severance Agreements — Management Services Agreement.”

      Robert L. Parker, a former director of the Company, provided ongoing consulting services to the Company during the time he served as a director. Mr. Parker received $3,000 per month up until the time of his resignation from the Board on July 14, 2000.

      Directors are eligible to participate in the Company’s 2000 Stock Incentive Plan. Prior to its termination in 2000, directors received option grants under the Company’s Amended and Restated Plan. Each non-employee director was awarded options with respect to 10,000 shares at the date the plan was adopted or on

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      During the year ended December 31, 2000, Messrs. Franke, Kloosterman, Korman and Lowenthal were each awarded a grant of 300 shares of restricted stock, which grant vested six (6) months after the date of grant.

      The Compensation Committee plans to modify the manner in which non-employee directors will receive grants of stock going forward. In the future, each non-employee director will receive a grant of shares of Common Stock equal to the number of shares determined by dividing the sum of $2,500 by the fair market value of the stock on the date of each quarterly grant (currently set as February 15, May 15, August 15, and November 15).

      In addition, a borrowing program was adopted to enable directors and employees to borrow funds from the Company with which to purchase shares of the Company’s Common Stock pursuant to the exercise of stock options. See “Certain Transactions — Borrowing Program,” below, for a more complete description of the borrowing program.

EXECUTIVE COMPENSATION

Compensation Committee Report

      The Compensation Committee (the “Committee”) administers the Company’s 2000 Stock Incentive Plan and 1993 Deferred Compensation Plan, and has responsibility for other incentive and benefit plans. During Fiscal 2000, the Committee also administered the Company’s Amended and Restated Plan. The Amended and Restated Plan was terminated in 2000. The Committee determines the compensation of the Company’s executive officers and reviews with the Board of Directors all aspects of compensation for the Company’s executive officers.

      The Company has determined that it is in its best interests to undertake a re-evaluation of many fundamental aspects of its business, including the composition of its management team and the manner in which they are compensated. On October 1, 2000, Mr. Erickson was appointed Interim Chief Executive Officer of the Company for the purpose of guiding the Company through this re-evaluation process. Although the Company is considering modifying the manner in which it compensates executives in the future in connection with the re-evaluation, no definitive action has been taken or recommendation finalized.

      Historically, the policy of the Company and the guidelines followed by the Committee have been directed toward providing compensation to the Company’s executive officers in order to achieve the following objectives:

      The Company’s historical compensation practices have embodied the principle that annual bonuses should be based primarily on achieving Company objectives that enhance long-term shareholder value, and

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      The Company’s approach to base compensation levels has been to offer competitive salaries in comparison with prevailing market practices. The Committee has annually examined market compensation levels and trends. Additionally, the Committee has also considered the pool of executives who currently are employed in similar positions in public companies, with emphasis on salaries paid by real estate investment trusts.

      The Committee has evaluated executive officer salary decisions in connection with an annual review and based on input from the Chairman of the Board and the Chief Executive Officer of the Company. In undertaking the annual review, the Committee considered the decision-making responsibilities of each position and the experience, work performance and team-building skills of each incumbent. The Committee has viewed work performance as the single most important measurement factor, followed by team-building skills and decision-making responsibilities.

      For executives other than the Chief Executive Officer of the Company, the Committee has given consideration to both overall Company performance and the performance of the specific areas of the Company under the incumbent’s direct control. It was the Committee’s view that this balance supported the accomplishment of overall objectives and rewarded individual contributions by executive officers. Individual annual bonuses for each named executive have been consistent with market practices for positions with comparable decision-making responsibilities.

      In connection with retaining the services of Mr. Erickson to act as the Company’s Interim Chief Executive Officer, the Company entered into a Management Services Agreement (the “Management Services Agreement”) dated October 1, 2000 with Mr. Erickson and an entity controlled by Mr. Erickson. The Committee believes that the monthly payments made to Mr. Erickson under the terms of the Management Services Agreement are consistent with the duties and scope of responsibilities assigned to Mr. Erickson as Interim Chief Executive Officer. In order to align Mr. Erickson’s interests with the long-term interests of the Company, Mr. Erickson’s compensation package includes significant equity based compensation including stock options and dividend equivalent rights. For a detailed description of the proposed terms of the Management Services Agreement see “Certain Transactions — Management Services Agreement” below.

      The SEC requires that this report comment upon the Company’s policy with respect to Section 162(m) of the Internal Revenue Code. Section 162(m) disallows a federal income tax deduction for compensation over $1 million to any of the named executive officers unless the compensation is paid pursuant to a plan which is performance-related, non-discretionary and has been approved by the Company’s shareholders. The Company did not pay any compensation during 2000 that would be subject to Section 162(m). The Company believes that, because it qualifies as a REIT under the Internal Revenue Code and therefore is not subject to federal income taxes on its income to the extent distributed, the payment of compensation that does not satisfy the requirements of Section 162(m) will not generally affect the Company’s net income, although to the extent that compensation does not qualify for deduction under Section 162(m) a larger portion of shareholder distributions may be subject to federal income taxation as dividend income rather than return of capital. The Company does not believe that Section 162(m) will materially affect the taxability of shareholder distributions, although no assurance can be given in this regard due to the variety of factors that affect the tax position of each shareholder. For these reasons, the Compensation Committee’s compensation policy and practices are not directly governed by Section 162(m).

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Compensation of Executive Officers

      The following table sets forth, for the years ended December 31, 2000, 1999, and 1998, the compensation for services in all capacities to the Company of (i) each person who served as Chief Executive Officer during the year ended December 31, 2000 and (ii) the four most highly compensated executive officers serving at December 31, 2000.

[Additional columns below]

[Continued from above table, first column(s) repeated]

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Compensation and Severance Agreements

      In June 2000, the Company entered into Compensation Agreements with F. Scott Kellman, Susan A. Kovach and Laurence D. Rich. Pursuant to the agreements, the executives received a bonus in 2000 in the following amounts: Kellman, $200,000; Kovach, $40,000; and Rich, $40,000. The agreements established each executive’s annual salary as follows: Kellman, $285,000; Kovach, $155,000; and Rich, $155,000, with increases to at least the following amounts on January 1, 2001: Kellman, $300,000; Kovach, $175,000; and Rich, $175,000. Each executive has the opportunity to receive an annual bonus of up to 100% of their annual salary, based on his or her performance.

      Pursuant to the Compensation Agreements, in 2000, each executive received a grant of a non-qualified stock option to purchase Common Stock in the following amounts: Kellman, 500,000 shares; Kovach, 227,500 shares; and Rich, 227,500 shares. The stock options are vested as to 30% of the shares as of December 31, 2001 and as to an additional one-sixtieth (1/60th) of the shares for each month of service thereafter. The exercise price of each stock option is $6.25. Each executive also received a grant of dividend equivalent rights (“DERs”), payable in cash, with respect to the same number of shares of Common Stock covered by their respective awards of non-qualified stock options. The DERs are subject to the same vesting schedule as the stock options. DERs accrue only when the Company’s operations meet or exceed performance criteria established by the Compensation Committee. DERs accrue in the same amount and at the same time as the dividends declared on Common Stock. The maximum amount of DERs that may be earned is limited to the exercise price of the related option. If the related stock options expire, the vested DERs will be paid out in cash in equal monthly payments over the following year.

      Each agreement provides for severance benefits payable upon termination of the executive by the Company without “cause” or if the executive quits with “good reason,” in an amount equal to two times the sum of the executive’s highest annual salary plus average bonus (including certain restricted stock grants) during the three years preceding termination (but excluding the bonuses paid in 2000 upon the execution of

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      The Company entered into a Management Services Agreement dated October 1, 2000 with ECG Ventures, Inc. and Thomas W. Erickson, pursuant to which Mr. Erickson will provide services as the interim Chief Executive Officer of the Company. The agreement will be effective from October 1, 2000 through March 31, 2001.

      Pursuant to the agreement, Mr. Erickson will receive a monthly salary equal to $41,667 and will receive reimbursement for reasonable business expenses and a portion of his group health insurance premiums. Subject to the terms of the Company’s 2000 Stock Incentive Plan and Compensation Committee approval, Mr. Erickson will receive a nonqualified stock option to purchase 35,000 shares of the Common Stock at an exercise price of $6.25 per share. The stock options will be fully vested as of May 1, 2001. Mr. Erickson will also receive DERs, payable in cash, with respect to 35,000 shares of Common Stock. The DERs will be subject to the same vesting schedule as the stock options.

      The agreement provides for severance benefits payable upon termination of Mr. Erickson’s employment by the Company without “cause” or if he resigns with “good reason,” in an amount equal to the remaining cash compensation due under the agreement. In addition, all unvested stock options and DERs will continue to vest in accordance with the vesting schedule.

      Pursuant to the agreement, during the term of the agreement and for two years following his termination, Mr. Erickson agrees not to disclose confidential information. In addition, Mr. Erickson agrees not to disclose trade secrets for so long as permitted by applicable law.

      On July 18, 2000, the Company entered into a Consulting and Severance Agreement with Essel W. Bailey, Jr. (the “Bailey Severance Agreement”), pursuant to which Mr. Bailey resigned as an officer of the Company. Mr. Bailey’s resignation and the Bailey Severance Agreement was effective as of July 14, 2000.

      Pursuant to the Bailey Severance Agreement, Mr. Bailey received payment of his regular base salary through the effective date of his resignation and a lump-sum severance payment equal to $1,555,000. The Bailey Severance Agreement provides that Mr. Bailey is fully vested in his deferred compensation plan and in 59,708 shares of his restricted stock. Mr. Bailey’s deferred compensation units, valued at $249,510 and the value of his account under the Company’s terminated director’s retirement plan were transferred to an account in his name. The agreement also provides that Mr. Bailey will be fully vested in the remaining 15,831 shares of his restricted stock if the Common Stock reaches a per share value of at least $10 for ten consecutive business days, or an average price of $10 over a period of thirty consecutive business days during the period from July 11, 2000 to February 10, 2001. The vesting requirements with respect to the 15,381 shares of Common Stock described in the prior sentence were not met and so such shares were cancelled. The Bailey Severance Agreement also provides that Mr. Bailey’s unvested options to purchase 85,000 shares of Common Stock terminated on his resignation date. The agreement permits Mr. Bailey to transfer shares he purchased under the Borrowing Program back into the Company in satisfaction of his debt under the Borrowing Program (as such term is defined under “Certain Transactions — Borrowing Program”). The agreement provides Mr. Bailey with an office and secretarial support, life insurance, health insurance and long-term disability insurance for a period of twenty-four months following his resignation date. The Bailey Severance Agreement provides that if Mr. Bailey incurs an excise tax under the Internal Revenue Code, the Company will pay such additional compensation as is necessary to put him in the same after-tax position as if no excise tax had been imposed.

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      Pursuant to the Bailey Severance Agreement, Mr. Bailey will provide consulting services to the Company for twelve months following his resignation. Mr. Bailey agrees not to compete with the Company or solicit any of its customers or employees for twenty-four months following his resignation. In exchange for the consulting services and his agreement not to compete with the Company or solicit its customers or employees, Mr. Bailey will receive compensation equal to $147,500 per month for twelve months. Mr. Bailey also agrees not to disclose confidential information and trade secrets for long as protected by applicable law.

Options/ SAR Grants in Last Fiscal Year

      The following table sets forth certain information concerning options/ SARs granted during 2000 to Messrs. Erickson, Kellman and Rich and Ms. Kovach. Messrs. Bailey, FitzPatrick and Stover did not receive any option grants during 2000 and therefore do not appear in the table below.

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Aggregated Options/ SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/ SAR Values

      The following table summarizes options and SARs exercised during 2000 and presents the value of unexercised options and SARs held by the named executive officers at December 31, 2000. Messrs. Bailey, FitzPatrick and Stover did not have any outstanding options or SARs at December 31, 2000 and therefore do not appear in the table below.

Long-Term Incentive Plan

      For the period from August 14, 1992 (date of commencement of operations of the Company) through December 31, 2000, the Company had no long-term incentive plans.

Defined Benefit or Actuarial Plan

      For the period from August 14, 1992 (date of commencement of operations of the Company) through December 31, 2000, the Company had no pension plans.

Compensation Committee Interlocks and Insider Participation

      Mr. Decker, the Chairman of the Board and Executive Chairman of the Company, and Mr. Erickson, the current Interim Chief Executive Officer of the Company, were previously members of the Company’s Compensation Committee. Both Mr. Decker and Mr. Erickson have resigned from the Compensation Committee as of March 30, 2001. Mr. Decker, an affiliate of Hampstead, can be deemed to have an interest in the Dividend Deferral Letter Agreement, Shareholders Agreement and the Advisory Agreement (as such terms are defined under the caption “Certain Transactions” below). See “Certain Transactions — Dividend and Governance Right Deferral,” “— Shareholders Agreement” and “— Advisory Agreement.” Mr. Erickson can be deemed to have an interest in payments made by the Company under the terms of the proposed Management Services Agreement. See “Compensation and Severance Agreements — Management Services Agreement.”

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COMPARISON OF CUMULATIVE TOTAL RETURN*

Among:  Omega Healthcare Investors, Inc.

[LINE GRAPH]

      THIS GRAPH REPRESENTS HISTORICAL STOCK PRICE PERFORMANCE AND IS NOT NECESSARILY INDICATIVE OF ANY FUTURE STOCK PRICE PERFORMANCE.

      THE REPORTS OF THE COMPENSATION COMMITTEE AND THE AUDIT COMMITTEE AND THE PERFORMANCE GRAPH THAT APPEARS ABOVE SHALL NOT BE DEEMED TO BE SOLICITING MATERIAL OR TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE ACT OF 1934 OR INCORPORATED BY REFERENCE IN ANY DOCUMENT SO FILED.

CERTAIN TRANSACTIONS

Explorer Holdings, L.P.

      Hampstead through its affiliate Explorer indirectly owns 1,048,722 shares of Series C Preferred, representing 45.6% of the outstanding voting power of the Company. Daniel A. Decker, Chairman of the Board and Executive Chairman of the Company, is a partner of Hampstead. Donald J. McNamara, the Chairman of Hampstead, is a director of the Company.

      In connection with Explorer’s investment, the Company has entered into a Shareholders Agreement dated July 14, 2000 (the “Shareholders Agreement”) with Explorer pursuant to which Explorer is entitled to designate up to four members of the Company’s Board of Directors depending on the percentage of total voting securities (consisting of Common Stock and Series C Preferred) acquired from time to time by Explorer pursuant to the documentation entered into in connection with the Series C Investment. Explorer will be entitled to designate at least one director to the Company’s Board as long as it owns at least 5% of the

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      In addition, Explorer has agreed not to transfer any shares of Series C Preferred (or the Common Stock issuable upon conversion of the Series C Preferred) until July 1, 2001. After July 1, 2001, Explorer will be permitted to transfer its Series C Preferred to certain large institutional investors if either (i) the total amount of voting securities represented by such Series C Preferred does not exceed 9.9% of the total voting power of the Company’s voting securities or (ii) such investor becomes a party to the standstill agreement contained in the Shareholders Agreement. Commencing on the first anniversary of the closing, Explorer will have the right (up to five times) to request the Company to register its shares for resale, subject to customary conditions and limitations on such registration requests. Any transfer of voting securities by Explorer or its affiliates (other than in connection with the exercise of registration rights) is subject to a right of first offer that can be exercised by the Company or any other purchaser that the Company may designate. These transfer restrictions will terminate on the fifth anniversary of the Series C Investment.

      Pursuant to the standstill provisions in the Shareholders Agreement, Explorer has agreed that, until the fifth anniversary of the Series C Investment, it will not acquire, without the prior approval of the Company’s Board of Directors, beneficial ownership of any voting securities (other than pursuant to the Liquidity Commitment, the Growth Equity Commitment and the Increased Growth Equity Commitment and additional acquisitions of not more than 5% of the Company’s voting securities). In addition, without the prior approval of the Company’s Board of Directors, Explorer is restricted from soliciting proxies from other Company shareholders in opposition to a recommendation of the Board of Directors, joining a “group” (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934) with respect to the Company’s securities, depositing the Company’s securities into a voting trust, or tendering Company securities in a tender offer involving Omega. If Explorer or its affiliates beneficially own voting securities representing more than 49.9% of the Company’s total voting power, the terms of the Series C Preferred provide that no holder of Series C Preferred will be entitled to vote any shares of Series C Preferred that would result in such holder, together with its affiliates, voting in excess of 49.9% of the then outstanding voting power of the Company. In addition, shares of Series C Preferred cannot be converted to the extent that such conversion would cause the converting stockholder to beneficially own in excess of 49.9% of the then outstanding voting power of the Company.

      The Company has amended its Shareholders’ Rights Plan to exempt Explorer and any of its transferees that become parties to the standstill provisions of the Shareholders Agreement from the definition of “Acquiring Person,” so as to render the Company’s “poison pill” inapplicable to Explorer and such transferees, subject to their compliance with the standstill provisions. Subsequent acquisitions of voting securities by a transferee of more than 9.9% of voting securities from Explorer are limited to not more than 2% of the total amount of outstanding voting securities in any 12 month period.

      Pursuant to the terms of an Investment Agreement dated May 11, 2000 between the Company and Explorer, the Company has agreed to reimburse Explorer for Explorer’s out-of-pocket expenses, up to a maximum amount of $2.5 million, incurred in connection with the Series C Investment. To date, the Company has reimbursed Explorer for approximately $964,000 of expenses pursuant to this agreement.

      Pursuant to an Amended and Restated Advisory Agreement dated October 4, 2000 (the “Advisory Agreement”) between the Company and Explorer, the Company has agreed to pay Explorer an advisory fee if Explorer provides assistance to the Company in connection with the evaluation of growth opportunities or other financing matters. The amount of the advisory fee will be mutually determined by the Company and Explorer, based upon the nature and the extent of the services provided and the results achieved. The

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      The Company and Explorer entered into a dividend deferral letter agreement (the “Dividend Deferral Letter Agreement”) dated November 15, 2000 relating to the extension of the dividend payment payable in connection with the Company’s Series C Preferred for the dividend period ended October 31, 2000. The deferral period expired on April 2, 2001. The amount of the deferred dividend payment is $4.667 million representing the total unpaid preferential cumulative dividend for the October 2000 dividend. In exchange for the waiver, the Company also agreed to pay Explorer a waiver fee equal to 10% of the daily unpaid principal balance of the unpaid dividend amount from November 15, 2000 until the dividend is paid. Under certain circumstances, the portion of the unpaid dividend amount and waiver amount which is not paid in cash may be payable with additional shares of Series C Preferred. Shares of Series C Preferred issued pursuant to this agreement are valued at $100 per share (the stated per share liquidation preference) and are convertible into Common Stock at $6.25 per share. In consideration of the payment of the waiver fee, Explorer agreed that the deferral of the subject dividend would not be considered an unpaid dividend and, as a result, the October 31, 2000 dividend period will not be included in the determination of when Explorer’s right to elect additional directors will vest.

      The Company and Explorer have entered into a governance right deferral period letter agreement dated January 31, 2001 whereby Explorer waived its right to elect additional preferred stock directors provided that the dividends on any shares of Series C Preferred would not be in arrears for six or more dividend periods from January 31, 2001 through and including December 31, 2002.

      In consideration of its obligations under the Dividend Deferral Letter Agreement, the Company issued 48,420 shares of Series C Preferred on April 2, 2001.

Omega Worldwide

      The Company has guaranteed repayment of Omega Worldwide, Inc. (“Worldwide”) borrowings pursuant to a revolving credit facility with a bank group, of which Fleet Bank, N.A. acts as agent in exchange for an initial 1% fee and an annual facility fee of 25 basis points. At December 31, 2000, borrowings of $2.85 million were outstanding under Worldwide’s revolving credit facility. Worldwide’s credit agreement calls for scheduled payments to be made until fully repaid in June 2001. Under this agreement, no further borrowings may be made by Worldwide under its revolving credit facility. The Company is required to provide collateral in the amount of up to $8.8 million related to the guarantee of Worldwide’s obligations. Upon repayment by Worldwide of the remaining outstanding balance under its revolving credit facility, the subject collateral will be released in connection with the termination of the Company’s guarantee.

      The Company and Worldwide have entered into an Opportunity Agreement to provide each other with rights to participate in certain transactions and make certain investments. The Opportunity Agreement provides that each company will offer the other a right of first refusal to participate in certain transactions or investments of which it becomes aware. In addition, both companies agree to jointly pursue certain transactions and investments upon the request of either company. The terms upon which each of the Company and Worldwide elect to participate in any such transaction or investment will be negotiated in good faith and must be mutually acceptable to the respective boards of directors of the Company and Worldwide, with the affirmative votes of the independent directors of the boards of directors of the Company and Worldwide. The Opportunity Agreement has a term of ten years and automatically renews for successive five-year terms unless terminated.

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      The Company and Worldwide have entered into a Services Agreement which provided for the allocation of indirect costs incurred by the Company to Worldwide. The allocation of indirect costs has been based on the relationship of assets under the Company’s management to the combined total of those assets and assets under Worldwide’s management. Upon expiration of this agreement on June 30, 2000, the Company entered into a new agreement requiring quarterly payments from Worldwide of $37,500 for the use of offices and certain administrative and financial services provided by the Company. Upon the reduction of the Company’s accounting staff, the Service Agreement was renegotiated again on November 1, requiring quarterly payments form Worldwide of $32,500. Costs allocated to Worldwide for 2000 and 1999 were $404,000 and $754,000, respectively.

Other

      On January 14, 1998, the Board of Directors adopted a program (the “Borrowing Program”) pursuant to which the Company agreed to lend funds to employees and directors to enable them to purchase the Company’s Common Stock through the exercise of stock options. The goal of the Borrowing Program is to increase ownership of the Company’s Common Stock by employees and directors, and, as a result, to foster a proprietary feeling among employees and directors and to further align the interests of employees and directors with those of the Company’s other shareholders. The maximum amount that an employee may borrow under the Borrowing Program depends upon the employee’s salary level, with the maximum loan amount for employees at the lower end of the salary range being $20,000, and the maximum loan amount for employees at the upper end of the salary range being $300,000. The maximum loan amount for directors is $300,000. Each loan bears interest at the Company’s borrowing cost, as determined by the Company’s management in its sole discretion. Interest is payable quarterly, and all principal and accrued and unpaid interest is due five years from the date of the loan. Upon receipt by an employee of a cash bonus from the Company, the employee is obligated to make a principal reduction payment equal to 10% of the amount of the cash bonus. The loans are secured by pledges of the stock purchased with the proceeds of the loans. As long as a loan is not in default, the borrower may vote the shares purchased and is entitled to receive all dividends paid on the shares. At January 1, 2000, the following loans were outstanding to executive officers and non-employee directors:

      As of January 1, 2000, the aggregate outstanding aggregate principal balance of loans made under the Borrowing Program to employees who are not directors or executive officers is $201,088. On July 31, 2000, Messrs. Bailey, Eden, Flaherty, Franke, Kloosterman, Korman, Lowenthal, Parker and Stover each surrendered 7,664; 12,000; 8,333; 12,000; 12,000; 12,000; 6,999; 12,739; and 11,703 shares of Common Stock, respectively in exchange for forgiveness of $191,803; $262,587; $255,171; $262,587; $262,587; $300,000; $187,472; $299,955; and $294,118, respectively, of debt, incurred by each of them under the Borrowing Program. As of December 31, 2000, no loans were outstanding under the Borrowing Program for directors or executive officers of the Company. The Company does not currently expect that any loans will be made pursuant to the Borrowing Program in the future.

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      The Company leased 5,823 square feet of office space at 905 West Eisenhower Circle, Suite 110, Ann Arbor, Michigan 48103, from Circle Partners, a general partnership whose general partners are Essel W. Bailey, Jr., former President and Chief Executive Officer of the Company, and Thomas F. Franke, a director of the Company. During 1998, the Company moved its principal executive offices to 900 Victors Way, Suite 350, Ann Arbor, Michigan 48108 and entered into a sublease agreement with respect to 1,900 square feet of the Eisenhower space on December 14, 1998. The Company entered into a second sublease agreement with respect to an additional 3,000 square feet of the Eisenhower space in July 1999. The lease expired, concurrently with the expiration of the subleases, on October 31, 2000. Rent payments totaling $77,198 were made to Circle Partners in 2000. Rent income on the subleases in 2000 was $65,509.

      In connection with the 1994 relocation of F. Scott Kellman, Chief Operating Officer, from the Philadelphia metropolitan area to Ann Arbor, Michigan, the Company loaned him $220,000 to enable him to purchase a home in Ann Arbor. At January 1, 2000 the outstanding principal balance on the loan was $67,000. The loan was secured by a lien on Mr. Kellman’s residence, and bore interest at 7.05% per annum. Mr. Kellman paid the balance of the mortgage in full on January 29, 2001.

      On December 30, 1998, the Company made a $6,000,000 loan to Oakwood Living Centers of Massachusetts, Inc., an affiliate of Oakwood Living Centers, Inc., of which James E. Eden, a former director of the Company, also is Chairman and Chief Executive Officer. The loan is secured by a second mortgage lien on six skilled nursing facilities located in Massachusetts, bears interest at 14% per annum and currently is past due. The Company believes that the loan is adequately secured and is evaluating its remedies.

      On June 15, 2000, the Company entered into a Consulting and Severance Agreement with David A. Stover, (the “Stover Severance Agreement”), pursuant to which Mr. Stover resigned as an officer of the Company. Mr. Stover’s resignation and the Stover Severance Agreement was effective as of June 15, 2000.

      Pursuant to the Stover Severance Agreement, Mr. Stover received payment of his regular base salary for thirty days after the effective date of his resignation and a lump-sum severance payment equal to $348,667. The agreement provided that Mr. Stover was fully vested in his restricted stock awards for which there were no performance requirements, stock options and deferred compensation units. In addition, the dollar value of Mr. Stover’s deferred compensation units under the Company’s deferred compensation arrangement were to be paid to Mr. Stover in a lump sum payment pursuant to the terms of the plan. The Stover Severance Agreement permitted Mr. Stover to transfer shares he purchased under the Borrowing Program back to the Company in satisfaction of his debt under the Borrowing Program.

      Pursuant to the Stover Severance Agreement, Mr. Stover will provide consulting services to the Company for one year following his resignation in exchange for compensation equal to $348,667 payable in twelve equal monthly installments.

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AUDIT COMMITTEE MATTERS

      The Board of Directors has adopted a written charter for the Audit Committee, a copy of which is attached to this Proxy Statement as Appendix A. The Board of Directors reviews and approves changes to the Audit Committee Charter annually.

      Each of the members of the Company’s Audit Committee meets the requirements for independence as defined by the standards of the New York Stock Exchange.

Audit Committee Report

      The Audit Committee reports as follows with respect to the audit of the Company’s 2000 audited consolidated financial statements:

      1)  The Audit Committee has reviewed and discussed the Company’s 2000 audited consolidated financial statements with the Company’s management;

      2)  The Audit Committee has discussed with Ernst & Young LLP the matters required to be discussed by SAS 61, which include, among other items, matters related to the conduct of the audit of the Company’s consolidated financial statements;

      3)  The Audit Committee has received written disclosures and the letter from Ernst & Young LLP required by ISB Standard No. 1 (which relates to the auditor’s independence from the Company and its related entities) and has discussed with Ernst & Young LLP its independence from the Company; and

      4)  Based on reviews and discussions of the Company’s 2000 audited consolidated financial statements with management and discussions with Ernst & Young LLP, the Audit Committee recommended to the Board of Directors that the Company’s 2000 audited consolidated financial statements be included in the Company’s Annual Report on Form 10-K.

RELATIONSHIP WITH INDEPENDENT AUDITORS

Independent Auditors

      Ernst & Young LLP audited the Company’s financial statements for each of the years ended December 31, 1998, 1999 and 2000. Representatives of Ernst & Young LLP are expected to be present at the Annual Meeting and will be given the opportunity to make a statement if they desire to do so. It is also expected that they will be available to respond to appropriate questions from shareholders at the Annual Meeting.

Audit Fees

      In connection with services rendered in conjunction with the audit of the Company’s annual financial statements and the review of the Company’s interim financial statements, the Company has estimated that its total audit fees for fiscal year 2000 were approximately $185,000. This figure is based on an estimate provided by our accountants, Ernst & Young LLP, and includes fees for services that were billed to the Company in fiscal year 2001 in connection with the 2000 fiscal year audit.

Financial Information Systems Design and Implementation Fees

      The Company did not retain Ernst & Young LLP to perform any financial information systems design or implementation services in fiscal year 2000.

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Other Fees

      During fiscal year 2000, the Company was billed $153,300 by Ernst & Young LLP for services not described above.

Determination of Auditor Independence

      The Audit Committee has considered the provision of non-audit services by our principal accountants and has determined that the provision of such services was consistent with maintaining the independence of Ernst & Young LLP.

SHAREHOLDER PROPOSALS

      January 22, 2001 is the date by which proposals of shareholders intended to be presented at the 2002 Annual Meeting of Shareholders must be received by the Company for inclusion in the Company’s proxy statement and form of proxy relating to that meeting.

      The individuals selected to act as proxy holders in connection with the 2002 Annual Meeting of Shareholders will have discretionary authority to vote the shares represented by the proxies held by them with regard to shareholder proposals which are received by the Company after March 5, 2002. If the date of the 2002 Annual Meeting varies by more than 30 days from the date of the Annual Meeting for 2001, then the proxy holders will have discretionary authority to vote the shares represented by the proxies held by them with regard to any shareholder proposals received by the Company less than a reasonable time prior to the Company mailing the proxy materials for the 2002 Annual Meeting of Shareholders.

EXPENSES OF SOLICITATION

      The total cost of this solicitation will be borne by the Company. In addition to use of the mails, proxies may be solicited by directors, officers and regular employees of the Company personally and by telephone, telex or facsimile. The Company may reimburse persons holding shares in their own names or in the names of the nominees for expenses such persons incur in obtaining instructions from beneficial owners of such shares. The Company has also engaged Georgeson & Company to solicit proxies for a fee not to exceed $7,500 plus out-of-pocket expenses.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

      Mr. Stover filed one late report on Form 4 reporting 9 separate transactions. To the Company’s knowledge, all other filings required under Section 16 of the Securities Exchange Act of 1934 were made on a timely basis.

OTHER MATTERS

      The Board of Directors knows of no other business to be presented at the Annual Meeting, but if other matters do properly come before the Annual Meeting, it is intended that the persons named in the proxy will vote on said matters in accordance with their best judgment.

April 18, 2001

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APPENDIX A

AUDIT COMMITTEE CHARTER

      The Audit Committee (the “Committee”) of the Board of Directors (the “Board”) of Omega Healthcare Investors, Inc. (the “Company”) will be comprised of three independent directors as determined by the Board. The members of the Committee will meet the independence and experience requirements of the New York Stock Exchange (the “NYSE”). The members of the Committee will be elected annually at the organizational meeting of the full Board and will be listed in the annual report to shareholders. One of the members of the Committee will be elected Committee Chair by the Board. The Committee will have the oversight responsibility, authority and specific duties as described below.

Responsibility

      The Committee is a part of the Board. Its primary function is to assist the Board in fulfilling its oversight responsibilities with respect to (i) the annual financial information to be provided to shareholders and the Securities and Exchange Commission (the “SEC”); (ii) the system of internal controls that management has established; and (iii) the external audit process. In addition, the Committee provides an avenue for communication between the independent accountants, financial management and the Board. The Committee should have a clear understanding with the independent accountants that they must maintain an open and transparent relationship with the Committee, and that the ultimate accountability of the independent accountants is to the Board and the Committee. The Committee will make regular reports to the Board concerning its activities.

      While the Committee has the responsibilities and powers set forth in this Charter, it is not the duty of the Committee to plan or conduct audits or to determine that the Company’s financial statements are complete and accurate and are in accordance with accounting principles generally accepted in the United States. This is the responsibility of management and the independent auditor. Nor is it the duty of the Committee to conduct investigations, to resolve disagreements, if any, between management and the independent auditor or to assure compliance with laws and regulations and the Company’s business conduct guidelines.

Authority

      Subject to the prior approval of the Board, the Committee is granted the authority to investigate any matter or activity involving financial accounting and financial reporting, as well as the internal controls of the Company. In that regard, the Committee will have the authority to approve the retention of external professionals to render advice and counsel in such matters. All employees will be directed to cooperate with respect thereto as requested by members of the Committee.

      As the Committee may deem appropriate, it should obtain and consider expert advice as to the Audit Committee related rules of the NYSE, Statements on Auditing Standards and other accounting, legal and regulatory provisions.

Specific Duties

      The Committee is to meet at least twice annually and as many additional times as the Committee deems necessary. The Committee is to meet in separate executive sessions with the chief financial officer and independent accountants at least once each year and at other times when considered appropriate.

      In carrying out its oversight responsibilities, the Committee will:

      1.  Review and reassess the adequacy of this Charter annually and recommend any proposed changes to the Board for approval. This should be done in compliance with applicable NYSE Audit Committee Requirements.

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      2.  Review with the Company’s management and independent accountants the Company’s accounting and financial reporting controls. The Committee will obtain annually in writing from the independent accountants their letter as to the adequacy of such controls.

      3.  Review with the Company’s management and independent accountants significant accounting and reporting principles, practices and procedures applied by the Company in preparing its financial statements. The Committee will discuss with the independent accountants their judgments about the quality, not just the acceptability, of the Company’s accounting principles used in financial reporting.

      4.  Review the scope and general extent of the independent accountants’ annual audit. The Committee’s review should include an explanation from the independent accountants of the factors considered by the accountants in determining the audit scope, including the major risk factors. The independent accountants should confirm to the Committee that no limitations have been placed on the scope or nature of their audit procedures. The Committee will review with management the fee arrangement with the independent accountants.

      5.  Inquire as to the independence of the independent accountants and obtain from the independent accountants, at least annually, a formal written statement delineating all relationships between the independent accountants and the Company.

      6.  Have a predetermined arrangement with the independent accountants that they will advise the Committee through its Chair and management of the Company of any matters identified through procedures followed for interim quarterly financial statements, and that such notification is to be made prior to filing Forms 10-Q. The Committee will also receive a written confirmation provided by the independent accountants at the end of each of the first three quarters of the year that they have nothing to report to the Committee, if that is the case, or the written enumeration of required reporting issues.

      7.  At the completion of the annual audit, review with management and the independent accountants the following:

      8.  After preparation by management and review by independent accountants, approve the annual report of the Committee required under SEC rules to be included in the Company’s annual proxy statements.

      9.  Discuss with the independent accountants the quality of the Company’s financial and accounting personnel. The Committee will also elicit the comments of management regarding the responsiveness of the independent accountants to the Company’s needs.

      10.  Recommend to the Board the selection, retention or termination of the Company’s independent accountants.

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PROXY

OMEGA HEALTHCARE INVESTORS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby appoints F. Scott Kellman and Richard M. FitzPatrick, and each of them, as proxies, each with the power to appoint his or her substitute to represent and to vote as designated hereon, all the shares of Common Stock of Omega Healthcare Investors, Inc. held of record by the undersigned on April 13, 2001 at the Annual Meeting of Stockholders to be held on May 22, 2001 or any adjournment thereof.

In their discretion, the proxies are authorized to vote upon such other business as may properly come before the meeting and at any adjournment thereof.

This Proxy when properly executed will be voted in the manner directed herein by the undersigned. If no specification is made, the Proxy will be voted FOR the election of the directors named in the Proxy Statement.

If any nominee named above declines or is unable to serve as a director, the persons named as proxies, and each of them, shall have full discretion to vote for any other person who may be nominated.

(Continued, and to be marked, dated and signed, on the other side)

	Please mark your
	votes as in this
	example.

1.		Election of Directors to Group III		FOR		WITHHELD
		NOMINEES:
		Edward Lowenthal, Christopher W. Mahowald,
		Stephen D. Plavin
(Instruction: To withhold authority to vote for any individual nominees, write that nominee’s name here.)
2.		Election of Director to Group II		FOR		WITHHELD
		NOMINEE:
		Daniel A. Decker
3.		Election of Directors to Group I
		NOMINEES:
		Thomas W. Erickson
		Donald J. McNamara

NOTE: Please sign exactly as name appears on this Proxy. When shares are held by joint tenants, both should sign. When signing as attorney, executor, Administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by President or other authorized officer. If a partnership, please sign in partnership name by authorized person.

Please check the box  if you plan to attend the Annual Meeting in person.