Limits on Grants

           The maximum number of shares of common stock with respect to which options, stock appreciation rights, or other Awards (other than performance awards payable in cash) that are intended to be performance-based compensation under Code Section 162(m) that can be granted during any year to any employee shall not exceed one million one hundred thousand (1,100,000).  In addition, to the extent that compensation is granted with the intent that it qualify as performance-based compensation under Code Section 162(m), the maximum aggregate dollar amount of performance awards that may be paid in cash in any calendar year to an employee may not exceed two million ($2,000,000).  Before the 2004 Plan Amendment, the 2004 Plan contained the limit described above for stock options and stock appreciation rights, but did not contain the other limits described above.  Stockholder approval of these limits will allow the Compensation Committee the flexibility to structure other forms of Awards to qualify as performance-based compensation under Code Section 162(m).

Qualified Performance Goals

           The Compensation Committee may, but is not required to, make the vesting or payment of an Award contingent upon achievement of performance goals that are intended to qualify the Award as performance-based compensation within the meaning of Section 162(m) of the Code.  These performance goals, after the 2004 Plan Amendment for which we are seeking stockholder approval, are listed below:

 

i. earnings per share;

 

ii. operating cash flow;

 

iii. cash available;                                

 

iv. net income;

 

v. revenue;

 

vi. total stockholder return;

 

vii. return on invested capital;

 

viii. return on stockholder equity;

 

ix. return on assets; or

 

x. return on common book equity;

 

xi. market share;

 

xii. economic value added;

 

xiii. operating margin

 

xiv. stock price;

 

xv. operating income;

 

xvi. EBIT or EBITDA;

 

xvii. funds from operations or adjusted funds from operations;

 

xviii. expenses or operating expenses;

 

xix. productivity of employees as measured by revenues, costs, or earnings per employee;

 

xx. cost reduction goals; and

 

xxi. any combination of the foregoing.

           The Compensation Committee may apply any of the foregoing either individually or in combination, to Omega as a whole or to a business unit or affiliate, and may measure achievement of the goals either quarterly, annually, or cumulatively over a period of quarters or years, on an absolute basis or relative to a pre-established target, to results for previous quarters or years or to a designated comparison group.

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           The Compensation Committee may adjust any evaluation of performance under a performance goal to remove the effect of equity compensation expense under FAS 123R; amortization of acquired technology and intangibles; asset write-downs, litigation or claim judgments or settlements; the effect of changes in or provisions under tax law, accounting principles or other such laws or provisions affecting reported results; accruals for reorganization and restructuring programs; discontinued operations; and any items that are extraordinary, unusual in nature, non-recurring or infrequent in occurrence, except where such action would result in the loss of a tax deduction to us pursuant to Section 162(m) of the Code, if applicable.

           Before the 2004 Plan Amendment, the Plan already contained the performance goals (with a few minor differences) in items (i) through (x) and gave the Compensation Committee the ability to make some of the adjustments described above.  The 2004 Plan Amendment expands the categories of performance goals and the Compensation Committee’s ability to make appropriate adjustments.

 

Options

 

           Options may be made exercisable at a price not less than the fair market value of our common stock on the date that the option is awarded or the last business day preceding. The Compensation Committee shall determine the fair market value of our common stock until such time as our common stock is publicly traded. Except for adjustments in the event of a recapitalization or similar event, the option exercise price may not be reduced after the date of grant of an option and no option may be cancelled or surrendered in exchange for an option with a lower exercise price.

 

           The Compensation Committee may permit an option exercise price to be paid in cash or by the delivery of previously-owned shares of our common stock, or to be satisfied through a cashless exercise executed through a broker or by having a number of shares of our common stock otherwise issuable at the time of exercise withheld. The 2004 Plan permits the grant of both incentive and non-qualified stock options.

 

Stock Appreciation Rights

 

           Stock appreciation rights may be granted separately or in connection with another Award, and the Compensation Committee may provide that they are exercisable at the discretion of the holder or that they will be paid at a time or times certain or upon the occurrence or non-occurrence of certain events. Stock appreciation rights may be settled in shares of our common stock or in cash, according to terms established by the Compensation Committee with respect to any particular award.

 

Stock Awards

 

           The Compensation Committee may grant shares of our common stock or restricted stock to a participant, subject to such restrictions and conditions, if any, as the Compensation Committee shall determine.

 

Performance Awards

 

           After the 2004 Plan Amendment, performance awards entitle the participant to receive at a specified future date payment of an amount equal to either the value of a specified or determinable number of units stated in terms of a designated or determinable dollar amount per unit or a percentage or multiple of a specified dollar amount determined by the Compensation Committee, and payment will be subject to such conditions or restrictions as the Compensation Committee shall determine, including achievement of specified Performance Goals, and shall be payable in cash or shares of our common stock, as the Compensation Committee may determine.  Before the 2004 Plan Amendment, the Plan permitted the grant of performance awards (then called “performance unit awards”), but they were required to be denominated only in “units.”  The 2004 Plan Amendment provides the Compensation Committee with greater flexibility to structure cash bonuses to qualify as performance-based compensation under Code Section 162(m).

 

Other Awards

 

           Dividend equivalent rights, restricted stock unit awards and phantom shares may be granted with respect to such number of shares of our common stock and may be subject to such conditions or restrictions as the Compensation Committee shall determine and shall be payable in cash or shares of our common stock, as the Compensation Committee may determine.  

 

Participation in the 2004 Plan

 

Information regarding the grant of awards under the 2004 Plan to key personnel is subject to the discretion of the Board and set forth in the Stock Awards Column of the Summary Compensation Table, the accompanying compensation tables, and the Compensation Discussion and Analysis above.  All Stock Awards described in the compensation tables were granted under the 2004 Plan.

 

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Recapitalizations and Reorganizations

 

The number of shares of our common stock reserved for issuance in connection with the grant or settlement of Awards or to which an Award is subject, as the case may be, and the exercise price of each option are subject to adjustment in the event of any recapitalization of our company or similar event effected without receipt of consideration by us.

 

In the event of certain corporate reorganizations, Awards may be substituted, cancelled, accelerated, cashed-out or otherwise adjusted by the Compensation Committee, provided such adjustment is not inconsistent with the express terms of the 2004 Plan or the applicable award agreement.

 

Amendment or Termination

 

Although the amended 2004 Plan may be further amended by our Board of Directors without stockholder approval, our Board of Directors also may condition any such amendment upon stockholder approval if stockholder approval is deemed necessary or appropriate in consideration of tax, securities or other laws.

 

Federal Income Tax Information

 

The following discussion outlines generally the federal income tax consequences of participation in the amended 2004 Plan. Individual circumstances may vary and each participant should rely on his or her own tax counsel for advice regarding federal income tax treatment under the amended 2004 Plan.

 

Non-Qualified Options

 

A participant will not recognize income upon the grant of an option or at any time prior to the exercise of the option or a portion thereof. At the time the participant exercises a non-qualified option or portion thereof, he or she will recognize compensation taxable as ordinary income in an amount equal to the excess of the fair market value of our common stock on the date the option is exercised over the price paid for our common stock, and we will then be entitled to a corresponding deduction.

 

Depending upon the period shares of our common stock are held after exercise, the sale or other taxable disposition of shares acquired through the exercise of a non-qualified option generally will result in a short or long-term capital gain or loss equal to the difference between the amount realized on such disposition and the fair market value of such shares when the non-qualified option was exercised.

 

Incentive Stock Options

 

           A participant who exercises an incentive stock option will not be taxed at the time he or she exercises the option or a portion thereof. Instead, he or she will be taxed at the time he or she sells our common stock purchased pursuant to the option. The participant will be taxed on the difference between the price he or she paid for our common stock and the amount for which he or she sells our common stock. If the participant does not sell the stock prior to two years from the date of grant of the option and one year from the date the stock is transferred to him or her, the participant will be entitled to capital gain or loss treatment based upon the difference between the amount realized on the disposition and the aggregate exercise price and we will not get a corresponding deduction. If the participant sells the stock at a gain prior to that time, the difference between the amount the participant paid for the stock and the lesser of the fair market value on the date of exercise or the amount for which the stock is sold, will be taxed as ordinary income and we will be entitled to a corresponding deduction; if the stock is sold for an amount in excess of the fair market value on the date of exercise, the excess amount is taxed as capital gain. If the participant sells the stock for less than the amount he or she paid for the stock prior to the one or two year periods indicated, no amount will be taxed as ordinary income and the loss will be taxed as a capital loss.

 

           Exercise of an incentive option may subject a participant to, or increase a participant's liability for, the alternative minimum tax.

 

Stock Awards

 

           A participant will not be taxed upon the grant of a stock award if such award is not transferable by the participant or is subject to a "substantial risk of forfeiture," as defined in the Code. However, when the shares of our common stock that are subject to the stock award are transferable by the participant and are no longer subject to a substantial risk of forfeiture, the participant will recognize compensation taxable as ordinary income in an amount equal to the fair market value of the stock subject to the stock award, less any amount paid for such stock, and we will then be entitled to a corresponding deduction. However, if a participant so elects at the time of receipt of a stock award, he or she may include the fair market value of the stock subject to the stock award, less any amount paid for such stock, in income at that time and we also will be entitled to a corresponding deduction at that time.

 

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Other Awards

 

           A participant will not recognize income upon the grant of certain equity incentives such as a stock appreciation right, dividend equivalent right, performance award or phantom share. Generally, at the time a participant receives payment under any such award, he or she will recognize compensation taxable as ordinary income in an amount equal to the cash or the fair market value of our common stock received, and we will then be entitled to a corresponding deduction.

 

Potential Limitation on Company Deductions

Section 162(m) of the Code denies a deduction to any publicly held corporation for compensation paid to certain “covered employees” in a taxable year to the extent that compensation to such covered employee exceeds $1,000,000. It is possible that compensation attributable to equity compensation, when combined with cash compensation and all other types of compensation received by a covered employee from the company, may cause this limitation to be exceeded in any particular year.  Compensation that qualifies under Code Section 162(m) as “qualified performance-based compensation” is exempt from the deduction limitation.  In accordance with Treasury Regulations issued under Section 162(m), qualified performance-based compensation is compensation that meets the following requirements:

i.	the compensation is payable only upon attainment of pre-established, objective performance goals;

ii.	the performance goals under which the compensation is paid must be established by a compensation committee comprised solely of two or more outside directors; and

iii.	the material terms of the performance goals under which compensation can be paid are approved by the stockholders of the corporation.

Stock options and stock appreciation rights are deemed to satisfy the requirement in clause (i) above if the grant is made by the compensation committee, the plan under which the option or right is granted states the maximum number of shares subject to options or rights that may be granted during a specified period to any employee, and the option or right strike price is set at the fair market value of the underlying stock as of the date of grant.

The 2004 Plan Amendment that we are asking you to approve expands the Compensation Committee’s ability to structure awards that qualify as performance-based compensation under Code Section 162(m), by expanding the type of cash bonuses that can qualify as performance-based, expanding the available performance goals as described above, and imposing limits on the maximum number of shares or dollar amounts that can be paid to an employee in any year as performance-based compensation.  However, even if the stockholders vote to approve the 2004 Plan Amendment, the Compensation Committee will have the ability to structure Awards under the Plan that do not qualify as qualified performance-based compensation, and thus there can be no assurance that all Awards under the Plan will be treated as qualified performance-based compensation under Code Section 162(m) and tax-deductible to the company.

 

Voting Required for Approval

 

           For the 2004 Plan Amendment to be approved, the number of "for" votes cast at the meeting for this proposal must be at least a majority of all votes cast on the proposal and the total number of votes cast with respect to this proposal must represent more than 50% of all of the shares entitled to vote on the proposal. For purposes of the vote on Proposal 3, abstentions and broker non-votes will not be counted as shares entitled to vote and will have no effect on the results of the vote.

 

Recommendation of the Board

 

           Accordingly, our Board of Directors unanimously recommends that the stockholders vote "FOR" this Proposal 3, the proposal to approve the 2004 Plan Amendment.  

STOCKHOLDER PROPOSALS

December 19, 2008 is the date by which proposals of stockholders intended to be presented at the 2009 Annual Meeting of Stockholders must be received by us for inclusion in our proxy statement and form of proxy relating to that meeting.

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In addition, our Bylaws provide that in order for business to be brought before the Annual Meeting, a stockholder must deliver or mail written notice to our Secretary at our principal executive office not less than 60 days nor more than 90 days prior to the first anniversary of the preceding year’s Annual Meeting provided, however, that if the date of the Annual Meeting is advanced by more than 30 days or delayed by more than 60 days from such anniversary date, notice must be delivered not more than 90 days prior to such Annual Meeting nor less than 60 days prior to such Annual Meeting or if later, not later than the close of business on the tenth day following the day on which the date of such meeting is publicly announced.   The notice must state the stockholder’s name, address, class and number of shares of our stock and briefly describe the business to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest of the stockholder and of the beneficial owner, if any, on whose behalf the proposal is made.  If the stockholder intends to nominate a candidate for election as a director, in addition to the requirements set forth above, the notice should include the name of the nominee for election as a director, the age of the nominee, the nominee’s business address and experience during the past five years, the number of shares of our stock beneficially held by the nominee, and such other information concerning the nominee as would be required to be included in a proxy statement soliciting proxies for the election of the nominee.  The notice must also include a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person pursuant to which the nominations are to be made by such stockholder, a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the person named in the notice, and the consent of the nominee to serve as a director.

EXPENSES OF SOLICITATION

The total cost of this solicitation will be borne by us.  In addition to use of the mails, proxies may be solicited by our directors, officers and regular employees of our company personally and by telephone or facsimile.  We 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.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers, directors and persons who beneficially own more than 10% of our company common stock to file initial reports of ownership and reports of changes in ownership with the SEC. SEC regulations require these individuals to give us copies of all Section 16(a) forms they file.

Based solely on our review of forms that were furnished to us and written representations from reporting persons, we believe that the executive officers, directors and more than 10% stockholders complied with all filing requirements related to Section 16(a). In making these statements, we have relied on the representations of the persons involved and on copies of their reports filed with the SEC.

 

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OTHER MATTERS

The Board of Directors knows of no other business that may be validly 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.

/s/ C. TAYLOR PICKETT

Chief Executive Officer

April 18, 2008

Timonium, Maryland

 

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OMEGA HEALTHCARE INVESTORS, INC.

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

PROXY

The undersigned hereby appoints Robert O. Stephenson and Thomas H. Peterson and each of them, as proxies, each with the power to appoint his substitute to represent and to vote as designated below, all the shares of common stock of Omega Healthcare Investors, Inc. ("Omega") held of record by the undersigned on April 14, 2008 at the Annual Meeting of Stockholders to be held on May 22, 2008 or any adjournment thereof.

This Proxy, when properly executed, will be voted in the manner directed herein by the undersigned.  If no specification is made, this Proxy will be voted FOR:

1.	The Election of Directors

NOMINEES:

Harold J. Kloosterman and C. Taylor Pickett

2.	Ratification of Independent Auditors

Ernst & Young LLP

3.	Approval of the amendments to the 2004 Stock Incentive Plan described in Proposal 3 in the accompanying proxy statement

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.

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

SEE REVERSE SIDE

-- FOLD AND DETACH HERE --

 

 

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[X]           (Please mark your

votes as in this

example.)

The Directors recommend a vote "FOR" Proposal 1, Proposal 2 and Proposal 3.

VOTE FOR     VOTE WITHELD

1.           The Election of Directors                                                                                                                      [    ]                      [    ]

NOMINEES:

Harold J. Kloosterman and C. Taylor Pickett

(Instruction:  To withhold authority to vote for any individual nominee,

write that nominee’s name here.)

                                    FOR       AGAINST    ABSTAIN

2.           Ratification of Independent Auditors                                                                                        [    ]           [    ]            [    ]

Ernst & Young LLP

3.           Approval of the amendments to the 2004 Stock Incentive Plan described

in Proposal 3 in the accompanying proxy statement                                                               [    ]           [    ]            [    ]

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NOTE:                      Please sign exactly as your 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.                     [           ]

SIGNATURE(S)                                                                DATE

NOTE:

Please sign exactly as your name appears hereon.  Joint owners should each sign.  When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. This proxy will not be used if you attend the meeting in person and so request.

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- FOLD AND DETACH

 

 

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