Document:

Exhibit 10.5

 

Exhibit 10.5

THIS WARRANT AND THE UNDERLYING SHARES OF COMMON STOCK HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO
THE SECURITIES UNDER SUCH ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS OR PURSUANT
TO AN EXEMPTION FROM REGISTRATION SUPPORTED BY AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.

WARRANT TO PURCHASE COMMON STOCK

OF

TANDEM HEALTH CARE, INC.

This certifies that, for value received, Health Care REIT, Inc., or registered assignees (the
“Holder” or “HCRI”), is entitled, subject to the terms set forth below, to purchase
from Tandem Health Care, Inc., a Pennsylvania corporation (the “Company”), 100,000 shares
of the Company’s Common Stock, par value $.00008 per share (the “Common Stock”), in
accordance with the terms of this Warrant, upon surrender of this Warrant, at the principal office
of the Company, with the Notice of Exercise attached hereto duly executed, and simultaneous payment
therefor in lawful money of the United States, of the Exercise Price as set forth in Section 2
below (or upon exercise of the net issue exercise provision in Section 3(c) below). The term
“Warrant” as used herein, shall include this Warrant and any warrants delivered in
substitution or exchange therefor as provided herein.

     This Warrant is issued pursuant to the Agreement of even date herewith by and between the Company
and Holder (the “Agreement”).

     1. Exercise Period.

          This Warrant shall be immediately exercisable, in whole or in part, for a period of ten (10)
years, and shall be void thereafter.

     2. Number of Securities and Exercise Price.

          2.1 Number of Shares. The aggregate number of shares of Common Stock which may be purchased
pursuant to this Warrant shall be 100,000 shares of Common Stock, as adjusted from time to time
pursuant to Section 11 hereof (the “Warrant Shares”).

          2.2 Exercise Price. The Exercise Price at which this Warrant may be exercised shall be
$0.00008 per share of Common Stock, as adjusted from time to time pursuant to Section 11 hereof.

 

 

     3. Exercise of Warrant; Put Option; Rights in Connection with an Initial Public Offering.

          (a) The purchase rights represented by this Warrant are exercisable by the Holder in whole or
in part, at any time, or from time to time, by the surrender of this Warrant and the Notice of
Exercise annexed hereto duly completed and executed on behalf of the Holder, at the principal
office of the Company (or such other office or agency of the Company as it may designate by notice
in writing to the Holder at the address of the Holder appearing on the books of the Company), upon
payment of the Exercise Price.

          (b) This Warrant shall be deemed to have been exercised immediately prior to the close of
business on the date of its surrender for exercise as provided above, and the person entitled to
receive the shares of Common Stock issuable upon such exercise shall be treated for all purposes as
the holder of record of such shares of Common Stock as of the close of business on such date. As
promptly as practicable on or after such date and in any event within ten (10) days thereafter, the
Company at its expense shall issue and deliver to the person or persons entitled to receive the
same a certificate or certificates for the number of shares of Common Stock issuable upon such
exercise. In the event that this Warrant is exercised in part, the Company at its expense will
execute and deliver a new Warrant of like tenor exercisable for the number of shares of Common
Stock for which this Warrant may then be exercised.

          (c) Notwithstanding any provisions herein to the contrary, if the fair market value of one
share of Common Stock for which this Warrant is exercisable is greater than the Exercise Price (at
the date of calculation as set forth below), in lieu of exercising this Warrant for cash, the
Holder may elect to receive shares of Common Stock equal to the value (as determined below) of this
Warrant (or the portion thereof being canceled) by surrender of this Warrant at the principal
office of the Company together with the properly endorsed Notice of Exercise and notice of such
election in which event the Company shall issue to the Holder a number of shares of Common Stock
for which this Warrant is exercisable computed using the following formula:

	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	X
	 	=
	 	Y (A-B)
 

A
	 	  
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	Where:	 	X	 	=	 	the number of shares of Common Stock to be issued to the Holder;
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	Y	 	=	 	the number of shares of Common
Stock issuable under the Warrant or, if only a portion of the
Warrant is being exercised, the portion of the Warrant being
canceled (at the date of such calculation);
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	A	 	=	 	the Fair Market Value of one
share of Common Stock for which this Warrant is exercisable (at
the date of such calculation); and
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	B	 	=	 	Exercise Price per share of
Common Stock

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     If the above calculation results in a negative number, then no shares of Common Stock shall be
issued or issuable upon exercise of this Warrant.

     “Fair Market Value” of a share of Common Stock shall mean:

	 	 	 	 	 
	 

	 	A°
	 	if the Warrant is being exercised upon the occurrence of a sale of the Company
(either by merger, asset sale, stock exchange or like event), the value of the
consideration to be received pursuant to such transaction by the holder of one share of
Common Stock;
	 
	 	 	 	 
	 

	 	B°
	 	if the Warrant is being exercised upon the occurrence of the Company’s initial
public offering, the initial public offering price per share of Common Stock (before
deducting underwriting commissions and discounts and offering expenses);
	 
	 	 	 	 
	 

	 	C
	 	if the Warrant is being exercised after the shares of Common Stock are publicly
traded, the closing price, or , if the closing price is unavailable, the average of the
closing bid and asked prices on the exchange or automated quotation system on which the
shares of Common Stock are publicly traded on the date the Warrant is exercised; or
	 
	 	 	 	 
	 

	 	D.
	 	if the shares of Common Stock are not publicly traded, then the fair market
value shall be determined by the Board of Directors, in good faith, provided that the
fair market value determined pursuant to this subsection (D) shall take into account
discounts for minority interest or lack of liquidity.

     Upon exercise of this Warrant, the registered Holder hereof shall be entitled to the number of
shares of Common Stock determined as aforesaid.

          (d) At the option of the Holder, the Company shall, at the option of the Holder, redeem and
repurchase (i) this Warrant, or (ii) all shares of Common Stock issuable upon exercise of this
Warrant (the “Put Right”).

     (i) The price for each share of Common Stock shall be the excess of the current
market value of the equity interest in the Company represented thereby, less the
Exercise Price relating thereto, and the redemption price for the Common Stock shall
be the current market value of the Common Stock. For purposes of this subsection,
current market value shall be determined by appraisal, without any minority discount
or discount for lack of marketability, by Wellspring Valuations, Inc.
(“Wellspring”), or if Wellspring shall decline to perform or be unable to perform
such appraisal, then by a mutually agreeable appraiser or appraisers. Such
appraisal shall include a full explanation of the methodology used in reaching the
valuation determination and shall set forth any assumptions on which such valuation
is based. If either the Company or the Holder to which such valuation relates
should elect to contest such valuation, notice of such election shall be given to
the other party within thirty (30) days of receipt of the

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valuation. In the event of any such election, the valuation shall be
determined by arbitration in Toledo, Ohio according to the rules of the American
Arbitration Association, provided, however, that the methodology and
assumptions of the first appraiser shall be followed in such second determination
except to the extent that they are determined in such proceeding to be clearly
erroneous, in which case a new methodology or assumption in replace thereof, as the
case may be, may be substituted in such proceeding. The cost of such arbitration
shall be borne by the party requesting such proceeding, provided that each party
shall be responsible for fees and expenses of their own counsel, advisors and expert
witnesses.

     (ii) In the event that the Holder desires to exercise the option set forth
above, the Holder shall mail a notice stating their intention to exercise the Put
Right and the number of shares of Common Stock they desire the Company to redeem
(the “Put Shares”) as provided above to the Company not less than sixty (60)
days prior to the desired redemption date (the “Put Date”). A notice so given is
irrevocable unless the Company in its sole discretion allows it to be withdrawn.
Payment by the Company for the Put Shares shall, at the election of the Company, be
made either (i) in current funds, which shall be delivered to the Holder exercising
such Put Right promptly after the Put Date, or (ii) by delivery of a promissory note
(the “Note”) evidencing such payment obligation to the Holder exercising
such Put Right, which Note shall state that such obligation shall paid over a three
(3) year period, with one-quarter (1/4) of such principal obligation due thirty (30)
days after the Put Date, one-quarter (1/4) of such principal obligation due on the
date that is one (1) year after such first payment date, one-quarter (1/4) of such
principal obligation due on the date that is two (2) years after such first payment
date, and the remaining one-quarter (1/4) of such principal obligation due on the
date that is three (3) years after such first payment date. The Note will bear
interest at the Rate, will be unsecured debt obligations of the Company, and may be
prepaid at the option of the Company at any time. The Holder may exercise its
rights under this Section 3(d) from time to time and until all shares of Common
Stock issuable upon exercise of the Warrant have been repurchased. For purposes of
this Section 3(d)(ii), the term “Rate” shall mean the then existing United
States Treasury rate for three (3) year obligations, plus 400 basis points;
provided, however, that the Rate shall under no circumstances be
less than 9.75%; provided, further, that the Rate shall increase by
25 basis points per year thereafter.

     (iii) The Company and the Holder acknowledge and agree that the Holder shall
not be permitted to exercise its Put Right at any time during (1) the thirty (30)
day period prior to the Company’s filing of a registration statement on Form S-1 in
connection with its initial public offering of equity securities that results in
trading or listing of the Company’s Common Stock on the New York Stock Exchange, the
American Stock Exchange, the Nasdaq Stock Market or the Nasdaq National Market (the
“Qualified IPO”) based on the Company’s reasonable belief after discussions
with its lead underwriter, or (2) the one

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hundred twenty day (120) period subsequent to the filing of a registration
statement on Form S-1 in connection with the Company’s Qualified IPO.

     (iv) Notwithstanding anything to the contrary contained herein, the Company and
the Holder acknowledge and agree that the Put Right contained in this Section 3(d)
shall terminate, and be of no further force and effect, upon the Company’s
consummation of its Qualified IPO.

          (e) At the time of the Company’s Qualified IPO, the Holder may require that the Company redeem
all or any part of the (i) Warrant, or (ii) shares of Common Stock issuable upon exercise of the
Warrant, from the Qualified IPO proceeds at a per share price equal to the per share price in the
Qualified IPO, less applicable underwriting discounts and commissions, and less the then applicable
Exercise Price; provided, however, that the requirements of this subsection (e)
shall not apply to the extent that representatives of the managing underwriters of the Company’s
Qualified IPO advise the Company in writing that in the exercise of their reasonable judgment a
total redemption of the Warrant or the shares of Common Stock issuable upon exercise of the Warrant
would materially interfere with the Qualified IPO or have a material adverse effect on the
marketing of the Qualified IPO; provided, further, that all other shareholders of the Company who
have registration rights (1) shall be similarly prohibited from including any shares in such
Qualified IPO if the Holder is not permitted to redeem the Warrant or the shares of Common Stock
issuable upon exercise of the Warrant, or (2) shall be permitted to include only that number of
shares of common stock requested to be included in such Qualified IPO which shall be equal to the
number of shares of Common Stock to be redeemed by the Holder, on a pro rata basis, based on the
number of shares of Common Stock requested to be so included or redeemed by a shareholder of the
Company and the Holder . The Company shall provide the Holder with a copy of such written notice.
Subject to applicable limitations under securities laws, the Company shall promptly notify the
Holder of a contemplated Qualified IPO and will advise the Holder of the date by which the Company
needs to know whether the Holder desires to have such shares of Common Stock be redeemed. The
Holder will cooperate with the Company in all respects to give the Company sufficient advance
notice of its desire for redemption and all other necessary information so that appropriate
disclosure can be included in the registration statement. If the Holder fails to provide timely
written notice to the Company of its desire to redeem the Warrant (or the shares of Common Stock
issued upon exercise of the Warrant), the Holder shall be deemed to have waived its right to have
the Warrant (or the shares of Common Stock issued upon exercise of the Warrant) redeemed.

     4. No Fractional Shares or Scrip.

          No fractional shares or scrip representing fractional shares shall be issued upon the exercise
of this Warrant. In lieu of any fractional share to which the Holder would otherwise be entitled,
the Company shall make a cash payment equal to the fair market value multiplied by such fraction.

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     5. Replacement of Warrant.

          On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and substance to the Company or, in the case of
mutilation, on surrender and cancellation of this Warrant, the Company at its expense shall execute
and deliver, in lieu of this Warrant, a new warrant of like tenor and amount.

     6. Rights of Common Shareholders.

          Subject to Sections 9 and 11 of this Warrant and the provisions of any other written agreement
between the Company and the Holder, the Holder as such shall not be entitled to vote or receive
dividends or be deemed the holder of Common Stock or any other securities of the Company that may
at any time be issuable on the exercise hereof for any purpose, nor shall anything contained herein
be construed to confer upon the Holder, as such, any of the rights of a shareholder of the Company
or any right to vote for the election of directors or upon any matter submitted to shareholders at
any meeting thereof, or to give or withhold consent to any corporate action (whether upon any
recapitalization, issuance of stock, reclassification of stock, change of par value, or change of
stock to no par value, consolidation, merger, conveyance or otherwise) or to receive notice of
meetings, or to receive dividends or subscription rights or otherwise until the Warrant shall have
been exercised as provided herein.

     7. Transfer of Warrant.

          7.1 Exchange of Warrant Upon a Transfer. Upon surrender of this Warrant for exchange,
properly endorsed, the Company at its expense shall issue to or on the order of the Holder a new
warrant or warrants of like tenor, in the name of the Holder or as the Holder (on payment by the
Holder of any applicable transfer taxes) may direct, of the number of shares issuable upon exercise
hereof.

          7.2 Compliance with Securities Laws.

            (a) The Holder of this Warrant, by acceptance hereof, acknowledges that this Warrant and the
shares of Common Stock to be issued upon exercise hereof are being acquired solely for the Holder’s
own account and not as a nominee for any other party, and for investment, and that the Holder will
not offer, sell or otherwise dispose of this Warrant or any shares of Common Stock to be issued
upon exercise hereof except under circumstances that will not result in a violation of applicable
federal and state securities laws. Upon exercise of this Warrant, the Holder shall, if requested
by the Company, confirm to the Company in writing that the shares of Common Stock so purchased are
being acquired solely for the Holder’s own account and not as a nominee for any other party, for
investment, and not with a view toward distribution or resale.

            (b) This Warrant and all shares of Common Stock issued upon exercise hereof shall be stamped
or imprinted with a legend in substantially the following form (in addition to any legend required
by state securities laws):

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THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED OR ANY STATE SECURITIES LAWS. SUCH
SECURITIES AND ANY SECURITIES OR SHARES ISSUED UPON EXERCISE
OR CONVERSION THEREOF MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR PURSUANT TO AN EXEMPTION
FROM REGISTRATION SUPPORTED BY AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.

     8. Reservation of Shares of Common Stock.

          The Company covenants that during the term that this Warrant is exercisable, the Company will
reserve a sufficient number of shares of Common Stock to provide for the issuance of Common Stock
upon the exercise of this Warrant and, from time to time, will take all steps necessary to amend
its articles of incorporation to provide sufficient reserves of Common Stock issuable upon the
exercise of the Warrant. The Company further covenants that all shares of Common Stock that may be
issued pursuant to the terms of this Warrant, and upon exercise of the rights represented by this
Warrant and payment of the Exercise Price, all as set forth herein, will be free from all taxes,
liens, encumbrances and charges in respect of the issue thereof (other than taxes in respect of any
transfer occurring contemporaneously or otherwise specified herein). The Company agrees that its
issuance of this Warrant shall constitute full authority to its officers who are charged with the
duty of executing stock certificates to execute and issue the necessary certificates for shares of
Common Stock to the Holder or as the Holder may direct upon the exercise of this Warrant (and to
record such issuance in the Company’s stock ledger accordingly).

     9. Notices.

          (a) Whenever the Exercise Price or number of shares of Common Stock purchasable hereunder
shall be adjusted pursuant to Section 11 hereof, the Company shall promptly and at its expense
issue a certificate signed by its Chief Executive Officer, President or Chief Financial Officer (or
such other officer who is duly authorized by the Board of Directors of the Company (the
“Board”)) setting forth, in reasonable detail, the event requiring the adjustment, the
amount of the adjustment, the method by which such adjustment was calculated, and the Exercise
Price and number of shares of Common Stock purchasable hereunder after giving effect to such
adjustment, and shall cause a copy of such certificate to be mailed (by first-class mail, postage
prepaid) to the Holder of this Warrant.

          (b) In case:

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     (i) the Company shall take a record of the holders of its Common Stock (or
other stock or securities at the time receivable upon the exercise of this Warrant)
for the purpose of entitling them to receive any dividend or other distribution, or
any right to subscribe for or purchase any shares of stock of any class or any other
securities, or to receive any other right, or

     (ii) of any capital reorganization of the Company, any reclassification of the
capital stock of the Company, any consolidation or merger of the Company with or
into another corporation, or any conveyance of all or substantially all of the
assets of the Company to another corporation, or

     (iii) of any voluntary dissolution, liquidation or winding-up of the Company,

then, and in each such case, the Company will mail or cause to be mailed or personally deliver to
the Holder a notice specifying, as the case may be, (A) the date on which a record is to be taken
for the purpose of such dividend, distribution or right and stating the amount and character of
such dividend, distribution or right, or (B) the date on which such reorganization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation or winding-up is to
take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock
(or such stock or securities at the time receivable upon the exercise of this Warrant) shall be
entitled to exchange their shares of Common Stock (or such other stock or securities) for
securities or other property deliverable upon such reorganization, reclassification, consolidation,
merger, conveyance, dissolution, liquidation or winding-up. Such notice shall be mailed at least
15 days prior to the date therein specified.

          (c) All such notices, advices and communications shall be deemed to have been received, (i) in
the case of personal delivery, on the date of such delivery and (ii) in the case of mailing, on the
third business day following the date of such mailing.

     10. Amendments.

          (a) Any term of this Warrant may be amended with the written consent of the Company and the
Holder. Any amendment effected in accordance with this Section 10 shall be binding upon the
Holder, each future holder and the Company.

          (b) No waivers of, or exceptions to, any term, condition or provision of this Warrant, in any
one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of
any such term, condition or provision.

     11. Adjustments.

          11.1 Conversion or Redemption of Shares of Common Stock. Should all of the Company’s shares
of Common Stock be at any time prior to the expiration of this Warrant or any portion thereof,
redeemed or converted into another class of securities of the Company, then this Warrant shall
immediately become exercisable for that number of securities of the Company equal to the number of
such other securities that would have been received if this Warrant had

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been exercised in full for shares of Common Stock immediately prior to such event, and the
Exercise Price shall be immediately adjusted to equal the quotient obtained by dividing (x) the
aggregate Exercise Price of the maximum number of shares of Common Stock for which this Warrant was
exercisable immediately prior to such conversion or redemption, by (y) the number of other
securities for which this Warrant is exercisable immediately after such conversion or redemption.

          11.2 Reorganization, Merger or Sale of Assets. If at any time while this Warrant, or any
portion thereof, is outstanding and unexpired there shall be (i) a reorganization, (ii) a merger or
consolidation of the Company with or into another corporation in which the Company is not the
surviving entity, or a reverse triangular merger in which the Company is the surviving entity but
the shares of the Company’s capital stock outstanding immediately prior to the merger are converted
by virtue of the merger into other property, whether in the form of securities, cash or otherwise,
or (iii) a sale or transfer of all or substantially all of the Company’s properties and assets to
any other person, then, as a part of such reorganization, merger, consolidation, sale or transfer,
lawful provision shall be made so that the holder of this Warrant shall, when this Warrant is
exercisable, thereafter be entitled to receive upon payment of the Exercise Price then in effect,
the number of shares of stock or other securities or property that a holder of the shares
deliverable upon exercise of this Warrant would have been entitled to receive in such
reorganization, consolidation, merger, sale or transfer if this Warrant had been exercised
immediately before such reorganization, merger, consolidation, sale or transfer, all subject to
further adjustment as provided in this Section 11. The foregoing provisions of this Section 11.2
shall similarly apply to successive reorganizations, consolidations, mergers, sales and transfers
and to the stock or securities of any other corporation that are at the time receivable upon the
exercise of this Warrant. In all events, appropriate adjustment (as determined in good faith by
the Company’s Board of Directors) shall be made in the application of the provisions of this
Warrant with respect to the rights and interests of the Holder after the transaction, to the end
that the provisions of this Warrant shall be applicable after that event, as near as reasonably may
be, in relation to any shares or other property deliverable after that event upon exercise of this
Warrant.

          11.3 Reclassification. If the Company, at any time while this Warrant, or any portion thereof,
remains outstanding and unexpired, by reclassification of securities or otherwise, shall change any
of the securities as to which purchase rights under this Warrant exist into the same or a different
number of securities of any other class or classes, this Warrant shall thereafter represent the
right to acquire such number and kind of securities as would have been issuable as the result of
such change with respect to the securities that were subject to the purchase rights under this
Warrant immediately prior to such reclassification or other change and the Exercise Price therefor
shall be appropriately adjusted, all subject to further adjustment as provided in this Section 11.

          11.4 Split, Subdivision or Combination of Shares. If the Company at any time while this
Warrant, or any portion thereof, remains outstanding and unexpired shall split, subdivide or
combine the securities as to which purchase rights under this Warrant exist, into a different
number of securities of the same class, the number of shares of Common Stock issuable

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under this Warrant shall be proportionately increased in the case of a split or subdivision or
proportionately decreased in the case of a combination.

          11.5 Adjustments for Dividends in Common Stock or Other Securities or Property. If while this
Warrant, or any portion hereof, remains outstanding and unexpired the holders of the securities as
to which purchase rights under this Warrant exist at the time shall have received, or, on or after
the record date fixed for the determination of eligible Shareholders, shall have become entitled to
receive, without payment therefor, other or additional stock or other securities or property of the
Company by way of dividend, then and in each case, this Warrant shall represent the right to
acquire, in addition to the number of shares of the security receivable upon exercise of this
Warrant, and without payment of any additional consideration therefor, the amount of such other or
additional stock or other securities or property (other than cash) of the Company that such holder
would hold on the date of such exercise had it been the holder of record of the security receivable
upon exercise of this Warrant on the date hereof and had thereafter, during the period from the
date hereof to and including the date of such exercise, retained such shares and/or all other
additional stock, other securities or property available by this Warrant as aforesaid during such
period, giving effect to all adjustments called for during such period by the provisions of this
Section 11.

          11.6 No Impairment. The Company will not, by any voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed hereunder by the Company,
but will at all times in good faith assist in the carrying out of all the provisions of this
Section 11 and in the taking of all such action as may be necessary or appropriate in order to
protect the rights of the Holders of this Warrant against impairment.

          11.7 Adjustments for Issuances of Stock Options. If the Company, at any time while this
Warrant, or any portion thereof, remains outstanding and unexpired, grants incentive or
non-qualified stock options to officers, directors or employees of the Company (including all
affiliates of the Company) so that the aggregate number of all shares of Common Stock (a) issuable
upon exercise of all options then outstanding, plus (b) issued upon the prior exercise of options,
exceeds 17.0% of the total number of shares of the Company’s Common Stock on a fully diluted and as
converted basis outstanding as of such date (a “Dilutive Issuance”), then this Warrant
shall be adjusted to increase the number of shares of Common Stock exercisable hereunder to provide
the Holder with the same economic percentage ownership interest in the Company (calculated on a
fully diluted and as converted basis) as such Holder had immediately prior to such Dilutive
Issuance. Notwithstanding anything to the contrary contained herein, this Section 11.7 shall
terminate and be of no further force and effect upon the consummation of the Company’s Qualified
IPO.

          11.8 Adjustments for Issuances at less than Fair Market Value. If the Company, at any time
while this Warrant, or any portion thereof, remains outstanding and unexpired, issues and sells
shares of its Common Stock (including the grant of Options to officers, directors or employees), or
is deemed to have issued or sold shares of its Common Stock, at a price less than the fair market
value of such Common Stock, as determined in the reasonable judgment of the Company’s Board, then
this Warrant shall be adjusted to increase the number of shares of Common Stock exercisable
hereunder by multiplying the Warrant Shares by

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a fraction, (x) the numerator of which shall be (1) the number of shares of Common Stock
outstanding immediately prior to such issue (calculated on a fully diluted and as converted basis)
plus (2) the number of shares of Common Stock so issued; and (y) the denominator of which shall be
(1) the number of shares of Common Stock outstanding immediately prior to such issue (calculated on
a fully diluted and as converted basis) plus (2) the number of shares of Common Stock which the
minimum aggregate consideration received or to be received by the Company for the total number of
shares of Common Stock so issued would purchase at fair market value. The Company and the Holder
acknowledge and agree that warrants exercisable for shares of Common Stock (regardless of the
exercise price per share of Common Stock in such warrant) issued in connection with (a) acquisition
transactions, or (b) issuable to banks, equipment lessors, creditors, vendors, suppliers and
landlords shall not be an adjustable event pursuant to this Section 11.8; provided, that no
issuance to an affiliate of the Company shall be excluded from adjustment pursuant to this Section
11.8 . Notwithstanding anything to the contrary contained herein, this Section 11.8 shall
terminate and be of no further force and effect upon the consummation of the Company’s Qualified
IPO.

          11.9 No Adjustments for Prior Issuances. The Holder hereby acknowledges and agrees that it
shall not be entitled to any adjustments set forth in this Section 11 with respect to any issuances
or deemed issuances of Common Stock, existing on or prior to the date hereof.

     12. Limit on Voting Power and Equity Ownership of HCRI.

          12.1 Notwithstanding any provision to the contrary in this Warrant, HCRI and its affiliates
shall not at any time have the right to hold (i) a percentage of the total combined voting power of
the Company (“Voting Power”) at the time of any such determination in excess of 9.8%, (ii)
a percentage of the total number of all outstanding Equity Securities of the Company (the “Total
Equity”) at such time in excess of 9.8%, or (iii) a percentage of the total value of all
outstanding Securities of the Company (the “Total Security Value”) at such time in excess of 9.8%.
For such purpose, “Equity Securities” shall mean shares of capital stock of the Company of
any class or series, and “Securities” shall have the meaning that applies to such term for
purposes of Section 856(c)(4)(B) of the Internal Revenue Code of 1986, as amended. Rights under
the Warrant, including but not limited to the right to receive Common Stock of the Company upon
exercise of the Warrant, may not be exercised and shall be deemed not to be outstanding to the
extent, but only to the extent, that such rights or the exercise thereof, when combined with all
other Securities of the Company held by HCRI or its affiliates at the time of any such
determination, would cause HCRI and its affiliates to hold more than 9.8% of the outstanding Voting
Power, Total Equity, or Total Security Value of the Company at such time.

          12.2 In addition to the foregoing restriction and notwithstanding any provision to the
contrary in the Warrant, HCRI and its affiliates shall not at any time have rights under the
Warrant, including but not limited to the right to receive Common Stock upon exercise of the
Warrant, that, when aggregated with all other Securities of the Company held by HCRI or its
affiliates at such time or subject to acquisition by HCRI or its affiliates upon exercise of any
other conversion or acquisition rights then held by them (collectively, the “Other Securities
Ownership”), would total or would give HCRI and its affiliates the right to acquire more than 9.8%
of the Voting Power, Total Equity, or Total Security Value of the Company at such time,

11

 

assuming the exercise or conversion of all options, warrants, and convertible securities of
the Company held by any party at such time (the “Company Options”). To the extent, but
only to the extent, that rights under the Warrant, or the exercise thereof, including but not
limited to the right to receive Common Stock of the Company upon exercise of the Warrant, would
cause HCRI and its affiliates at any time to hold more than 9.8% of the Voting Power, Total Equity,
or Total Security Value of the Company at the time of any such determination, calculated after the
assumed exercise or conversion of all Company Options outstanding at such time, such excess rights
shall thereafter be void and unenforceable regardless of any subsequent issuance of Securities by
the Company or disposition of the Company’s Securities by HCRI or any affiliate.

          12.3 To the extent that HCRI or an affiliate has the right to acquire shares of Common Stock
of the Company upon exercise of the Warrant under the limitations of Section 12.2 but is precluded
from exercising such purchase rights under the limitations of Section 12.1, then such purchase
rights may be exercised at a later time to the extent that the exercise thereof would not result in
HCRI and its affiliates holding in excess of 9.8% of the outstanding Voting Power, Total Equity or
Total Security Value of the Company, determined as of such later time, provided,
however, that notwithstanding anything to the contrary contained herein, this Section 12.3
shall not be interpreted to extend any date of expiration of rights under the Warrant.

          12.4 At no time shall HCRI or its affiliates have rights with respect to or pursuant to the
Warrant that, when aggregated with all Other Securities Ownership of HCRI or its affiliates at such
time, would result in a prohibited real estate investment trust transaction or holding under the
Internal Revenue Code of 1986, as amended, as determined by (i) HCRI or its counsel, (ii) the
Internal Revenue Service, or (iii) any court with jurisdiction over such subject matter in an
action in which HCRI is participating as a party. Any such rights held by HCRI or its affiliates
that create such a prohibited transaction or holding shall be deemed to be, and shall be, void and
unenforceable to the extent necessary to avoid such consequences for HCRI or its affiliates.

          12.5 If the Company at any time has knowledge of an adjustment of rights of HCRI or its
affiliates pursuant to the terms and conditions of this Section 12, the Company shall promptly
notify HCRI of such adjustment. In the event of an adjustment of the rights of HCRI or its
affiliates pursuant to the terms and conditions of this Section 12, the Company shall reasonably
cooperate with HCRI to adjust the Warrant owned by HCRI or its affiliates so as to reflect such
adjustment of rights hereunder.

          12.6 In the event that outside counsel for HCRI acceptable in the reasonable judgment of the
Company determines and opines to the Company that the Warrant held by HCRI or its affiliates, the
exercise thereof, or any Warrant Shares held by HCRI or its affiliates could reasonably be expected
to ultimately result in the recognition of income that is not described in Section 856(c)(2) of the
Internal Revenue Code of 1986, as amended, and that such consequence could not be avoided by action
of HCRI without loss of value, then the Company shall reasonably cooperate with HCRI to reformulate
the Warrant and any Warrant Shares then held by HCRI into some other acceptable instrument having
the same economic value to HCRI so as to avoid or minimize the recognition of such income by HCRI
or its affiliates.

12

 

          12.7 To the extent that the Company incurs any costs or expenses in complying with this
Section 12, HCRI will promptly reimburse the Company for all such costs and expenses, including
attorney’s fees.

     13. Public Offering Opportunities. The Company covenants that any public offering of its
equity securities will be consummated solely with the Company as the primary issuer of such equity
securities, and no subsidiary of the Company shall participate in any such public offering.
Notwithstanding anything to the contrary contained herein, the parties acknowledge and agree that
this Section 13 shall terminate, and be of no further force and effect, upon the consummation of
the Company’s IPO.

     14. Rights to Participate in Other Sales. In the event that either Lawrence R. Deering
(“Deering”), the Lawrence R. Deering Grantor Retained Annuity Trust (the “GRAT”) or Joseph
D. Conte (“Conte”) wish to sell or dispose of a majority of the shares of Common Stock that
each respective individual owns or has the right to purchase, determined individually without
aggregation of the other party’s shares, then such selling person or persons (hereinafter the
“Selling Holders”, and each a “Selling Holder”) must give written notice (the
“Notice”) to the Holder at least twenty (20) days prior to the closing of such sale or
disposition. The Notice shall describe in reasonable detail the proposed sale or transfer,
including, without limitation, the number of shares of Common Stock or other securities to be sold
or disposed of, the consideration to be paid and the name and address of each prospective purchaser
or transferee. The Holder shall have the right, exercisable by written notice to such Selling
Holder or Selling Holders, as the case may be, within fifteen (15) days after receipt of the
Notice, to participate in such sale on the same terms and conditions; provided,
however, that the price to be paid for each share of Common Stock shall be reduced by the
Exercise Price thereof. The Holder may sell all or any part of that number of Warrant Shares equal
to the product obtained by multiplying (x) the number of Warrant Shares issued or issuable upon
exercise of the Warrant, by (z) a further fraction equal to the percentage of such Selling Holder’s
or Selling Holders’ (if more than one Selling Holder is selling shares of Common Stock) total
equity interest proposed to be sold. In no event shall the co-sale provisions of this Section 14
apply to: (i) any pledge of an interest made for the purposes of securing a bona fide loan; (ii)
any transfer to the ancestors, descendants or spouse of the transferor, to trusts or family limited
partnerships for their benefit, to any entity controlled and at least majority owned, directly or
indirectly, by the transferor, or to any successor or affiliate of a transferor entity; (iii) any
bona fide gift; or (iv) any transfer without consideration; provided that the pledgee, transferee
or donee shall agree in writing to be bound by and comply with the provisions of this Section 14.
The Company shall use its best efforts in assisting the Holder in enforcing the provisions of this
Section 14. Notwithstanding anything to the contrary contained herein, this Section 14 shall
terminate and be of no further force and effect upon the consummation of the Company’s Qualified
IPO.

     15. Governing Law. This Warrant shall be governed by the internal laws of the Commonwealth of
Pennsylvania, without regard to its principles of conflicts of law.

13

 

     IN WITNESS WHEREOF, the undersigned have executed this Warrant as of the date first written
above.

Dated: September 8, 2005

	 	 	 	 	 	 	 	 	 
	HOLDER:	 	 	 	COMPANY:
	 
	 	 	 	 	 	 	 	 
	HEALTH CARE REIT, INC.	 	 	 	TANDEM HEALTH CARE, INC.
	 
	 	 	 	 	 	 	 	 
	By:

	 	/s/ Erin C. Ibele
	 	 	 	By:
	 	/s/ Lawrence R. Deering
	 

	 	 
	 	 	 	 	 	 
	Name:

	 	Erin C. Ibele
	 	 	 	Name:
	 	Lawrence R. Deering
	Title:

	 	Vice President-Administration
and Corporate Secretary
	 	 	 	Title:
	 	Chairman and CEO
	 
	 	 	 	 	 	 	 	 
	Address:

	 	One Seagate, Suite 1500
	 	 	 	Address:
	 	800 Concourse Parkway South
	 

	 	P.O. Box 1475
	 	 	 	 	 	Suite 200
	 

	 	Toledo, OH 43603-1475
	 	 	 	 	 	Maitland, FL 32751
	 

	 	Fax: (419) 247-2826
	 	 	 	 	 	Fax: (407) 571-0595
	 
	 	 	 	 	 	 	 	 
	Solely with respect to the rights and obligations
set forth in Section 14 hereof:	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	SELLING HOLDERS:	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	/s/Lawrence R. Deering	 	 	 	/s/ Joseph D. Conte
	 	 	 	 	 
	Lawrence R. Deering	 	 	 	Joseph D. Conte
	 
	 	 	 	 	 	 	 	 
	LAWRENCE R. DEERING GRANTOR
RETAINED ANNUITY TRUST	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	By:

	 	/s/ Lawrence R. Deering	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	     Lawrence R. Deering	 	 	 	 	 	 
	 

	 	     Trustee	 	 	 	 	 	 

 

 

NOTICE OF EXERCISE

TO: TANDEM HEALTH CARE, INC.

     (1) The undersigned hereby (please check one):

     ___(a) elects to purchase ___shares of Common Stock of Tandem Health Care,
Inc., pursuant to the terms of Section 3(a) of the attached Warrant, and tenders herewith
payment of the purchase price for such shares in full, or

     ___(b) elects to purchase ___shares of Common Stock of Tandem Health Care,
Inc. pursuant to the terms of Section 3(c) of the attached Warrant.

     (2) In exercising this Warrant, the undersigned hereby confirms and acknowledges that the
shares of Common Stock are being acquired solely for the account of the undersigned and not as a
nominee for any other party, and for investment, and that the undersigned will not offer, sell or
otherwise dispose of any such shares of Common Stock except under circumstances that will not
result in a violation of the Securities Act of 1933, as amended, or any state securities laws.

     (3) Please issue a certificate or certificates representing said shares of Common Stock in the
name of the undersigned or in such other name as is specified below:

	 	 	 	 	 
	 

	 	 	 	 
	 

	 	 	 	(Name)
	 
	 	 	 	 
	 

	 	 	 	 
	 

	 	 	 	(Name)

     (4) Please issue a new Warrant for the unexercised portion of the attached Warrant in the name
of the undersigned or in such other name as is specified below:

	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	 	 	(Name)
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	(Date)

	 	 	 	 	 	(Signature)Exhibit 10.6

 

Exhibit
10.6

STOCKHOLDERS AGREEMENT

          STOCKHOLDERS AGREEMENT dated as of March 25, 1998, by and among TANDEM HEALTH CARE, INC., a
Pennsylvania corporation (the “Company” the several persons named in Schedule I hereto
(collectively, the “Behrman Investors”), and the several persons named in Schedule II
hereto (collectively, the “Founders”). The Behrman Investors and the Founders are herein sometimes
referred to collectively as the “Stockholders.”

          WHEREAS, the Company and the Behrman Investors have entered into a Securities Purchase
Agreement dated as of March 24, 1998 (the “Securities Purchase Agreement”), pursuant to
which the Behrman Investors have agreed, subject to the terms and conditions contained in the
Securities Purchase Agreement, to purchase from the Company on the Initial Closing Date (as defined
in the Securities Purchase Agreement) 2,500,000 shares of Series A Convertible Preferred Stock,
$.01 par value (the “Convertible Preferred Stock”), of the Company and 7,500,000 shares of
Series B Redeemable Preferred Stock, $.01 par value (the
“Redeemable Preferred Stock”. and
collectively with the Convertible Preferred Stock, the “Preferred Stock”), of the Company and on
Subsequent Closing Dates (as defined in the Securities Purchase Agreement) up to an additional
5,000,000 shares of Convertible Preferred Stock and 15,000,000 shares of Redeemable Preferred
Stock;

          WHEREAS, upon the consummation of the transactions contemplated by the Securities Purchase
Agreement on the Initial Closing Date the outstanding equity securities of the Company will be held
as set forth on Schedule 2.05(b) to the Securities Purchase Agreement;

          WHEREAS, the Company and each of the Stockholders desire to make certain arrangements among
themselves with respect to the matters set forth herein;

     NOW, THEREFORE, in consideration of the premises and of the mutual covenants and
agreements herein contained, the parties hereto hereby agree as follows:

     SECTION 1. Voting Agreement, (a) From and after the Closing Date, at each annual or
special stockholders meeting called for the election of directors, and whenever the shareholders of
the Company act by written consent with respect to the election of directors, each Stockholder
agrees to vote or otherwise give such Stockholder’s consent in respect of all shares of capital
stock of the Company (whether held now or hereafter acquired) owned of record or beneficially by
such Stockholder, and the Company shall take all necessary and desirable actions within its
control, in order to cause:

     (i) the authorized number of directors on the Board of Directors of the Company (the
“Board”) to be established at seven;

 

 

     (ii) the election to the Board of:

     (A) up to five directors designated by Behrman Capital II L.P. (“Behrman
Capital”) (each, a “Behrman Designee”); provided that for each
Outside Director (as defined herein) that shall be appointed pursuant to clause (B)
below, the number of Behrman Designees shall be reduced by one;

     (B) up to four outside directors experienced in or acquainted with businesses
similar to that of the Company (“Outside_Directors”), which Outside
Directors shall be designated by Behrman Capital and shall be satisfactory to the
Founders; and

     (C) up to two directors (the “Founders’ Designees”) designated by the
Founders;

all of which designees shall hold office, subject to their earlier removal in accordance
with clause (iii) below, the Bylaws of the Company and applicable corporate law, until their
respective successors shall have been elected and shall have qualified;

     (iii) the removal from the Board (with or without cause) of any director upon the
written request of the Stockholder(s) that designated such director, but only upon such
written request; and

     (iv) upon any vacancy in the Board as a result of any director designated as provided
in clause (ii) above ceasing to be a member of the Board, whether by resignation or
otherwise, the election to the Board of an individual person designated by the
Stockholder(s) that designated such director.

          (b) Each Stockholder agrees to use its reasonable best efforts to cause its designees to
the Board to vote or otherwise give such Directors’ consent to the creation and maintenance
of:

     (i) a Compensation Committee of the Board consisting of three directors, at least two
of whom shall be Behrman Designees (one of which Behrman Designees shall be the Chairman of
the Compensation Committee), and the third of whom shall initially be a Founders’ Designee,
which Compensation Committee shall approve all grants of stock options to employees of the
Company, all increases in compensation of officers of the Company, all annual bonuses
granted to officers of the Company and all other employee benefits (including, without
limitation, vacation policy, benefit plans, company automobiles and insurance) granted to
officers of the Company; and

     (ii) an Audit Committee of the Board of Directors, consisting of three directors, at
least two of whom shall be Behrman Designees, and the third of whom shall initially be a

2

 

Founder Designee, which Audit Committee shall review and approve the financial
statements of the Company as audited by the Company’s independent certified public
accountants.

          (c) At each annual or special stockholders meeting called for the purpose of
approving an issuance of “Securities” (as defined in the Securities Purchase Agreement) to the
Behrman Investors (including, without limitation, the approval, pursuant to Section 1728(a)(2)
of the Pennsylvania Business Corporation Law, of such an issuance that has been approved by
directors of the Company designated by or otherwise affiliated with the Behrman Investors),
and whenever the shareholders of the Company act by written consent with respect to such an
issuance, each Stockholder agrees to vote or otherwise give such Stockholder’s consent in
respect of all shares of capital stock of the Company (whether held now or hereafter acquired) owned
of record or beneficially by such Stockholder to approve or disapprove such issuance consistent
with the approval or disapproval (as applicable) thereof by the Board of Directors.

          (d) The Company shall promptly reimburse (i) all reasonable out-of-pocket
expenses incurred by any director of the Company in attending each meeting of the Board or any
committee thereof and (ii) travel relating to the business of the Company if specifically
requested by the Company.

          SECTION 2. Right of First Refusal, (a) If any Stockholder (for purposes of this
Section 2, a “Selling Stockholder”) proposes to sell, exchange or in any other manner dispose of
(other than in a manner permitted by Section 2(d) hereof) any shares of capital stock of the
Company held by it, then such Selling Stockholder shall give to the Company a written notice (a
“Notice of Intention to Sell”) setting forth in reasonable detail the terms and conditions of such
proposed transaction. The Company shall deliver such Notice of Intention to Sell to the other
Stockholders promptly upon receipt thereof.

          (b) Upon receipt of a Notice of Intention to Sell from the Company, any Stockholder (for
purposes of this Section 2, a “Purchasing Stockholder”) shall have the right, exercisable upon
written notice to the Selling Stockholder and the Company within 15 days after receipt of any
Notice of Intention to Sell, to elect to purchase any or all shares of capital stock proposed to be
sold by the Selling Stockholder at a purchase price equal to the proposed purchase price specified
in the Notice of Intention to Sell. Such notice shall state the number .of shares to be purchased
by the Purchasing Stockholder and that the Purchasing Stockholder will purchase such shares within
45 days after the date of receipt of the Notice of Intention to Sell. In the event that more than
one Stockholder wishes to exercise its right to purchase pursuant to this paragraph (b), each
Purchasing Stockholder may purchase a number of shares which is equal to the product obtained by
multiplying (i) the aggregate number of shares of capital stock to be sold by the Selling
Stockholder by (ii) a fraction, the numerator of which is the number of shares of Common Stock at
the time owned by the Purchasing Stockholder (treating for such purpose all Convertible Preferred
Stock as the shares of Common Stock issuable upon the conversion thereof) and the denominator of
which is the sum of the total number of shares of Common Stock (treating the

3

 

Convertible Preferred Stock as aforesaid) at the time owned by all Purchasing Stockholders and may
also elect to purchase on a pro rata basis similar to the foregoing any remaining shares of capital
stock not purchased by the other Purchasing Stockholders.

          (c) To the extent that the Purchasing Stockholders do not, within the 15-day period specified
in paragraph (b) above, elect to purchase all the capital stock that is the subject of the Notice
of Intention to Sell, the Selling Stockholder may either (i) honor the Purchasing Stockholders’
elections to purchase and consummate the sale of the capital stock that is not to be purchased by
the Purchasing Stockholders on terms no more favorable to the proposed purchaser thereof than those
set forth in the Notice of Intention to Sell or (ii) disregard the Purchasers’ elections to
purchase and consummate the sale of all the capital stock that is the subject of the Notice of
Intention to Sell on terms no more favorable to the proposed purchaser thereof than those set forth
in the Notice of Intention to Sell. Any such sale that is not consummated within 90 days after the
expiration of such 15-day period shall again be subject to the requirements of this Section 2.

          (d) Anything herein to the contrary notwithstanding, no right of first refusal by a
Purchasing Stockholder hereunder shall apply with respect to (i) a transfer by a Stockholder
to an affiliate (as defined in Rule 405 under the Securities Act of 1933, as amended (the
“Securities Act”)) of such Stockholder, (ii) any distributions or transfers by a Stockholder which is a
partnership to its partners (including any of its limited partners) or (iii) in the case of a
Stockholder who is an individual, any transfer by such Stockholder to the spouse or lineal descendants of such
Stockholder, including without limitation any transfer by bequest or devise, or to a trust or
trusts for the benefit of such Stockholder or any of the foregoing; provided, in each case,
that all such transferees that are not already parties to this Agreement agree in writing to be bound by,
and to comply with, all provisions of this Agreement.

          SECTIONS 3. Participation Rights, (a) The Company hereby grants to each Stockholder the
right to purchase such Stockholder’s Proportionate Percentage (as hereinafter defined) of any
future Eligible Offering (as hereinafter defined). For the purposes of this Section 3, the
following terms shall have the meanings set forth below:

     “Proportionate Percentage” means, with respect to any Stockholder as of any
date, the result (expressed as a percentage) obtained by dividing (i) the number of shares
of Common Stock (treating for such purpose all Convertible Preferred Stock as the shares of
Common Stock issuable upon the conversion thereof) owned by such Stockholder as of such
date, by (ii) the total number of shares of Common Stock (treating the Convertible
Preferred Stock as aforesaid) outstanding as of such date.

     “Eligible Offering” means an offer by the Company to sell to purchasers
(including any of the Stockholders) for cash shares of Common Stock or any security
convertible into or exchangeable for, or carrying rights or options to purchase, shares of
Common Stock, other than any sale or sales of Preferred Stock under the Securities Purchase

4

 

Agreement, any sale or sales of Common Stock pursuant to any exercise of the REIT Warrant
(as defined in the Securities Purchase Agreement), or an offering of securities by the
Company:

     (i) to its full-time employees, and/or officers and/or directors of up to 535,000
shares of Common Stock in connection with or pursuant to any employee benefit, stock option
or compensation plan approved by the Board of Directors, whether currently in existence or
created hereafter; or

     (ii) in connection with any merger of, or acquisition by, the Company or any
subsidiary of the Company; or

     (iii) pursuant to the Stock Option Agreements (as defined in the Securities
Purchase Agreement), or

     (iv) registered under the Securities Act.

          (b) The Company shall, before issuing any securities pursuant to an Eligible Offering,
give written notice thereof to each Stockholder. Such notice shall specify the security or
securities the Company proposes to issue and the consideration that the Company intends to receive
therefor. For a period of 30 days following the date of such notice, each Stockholder shall be
entitled, by written notice to the Company, to elect to purchase all or any part of such
Stockholder’s Proportionate Percentage of the securities being sold in the Eligible Offering,
provided, however, that if two or more securities shall be proposed to be sold as a “unit”
in an Eligible Offering, any such election must relate to such unit of securities. To the extent
that elections pursuant to this Section 3(b) shall not be made with respect to any securities
included in an Eligible Offering within such 30 day period, then the Company may issue such
securities to investors, but only for a consideration payable in cash not less than, and otherwise
on terms no more favorable to the investors than, that set forth in the Company’s notice and only
within 90 days after the end of such 30 day period. In the event that any such offer is accepted by
a Stockholder or Stockholders, the Company shall sell to such Stockholder or Stockholders, and such
Stockholder or Stockholders shall purchase from the Company, for the consideration and on the terms
set forth in the notice as aforesaid, the securities that such Stockholder or Stockholders shall
have elected to purchase.

          SECTION 4. Transfer Restrictions. Each Founder hereby agrees that such Founder shall
not at any time prior to the earlier of (x) the date on which such Founder shall cease to be
employed by the Company or any Subsidiary or parent thereof, (y) the fifth anniversary of the date
hereof and (z) the consummation of an Initial Public Offering (as defined herein) or a Change in
Control (as defined in the Company’s Articles of Incorporation, as amended through the date
hereof), sell or in any other way, directly or indirectly, transfer, assign, distribute or
otherwise dispose of any shares of capital stock (whether now owned or hereafter acquired) then
held by such Founder except:

5

 

     (i) any transfer made with the prior written consent of the Behrman Investors;

     (ii) any transfer by such Founder to the spouse or lineal descendants of such Founder,
including without limitation any transfer by bequest or devise, or to a trust or trusts for
the benefit of such Founder or any of the foregoing; or

     (iii) any transfers by such Founder of up to 25% (in the aggregate) of the shares of
Common Stock held by such Founder on the date hereof (subject to compliance with the
obligations set forth in Section 2 hereof);

provided, in each case, that all such transferees that are not already parties to
this Agreement agree in writing to be bound by, and to comply with, all provisions of this
Agreement.

          SECTION 5. Legend on Stock Certificates. Each certificate representing shares of
Common Stock, Redeemable Preferred Stock and Convertible Preferred Stock and each share of Common
Stock issuable upon exercise of the Convertible Preferred Stock, as the case may be, owned of
record or beneficially by any Stockholder (whether now held or hereafter acquired) shall
conspicuously bear the following legend until such time as the shares represented thereby are no
longer subject to the provisions hereof:

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
TERMS AND CONDITIONS OF A STOCKHOLDERS AGREEMENT, DATED AS OF MARCH
25, 1998, AMONG THE COMPANY AND THE OTHER PARTIES THERETO. COPIES
MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF
RECORD OF THIS CERTIFICATE TO THE COMPANY.”

          The Company covenants that it shall keep a copy of this Agreement on file at the address
listed in Section 11 for the purpose of furnishing copies to the parties hereto.

          SECTION 6. Duration of Agreement. This Agreement shall terminate upon the earliest to
occur of (i) the consummation of an initial public offering of equity securities of the Company
registered under the Securities Act with proceeds to the Company in excess of $20,000,000 and with
a per share offering price to the public of not less than $2.50 (appropriately adjusted for any
stock splits, reverse stock splits, combinations or stock dividends) (an “Initial Public Offering”)
or (ii) with respect to any Stockholder, the date on which such Stockholder no longer owns any
shares of Common Stock or Preferred Stock.

          SECTION 7. Representations and Warranties. Each Stockholder, severally and not
jointly, represents and warrants to the Company and the other Stockholders as follows:

6

 

          (a) The execution, delivery and performance of this Agreement by such
Stockholder will not violate any provision of applicable law, any order of any court or other
agency of
government, or any provision of any indenture, agreement or other instrument to which such
Stockholder or any of its or his properties or assets is bound, or conflict with, result in a
breach of
or constitute (with due notice or lapse of time or both) a default under any such indenture,
agreement or other instrument.

          (b) This Agreement has been duly executed and delivered by such Stockholder,
and when executed by the other parties hereto will constitute the legal, valid and binding
obligation of such Stockholder, enforceable in accordance with its terms.

          SECTION 8. Headings. Headings of articles, sections and paragraphs of this Agreement
are inserted for convenience of reference only and shall not affect the interpretation or be deemed
to constitute a part hereof.

          SECTION 9. Severability. In the event that any one or more of the provisions contained
in this Agreement or in any other instrument referred to herein shall, for any reason, be held to
be invalid, illegal or unenforceable, such illegality, invalidity or unenforceability shall not
affect any other provisions of this Agreement.

          SECTION 10. Benefits of Agreement. Nothing in this Agreement is intended or shall be
construed to give any person other than the parties hereto and their respective successors and
permitted assigns any legal or equitable right, remedy or claim under or in respect of this
Agreement or any provision herein contained, this Agreement and all conditions and provisions
hereof being intended to be and being for the sole and exclusive benefit of the parties hereto and
their respective successors and permitted assigns. Notwithstanding anything in this Section 10 to
the contrary, subject to compliance with the terms of this Agreement, each Stockholder shall have
the right to assign its interests hereunder to any transferee of the capital stock of the Company
held by such Stockholder in compliance with this Agreement; provided, however, that such
transferee shall agree in writing with the parties hereto to be bound by, and to comply with, all
applicable provisions of this Agreement and to be deemed to be a Stockholder for purposes of this
Agreement (it being understood that for purposes of this Agreement any successor to or assigns of
any (i) Behrman Investor shall be deemed to be a Behrman Investor, and (ii) Founder shall be deemed
to be a Founder).

          SECTION 11. Notices. Any notice or other communications required or permitted
hereunder shall be deemed to be sufficient and received if contained in a written instrument
delivered in person or by courier or duly sent by first class certified mail, postage prepaid, or
by facsimile addressed to such party at the address or facsimile number set forth below:

7

 

     (1) if to the Company, to it at:

Persimmon
Road
Sewickley, Pennsylvania 15143

Attention: Lawrence R. Deering

Fax: (412) 749-0958

     (2) if to any Stockholder, to the address of such Stockholder appearing in
Schedule I or Schedule II hereto;

or, in any case, at such other address or facsimile number as shall have been furnished in writing
by such party to the other parties hereto. All such notices, requests, consents and other
communications shall be deemed to have been received (a) in the case of personal or courier
delivery, on the date of such delivery, (b) in the case of mailing, on the fifth business day
following the date of such mailing and (c) in the case of facsimile, when received.

          SECTION 12. Modification. Neither this Agreement nor any provision hereof may be
modified, changed, discharged or terminated except by an instrument in writing signed by the
Company and the Stockholders.

          SECTION 13. Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart hereof shall be deemed to be an original instrument, but
all such counterparts together shall constitute but one agreement.

          SECTION 14. Governing Law. This Agreement shall be governed by, enforceable
under, and construed in accordance with the laws of the Commonwealth of Pennsylvania.

8

 

          IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement as a sealed
Instrument, all as of the day and year first above written.

	 	 	 	 	 
	 	 	TANDEM HEALTH CARE, INC.
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Lawrence R. Deering
	 

	 	 	 	 
	 

	 	 	 	Chairman and Chief
	 

	 	 	 	Executive Officer 
	 
	 	 	 	 
	 	 	BEHRMAN CAPITAL II L.P.
	 	 	By: Behrman Brothers, L.L.C.
	 	 	       General Partner
	 
	 	 	 	 
	 

	 	By:	 	/s/  Darryl Behrman
	 

	 	 	 	 
	 

	 	 	 	Managing Member
	 
	 	 	 	 
	 	 	STRATEGIC ENTREPRENEUR FUND II, L.P.
	 
	 	 	 	 
	 

	 	By:	 	/s/  Darryl Behrman
	 

	 	 	 	 
	 

	 	 	 	General Partner
	 
	 	 	 	 
	 	 	FOUNDERS:
	 
	 	 	 	/s/ Lawrence R. Deering
	 	 	 
	 

	 	 	 	Lawrence R. Deering
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Joseph Conte
	 

	 	 	 	 
	 

	 	 	 	Joseph Conte

 

 

SCHEDULE I — BEHRMAN INVESTORS

Behrman Capital II L.P.

126 East 56th Street

New York, New York 10022

Attention: Darryl G. Behrman

Fax: (212) 980-7024

Strategic Entrepreneur Fund II, L.P.

126 East 56th Street

New York, New York 10022

Attention: Darryl G. Behrman

Fax: (212) 980-7024

 

 

SCHEDULE II — FOUNDERS

Lawrence R. Deering

Tandem Health Care, Inc.

Persimmon Road

Sewickley, Pennsylvania 15143

Fax: (412) 749-0958

Joseph D. Conte

550 Via Lugano

Winter Park, Florida 32789

Fax: (407) 539-2388

 

 

JOINDER

     The undersigned, as of this 1st day of June, 2004, hereby joins as a party to that certain Stockholders Agreement, dated as
of March 25, 1998, by and among Tandem Health Care, Inc. (the “Company”) and certain shareholders of the Company which
are signatories thereto, to which this joinder shall be attached.

	 	 	 	 	 	 	 
	 	 	 	 	LAWRENCE R. DEERING GRANTOR
	 	 	 	 	RETAINED ANNUITY TRUST
	 
	 	 	 	 	 	 
	 

	 	 	 	By:
	 	/s/ Lawrence R. Deering
	 

	 	 	 	 	 	 
	 

	 	 	 	 	 	Lawrence R. Deering
	 

	 	 	 	 	 	Trustee
	 
	 	 	 	 	 	 
	Agreed and Accepted:	 	 	 	 
	 
	 	 	 	 	 	 
	TANDEM HEALTH CARE, INC.	 	 	 	 
	 
	 	 	 	 	 	 
	By:  /s/ Gene Curcio	 	 	 	 
	 

	 	 	 	 	 	 
	Name: Gene Curcio	 	 	 	 
	Its: Chief Financial Officer	 	 	 	 

(Signature Page to Stockholders Agreement)

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