WARRANT TO PURCHASE COMMON STOCK OF TANDEM HEALTH CARE, INC.

Exhibit 10.5

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

     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

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

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.

     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):

THE SECURITIES R