Kinnaras Capital

Management LLC www.kinnaras.com

81 Atlantic Street • Suite 6 • Stamford, CT 06901 • Phone: 203-252-7654 • Fax: 860-529-7167

An Undervalued Opportunity
Disclaimer
All analysis, recommendations, and conclusions provided herein by Kinnaras Capital
Management LLC (“Kinnaras”) are based on publicly available information. Projections,
estimates, and related statements are based on various assumptions by Kinnaras regarding
the future performance of Advocat Inc. (“AVCA” or the “Company”) and are subject to
economic, industry, regulatory, and other uncertainties. No representations, express or
implied, are made as to the accuracy or completeness of such statements, estimates, or
projections, or with respect to any other materials herein. Actual results may vary materially
from the estimates and projected results contained in this presentation.

This presentation is for general information purposes only and is not an offer or solicitation
to buy or sell any security including any interest in AVCA. Neither Kinnaras nor any
associated persons or entities makes any warranty, express or implied, as to the suitability
of AVCA or any other security, or assumes any responsibility or liability for any losses,
damages, costs, or expenses, of any kind or description, arising out of your use of this
presentation or your investment in AVCA or any other security.

You understand that you are solely responsible for reviewing any security, its offering, and
performing additional due diligence as you may deem appropriate, including consulting your
own legal and tax advisers, and that any information provided in this presentation shall not
form the primary basis for your investment decision. This material is based upon
information Kinnaras believes to be reliable but Kinnaras does not represent that it is
accurate, complete, and/or up-to-date and, if applicable, time indicated. Kinnaras does not
accept any responsibility to update any opinion, analyses, or other information contained in
this presentation.

Kinnaras manages funds that are in the business of buying and selling public securities. It is
possible that future developments will cause Kinnaras to change its position regarding the
Company and reduce, dispose of, or change the form of its investment in the AVCA.

Kinnaras Capital Management 2

Table of Contents

I. Current Situation Review

II. Advocat Overview

III. Kinnaras’ Recommendation to AVCA

Kinnaras Capital Management 3

I. Current Situation Review

Kinnaras Capital Management 4

Current Situation

Advocat (“AVCA” or the “Company”) announced Q4 and Fiscal Year 2006 results at the
close of the market on March 1st, 2007
► Full year revenue, average occupancy, income from continuing operations (before stock
compensation) all increased compared to prior year
► Management provided guidance for the first time in AVCA’s recent history
 FY 2007 Revenues of $228MM
 FY 2007 EPS of ($0.08) to $0.01
 Funds from Operations of $14MM

AVCA stock plummeted nearly 30% on March 2nd following FY 2006 results and a
conference call with management
► Shares have experienced pressure since Q3 results in November

Kinnaras Capital Management (“Kinnaras”) is a “bagholder” of AVCA shares but believes
the Company is considerably undervalued and still represents the most compelling
opportunity in the nursing facility sector
► Relative and absolute valuation
► Attractive acquisition target for strategic and financial buyers
► Opportunity to improve payor mix and occupancy

Kinnaras is not a significant shareholder in the Company due to the low level of capital it
currently manages
► AVCA represents a significant position in Kinnaras’ fund

Kinnaras Capital Management 5

II. Advocat Overview

Kinnaras Capital Management 6

Advocat Overview

AVCA operates skilled nursing centers and assisted living facilities located primarily in non-
metropolitan Southeast regions
► 43 nursing centers, 9 of which are owned, containing 4,505 licensed beds and 78
assisted living units
► Facilities in Alabama, Arkansas, Florida, Kentucky, North Carolina, Ohio, Tennessee,
Texas and West Virginia

Favorable industry dynamics
► Growing target age group
► Faster hospital discharge rate and increasing referrals to lower cost alternatives such as
nursing homes
► Barriers to entry with Certificates of Need requirements
 Government restrictions on construction cost and start-up expense reimbursement
also inhibits unit expansion benefiting existing providers

The Company has experienced a dramatic turnaround since recovering from the brink of
oblivion during 1999-2001
► Multiple professional liability lawsuits and judgments coupled with reduced Medicare
reimbursement rates pressured AVCA
 Systematic of other nursing home operators as Mariner Post-Acute Network,
Vencor, Sun Healthcare, and Genesis Healthcare all filed for bankruptcy during that
time
► Stock price went from $0.13 per share in 2003 to nearly $21 per share by fall of 2006
 Currently between $11-$12 per share

Kinnaras Capital Management 7

Historical Financial Review
AVCA has consistently improved its profitability1,2,3

$250

$225

$200

$175
$150

$125

$100
$75

$50

$25

$0
2002 2003 2004 2005 2006 2007E

Revenue Adjusted EBITDA FFO less CapEx

1) Adjusted EBITDA omits Professional Liability (“PL”) expense/benefit to improve comparability of operating results; including PL figures would have
resulted in higher EBITDA for 2004-2006 and lower EBITDA in 2002-2003
2) FFO less CapEx is derived from Funds from Operations as defined by AVCA as Operating Cash Flow before Changes in Working Capital, less maintenance
CapEx
3) 2007 Revenue estimate based on the average of guidance figures, adjusted EBITDA based on Kinnaras estimate which excludes any PL expense or
benefit; FFO less CapEx figure based on guidance of $14.0MM less $4.5MM

Kinnaras Capital Management 8

AVCA vs. Peer Group
AVCA’s operating metrics and debt financing are similar or superior to those of its peers…
LTM EBITDA Margin
20%
15%
10%
5%
0%
AVCA BKD CSU FVE GHCI HCR NHC ODSY SUNH SRZ

LTM Net Income Margin

10%
5%
0%
-5% AVCA BKD CSU FVE GHCI HCR NHC ODSY SUNH SRZ

-10%
-15%

Net Debt/LTM EBITDA

15.0x

10.0x

5.0x

0.0x
AVCA BKD CSU FVE GHCI HCR NHC ODSY SUNH SRZ
Note: Redline denotes median value, AVCA net income margin excludes impact of income tax benefit, with a 35% tax provision AVCA net income margin
would be approximately 3.6% and comparable to industry peers

Kinnaras Capital Management 9

AVCA vs. Peer Group (con’t)
…yet the Company remains significantly undervalued across many key valuation metrics
Market EV/ P/
Cap EV/ EV/ Forward Forward
Company Name Ticker Description ($MM) EV ($MM) Revenue EBITDA P/E P/TBV Revenue EPS
Brookdale Senior Living Inc. NYSE:BKD Operates 80 senior living facilities 14,439 units/beds, 295 $4,524 $6,334 4.8x 34.6x NM 3.9x 3.5x NM
assisted living facilities with 12,529 units/beds, 7 continuing care
retirement communities, or CCRCs, with 3,005 units/beds, and 1
skilled nursing facility with 82 units/beds.

Capital Senior Living Corp. NYSE:CSU Operates 58 senior living communities in 21 states, and a home $307 $484 3.0x 19.5x NM 2.1x 2.5x 58.1x
care agency.
Five Star Quality Care Inc. AMEX:FVE Operates 153 communities containing 17,110 living units, $326 $400 0.5x 15.8x NM 7.3x 0.4x 9.5x
including 102 independent and assisted living communities
containing 12,403 living units, and 51 nursing homes containing
4,707 living units.
Genesis Healthcare Corp. NasdaqNM:GHCI Owns and operates 210 eldercare facilities, including 176 skilled $1,248 $1,654 0.9x 9.9x 33.3x 1.7x 0.9x 24.6x
nursing facilities, 26 assisted living facilities, and 8 transitional
care units. Genesis HealthCare also supplies contract
rehabilitation therapy to approximately 600 healthcare providers.

Manor Care Inc. NYSE:HCR Operates 278 skilled nursing facilities, 65 assisted living facilities, $3,962 $4,938 1.4x 10.2x 25.1x 9.8x 1.3x 19.6x
116 hospice and home health offices, and 92 outpatient therapy
clinics.
National Healthcare Corp. AMEX:NHC Operates 74 long-term health care centers with a total of 9,177 $639 $530 1.0x 11.4x 17.9x 2.6x NM NM
licensed beds primarily in the southeastern United States.

Odyssey Healthcare Inc. NasdaqNM:ODSY Provide hospice care in the United States. $442 $372 0.9x 9.1x 21.9x 5.8x 0.9x 19.0x
Sun Healthcare Group Inc. NasdaqNM:SUNH Operates 134 skilled nursing facilities, 14 assisted and $530 $572 0.5x 10.6x 26.7x 7.0x 0.5x 27.4x
independent living facilities, 7 mental health facilities, and 3
specialty acute care hospitals with approximately 16,910 licensed
beds located in 19 states.
Sunrise Senior Living Inc. NYSE:SRZ Operates 415 communities, including 397 communities in the $1,990 $1,966 1.1x 10.1x 23.7x 4.5x 1.0x 34.6x
United States, 11 communities in Canada, 5 communities in the
United Kingdom, and 2 communities in Germany. Sunrise Senior
Living also provided preopening management services to 50
communities under construction.

High 4.8x 34.6x 33.3x 9.8x 3.5x 58.1x

Low 0.5x 9.1x 17.9x 1.7x 0.4x 9.5x
Mean 1.6x 15.1x 25.0x 5.0x 1.4x 26.4x
Median 1.0x 11.0x 25.1x 4.9x 0.9x 22.1x

Advocat Inc. NasdaqSC:AVCA Operates 43 nursing centers containing 4,505 licensed $74 $104 0.5x 4.3x 4.9x 4.9x 0.5x 11.4x
nursing beds and 78 assisted living units.

Note: AVCA P/Forward EPS based on Kinnaras estimate of $1.19; statistic calculations exclude SRZ because latest filings are as of FY 2005

Kinnaras Capital Management 10

Transaction Comparables
Recent M&A transactions support the view that AVCA is undervalued
Enterprise Equity Value EV/
Date Buyer(s) Target Target Description Value ($MM) ($MM) EV/ Rev EBITDA P/E
02/14/2007 Health Care Property Investors Inc. Sunrise Senior Living Real Owns, develops, and operates assisted living facilities in North America with 23 $1,892 $892 8.2x 26.1x -
(NYSE:HCP) Estate Investment Trust income producing assisted living facility communities.
(TSX:SZR.UN)
01/15/2007 Formation Capital, JER Partners Genesis Healthcare Corp. Offers inpatient services through a network of skilled nursing and assisted living $1,647 $1,246 0.9x 10.2x 32.8x
(NasdaqNM:GHCI) centers. Tthe company owns 210 eldercare facilities, including 176 skilled
nursing facilities, 26 assisted living facilities, and 8 transitional care units.

10/19/2006 Sun Healthcare Group Inc. Harborside Healthcare Owns, operates, and manages 55 long-term care facilities including 53 skilled $624 $349 1.2x - -
(NasdaqNM:SUNH) Corporation nursing facilities, one residential care facility, and one independent living
facility.
06/26/2006 GE Healthcare Financial Services, Inc. Formation Capital LLC, 186 GE acquired 186 nursing homes comprising of over 21,000 beds in Florida and $1,400 $1,400 - - -
Nursing Homes other states from Formation.
04/25/2006 Apax Partners Worldwide, Brockton Capital, General Healthcare Group Offers acute care services, including medical and surgical, and nursing care. $3,933 $3,933 3.6x 13.4x -
London & Regional Properties, Network Ltd.
Healthcare Holdings Ltd. (JSE:NTC)

11/21/2005 Fillmore Capital Partners, LLC. Beverly Enterprises Inc. Provides healthcare services through the operation of nursing facilities, assisted $1,696 $1,369 0.8x 7.2x 15.0x
living centers, hospice locations, and outpatient clinics in the United States. The
company operates 351 nursing facilities, 18 assisted living centers, 52 hospice
and home health locations, and 10 outpatient clinics.

10/24/2005 Onex Corporation (TSX:OCX), Onex Skilled Healthcare Group Provides long term care facilities and post acute care services through 49 skilled $929 $638 2.4x 18.7x 35.0x
Partners, L.P. Inc. nursing facilities, as well as five assisted living facilities that provide room and
board, and social services.

05/24/2005 Chartwell Seniors Housing REIT CPAC Care Holdings Ltd. Owns and operates six retirement facilities located in the Province of British $69 $30 2.8x 13.8x 27.8x
(TSX:CSH.UN) Columbia.
06/29/2004 National Senior Care, Inc. Mariner Health Care Inc. Provides skilled nursing and long-term health care services in the United States $1,028 $659 0.6x 12.7x -
with approximately 254 Skilled Nursing Facilities and approximately 8 stand-
alone assisted living facilities with approximately 31,400 licensed beds, and 12
skilled nursing facilities with approximately 638 licensed beds.

08/11/2003 PainCare Holdings Inc. (AMEX:PRZ) Spine & Pain Center, P.C. Spine & Pain Center P.C. owns and operates a healthcare center that provides $1 $1 1.2x 8.7x 11.1x
physical medicine, pain management, orthopedic, and rehabilitation services.
The company was founded in 1996 and is based in Bismarck, North Dakota.

07/18/2003 Emeritus Corp. (AMEX:ESC) Alterra Healthcare Corp. Operates assisted living residences and providing assisted living services in 24 $884 $76 2.1x 23.9x -
states
06/30/2003 Select Medical Corp. Kessler Rehabilitation Operates inpatient hospitals, outpatient centers, skilled nursing and assisted $249 $230 1.1x 10.4x 31.5x
Corporation living centers, contract therapy management programs.

01/03/2003 Prometheus Assisted Living LLC ARV Assisted Living, Inc. Owns and operates 60 assisted living centers containing 6,997 units. $151 $38 1.0x 8.8x -

Median 1.2x 12.7x 29.6x

Mean 2.2x 14.0x 25.5x

Adj. Median 0.9x 11.4x 32.8x

Adj. Mean 1.2x 12.2x 27.6x

Note: Transactions used in Adjusted Median and Mean figures are highlighted in yellow and represent most relevant transactions

Kinnaras Capital Management 11

Implied Valuation
Peer and Transaction comparables suggest AVCA (green line) is undervalued1,2,3

Peer Comps: P/Fwd EPS

Peer Comps: EV/Fwd Rev

Peer Comps: P/E

Peer Comps: EV/EBITDA

Peer Comps: EV/Rev

M&A: P/E

M&A: EV/EBITDA

M&A: EV/Rev

$0 $5 $10 $15 $20 $25 $30 $35 $40 $45 $50 $55 $60 $65 $70 $75 $80

1) P/Fwd EPS calculated using Kinnaras internal estimate of $0.98 dilluted EPS for 2007
2) M&A: P/E and Peer Comps: P/E valuations based on adjusted AVCA 2006 EPS of $1.20, which excludes tax benefit and assumes a 35% tax provision;
AVCA maintains NOLs which can be utilized but tax provision was incorporated to demonstrate conservative valuation even if assuming AVCA is a tax payer
3) Valuation ranges based on difference between mean and median valuation metrics

Kinnaras Capital Management 12

III. Kinnaras’ Recommendation to AVCA

Kinnaras Capital Management 13

Why is AVCA valued so poorly?

Relative valuation methods demonstrate that AVCA is significantly undervalued

On an absolute valuation basis, AVCA currently trades for just 6.5x 2007 free cash flow
offering a free cash flow yield of 15%

Kinnaras believes there are two main reasons for AVCA’s valuation haircut
► Market Issues:
 Confusion regarding the quality of AVCA’s operations
 Lack of real estate/facility ownership
 Significant confusion regarding AVCA’s forward guidance
► Agency Issues:
 Management and the Board’s reluctance to initiate material strategic dialogue with
advisers or potential acquirers
 Management and the Board’s unwillingness to consider shareholder opinions
regarding capital allocation decisions

Kinnaras Capital Management 14

Confusion regarding AVCA’s quality of operations
The market may be punishing AVCA for its payor mix…

100%

90%

80%

70%
60%

50%

40%
30%

20%

10%

0%
AVCA BKD CSU FVE GHCI HCR NHC SUNH

Medicaid Medicare Private

GHCI, HCR, NHC, and SUNH are the most relevant comparables to AVCA since BKD, CSU,
and FVE have a far greater portion of revenues derived from independent living facilities
which do not house patients with the same level of acuity or reimbursement profile as
assisted living and skilled nursing centers
Note: ODSY excluded because it is exclusively a hospice while SRZ is excluded because latest financial information is as of 2005

Kinnaras Capital Management 15

Confusion regarding AVCA’s quality of operations (con’t)
AVCA may trade at a discount due to lower occupancy rates relative to peers

Annual Occupancy Rate

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%
AVCA BKD CSU FVE GHCI HCR NHC SUNH

Note: ODSY excluded because it is exclusively a hospice while SRZ is excluded because latest financial information is as of 2005

Kinnaras Capital Management 16

Confusion regarding AVCA’s quality of operations (con’t)
AVCA may trade at a discount due to lower facility ownership

% of Facilities Owned
100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%
AVCA BKD CSU FVE GHCI HCR NHC SUNH

Note: ODSY excluded because it is exclusively a hospice while SRZ is excluded because latest financial information is as of 2005

Kinnaras Capital Management 17

Confusion regarding AVCA’s quality of operations (con’t)

The reality is AVCA’s operating metrics and debt financing are already within industry
standards if not greatly superior in certain instances (page 9) despite having lower
occupancy rates and less Medicare census than peers

Real estate ownership issues do not appear to stunt valuation for BKD, NHC, SUNH

As a result, Kinnaras believes AVCA’s payor mix and occupancy rates present an
opportunity to enhance firm value
► The Company has established a trend for improving occupancy and payor mix and
expects these trends to continue in 2007
► Minor incremental improvements to payor mix and occupancy rates may be able to
leverage overhead even after accounting for additional staffing and projected increases
in staffing expenses

Annual Occupancy Medicare Utilization

80% 20%

78% 15%

75% 10%

73% 5%

70% 0%
2003 2004 2005 2006 2007E 2003 2004 2005 2006 2007E

Kinnaras Capital Management 18

Confusion regarding AVCA’s forward guidance

The Company’s 2007 EPS guidance of ($0.08) – $0.01 incorporates professional liability
(“PL”) estimates that are subject to significant change as the year progresses
► Current estimate is for $9.3MM in PL expense ($1.49 pre-tax per diluted share)
► Management has stated that 2007 fiscal year guidance is based on 2006 fiscal year
results but PL estimate is not consistent with 2006 fiscal year results
 Estimates should incorporate PL trend for fiscal year guidance as opposed to an
actuarial estimate as of January 1st, 2007
 Assumes tax provision but NOLs are not likely exhausted

Kinnaras expects AVCA to generate 2007 diluted EPS of $1.00 to $1.19
► Conservative estimate that incorporates management revenue guidance, expected cost
increases, debt expense, tax provision (as opposed to NOL utilization), and after-tax
preferred stock dividends
► Assumes PL will be 0 which could understate EPS since PL in 2004, 2005, and 2006
were all benefits vs. expense
► EPS estimates could also be understated given results of renovated facilities
 Average occupancy increased to 70.6% from 60.9% while Medicare census
increased to 17.9% from 14.4% in the 3 renovated facilities completed in Q4 2006
 One newly renovated facility will be included in Q1 2007 results while AVCA plans to
renovate 2 more facilities in Q1 2007
 Estimates do not include plans for renovations beyond those in Q1 2007 although
Management has expressed an interest in additional renovations
 The 6 renovated facilities represent 14% of total Company sites
 Company results could exceed expectations if results for the three newly
renovated facilities match the first three in terms of occupancy and Medicare
census improvement

Kinnaras Capital Management 19

Reluctance to initiate strategic discussions

In May 2006, hedge fund Moab Partners approached AVCA with a leveraged buyout
opportunity that would value the Company between $18-$24 per share

► “He (David Sackler, Moab Partners founder) proposes a leveraged buyout that includes
a $1 million investment by Advocat Chairman Wallace Olson - who owns 10 percent of
the company - and another $1 million from Moab. Unnamed partners would kick in
$76.4 million in equity and $70 million in debt to fund the purchase.” – Nashville
Business Journal, May 19, 2006

Despite talks of an offer significantly above the Company’s trading price at the time,
Management and the Board did not provide shareholders an opportunity to realize value
from this proposal

Stock price continued to rise so there was little focus on Management’s oversight

Kinnaras Capital Management 20

Reluctance to initiate strategic discussions (con’t)

Bristol Investment Fund and Oakdale Capital Partners (the “Buyers”) offered to buy AVCA
for $16.80 per share in July 2006

► Enterprise value/equity value of approximately $128MM/$109MM

 0.6x EV/LTM Revenue1

 4.9x EV/LTM EBITDA1

 7.2x adjusted EPS1,2

► While the Buyers’ offer did not seem sufficient the main disservice was that the Board
and Management did not disclose this offer to the public until after they had dismissed
the offer

 Shareholder interests were not served since the market was not given time to vet
the offer and other potential bidders were not given the opportunity to emerge

 AVCA Board and Management sent a signal to the market that the Company is not
willing to seriously consider acquisition offers

1) Valuation multiples based on LTM data as of June 30, 2006

2) Adjusted EPS omits tax benefit from calculation resulting in $2.31 adjusted EPS; P/E acquisition multiple based on 35% tax basis would be 11.3x

Kinnaras Capital Management 21

Reluctance to consider shareholder opinions
Management has expressed a desire to acquire additional facilities

The strategy is sound but the timing is wrong

► When AVCA traded for $16+ per share in July 2006, the Buyers voiced their concern
about acquisitions based on the Company’s cheap valuation at the time

► Current prices of $11-$12 per share have not changed this view

Any acquisition of scale is unlikely to be accretive to EPS

► Minor tack-on acquisitions will offer little benefit

Lack of major institutional investors results in little consideration by the Board and
Management when it comes to suggestions and concerns expressed by shareholders

► Only 16% of shares controlled by institutional investors

► The latest conference call demonstrates that shareholders and analysts widely believe
that an acquisition strategy is not in the Company’s best interest yet Management
appears determined to pursue this course

Kinnaras Capital Management 22

Kinnaras’ Recommendation to AVCA
Kinnaras and other shareholders likely share similar views on enhancing AVCA’s value

Take advantage of depressed share prices by immediately repurchasing stock at a steep

discount to value

► 2007 free cash flow to market cap (cash flow yield) is 15%

► Difficult to find alternatives that offer the same benefit to the Company

► Depressed share price is recognized by management as CEO William Council and CFO
L. Glynn Riddle, Jr. both purchased shares on March 6th

Engage an investment banker to assist in evaluating firm strategy

► An independent adviser would not support the notion of an acquisition by AVCA given
the Company’s depressed valuation

► A sale of AVCA could be in shareholders’ interests

 Precedent transactions demonstrate sector appetite by both strategic and financial

buyers resulting in an auction process with significant breadth

 The timeline between hiring an adviser and running the auction process would take
3-6 months giving AVCA the benefit of reporting Q1 and possibly Q2 results which
could drive a rebound in stock price prior to any forthcoming bids

Kinnaras Capital Management 23

Kinnaras’ Recommendation to AVCA (con’t)
An aggressive buyback at current prices would be highly accretive

Current diluted shares outstanding (MM) 6.25 6.25 6.25 6.25 6.25 6.25 6.25 6.25
Kinnaras 2007 EPS Estimate (high) $1.19 $1.19 $1.19 $1.19 $1.19 $1.19 $1.19 $1.19
Cash Designated for Buyback ($MM) $11.5 $11.5 $11.5 $11.5 $11.5 $11.5 $11.5 $11.5
Average Share Price of AVCA Buyback $11.25 $12.25 $13.25 $14.25 $15.25 $16.25 $17.25 $18.25
Shares Redeemed (MM) 1.02 0.94 0.87 0.81 0.75 0.71 0.67 0.63

Diluted shares outstanding post buyback (MM) 5.23 5.31 5.38 5.44 5.50 5.54 5.58 5.62
Kinnaras 2007 EPS Estimate (high) post buyback $1.42 $1.40 $1.38 $1.37 $1.35 $1.34 $1.33 $1.32

Accretion (Dilution) 20% 18% 16% 15% 14% 13% 12% 11%

Remaining Cash after Buyback $0.9 $0.9 $0.9 $0.9 $0.9 $0.9 $0.9 $0.9
Funds from Operations $14.0 $14.0 $14.0 $14.0 $14.0 $14.0 $14.0 $14.0
less: Capex $4.5 $4.5 $4.5 $4.5 $4.5 $4.5 $4.5 $4.5
Cash Balance at FYE 2007 $10.4 $10.4 $10.4 $10.4 $10.4 $10.4 $10.4 $10.4

Current prices make it difficult to find attractive alternatives relative to AVCA’s own stock.
In addition, the Company’s stable cash flow results in a healthy cash balance by year-end.

Kinnaras Capital Management 24

Kinnaras’ Recommendation to AVCA (con’t)
Hire an independent adviser to evaluate the Company’s strategy and alternatives

AVCA’s size reduces the likelihood of engaging a bulge bracket adviser but many regional
and boutique investment banks have strong healthcare practices

GHCI deal offers a recent and relevant example of buyer interest

GHCI Timeline June 2006 – January 2007

June 2006: A private equity consortium (“PE 1”, rumored to be Madison Dearborn, Filmore Capital,and Welsh, Carson,
Anderson & Stowe) approached GHCI CEO George Hager about a MBO, stock was trading at $45 per share at the time

August 2006: Hager asks the Board for permission to pursue talks and the Board forms a committee to evaluate offers
and hires Goldman Sachs to advise

September/October 2006: PE 1 offers $51.50 per share in September which is rejected by the Board and results in
a follow up offer of $53.00 per share in October

November 2006: PE 1 offers $54.00 per share and a “go-shop” provision with the Board electing to run a full
scale auction with Goldman Sachs soliciting 14 strategic and financial buyers

December 2006: A second private equity firm (uknown, “PE 2”) offers $58-$60 per share, although Hager
discloses to the Board that he would not work for PE 2, followed by a Formation Capital and GE Healthcare
Financial Services (“PE 3”) bid at $60 per share
January 2007: PE 2 bids $63.00 against $62.50 from PE 3 which includes JER Partners instead of GE
Healthcare Financial Services and the Board asks PE 3 to bid $63.00 along with providing similar
contract and financing terms offered by PE 2. PE 3 agrees and wins the auction

Kinnaras Capital Management 25

Kinnaras’ Recommendation to AVCA (con’t)

GHCI’s auction brought out 14 potential buyers and resulted in a valuation that was 22%
higher than the initial bid

► If AVCA followed this process when the Buyers approached in 2006, a transaction could
have potentially been executed over $21 per share

► An auction process for AVCA could bring out more potential buyers

 The Company owns 9 of its properties and is in a distinct geographic footprint

 Small size increases number of potential bidders

 Larger strategic firms could easily finance an acquisition of AVCA and

integrate/absorb the Company into existing operations

 Cash flow and industry dynamics would raise LBO interest

The most relevant transaction comps illustrate healthy valuation multiples which the
Company should be able to realize

► GHCI

► Skilled Healthcare

► Harborside Healthcare

Kinnaras Capital Management 26

Conclusions

AVCA is significantly undervalued
► Very attractive free cash flow yield
► Operating metrics and debt capitalization in-line with or better than higher valued
industry peers
► Favorable industry dynamics

Kinnaras’ recommendations for AVCA should create value
► Improves capital allocation
 Immediate share repurchase could enhance shareholder value by 20%
 Offers a better alternative to potentially dilutive acquisitions
► Exploring a sale process with the help of an independent adviser will further help
realize value for shareholders
 Recent and relevant precedent transactions demonstrate buyer interest and healthy
valuations
► Recommendations seem to be widely held by shareholders based on recent conference
calls
► Variations by other shareholders on Kinnaras’ recommendations can also enhance
value
► Current environment and market confusion regarding AVCA should compel the Board
and Management to act in shareholders’ best interests

Kinnaras Capital Management 27

Next Steps

All stakeholders should be engaged in an effort to enhance the Company’s value
► Current Shareholders
 Lack of major institutional investor makes it difficult to spearhead a concentrated
effort
► Broader investment community
 Undervalued situation, microcap stock, and turbulent shareholder base should
present an opportunity for activist investors wishing to build upon recommendations
and take the lead
► AVCA Management and the Board
 Management has demonstrated good operating capabilities but capital allocation
decision making is in question
 Aside from Wallace Olson, insiders (Board and Management) own less than 5% of
Company shares
 Personal/financial accountability for share performance is a better motivator
than fiduciary accountability

Kinnaras is open to any feedback and revisions to suggested recommendations by current
shareholders, AVCA’s Board and Management, and any other potential AVCA investors
► Contact: amit.chokshi@kinnaras.com

Kinnaras Capital Management 28