Avca August 2006 Presentation

Investor Meetings

Will Council President and CEO

Forward-Looking Statement Forward-looking statements made in this presentation involve a number of risks and uncertainties, including but not limited to, changes in governmental reimbursement, government regulation and health care reforms, the increased cost of borrowing under our credit agreements, ability to control ultimate professional liability costs, the accuracy of our estimate of our anticipated professional liability expense, the impact of future licensing surveys, the outcome of regulatory proceedings alleging violations of laws and regulations governing quality of care or violations of other laws and regulations applicable to our business, changing economic conditions as well as other risk factors detailed in the Company's Securities and Exchange Commission filings. The Company has provided additional information in its Annual Report on Form 10-K for the fiscal year ended December 31, 2005, as well as in other filings with the Securities and Exchange Commission, which readers are encouraged to review for further disclosure of other factors that could cause actual results to differ materially from those indicated in the forward-looking statements.

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Profile Advocat provides a broad range of long term care services to nursing home patients, primarily in the Southeast and in nonmetropolitan areas.

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Broad Band of Services • •

• •

Attract patients with more complex health problems for higher reimbursement Healthcare cost containment results in a shorter hospital stay and a greater need for nursing home care Focus on skilled nursing and comprehensive rehabilitation Programming and other support services, including Life Steps and Lighthouse units, as well as medical supply and nutritional support 5

Profession Trends Demographics

•

Facilities

• 

Reimbursements

Family Changes

  • •    

75+… fastest growing segment of U.S. population 85+… double by 2030 Total number of nursing homes in the U.S. has declined since 1999 Certificates of need Stringent government budgets Improved Medicare & Medicaid Exceptions for patients in need of more intensive care No longer traditional caregiver More women working Smaller U.S. families Mobile society 6

Advocat Centers Number of Facilities

 43

Average beds per Facility  105 Number of licensed beds  4,505

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Facility Locations Alabama • Brookshire - Huntsville • Canterbury – Phenix City • Hartford – Hartford • Lynwood – Mobile • Northside – Gadsden • Windsor House - Huntsville

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Facility Locations Arkansas • Arbor Oaks – Malvern • Ash Flat – Ash Flat • Conway – Conway • Des Arc – Des Arc • Eureka Springs – Eureka Springs • Garland – Hot Springs • Ouachita – Camden • Newport – Newport • The Pines – Hot Springs • Pocahontas – Pocahontas • Rich Mountain – Mena • Sheridan – Sheridan • Walnut Ridge – Walnut Ridge 9

Facility Locations Florida • Cedar Hills – Jacksonville • Golfcrest – Hollywood • Golfview – St. Petersburg • Hardee Manor – Wauchula • Southern Pines – New Port Richey

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Facility Locations Kentucky, Ohio & West Virginia • Boyd – Ashland, KY • Carter – Grayson, KY • Elliott – Sandy Hook, KY • South Shore – South Shore, KY • West Liberty – West Liberty, KY • Wurtland – Greenup, KY • Best Care – Wheelersburg, OH • Boone – Danville, WV • Laurel – Ivydale, WV 11

Facility Locations Tennessee

• Briarcliff – Oak Ridge • Laurel Manor – New Tazewell • Manor House – Dover • Martin – Martin • Mayfield – Smyrna • Corporate Office - Brentwood 12

Facility Locations Texas • Afton Oaks – Houston • Chisolm Trail – Lockhart • Hillcrest – Luling • Lampasas – Lampasas • Yorktown - Yorktown

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Management Major Changes Beginning in 2001 William R. Council, III President and CEO, October 2002 Joined AVC as CFO in 2001 Almost 8 years in senior healthcare leadership positions.

Raymond Tyler Executive VP and COO since October 2002 Joined AVC in 2001 as VP of Operations 30 years nursing home management 23 years – multi-facility, multi-regional responsibilities

L. Glynn Riddle, Jr. Executive VP and CFO since December 2002 Joined AVC in 2002 14 years as a senior financial officer for public companies

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Board of Directors Wallace E. Olson – Chairman Joined Board in 2002 Private investor - AVC’s largest individual stockholder 21 years in management and/or ownership of long term care operations Richard Brame Joined Board in 2002 CEO of Regency Health Management. Former President of San Angelo Nursing Center 29 years in management and/or ownership of long term care operations 15

Board of Directors (con’t) Robert Z. Hensley Joined Board in 2005 President of Life’s A Beach Publications. Director of Healthspring. Former partner with Ernst & Young, Arthur Andersen. William C. O’Neil, Jr. Joined Board at inception of AVC Director of Healthways, Inc., Sigma Aldrich, and American Home Patient. Former CEO of Clinical Trials and International Clinical Laboratories. 16

AVC Turnaround 1999-2002: Desperate Times! -

Losses totaling $61 million Multiple professional liability lawsuits $78 million judgment in one suit Delisted NYSE Stock price low of $0.09 Many poor performing facilities Significant working capital deficit Outstanding debt as high as $66 million 17

AVC Turnaround June 30, 2006 Positive cash flow and income Comprehensive refinancing High employee morale Cost Containment Lease extensions 19 lawsuits as of June 30, 2006 A number of divestitures including: …Canada subsidiary, poor performing nursing homes and assisted living properties  Stock price $15.78 as of August 10, 2006  Upgrade facilities – pictures of completed center       

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Comprehensive Refinancing $30.6 million – August 7, 2006  $22.5M in mortgages – 25 year amortization, 5 year term, LIBOR + 3.75%

$8.1M term note – 4 year term, LIBOR + 6.25% Company paid principal of $2.5M at closing Term loan secured by certain assets Proceeds from sale of certain assets assigned Refinancing retired existing debt Provided $1.1M for renovation of nursing center Classified $24.5M in debt as Long-term at June 30, 2006  Now in compliance with financial covenants       

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Comprehensive Refinancing Debt Structure (in 000’s)

6/30/2006

12/31/2005

Current Portion of Long-term debt

$8,737

$18,609

Current portion of settlement promissory notes

579

1,106

-

27,704

Total current debt

$9,316

$47,419

Non-Current debt

$24,455

$128

$33,771

$47,547

Current debt

Short-term debt

Total Debt

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Comprehensive Refinancing

Net Working Capital (deficit) Total Current Assets Total Current Liabilities Net Working Capital (deficit)

6/30/2006

12/31/2005

$34,734

$32,026

30,343

71,996

$4,391

$(39,970)

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Management Goals 1.Increase occupancy June 30, 2006 =77.7%

… Steadily increasing … Marketing initiatives in every community … Upgrading facilities = $5 million investment in several centers underway, $1.1 million available under refinancing … Ongoing training at centers

2. Improve Quality Mix

… Concentrate on attracting patients with more intensive health care requirements … Adding services with higher reimbursement rates

3. Continue to contain costs

… Dramatically reduced worker’s compensation and professional liability 22

Performance Measurements

… Occupancy … Revenue by Payer Source … Medicare Utilization

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Occupancy Rates 78.0%

77.6% 77.6%

77.7%

76.5% 76.5%

75.4% 75.0%

73.5%

72.0%

Q2

Q3

Q4

Q1

Q2

2005

2005

2005

2006

2006 24

Revenue Payer Mix FY 2002

Q2 2006

12%

13%

26%

31%

56%

62%

Medicare Medicaid Other 25

Medicare Utilization 15.0%

14.5%

14.2%

14.0% 13.0%

12.7%

12.0%

13.0%

11.5%

11.0% 10.0%

10.2%

9.0% 8.0%

FY 2002

FY 2003

FY 2004

FY 2005

Q1 2006

Q2 2006

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Medicare Utilization 15.0%

14.5%

14.2%

14.0% 13.0%

12.8%

13.0%

Q3 2005

Q4 2005

12.0% 11.0% 10.0% 9.0% 8.0%

Q1 2006

Q2 2006

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Revenue Growth 2001-2005 (in millions)

$225 $200

$203.7

$212.2

$191.2

$175 $172.1

$150 $125

$150.2 2002

2003

2004

2005

12 mos ending 6/2006 28

Income from Continuing Operations Before Income Taxes (in millions) 20 15

$16.8 $12.8

10

$9.0

5 0 -5 -10

($11.8)

($10.3)

-15 -20

2002

2003

2004

2005

6 mos ending 6/2006 29

Funds From Operations (in millions) $14.00

$13.2

$12.00

$11.5

$10.00 $8.00

$8.7 $7.3

$6.00 $4.00

$5.9

$2.00 $0.00

2002

2003

2004

2005

6 mos ending 6/2006 30

Diluted Per Share Income From Continuing Operations 5

$4.69

4 3

$1.93

2

$1.53

1 0 -1 -2

$(2.12) $(1.92)

-3

Diluted weighted average common share (thousands)

2002

2003

2004

2005

6 mos ending 6/2006

5,493

5,493

6,437

6,498

6,544 31

Stockholders’ Deficit (in millions) $0.0 ($1.7)

($5.0) ($10.0) ($15.0) ($16.9)

($20.0) ($25.0) ($30.0) ($35.0) ($40.0)

($33.8)

($45.0)

($42.8)

($41.9)

2003

2004

($50.0)

2002

2005

Q2 2006 32

Investment Highlights 1. Favorable Profession trends 2. Pure play in nursing home profession - public 3. Proven management 4. Stronger financials 5. Growth from:  Rising occupancy rates  Better patient mix  Upgrading facilities 33

Questions

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