Kinnaras Avca Presentation

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.

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Table of Contents I.

Current Situation Review

II. Advocat Overview

III. Kinnaras’ Recommendation to AVCA

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I. Current Situation Review

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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

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II. Advocat Overview

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Advocat Overview
AVCA operates skilled nursing centers and assisted living facilities located primarily in nonmetropolitan 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

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Historical Financial Review AVCA has consistently improved its profitability1,2,3 $250 $225 $200 $175 $150 $125 $100 $75 $50 $25 $0 2002

2003

Revenue

2004

2005

Adjusted EBITDA

2006

2007E

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

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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

CSU

FVE

GHCI

HCR

NHC

ODSY

SUNH

SRZ

CSU

FVE

GHCI

HCR

NHC

ODSY

SUNH

SRZ

LTM Net Income Margin 10% 5% 0% -5%

AVCA

BKD

-10% -15%

Net Debt/LTM EBITDA 15.0x 10.0x 5.0x 0.0x AVCA

BKD

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

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AVCA vs. Peer Group (con’t) …yet the Company remains significantly undervalued across many key valuation metrics Company Name Brookdale Senior Living Inc.

Ticker NYSE:BKD

Description Operates 80 senior living facilities 14,439 units/beds, 295 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

Five Star Quality Care Inc.

AMEX:FVE

Genesis Healthcare Corp.

NasdaqNM:GHCI

Operates 58 senior living communities in 21 states, and a home care agency. Operates 153 communities containing 17,110 living units, including 102 independent and assisted living communities containing 12,403 living units, and 51 nursing homes containing 4,707 living units. Owns and operates 210 eldercare facilities, including 176 skilled 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

National Healthcare Corp.

AMEX:NHC

Odyssey Healthcare Inc. Sun Healthcare Group Inc.

NasdaqNM:ODSY NasdaqNM:SUNH

Sunrise Senior Living Inc.

NYSE:SRZ

Market Cap ($MM) EV ($MM) $4,524 $6,334

EV/ Revenue 4.8x

EV/ EBITDA 34.6x

P/E NM

P/TBV 3.9x

EV/ Forward Revenue 3.5x

P/ Forward EPS NM

$307

$484

3.0x

19.5x

NM

2.1x

2.5x

58.1x

$326

$400

0.5x

15.8x

NM

7.3x

0.4x

9.5x

$1,248

$1,654

0.9x

9.9x

33.3x

1.7x

0.9x

24.6x

Operates 278 skilled nursing facilities, 65 assisted living facilities, 116 hospice and home health offices, and 92 outpatient therapy clinics. Operates 74 long-term health care centers with a total of 9,177 licensed beds primarily in the southeastern United States.

$3,962

$4,938

1.4x

10.2x

25.1x

9.8x

1.3x

19.6x

$639

$530

1.0x

11.4x

17.9x

2.6x

NM

NM

Provide hospice care in the United States. Operates 134 skilled nursing facilities, 14 assisted and independent living facilities, 7 mental health facilities, and 3 specialty acute care hospitals with approximately 16,910 licensed beds located in 19 states. Operates 415 communities, including 397 communities in the 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.

$442 $530

$372 $572

0.9x 0.5x

9.1x 10.6x

21.9x 26.7x

5.8x 7.0x

0.9x 0.5x

19.0x 27.4x

$1,990

$1,966

1.1x

10.1x

23.7x

4.5x

1.0x

34.6x

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

0.5x

4.3x

4.9x

4.9x

0.5x

11.4x

Advocat Inc.

NasdaqSC:AVCA

Operates 43 nursing centers containing 4,505 licensed nursing beds and 78 assisted living units.

$74

$104

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

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Transaction Comparables Recent M&A transactions support the view that AVCA is undervalued Enterprise Value ($MM)

Equity Value EV/ ($MM) EV/ Rev EBITDA

Date

Buyer(s)

Target

Target Description

02/14/2007

Health Care Property Investors Inc. (NYSE:HCP)

Owns, develops, and operates assisted living facilities in North America with 23 income producing assisted living facility communities.

$1,892

$892

8.2x

26.1x

-

01/15/2007

Formation Capital, JER Partners

Sunrise Senior Living Real Estate Investment Trust (TSX:SZR.UN) Genesis Healthcare Corp. (NasdaqNM:GHCI)

Offers inpatient services through a network of skilled nursing and assisted living centers. Tthe company owns 210 eldercare facilities, including 176 skilled nursing facilities, 26 assisted living facilities, and 8 transitional care units.

$1,647

$1,246

0.9x

10.2x

32.8x

10/19/2006

Sun Healthcare Group Inc. (NasdaqNM:SUNH)

$624

$349

1.2x

-

-

$1,400

$1,400

-

-

-

$3,933

$3,933

3.6x

13.4x

-

06/26/2006 04/25/2006

Harborside Healthcare Corporation

Owns, operates, and manages 55 long-term care facilities including 53 skilled nursing facilities, one residential care facility, and one independent living facility. GE Healthcare Financial Services, Inc. Formation Capital LLC, 186 GE acquired 186 nursing homes comprising of over 21,000 beds in Florida and Nursing Homes other states from Formation. Apax Partners Worldwide, Brockton Capital, General Healthcare Group Offers acute care services, including medical and surgical, and nursing care. London & Regional Properties, Network Ltd. Healthcare Holdings Ltd. (JSE:NTC)

P/E

11/21/2005

Fillmore Capital Partners, LLC.

Beverly Enterprises Inc.

Provides healthcare services through the operation of nursing facilities, assisted 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.

$1,696

$1,369

0.8x

7.2x

15.0x

10/24/2005

Onex Corporation (TSX:OCX), Onex Partners, L.P.

Skilled Healthcare Group Inc.

Provides long term care facilities and post acute care services through 49 skilled nursing facilities, as well as five assisted living facilities that provide room and board, and social services.

$929

$638

2.4x

18.7x

35.0x

05/24/2005

Chartwell Seniors Housing REIT (TSX:CSH.UN) National Senior Care, Inc.

CPAC Care Holdings Ltd.

06/29/2004

Owns and operates six retirement facilities located in the Province of British Columbia. Provides skilled nursing and long-term health care services in the United States with approximately 254 Skilled Nursing Facilities and approximately 8 standalone 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.

07/18/2003

Emeritus Corp. (AMEX:ESC)

Alterra Healthcare Corp.

06/30/2003

Select Medical Corp.

01/03/2003

Prometheus Assisted Living LLC

$69

$30

2.8x

13.8x

27.8x

$1,028

$659

0.6x

12.7x

-

Spine & Pain Center P.C. owns and operates a healthcare center that provides physical medicine, pain management, orthopedic, and rehabilitation services. The company was founded in 1996 and is based in Bismarck, North Dakota.

$1

$1

1.2x

8.7x

11.1x

$884

$76

2.1x

23.9x

-

Kessler Rehabilitation Corporation

Operates assisted living residences and providing assisted living services in 24 states Operates inpatient hospitals, outpatient centers, skilled nursing and assisted living centers, contract therapy management programs.

$249

$230

1.1x

10.4x

31.5x

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

Mariner Health Care Inc.

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

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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

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III. Kinnaras’ Recommendation to AVCA

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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

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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

Medicaid

FVE

GHCI

Medicare

HCR

NHC

SUNH

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

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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

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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

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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 Medicare Utilization

Annual Occupancy 80%

20%

78%

15%

75%

10%

73%

5%

70%

0% 2003

2004

2005

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2007E

2003

2004

2005

2006

2007E

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

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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

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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

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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

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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

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

Current diluted shares outstanding (MM) Kinnaras 2007 EPS Estimate (high) Cash Designated for Buyback ($MM) Average Share Price of AVCA Buyback Shares Redeemed (MM) Diluted shares outstanding post buyback (MM) Kinnaras 2007 EPS Estimate (high) post buyback

6.25

6.25

6.25

6.25

6.25

6.25

6.25

6.25

$1.19

$1.19

$1.19

$1.19

$1.19

$1.19

$1.19

$1.19

$11.5

$11.5

$11.5

$11.5

$11.5

$11.5

$11.5

$11.5

$11.25

$12.25

$13.25

$14.25

$15.25

$16.25

$17.25

$18.25

1.02

0.94

0.87

0.81

0.75

0.71

0.67

0.63

5.23

5.31

5.38

5.44

5.50

5.54

5.58

5.62

$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

$14.0

$14.0

$14.0

$14.0

$14.0

$14.0

$14.0

$14.0

$4.5

$4.5

$4.5

$4.5

$4.5

$4.5

$4.5

$4.5

$10.4

$10.4

$10.4

$10.4

$10.4

$10.4

$10.4

$10.4

Funds from Operations less: Capex Cash Balance at FYE 2007

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.

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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

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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

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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

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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: [email protected]

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