THE CURRENT BOARD'S INTERESTS ARE NOT ALIGNED WITH STOCKHOLDERS
ADVOCAT BOARD NEEDS TO EXPLORE THE SALE OR MERGER OF THE COMPANY
HOLLYWOOD, Calif., May 19 /PRNewswire/ -- Bristol Investment Fund, Ltd. ("Bristol") announced today that it has sent a letter to the stockholders of Advocat, Inc. (the "Company") (Nasdaq: AVCA) urging stockholders to elect its two highly qualified and independent director nominees, Paul Kessler and Richard McKilligan, at the Company's 2009 annual meeting of stockholders on May 29, 2009. Bristol, together with the nominees, beneficially owns an aggregate of 422,540 shares of common stock of the Company, representing approximately 7.44% of the outstanding shares of the Company's common stock.
The full text of the letter follows:
May 19, 2009
Dear Fellow Stockholders of Advocat Inc.:
Bristol Investment Fund, Ltd. ("Bristol") is seeking your support to elect two highly qualified nominees to the Board of Directors of Advocat Inc. at the 2009 Annual meeting of stockholders to be held at 9:00 a.m. (Central Daylight Time), May 29, 2009, at the Company's offices, 1621 Galleria Boulevard, Brentwood, Tennessee 37027. We have become increasingly concerned over the direction, compensation and corporate governance at Advocat during the past three years we have been stockholders. Bristol, as one of Advocat's largest stockholders, beneficially owning an aggregate 422,540 Shares as of the date hereof, approximately 7.44% of the Shares outstanding, believes recent actions by the Board of Directors have not been in the best interests of stockholders and have only served to further entrench management and the Board.
Please vote the GOLD proxy to support our slate of highly qualified independent director nominees so we can try to reposition the Company to maximize stockholder value and end what we believe to be a history of entrenched insider interests operating at stockholder expense.
Advocat senior management and the directors against whom we are campaigning have presided over a dramatic deterioration in the value of our Company. Although they would blame this on what has been a terrible market, Advocat's deterioration predates and exceeds recent market woes.
We believe Advocat has suffered this loss in value because the market has little faith that management is being adequately overseen by its Board. Advocat's revenues continue to increase, but net income has not kept pace. We believe this is a result of grossly indulgent compensation practices, ineffective management oversight and a Board that has become disconnected from stockholders and market realities. The chart below measures cash flow from operations, excluding capital expenditures, on a per share basis for 2008 for Advocat and companies we believe are comparable to Advocat. Because there are significant differences in size of revenues and operations between Advocat and some of the companies listed below, we believe this cash flow comparison to be one of the best ways to compare performance.
Cash Flow from Ops Shares Outstanding Ratio AVCA $9,478,000 5,680,000 1.67 SKH $63,013,000 37,280,000 1.69 SUNH $87,834,000 43,590,000 2.02 ENSG $46,671,000 20,580,000 2.27 KND $183,079,000 39,010,000 4.69
COMPENSATION TO SENIOR MANAGEMENT AND THE BOARD BEARS LITTLE CORRELATION TO ADVOCAT'S SIZE AND PROFITABILITY
We believe there has been excessive compensation for senior management and Board members at Advocat, which bears little or no correlation to business performance. We believe these spiraling Board expenses are symptomatic of poor corporate governance and a culture of non-accountability at the Company. Even though our nominees, if elected, will represent only a minority of the directors, we will propose a cap on director compensation. By electing our nominees, you are sending a clear message to the Board that they will be held responsible for these actions.
THE BOARD'S FAILURE TO COMMUNICATE WITH STOCKHOLDERS AND ENTRENCHMENT MENTALITY HAS HURT THE COMPANY
We have tried repeatedly to enter into a constructive dialogue with the Company. Over the last three years, Bristol, as one of Advocat's largest stockholders, has requested to meet with the independent directors on the Board many times -- only to be rebuffed. It appears all communication with the Board must be vetted through Mr. Council. It is this ineffective way of communicating with stockholders, most recently in evidence at the Company's quarterly conference call where an investor was actually cut off from asking a question, which has caused us to have to engage in this proxy contest.
This Board seems to respond to stockholder comments and ideas by entrenching themselves with poor corporate governance practices. This Board has:
LACK OF BOARD OVERSIGHT OF MANAGEMENT = LACK OF POSITIVE RESULTS?
Advocat's revenues increased 4.4% for the first quarter of 2009 compared to the first quarter of 2008, after adjusting 2008 for leap year. Yet its net income in the same period declined 66%! We believe this decline has been caused by a lack of Board oversight of management. Without true accountability, management has overseen:
The chart below measures revenue compared to net income for Advocat and companies that we believe are comparable to Advocat:
Revenue Net Income Ratio KND $4,151,396,000 $36,285,000 0.009 AVCA $288,797,000 $5,735,000 0.020 SKH $733,330,000 $37,209,000 0.051 ENSG $469,372,000 $27,509,000 0.059 SUNH $1,824,184,000 $109,287,000 0.060
Despite these results, the Chairman of the Board, Wally Olson, maintains the current makeup of the Board is "appropriate" and that our nominees would not add any "interest or skills" to the Board. We wonder if Mr. Olson believes the Company's increased expenses, lower occupancy rates and lower Medicare mix that have occurred under this Board's watch is appropriate as well?
The fact is our nominees, whose backgrounds are described below, bring strong successful career experience to their future roles as Advocat directors if elected. They have been committed to a level of excellence in their careers that we believe will raise the bar at Advocat for future operating and financial performance and overall accountability of both the Board and management. This is in contrast to the current Board and management, who seem content with the Company's current poor corporate governance and culture of non-accountability.
SUPPORT NEW NOMINEES FOR ADVOCAT'S BOARD
THAT ARE TRULY INDEPENDENT FROM ADVOCAT'S MANAGEMENT
Bristol's interests are directly aligned with those of Advocat's stockholders. Our objective is to maximize the value of Advocat by ensuring that the Company's assets and management are supervised by a truly independent Board of directors. We do not seek control of Advocat or its Board. We believe our independent director candidates provide investors with the opportunity to implement much needed change at Advocat.
Bristol has nominated Paul Kessler and Richard McKilligan as candidates for election to Advocat's Board. We believe that our candidates have the experience and independence necessary to maximize value for all stockholders. The biographies of our Nominees are set forth below.
PAUL KESSLER. Since March 2000, Mr. Kessler (age 48) has been the Principal and Manager of Bristol Capital Advisors, LLC ("BCA"), the investment advisor to Bristol. Mr. Kessler specializes in identifying and structuring investment transactions with emerging growth public companies and directing trading in portfolio securities.
RICHARD MCKILLIGAN. Since January 2007, Richard McKilligan (age 45) has served as the General Counsel, Chief Financial Officer and Secretary of Derycz Scientific, Inc. Since August 2008, he has also served as CFO of Percipio Biotherapeutics, Inc. Mr. McKilligan has been a director of Bristol since February 2008, and served as Counsel to BCA from January 2006 to September 2008. Mr. McKilligan was an associate attorney with Morgan, Lewis & Bockius, LLP in their New York and London offices from 1999 until December 2005. Mr. McKilligan earned his law degree from Cornell Law School, his MBA from the
OUR NOMINEES HAVE A PLAN TO MAXIMIZE VALUE
If elected, our Nominees shall commit to do the following:
VOTE THE GOLD PROXY CARD TODAY AND PUT PEOPLE ON THE ADVOCAT BOARD THAT ARE COMMITTED TO ACTING IN YOUR BEST INTERESTS
We urge all stockholders to elect our director nominees on the enclosed GOLD proxy card today. Vote for much needed change at Advocat by signing, dating and returning the enclosed GOLD proxy card or you may vote by telephone or Internet if you own through a bank or broker. We urge stockholders to discard any proxy materials received from Advocat and to vote only the GOLD proxy card.
Thank you for your support,
Paul Kessler Richard McKilligan Bristol Nominee Bristol Nominee
CONTACT: Steven Balet, +1-212-297-0724, for Bristol Investment Fund, Ltd.
|SOURCE Bristol Investment Fund, Ltd.|
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