0000921895-09-001270.txt : 20120809 0000921895-09-001270.hdr.sgml : 20120809 20090501183932 ACCESSION NUMBER: 0000921895-09-001270 CONFORMED SUBMISSION TYPE: PRRN14A PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 20090504 DATE AS OF CHANGE: 20090515 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: BRISTOL INVESTMENT FUND LTD CENTRAL INDEX KEY: 0001174866 IRS NUMBER: 000000000 FILING VALUES: FORM TYPE: PRRN14A BUSINESS ADDRESS: STREET 1: CALEDONIAN HOUSE STREET 2: JENNETT STREET, GEORGE TOWN CITY: GRAND CAYMAN STATE: E9 ZIP: # MAIL ADDRESS: STREET 1: CALEDONIAN HOUSE STREET 2: JENNETT STREET, GEORGE TOWN CITY: GRAND CAYMAN STATE: E9 ZIP: # FORMER COMPANY: FORMER CONFORMED NAME: BRISTOL INVESTMENT FUND INC DATE OF NAME CHANGE: 20020605 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: ADVOCAT INC CENTRAL INDEX KEY: 0000919956 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SKILLED NURSING CARE FACILITIES [8051] IRS NUMBER: 621559667 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: PRRN14A SEC ACT: 1934 Act SEC FILE NUMBER: 001-12996 FILM NUMBER: 09790873 BUSINESS ADDRESS: STREET 1: 1621 GALLERIA BLVD. CITY: BRENTWOOD STATE: TN ZIP: 37027 BUSINESS PHONE: 6157717575 MAIL ADDRESS: STREET 1: 1621 GALLERIA BLVD. CITY: BRENTWOOD STATE: TN ZIP: 37027 PRRN14A 1 prrn14a05027020_05292009.htm prrn14a05027020_05292009.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A
(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT
 
SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

(Amendment No. 1)

Filed by the Registrant   ¨

Filed by a Party other than the Registrant   x

Check the appropriate box:

x           Preliminary Proxy Statement

¨           Confidential, for Use of the Commission Only (as permitted by Rule14a-6(e)(2))

¨           Definitive Proxy Statement

o           Definitive Additional Materials

o           Soliciting Material Under Rule 14a-12

ADVOCAT INC.
(Name of Registrant as Specified in Its Charter)
 
BRISTOL INVESTMENT FUND, LTD.
BRISTOL CAPITAL ADVISORS, LLC
PAUL KESSLER
RICHARD MCKILLIGAN
(Name of Persons(s) Filing Proxy Statement, if Other Than the Registrant)

Payment of Filing Fee (Check the appropriate box):

x           No fee required.

¨           Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.


(1)           Title of each class of securities to which transaction applies:
 

(2)           Aggregate number of securities to which transaction applies:
 

 
(3)
Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
 

(4)           Proposed maximum aggregate value of transaction:
 

(5)           Total fee paid:
 

¨           Fee paid previously with preliminary materials:
 

¨           Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously.  Identify the previous filing by registration statement number, or the form or schedule and the date of its filing.
 
 
(1)           Amount previously paid:
 

(2)           Form, Schedule or Registration Statement No.:
 

(3)           Filing Party:
 

(4)           Date Filed:
 
 
 
ANNUAL MEETING OF SHAREHOLDERS OF ADVOCAT INC.
 
May 29, 2009
 
PRELIMINARY PROXY STATEMENT SUBJECT TO COMPLETION
 
DATED MAY 1, 2009
 
DEFINITIVE PROXY STATEMENT INTENDED TO BE RELEASED
TO SHAREHOLDERS ON OR ABOUT MAY _____, 2009
 
To Our Fellow Advocat Inc. Shareholders:
 
This proxy statement and the enclosed GOLD proxy card are being furnished to shareholders of Advocat Inc. (“Advocat” or the “Company”) in connection with the solicitation of proxies by, Bristol Investment Fund, Ltd. (“Bristol”) (“we” or the “Shareholder”), to be used at the 2009 annual meeting of shareholders of Advocat, including any adjournments or postponements thereof and any meeting held in lieu thereof (the “2009 Annual Meeting”).  The 2009 Annual Meeting is scheduled to be held at 9:00 a.m. (Central Daylight Time) on May 29, 2009, at the Company’s offices, 1621 Galleria Boulevard, Brentwood, Tennessee 37027.  This proxy statement and the GOLD proxy card are first being furnished to shareholders on or about May ___, 2009.
 
THIS SOLICITATION IS BEING MADE BY THE SHAREHOLDER AND NOT ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY (THE “BOARD”).
 
We are soliciting your proxy for the 2009 Annual Meeting in support of the following proposals:
 
1. To elect two nominees, Paul Kessler and Richard McKilligan (together, our “Nominees”), to the Board to serve as directors; and
 
2. To conduct such other business as may properly arise during the meeting.
 
If we determine that either of our Nominees is unable or otherwise unavailable to serve as a director, we may seek to replace such Nominee with a substitute nominee to the extent this is not prohibited under the Company’s Bylaws (the “Bylaws”) or applicable law.  In the case that we substitute a nominee, we will file and deliver supplemental proxy materials, including a revised proxy card, disclosing the information relating to any substitute nominee that is required to be disclosed in solicitations for proxies for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  Only in such case will the Shares represented by the enclosed GOLD proxy card be voted for substitute nominee(s).
 
Advocat has disclosed that the record date for determining shareholders entitled to notice of and to vote at the 2009 Annual Meeting is April 15, 2009 (the “Record Date”).  Shareholders of record at the close of business on the Record Date will be entitled to vote at the 2009 Annual Meeting.  According to Advocat’s proxy statement for the 2009 Annual Meeting, as of the Record Date, there were 5,670,987 shares of common stock, $0.01 par value per share (the “Shares”), outstanding and entitled to vote at the 2009 Annual Meeting.  As of ________, Bristol is the beneficial owner of an aggregate of 409,550 Shares, which represents approximately 7.22% of the Shares outstanding.  Bristol intends to vote such Shares FOR the election of its Nominees.
 
 
WE URGE YOU NOT TO SIGN ANY PROXY CARD SENT TO YOU BY THE COMPANY.  IF YOU HAVE ALREADY DONE SO, YOU MAY REVOKE YOUR PREVIOUSLY SIGNED PROXY BY DELIVERING A LATER-DATED GOLD PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE, OR BY DELIVERING A WRITTEN NOTICE OF REVOCATION TO BRISTOL OR TO THE SECRETARY OF THE COMPANY.
 
 
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING
 
This Proxy Statement and our GOLD proxy card are available at www.______________com.

 
HOLDERS OF SHARES AS OF THE RECORD DATE ARE URGED TO SUBMIT A GOLD PROXY CARD EVEN IF YOUR SHARES ARE SOLD AFTER THE RECORD DATE.
 
IF YOU PURCHASED SHARES AFTER THE RECORD DATE AND WISH TO VOTE THOSE SHARES AT THE 2009 ANNUAL MEETING, YOU SHOULD OBTAIN A GOLD PROXY CARD FROM THE SELLER OF THOSE SHARES.
 
IF YOUR SHARES ARE HELD IN THE NAME OF A BROKERAGE FIRM, BANK, BANK NOMINEE OR OTHER INSTITUTION ON THE RECORD DATE, ONLY IT CAN VOTE THOSE SHARES AND ONLY UPON RECEIPT OF YOUR SPECIFIC INSTRUCTIONS.  ACCORDINGLY, PLEASE CONTACT THE PERSON RESPONSIBLE FOR YOUR ACCOUNT AND INSTRUCT THAT PERSON TO EXECUTE AND RETURN ON YOUR BEHALF THE GOLD PROXY CARD AS SOON AS POSSIBLE.
 
Bristol has retained Okapi Partners LLC  to assist in communicating with shareholders in connection with the proxy solicitation and to assist in efforts to obtain proxies.  If you have any questions about executing your GOLD proxy card or require assistance, please contact :
 
 
780 Third Avenue 30th Floor
 
New York, NY 10017
 
(212) 297-0720
 
Toll Free: (877) 285-5990
 

 
REASONS FOR THE SHAREHOLDER’S SOLICITATION
 
Bristol has owned Shares in the Company since June 2006.  Based on the Company’s publicly available information, it is one of the largest shareholders not serving on the Board or in management, beneficially owning approximately 7.22% of the outstanding Shares.  We are asking for your vote in order to elect two Nominees, Paul Kessler and Richard McKilligan, to the Board.  Our Nominees are committed to promoting the accountability of management to the Company’s shareholders and encouraging and overseeing efforts to maximize shareholder value.
 
The election contest provides the shareholders an opportunity to vote on whether the current CEO, William R. Council, III, should be reelected to the Board.  Bristol asks its fellow shareholders to evaluate Mr. Council’s performance and compensation.  If they are displeased, Bristol asks them to vote for its Nominees, thereby removing Mr. Council.  Bristol makes the same request of shareholders regarding the Company’s other nominee, Richard M. Brame, who serves as Chair of the Board’s Compensation Committee.
 
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With respect to our desire to maximize shareholder value, we believe that the Board ought to address the following and other similar matters:
 
·  
Are shareholders obtaining the maximum value for their interests by continuing Advocat as a stand alone business or would shareholders benefit by a sale or merger?
 
·  
Is management’s compensation in line with performance and with comparable companies?
 
·  
What steps, if any, can be taken to enhance shareholder value?
 
In the past, the Nominees have recommended that the Company retain an investment banker to pursue a sale or liquidation.  If elected, the Nominees will ask their fellow directors to engage an investment banker, or similar outside expert, to advise regarding possible means of increasing shareholder value.  If elected, the Nominees will also ask the Board to evaluate whether the shareholders are best served by continuing the Company as a stand alone business or by a sale, merger, or similar transaction.  In early 2008, Mr. Kessler asked the Board to implement six changes, which are identified below in “Background to the Solicitation.”  Mr. Kessler does not intend to pursue those proposals, except to the extent set forth herein.  The Nominees have no specific plans in mind, except as set forth herein.
 
Through June 2008, Advocat’s stock traded as high as $12 per share.  On April 7, 2009, it closed at $2.70 per share, having traded between $1.96 and $2.90 in February and March 2009.  In November and December 2006, Advocat’s stock traded between $15.23 and $21.03.  During these same months in 2007, it traded between $9.99 and $11.21.  While the markets have generally declined in late 2008 and in 2009, Advocat’s performance merits extra scrutiny.  Its share price declined in 2007, when markets were generally strong.  Also, Advocat’s share price declined in the last six months of 2008 on a percentage basis more than four other companies (identified below) that Bristol believes comparable.  Also the decline in Advocat’s share price in this time period far exceeded the decline in the Dow Jones U.S. Healthcare Providers Index (NYSEArca: IHF).  Bristol believes that the performance of the Advocat’s share price reflects a negative market assessment of the Company’s performance under current management.
 
Bristol has also observed that Advocat generates far less on a per share “free cash flow” basis than four companies that Bristol believes comparable.  These companies are The Ensign Group, Inc. (ENSG), Kindred Heathcare Inc. (KND), Skilled Healthcare Group, Inc. (SKH) and Sun Healthcare Group, Inc. (SUNH).  The chart below measures cash flow from operations, excluding capital expenditures, on a per share basis for 2008 for these companies:
 
ENSG
$                1.30
SUNH
$                1.03
KND
$                0.88
SKH
$                0.36
AVCA
$              (0.04)

 
Bristol has also compared Advocate’s performance in two areas that Bristol believes important, the occupancy rate of its facilities and the percentage of patients receiving Medicare benefits.  In both areas, Advocat underperforms this same peer group:
 
3
 
   
2006
    
2007
    
2008
  
Occupancy
                  
KND
     88.3 %     87.8 %     89.0 %
SUNH
     89.9 %     89.8 %     88.9 %
SKH
     86.1 %     84.9 %     84.5 %
ENSG
     82.6 %     81.3 %     81.1 %
AVCA
     78.8 %     77.6 %     75.3 %
                         
Medicare Mix
                        
SKH
     18.0 %     18.1 %     17.2 %
KND
     17.0 %     17.0 %     17.0 %
SUNH
     14.0 %     14.3 %     14.7 %
ENSG
     15.0 %     13.6 %     14.7 %
AVCA
     14.0 %     13.7 %     13.3 %

Bristol believes that these performance metrics explain the low valuation that the market places on Advocat’s facilities.  The “adjusted enterprise value” of Advocat on a per bed basis, as of April 7, 2009, compared to this same group was as follows:
 
AEV/Bed
  
KND
$    121,969.00
SKH
$      94,945.00
SUNH
$      76,453.00
ENSG
$      68,687.00
AVCA
$      55,595.00

 
Adjusted enterprise value is based on the sum of (i) market capitalization of the reported company’s shares as of April 7, 2009; (ii) the amount of debt reported as of its most recent SEC filing, and (iii) capitalization of rent charges for the most recent year at ten percent.  This adjustment is appropriate for a fair comparison between the service providers that rent facilities and those that own them.  Bristol believes that this metric provides insight into the value of Advocat’s core assets, its patient beds, as compared to other companies that are larger in size.
 
Based on these comparisons, Bristol questions whether the high costs of operating a public company and compensating senior management are justified for a business the size of Advocat.  Bristol has no plan or proposal to propose a going private transaction.
 
Bristol also questions whether senior management’s compensation is excessive in light of Advocat’s performance.  According to Advocat’s Proxy Statement filed May 2, 2008, Mr. Council received aggregate compensation in the amount of $885,674 for 2007 and $1,876,694 for 2006.  Mr. Tyler received $554,958 and $858,267 for these years and Mr. Riddle, received $401,981 and $1,123,980.  In 2008, Advocat’s revenues increased from $245 million to $289 million while net income from continuing operations declined by almost 50%, from $15.8 million to $8.8 million.  This continued the pattern of prior years.  In 2005, Advocat had net revenues of $201 million and income from continuing operations of $17.2 million.  In 2006, net income declined to $12.9 million, while net revenues increased to $215 million.  Mr. Council’s total compensation for 2008 was $726,951, while Messrs. Tyler and Riddle received $471,281 and $351,905.  During this same year, shareholders witnessed a far greater decline in the value of their shares.
 
In March 2006, the current CEO, William Council, along with the COO (Raymond Tyler) and CFO (L. Glynn Riddle) entered into Employment Agreements with the Company.  Bristol is especially concerned that the Employment Agreements for the three senior members of the management all provide that the executives will receive substantial payments simply because the Company determines not to extend the employment relationship.  Mr. Council’s Employment Agreement, for example, provides that if the Company determines not to extend for an additional year, the Company must pay him “in a lump sum an amount equal to 250% of his base salary and thereafter continue to provide him with the benefits and perks that he now enjoys for eighteen months.  According to Advocat’s Preliminary Proxy Statement filed April 17, 2009, these payments would then exceed $1.3 million.  Similar provisions govern the employment of Mr. Tyler and Mr. Riddle, the COO and CFO.  According to the 2009 Preliminary Proxy Statement, they would be entitled to $447,412 and $305,186 respectively upon a non-renewal of their Employment Agreements.
 
4
 
BACKGROUND TO THE SOLICITATION
 
Bristol has been an investor in Advocat since June 2006 and is currently the beneficial owner of 409,550 Shares, representing approximately 7.22% of the issued and outstanding Shares.  The following is a chronology of events leading up to this proxy solicitation:
 
 
·  
In 2006, 2007 and 2008, Mr. Kessler also wrote several letters to Mr. Council, the Chief Executive Officer of the Company, stating concerns about corporate governance, valuation of the Company's stock, and the general direction of the Company.  Mr. Kessler’s letter dated February 4, 2008 crystallized his concerns with a request that the Company’s Board take the following actions:
 
1.  
Submit to a binding shareholder vote, the issues whether there should be a de-staggering of the Board so that it is composed of one class of directors.

2.  
Nominate two Board members that represent institutional shareholders or expand the Board to appoint them.

3.  
Present a binding resolution to shareholders to vote on whether to redeem the rights issued under the Company’s poison pill.

4.  
Decline to renew any and all golden parachutes, thereby aligning management’s interests with those of the Company’s shareholders.

5.  
Revise the current Board’s compensation, which should be significantly reduced and paid in restricted stock and/or cash, thereby aligning the Board’s interests with those of the Company’s shareholders.

6.  
Hire a credible investment bank to review alternatives to enhance shareholder value, including an immediate stock buyback and the elimination of acquisitions unless such acquisitions trade at a more favorable valuation than the Company’s common shares.
 
·  
In 2007, Bristol concluded that the Company’s shareholders might benefit from a sale of the business while the markets for such transactions were strong.  After Bristol’s suggestions were rebuffed by management, Bristol submitted a shareholder proposal to the Company in December 2007 proposing that the following resolution be voted on at the 2008 Annual Meeting.
 
RESOLVED, that the stockholders of the Corporation recommend that the Board of Directors promptly engage an investment banking firm and pursue a sale, or liquidation of the Corporation.
 
·  
At the 2008 Annual Meeting, Bristol’s resolution received support from approximately 14% of the votes cast.
 
·  
On April 2, 2008 Bristol notified the Company of its nomination of Paul Kessler and Richard McKilligan for election to the Board at the 2008 Annual Meeting.  Bristol later withdrew these nominations as a result of the Company including Bristol’s shareholder proposal in its definitive proxy.
 
·  
On March 17, 2009, Bristol notified the Company of its nomination of Paul Kessler and Richard McKilligan for election to the Board at the 2009 Annual Meeting.
 
 
5
 
PROPOSAL NO. 1
 
ELECTION OF DIRECTORS
 
The Board is currently composed of six directors divided into three classes, all of whom are serving staggered three-year terms.  Bristol understands that the Board has nominated two incumbent directors, William A. Council and Richard M. Brame, for election at the 2009 Annual Meeting.  Bristol is seeking your support at the 2009 Annual Meeting to elect its Nominees, Paul Kessler and Richard McKilligan, in opposition to Advocat’s slate of nominees.
 
REASONS WHY THE SHAREHOLDER IS CHALLENGING THE INCUMBENT DIRECTORS
 
Bristol has been a long term investor of Advocat, since June 2006, and believes that it is one of the largest shareholders independent of the Board and management, beneficially owning approximately 7.22% of the outstanding Shares.  As such, we believe that OUR INTERESTS AS SHAREHOLDERS ARE CLOSELY ALIGNED WITH YOURS.
 
Bristol has a vested financial interest in seeing that shareholder value is maximized.  IF ELECTED, OUR NOMINEES ARE COMMITTED TO WORKING TO PROMOTE MANAGEMENT ACCOUNTABILITY AND MAXIMIZE SHAREHOLDER VALUE FOR ALL SHAREHOLDERS.
 
There can be no assurance that the actions our Nominees intend to take as described in this proxy statement will be implemented if they are elected or that the election of our Nominees will improve the Board’s accountability or otherwise enhance shareholder value.  Your vote to elect our Nominees does not constitute a vote in favor of our goals for Advocat.  The election of our Nominees will have the legal effect of replacing two incumbent directors of the Company with our Nominees.  If elected, our Nominees will have fiduciary duties to all shareholders and, accordingly, may not act in accordance with the views and wishes of the Shareholder.
 
If elected to the Board, our Nominees will constitute a minority of the current six members of the Board.  Under the Company’s Bylaws, a majority of the Board constitutes a quorum for the transaction of business, and the act of a majority of the Board present at a Board meeting at which a quorum is present shall be the act of the Board.  Accordingly, our Nominees, if elected, would not be able to take Board action at a meeting of the Board, depending upon attendance, without the support of at least one or two other director.  If elected, our Nominees will advocate Board accountability and maximization of value for all shareholders.
 
THE SHAREHOLDER’S NOMINEES
 
The following information sets forth the name, age, business address, present principal occupation and employment and material occupations, positions, offices or employments for the past five years of each of the Shareholder’s two Nominees.
 
PAUL KESSLER.  Since March 2000, Mr. Kessler (age 48) has been the Principal and Manager of Bristol Capital Advisors, LLC, 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.  The principal business address of Mr. Kessler is 10990 Wilshire Boulevard, Suite 1410, Los Angeles, CA 90024.
 
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 Bristol Capital Advisors, LLC 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 University of Chicago and his undergraduate degree in Accountancy from the University of Illinois at Urbana-Champaign.  Mr. McKilligan is admitted to the Bars of California, New York and Florida.  Derycz Scientific is not an affiliate of the Company.  The principal business address of Mr. McKilligan is 10990 Wilshire Boulevard, Suite 1410, Los Angeles, CA 90024.
 
6
 
For additional information regarding our Nominees, please see Appendix I to this proxy statement.
 
Our Nominees will not receive any compensation from the Shareholder directly related to their service as directors of the Company if elected.  If elected, our Nominees will be entitled to such compensation from the Company as is consistent with the Company’s past practice for non-employee directors, which is described in the Company’s proxy statement in connection with the 2009 Annual Meeting.  Other than as stated herein, there are no arrangements or understandings between any Participant and either of the Nominees or any other person or persons pursuant to which the nomination of the Nominees described herein is to be made, other than the consent by each of the Nominees to be named in this Proxy Statement and to serve as a director of Advocat if elected as such at the 2009 Annual Meeting.
 
Except as disclosed in this proxy statement (including the Appendix attached hereto), neither of our Nominees, the Shareholder nor any of their affiliates or associates has any substantial interest, direct or indirect, by security holdings or otherwise, in any matter to be acted upon at the 2009 Annual Meeting.
 
Bristol does not expect that either of its Nominees will be unable to stand for election, but, in the event that one or both of them is unable to serve or for good cause will not serve, Bristol may seek to replace such Nominee(s) with substitute nominee(s) to the extent this is not prohibited under the Bylaws or applicable law.  In the case that Bristol substitutes a nominee, Bristol will file and deliver supplemental proxy materials, including a revised proxy card, disclosing the information relating to any substitute nominee that is required to be disclosed in solicitations for proxies for election of directors pursuant to Section 14 of the Exchange Act.  Only in such case will the Shares represented by the enclosed GOLD proxy card be voted for substitute nominees.  In addition, Bristol reserves the right to challenge any action by Advocat that has, or if consummated would have, the effect of disqualifying the Nominees.  Bristol reserves the right to nominate substitute or additional persons as nominees, to the extent this is not prohibited under the Bylaws or applicable law, in the event that (1) the Board is expanded beyond its current size and/or (2) one or both of our Nominees should become unable for any reason, to accept his nomination or election.  Additional nominations made pursuant to the preceding sentence are without prejudice to the position of Bristol that any attempt to increase the size of the current Board or to reclassify the Board constitutes an unlawful manipulation of the Company’s corporate machinery.
 
WE URGE YOU TO VOTE FOR THE ELECTION OF PAUL KESSLER AND RICHARD MCKILLIGAN.
 
PARTICIPANTS IN SOLICITATION OF PROXIES
 
In addition to our Nominees, Bristol, Bristol Capital Advisors, LLC (“BCA”), and  Paul Kessler may be deemed to be “participants” in this proxy solicitation as such term is defined in Schedule 14A promulgated under the Exchange Act.  Bristol, a Cayman Islands exempted company and an investment fund, is the record owner of 100 Shares, and a beneficial owner of 409,550 Shares (inclusive of its record Shares).  The principal business address for Bristol is 10990 Wilshire Boulevard, Suite 1410, Los Angeles, CA 90024.  The address of Bristol’s registered office is Caledonian Fund Services (Cayman) Limited, 69 Dr. Roy’s Drive, George Town, Grand Cayman, Cayman Islands.  BCA, an entity organized under the laws of the State of Delaware, is the investment advisor to Bristol.  Paul Kessler is manager of BCA and as such has voting and dispositive power over the shares held by Bristol.
 
The Nominees are both United States citizens.
 
All transactions in the securities of Advocat effected within the past two years by the Participants are contained in Appendix I to this proxy statement.  For additional information regarding the Participants, please see Additional Participant Information.
 
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OTHER MATTERS TO BE CONSIDERED AT THE 2009 ANNUAL MEETING
 
Other than the proposal addressed in this proxy statement, Bristol is unaware of any other matters to be considered at the 2009 Annual Meeting.  Should other matters that Bristol is not aware of a reasonable period of time before this solicitation be brought before the 2009 Annual Meeting, the persons named as proxies on the enclosed GOLD proxy card will vote on such matters in their discretion.
 
PROXY INFORMATION
 
The enclosed GOLD proxy card may be executed only by holders of record of Shares on the Record Date.  If you were a shareholder of record on the Record Date, you will retain your voting rights at the 2009 Annual Meeting even if you sell your Shares after the Record Date.  Accordingly, it is important that you vote the Shares held by you on the Record Date, or grant a proxy to vote your Shares on the GOLD proxy card, even if you sell your Shares after the Record Date.
 
The Shares represented by each GOLD proxy card that is properly executed and returned to Bristol will be voted at the 2009 Annual Meeting in accordance with the instructions marked thereon, and will be voted in the discretion of the persons names as proxies on whatever other matters that Bristol is not aware of a reasonable period of time before this solicitation that may properly come before the 2009 Annual Meeting.  Executed but unmarked GOLD proxies will be voted FOR the election of our Nominees as directors.
 
If you hold your Shares in the name of one or more brokerage firms, banks or nominees, only they can vote your Shares and only upon receipt of your specific instructions.  Accordingly, you should contact the person responsible for your account and give instructions for a GOLD proxy card representing your Shares to be signed and returned.  Bristol urges you to confirm in writing your instructions to the person responsible for your account and to provide a copy of those instructions to the Shareholder at Okapi Partners LLC, 780 Third Avenue, 30th Floor, New York, NY 10017, so that we will be aware of all instructions given and can attempt to ensure that those instructions are followed.
 
REVOCATION OF PROXIES
 
Any shareholder who has mailed a WHITE proxy card to the Company may revoke it before it is voted by mailing a duly executed GOLD proxy card to Bristol at Okapi Partners LLC, 780 Third Avenue, 30th Floor, New York, NY 10017, bearing a date LATER than the WHITE proxy card delivered to the Company prior to its exercise.  Proxies may also be revoked at any time prior to exercise by: (i) attending the 2009 Annual Meeting and voting in person (although attendance at the 2009 Annual Meeting will not in and of itself constitute revocation of a proxy) or (ii) delivering written notice of revocation.  The revocation may be delivered either to Okapi Partners, or to the corporate secretary of the Company at 1621 Galleria Boulevard, Brentwood, Tennessee 37027, or any other address provided by the Company.  Although a revocation is effective if delivered to the Company, the Shareholder requests that either the original or a copy of any revocation be mailed to the Shareholder at . Okapi Partners LLC, 780 Third Avenue, 30th Floor, New York, NY 10017, so that the Shareholder will be aware of all revocations and can more accurately determine if and when the requisite proxies for the election of our Nominees have been received.  The Shareholder may contact shareholders who have revoked their proxies.
 
IF YOU PREVIOUSLY EXECUTED AND RETURNED A PROXY CARD TO THE COMPANY, THE SHAREHOLDER URGES YOU TO REVOKE IT BY SIGNING, DATING AND MAILING THE GOLD PROXY CARD IN THE ENCLOSED ENVELOPE.  NO POSTAGE IS REQUIRED FOR MAILING WITHIN THE UNITED STATES.
 
QUORUM AND VOTING
 
Based on the Company’s proxy statement for the 2009 Annual Meeting, there were 5,675,987 Shares outstanding and entitled to vote on the Record Date.  Only shareholders of record at the close of business on the Record Date will be entitled to vote at the 2009 Annual Meeting.  Shareholders of the Company will not have rights of appraisal or similar dissenter’s rights with respect to any matter to be acted upon at the 2009 Annual Meeting.
 
8
 
The presence, in person or by proxy, of holders of Shares representing a majority of the votes entitled to be cast at the 2009 Annual Meeting will constitute a quorum.  Abstentions and broker non-votes will be counted as present for purposes of determining whether a quorum is present at the 2009 Annual Meeting.  Assuming a quorum is present or otherwise represented at the 2009 Annual Meeting, the election of our Nominees requires the affirmative vote of a plurality of the Shares represented and entitled to vote at the 2009 Annual Meeting.  Abstentions and broker non-votes will not be taken into account in determining the outcome of the election.  Abstentions and broker non-votes will have no effect on this proposal since such actions do not represent votes cast on this proposal.  Your vote is extremely important.  WE URGE YOU TO MARK, SIGN, DATE AND RETURN THE ENCLOSED GOLD PROXY CARD TO VOTE FOR THE PROPOSAL SET FORTH THEREON.
 
COST AND METHOD OF SOLICITATION
 
Bristol has retained Okapi Partners LLC as a proxy solicitor in connection with this proxy solicitation.  For these services, Okapi Partners is to receive a fee of up to approximately $50,000, plus reimbursement for its reasonable out-of-pocket expenses.  Proxies may be solicited by mail, courier services, Internet, advertising, telephone, facsimile or in person.  In addition, it is anticipated that certain employees of Bristol would participate in the solicitation of proxies.  The business address of any Bristol employee would be the same as that of his or her respective employer.  Although no precise estimate can be made at the present time, the total expenditures in furtherance of, or in connection with, the solicitation of shareholders is estimated to be $150,000 in total.  As of the date hereof, the Shareholder has incurred approximately $25,000 of solicitation expenses.
 
Costs related to this solicitation of proxies, including expenditures for attorneys, proxy solicitors, advertising, printing, transportation and related expenses will be borne by Bristol.  To the extent legally permissible, Bristol will seek reimbursement from the Company for those expenses if any of our Nominees is elected.  The Shareholder does not currently intend to submit the question of such reimbursement to a vote of the shareholders.
 
ADDITIONAL INFORMATION
 
Certain information regarding the compensation of directors and executive officers, the securities of the Company held by the Company’s directors, nominees, management and 5% shareholders and certain other matters regarding the Company’s officers and directors is required to be contained in the Company’s proxy statement.  Certain other information regarding the 2009 Annual Meeting, as well as procedures for submitting proposals for consideration at the 2010 annual meeting of shareholders, is also required to be contained in the Company’s proxy statement.  Please refer to the Company’s proxy statement under “Election of Directors” to review this information.  The Shareholder does not make any representation as to the accuracy or completeness of the information contained in the Company’s proxy statement.
 
Bristol has filed with the Securities and Exchange Commission (the “SEC”) a statement on Schedule 13D, which contains information in addition to that furnished herein.  The Schedule 13D, including amendments thereto, may be inspected at, and copies may be obtained from, the public reference facilities maintained at the SEC at 100 F Street, N.E., Washington, DC 20549 or viewed on-line at www.sec.gov.  Copies of such material can be obtained upon written request addressed to the SEC, Public Reference Section, 100 F Street, N.E., Washington, DC 20549, at prescribed rates.  You may obtain information on the operation of the SEC’s Public Reference Room by calling the SEC at (800) SEC-0330.  The SEC also maintains a web site on the Internet (http://www.sec.gov) where reports, proxy and information statements and other information regarding issuers that file electronically with the SEC may be obtained free of charge.
 
9
 
IF YOU HAVE ANY QUESTIONS OR REQUIRE ASSISTANCE, PLEASE CALL:
 
 
780 Third  Avenue 30th Floor
 
New York, NY 10017
 
(212) 297-0720
 
Toll Free: (877) 285-5990
 
Email: info@okapipartners.com
 
ADDITIONAL PARTICIPANT INFORMATION
 
Except as set forth in this proxy statement or in the Appendix attached hereto, to the best knowledge of the Shareholder:
 
(i)           no Participant owns any securities of the Company or any parent or subsidiary of the Company, directly or indirectly, beneficially or of record, or has purchased or sold any securities of the Company within the past two years, and none of their associates beneficially owns, directly or indirectly, any securities of the Company;
 
(ii)          no Participant has borrowed or otherwise obtained any funds for the purpose of acquiring or holding any securities of the Company;
 
(iii)         no Participant or any associate of any Participant has any arrangement or understanding with any person (a) with respect to any future employment by the Company or its affiliates or (b) with respect to future transactions to which the Company or any of its affiliates will or may be a party;
 
(iv)         no Participant or any associate of any Participant has engaged in or had a direct or indirect material interest in any transaction, or series of similar transactions, since the beginning of the Company’s last fiscal year, or any currently proposed transaction, or series of similar transactions, to which the Company or any of its subsidiaries was or is to be a party, in which the amount involved exceeds $120,000;
 
(v)          no Participant is, or was within the past year, a party to any contract, arrangement or understanding with any person with respect to any securities of the Company, including, but not limited to, joint ventures, loan or option arrangements, puts or calls, guarantees against loss or guarantees of profit, division of losses or profits or the giving or withholding of proxies;
 
(vi)         no Participant has any arrangement or understanding with any person pursuant to which a nominee for director is proposed to be elected;
 
(vii)        none of the corporations or organizations in which any of the Participants is conducting or has conducted his principal occupation or employment during the past five years is a parent, subsidiary or other affiliate of the Company;
 
(viii)       there is no family relationship (as defined in Section 401(d) of Regulation S-K) between any of our Nominees and (a) any other Nominee or (b) any director of the Company, executive officer of the Company or person nominated by the Company to become a director or executive officer;
 
10
 
(ix)         there is no event that occurred during the past five years with respect to any of our Nominees required to be described under Item 401(f) of Regulation S-K;
 
(x)          there are no relationships involving any of our Nominees or any of their associates that would have required disclosure under Item 402(j) of Regulation S-K had our Nominees been directors of the Company;
 
(xi)         no Nominee or any associate of a Nominee is a party adverse to the Company or any of its subsidiaries or has a material interest adverse to the Company or any of its subsidiaries in any material proceeding;
 
(xii)        no Nominee has any business relationship that is required to be disclosed pursuant to Item 404(b) of Regulation S-K;
 
(xiii)       no Participant or any associate of a Participant has, since the beginning of the Company’s last fiscal year, been indebted to the Company or any of its subsidiaries in an amount in excess of $120,000;
 
(xiv)      no Nominee has ever served on the Board or been employed by the Company, and no Nominee or any associate of any Nominee has received any cash compensation, cash bonuses, deferred compensation, compensation pursuant to other plans or other compensation from, or related to, services rendered on behalf of the Company, or is subject to any arrangement described in Item 402 of Regulation S-K;
 
(xv)       no Participant has any substantial interest, direct or indirect, in any matter to be acted upon proposed in this proxy statement aside from its interest as a shareholder of the Company; and
 
(xvi)      no Participant has, during the past 10 years, been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors).
 
For the purposes of the foregoing, the term “associates” shall have the meaning as that term is defined in Rule 14a-1 of Regulation 14A under the Exchange Act.
 
11
 
PRELIMINARY COPY SUBJECT TO COMPLETION
 
DATED MAY 1, 2009
 
APPENDIX I
 
SHARES OF COMMON STOCK OF THE COMPANY BOUGHT OR SOLD BY THE PARTICIPANTS
IN THE LAST TWO YEARS
 
Set forth below are the dates and amounts of each Participant’s purchases and sales of Company common stock within the past two years.  Sales are indicated (in parentheses).  All of these transactions were open market transactions.  Prices are net of brokerage commissions.  Mr. Kessler has not purchased or sold any Company common stock within the past two years, except to the extent that he may be deemed to beneficially own shares purchased or sold by Bristol.
 
BRISTOL INVESTMENT FUND, LTD.
Date
Shares
Cost / Share
4/11/2007
4,700
  
$12.83360
  
7/26/2007
1,700
  
$10.09880
  
7/27/2007
15,000
  
$9.72100
  
7/31/2007
4,217
  
$10.30440
  
1/28/2008
12,270
  
$10.96710
  
8/7/2008
22,200
  
$6.75110
  
8/8/2008
8,700
  
$6.75800
  
8/11/2008
6,900
  
$6.75190
  
8/12/2008
8,600
  
$6.91690
  
8/13/2008
5,000
  
$6.95740
  
8/14/2008
2,500
  
$7.20000
  
10/6/2008
938
  
$3.92000
  
10/28/2008
3,500
  
$3.15320
  
11/12/2008
498
  
$2.50000
  
11/20/2008
5,000
  
$2.40000
  
11/24/2008
1,400
  
$2.10710
  
11/25/2008
895
  
$1.85640
  
11/26/2008
5,300
  
$2.24290
  
11/28/2008
4,400
  
$2.50090
  
12/3/2008
3,970
  
$2.53980
  
12/5/2008
1,900
  
$2.50470
  
12/8/2008
1,585
  
$2.50570
  
2/19/2009
6,004
  
$3.35650
  
2/27/2009
1,286
  
$2.25000
  
3/3/2009
2,440
  
$2.25000
  
3/11/2009
1,000
  
$2.25000
  
3/12/2009
1,000
  
$2.00000
  
4/6/2009
3,600
  
$2.49000
  
4/15/2009
706
 
$2.48000
 
4/16/2009
7,494
 
$2.46100
 
4/20/2009
5,000
 
$2.53590
 
4/23/2009
400
 
$2.35000
 
4/24/2009
500
 
$2.45000
 
5/1/2009
2,000
 
$2.90000
 
 
 
12
 
IMPORTANT
 
Please review this proxy statement and the enclosed materials carefully.  YOUR VOTE IS VERY IMPORTANT, no matter how many or how few shares you own.
 
1. If your shares are registered in your own name, please sign, date and mail the enclosed GOLD proxy card to Okapi Partners, in the postage-paid envelope provided today.
 
2. If you have previously signed and returned a proxy card to Advocat, you have every right to change your vote.  Only your latest dated proxy card will count.  You may revoke any proxy card already sent to Advocat by signing, dating and mailing the enclosed GOLD proxy card in the postage-paid envelope provided.  Any proxy may be revoked at any time prior to the 2009 Annual Meeting by delivering a written notice of revocation or a later dated proxy for the 2009 Annual Meeting Okapi Partners, or by voting in person at the 2009 Annual Meeting.
 
3. If your shares are held in the name of a brokerage firm, bank nominee or other institution, only it can sign a GOLD proxy card with respect to your shares and only after receiving your specific instructions.  Accordingly, please sign, date and mail the enclosed GOLD proxy card in the postage-paid envelope provided, and to ensure that your shares are voted, you should also contact the person responsible for your account and give instructions for a GOLD proxy card to be issued representing your shares.
 
4. After signing the enclosed GOLD proxy card, do not sign or return Advocat’s proxy card unless you intend to change your vote, because only your latest dated proxy card will be counted.
 
If you have any questions concerning this proxy statement, would like to request additional copies of this proxy statement or need help voting your shares, please contact our proxy solicitor:
 
780 Third Avenue, 30th Floor
New York, NY 10017
(212) 297-0720
Toll Free: (877) 285-5990
 
13

 
PLEASE VOTE TODAY!

SEE REVERSE SIDE FOR VOTING INSTRUCTIONS.

 

▼ TO VOTE BY MAIL PLEASE DETACH PROXY CARD HERE ▼
 
 
GOLD  PROXY

PRELIMINARY COPY SUBJECT TO COMPLETION

DATED MAY 1, 2009

ADVOCAT INC.

ANNUAL MEETING OF STOCKHOLDERS

THIS PROXY IS SOLICITED ON BEHALF OF BRISTOL INVESTMENT FUND, LTD.

THE BOARD OF DIRECTORS OF ADVOCAT INC.

IS NOT SOLICITING THIS PROXY

The undersigned appoints Paul Kessler and Richard McKilligan as the undersigned’s attorney and agent with full power of substitution to vote all shares of common stock of Advocat Inc. (the “Company”), which the undersigned would be entitled to vote if personally present at the Annual Meeting of stockholders of the Company scheduled to be held at the Company’s offices, 1621 Galleria Boulevard, Brentwood, Tennessee 37027, on May 29, 2009 at 9:00 a.m. (Central Daylight Time), and including at any adjournments or postponements thereof and at any meeting called in lieu thereof (the “Annual Meeting”).
 
The undersigned hereby revokes any other proxy or proxies heretofore given to vote or act with respect to the shares of common stock of the Company held by the undersigned, and hereby ratifies and confirms all actions the herein named attorneys and proxies, their substitutes, or any of them may lawfully take by virtue hereof.  If properly executed, this Proxy will be voted as directed on the reverse and in the discretion of such attorneys and proxies and their substitutes with respect to any other matters as may properly come before the Annual Meeting that are unknown to Bristol Investment Fund, Ltd. (“Bristol”), and the other participants in this solicitation a reasonable time before this solicitation. Mark each vote with an X in the box.
 
IF NO DIRECTION IS INDICATED WITH RESPECT TO THE PROPOSAL ON THE REVERSE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF BRISTOL’S NOMINEES IN PROPOSAL NO. 1.
 
This Proxy will be valid until the sooner of one year from the date indicated on the reverse side and the completion of the Annual Meeting.  This Proxy will only be valid in connection with Bristol’s solicitation of proxies for the Annual Meeting.
 

 
IMPORTANT: PLEASE SIGN, DATE AND MAIL THIS PROXY CARD PROMPTLY!
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
 
14
 
ADVOCAT INC.

SOLICITATION OF PROXIES BY BRISTOL INVESTMENT FUND, LTD.

YOUR VOTE IS IMPORTANT

Please take a moment now to vote your shares of Advocat Inc.
common stock for the upcoming Annual Meeting of Stockholders.

PLEASE REVIEW THE PROXY STATEMENT AND VOTE TODAY

▼ TO VOTE BY MAIL PLEASE DETACH PROXY CARD HERE ▼
 
GOLD PROXY CARD



BRISTOL INVESTMENT FUND, LTD. RECOMMENDS A VOTE FOR PROPOSAL NO. 1.
 
Proposal No. 1: Bristol proposal to elect its slate of director nominees, each to hold office until the 2012 annual meeting of the Company’s stockholders and until their successors are elected and qualify.
 
Nominees:
(01) Paul Kessler
(02) Richard McKilligan
FOR ALL
NOMINEES
[    ]
WITHHOLD AUTHORITY TO
VOTE FOR ALL NOMINEES
[    ]
FOR ALL EXCEPT NOMINEE(S) WRITTEN BELOW
____________________________
____________________________
____________________________
____________________________

IN THEIR DISCRETION THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING.


DATE:  ____________________________

____________________________________
(Signature)
____________________________________
(Signature, if held jointly)
____________________________________
(Title)

WHEN SHARES ARE HELD JOINTLY, JOINT OWNERS
SHOULD EACH SIGN.  EXECUTORS, ADMINISTRATORS,
TRUSTEES, ETC. SHOULD INDICATE THE CAPACITY IN
WHICH SIGNING.  PLEASE SIGN EXACTLY AS NAME
APPEARS ON THIS PROXY.
15
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May 1, 2009
 
DIRECT DIAL: 212-451-2213
EMAIL: TFLEMING@OLSHANLAW.COM
 

VIA EDGAR, FACSIMILE AND ELECTRONIC MAIL
 
Melissa Campbell Duru, Esq.
Special Counsel
United States Securities and Exchange Commission
Office of Mergers & Acquisitions
Mail Stop 3628
100 F Street, N.E.
Washington, D.C. 20549
 
 
Re:
Advocat, Inc.
 
Preliminary Proxy Statement on Schedule 14A filed April 10, 2009
 
Soliciting Materials filed Pursuant to Rule 14a-12 filed April 10, 2009
 
By Bristol Investment Fund, Ltd.
 
File No. 001-12996
 
Dear Ms. Duru:
 
We acknowledge receipt of the letter of comment dated April 23, 2009 from the Staff (the “Comment Letter”) with regard to the above-referenced matter.  We have reviewed the Comment Letter with Bristol Investment Fund, Ltd. (“Bristol”) and provide the following supplemental response on its behalf.  Unless otherwise indicated, the page references in the responses below are to the marked version of the enclosed paper copy of the Preliminary Proxy Statement filed on Schedule 14A filed on the date hereof (the “Proxy Statement”).  Capitalized terms used herein and not separately defined have the meanings given to them in the Proxy Statement.  To facilitate the Staff’s review, we have reproduced the text of the Staff’s comments in italics below, and our responses appear immediately below each comment.
 
 
May 1, 2009
Page 2


General
 
1.
The EDGAR header tags used to identify the above-captioned preliminary proxy filing is incorrect.  Since the filing persons have filed a preliminary proxy statement with the intention of soliciting in opposition to management of Advocat, the correct EDGAR header tag is PRECI4A, not PREN14A.  Please confirm the next amended proxy statement filing will bear the correct EDGAR header tag PRRN14A.
 
Response:    We acknowledge the Staff’s comment.  Bristol hereby advises the Staff that the next amended proxy statement filing will bear the correct EDGAR header tag PRRN14A.
 
2.
Revise the form of proxy and Appendix I to clearly identify them as preliminary copies.  See Rule 14a-6(e) of Regulation 14A.
 
Response:    The Proxy Card has been revised accordingly.  Appendix 1 has been revised accordingly, please see pages 11 and 13 of the Proxy Statement.
 
3.
Describe the provisions of the company’s governing instruments which you believe permit you to call a vote on your proposal at the annual meeting.  Describe any steps you have taken to comply with these provisions, such as compliance with any applicable advance notice provisions.  We note for example, the Schedule 13D/A filing dated March 18, 2009 and the exhibit attached thereto.
 
Response:  Article 1.4 of the Company’s Bylaws permits a shareholder to nominate individuals for election to the Company’s Board of Directors.  Pursuant to the Bylaw provision, Bristol submitted notice of the nominations of Paul Kessler and Richard McKilligan to the Company on March 17, 2009.
 
4.
We note the participants reserve the right to vote for a substitute nominee.  Advise us, with a view toward revised disclosure, whether the participants are required to identify such substitutes in order to comply with any applicable company advance notice bylaw.  In addition, revise to provide the biographical information with respect to the substitute nominees that may be invited to serve should the directors who have consented to be named and to serve if elected are not able to do so.  Rule 14a-4(d)(1), as the participants are aware, does not confer the authority to vote for any person who is not a bona fide nominee.
 
Response:  In response to the Staff’s comment, the disclosure has been revised to clarify that Bristol reserves the right to nominate substitute persons, and that shares represented by the Gold proxy card will be voted for such persons, only to the extent such action is not prohibited under the Company’s bylaws and applicable law.  Please see page 1 of the Proxy Statement.
 
5.
Numerous factual assertions are made throughout the proxy statement.  Please provide us with the supporting materials for these statements of fact.  Send us an annotated version of the proxy material that includes a supporting reference for each assertion.  Appropriate supporting materials may include cites to publicly filed periodic reports, copies of newspaper articles, court papers, or other appropriate documentation.  For example, the following non-exhaustive list of factual assertions should be specifically supported or deleted:
 
·  
“Bristol has also observed that Advocat generates far less on a per share ‘free cash flow basis’ than four companies that Bristol believes comparable,” on page 3;
 
 
May 1, 2009
Page 3

 
·  
data on page 3 regarding occupancy rates of facilities, the percentage of patients receiving Medicare benefits and “adjusted enterprise valuat[ions]”; and
 
·  
“[a]t the 2008 Annual Meeting, Bristol’s resolution received support from approximately 14% of the votes cast,” on page 5,
 
Response:  We enclose herewith a disc that contains an excel spreadsheet that supports the figures used in the Proxy Statement, as well as the relevant data used to compute these figures.  We are also providing the spreadsheet in hard copy.  The figures are taken from the Forms 10-K for 2006 – 2008 for the Company and each of the businesses that Bristol believes comparable.  We will provide you separately a binder of these reports.  We have also included an annotated version of the proxy material, which includes supporting references for each assertion.
 
The figures regarding the vote at the 2008 annual meeting are taken from the Company’s press release dated June 3, 2008.  A copy of the Press Release is provided with this letter.
 
6.
Please fill in the blanks in the proxy statement.  You may bracket information that is subject to change.  Also, please update information, including the date of the annual meeting, as disclosed in Advocat’s preliminary proxy statement filed April 17, 2009.
 
Response:  The Proxy Statement has been revised as requested.  Any remaining blanks reflect information that can only be filled in, and will be filled in, upon the filing of the definitive proxy statement.
 
Reasons for the Shareholder’s Solicitation, page 2
 
7.
You indicate that the Nominees will ask the Board to “evaluate whether the shareholders are best served by continuing the Company as a stand alone business or by a sale, merger, or similar transaction.”  Please revise to elaborate on any plans or discussions you have had with respect to any potential sale, merger or similar transaction or liquidation.  Also, discuss whether your plans have changed since your shareholder proposal considered at the 2008 annual meeting that Advocat’s board should promptly engage an investment banking firm to pursue a sale or liquidation of the company.  If you have no specific plans in mind, please indicate this.
 
Response:  We have revised the Proxy Statement to indicate that the candidates have no specific plans in mind, except as set forth in the Proxy Statement.
 
8.
See the last comment above.  if you continue to advocate the liquidation of Advocat, explain why and what will be the result for shareholders.
 
Response:  Bristol does not advocate the liquidation of Advocat.  The Nominee’s plans are disclosed in the Proxy Statement.
 
May 1, 2009
Page 4

 
9.
Revise to disclose the specific actions, if any, that the nominees intend to take in furtherance of plans to “maximize[e] shareholder value”.  In that regard, please also elaborate on the “other similar matters” you believe your nominees would advocate for if elected to the Board of Directors,
 
Response:  There are no specific “similar matters” that Bristol or the Nominees have in mind.  The phrase is intended to make clear that the two items are illustrative, not exhaustive.
 
10.
We refer you to our comment above and disclosure on page 4.  You disclose that “Bristol questions whether the high costs of operating a public company — are justified for a business the size of Advocat...”  Revise to specifically disclose whether the nominees intend to advocate for a going private transaction if elected to the Board.
 
Response:  The Proxy Statement has been revised accordingly, please see page 4.
 
11.
Revise to explain why you believe that, while markets have generally declined in late 2008 and 2009, the performance of Advocat’s stock “merits extra scrutiny.”
 
Response:  The Proxy Statement has been revised accordingly, please see page 4.
 
12.
We note your disclosure that the companies listed on page 3 are companies “Bristol believes comparable” to Advocat.  With a view towards possible revised disclosure, please advise us of the basis for your belief.
 
Response:  Like the Company, each of KND, SUNH, ENSG and SKH are operating skilled nursing care facilities and/or nursing and care facilities with a regional emphasis.  The five companies all share the same six digit GICS Code (351040), and four have the same eight digit code (35102020) (AVCA, KND, SKH, ENSG).  The Company has SIC Code 8151, as do each of the others, except for KND which is classified SIC Code 8150.  The Company’s Form 10-K at page 2 provides the following description of its business:

Advocat Inc. provides long-term care services to nursing home patients in eight states, primarily in the Southeast and Southwest United States.

The following descriptions from the most recent Forms 10-K for the other companies demonstrate their comparability:
 
SUNH Form 10-K at p.1
 
Sun Healthcare Group, Inc.’s (NASDAQ GS: SUNH) subsidiaries provide nursing, rehabilitative and related specialty healthcare services principally to the senior population in the United States. Our core business is providing inpatient services, primarily through 184 skilled nursing centers, 15 assisted and independent living centers and eight mental health centers. At December 31, 2008, our centers had 23,345 licensed beds located in 25 states, of which 22,544 were available for occupancy. Our subsidiaries also provide rehabilitation therapy services to affiliated and non-affiliated centers and medical staffing and other ancillary services primarily to non-affiliated centers and other third parties.
 
May 1, 2009
Page 5

 
SKH Form 10-K at p.1:
 
We are a provider of integrated long-term healthcare services through our skilled nursing companies and rehabilitation therapy business. We also provide other related healthcare services, including assisted living care and hospice care. We have an administrative service company that provides a full complement of administrative and consultative services that allows our facility operators and third-party facility operators with whom we contract to better focus on delivery of healthcare services. We focus on providing high-quality care to our patients and we have a strong focus on treating patients who require a high level of skilled nursing care and extensive rehabilitation therapy, whom we refer to as high-acuity patients. As of December 31, 2008, we owned or leased 75 skilled nursing facilities and 21 assisted living facilities, together comprising approximately 10,500 licensed beds. Our facilities, approximately 72.9% of which we own, are located in California, Texas, Kansas, Missouri, Nevada and New Mexico, and are generally clustered in large urban or suburban markets. For the year ended December 31, 2008, we generated approximately 85.0% of our revenue from our skilled nursing facilities, including our integrated rehabilitation therapy services at these facilities.
 
ENSG Form 10-K at p.1:
 
We are a provider of skilled nursing and rehabilitative care services through the operation of facilities located in California, Arizona, Texas, Washington, Utah and Idaho. As of December 31, 2008, we owned or leased 63 facilities. All of our facilities are skilled nursing facilities, other than three stand-alone assisted living facilities in Arizona and Texas and four campuses that offer both skilled nursing and assisted living services in California, Arizona and Utah.
 
KND Form 10-K at p.1:
 
Kindred Healthcare, Inc. is a healthcare services company that through its subsidiaries operates hospitals, nursing centers and a contract rehabilitation services business across the United States. At December 31, 2008, our hospital division operated 82 long-term acute care (“LTAC”) hospitals (6,482 licensed beds) in 24 states. Our health services division operated 228 nursing centers (28,525 licensed beds) in 27 states.
 
We believe that the foregoing adequately demonstrates the comparability of these companies for the purposes of Bristol’s remarks.
 
13.
Revise to succinctly explain the relevance of the metrics you are using to measure Advocat’s performance vis-à-vis the other companies listed.  Further, your disclosure implies that the market has placed emphasis on the same metrics you identify and as a result, has placed a low valuation on the facilities in the hands of Advocat's management.  Please provide us with support for these assertions or in the alternative, remove the statements.
 
Response:  The occupancy rate and Medicare mix are publicly reported for each of these entities.  Occupancy is an obvious metric to measure usage of the facilities’ capacity, with higher occupancy preferred.  Medicare mix is also reported and tracked.  The higher percentage of Medicare patients, the better, because these patients generate more revenue.  By way of example, we have enclosed an analysts report on Advocat by Avondale Partners which discusses both occupancy and Medicare mix.  The metric AEV/EBITDA is commonly used by analysts.  We believe the AEV/bed metric is a different, and somewhat obvious, way of measuring the value of the key revenue generating assets, i.e. patient beds.  We have revised the Proxy Statement accordingly.  Please see pages 2 through 4 of the Proxy Statement.
 
May 1, 2009
Page 6

 
14.
You disclose that “adjusted enterprise value” is appropriate for a fair comparison between service providers that rent facilities and those that own them.  Please advise us supplementally whether this metric is routinely used within the industry and whether the capitalization of rent charges at ten percent is within the range of a typical adjustment.
 
Response:  We believe that it is self-evident that due to balance sheet discrepancies between facilities that are subject to a mortgage (debt), and those that are leased (no debt), a fair comparison of enterprise value requires normalization, by capitalizing the rent charges.
 
Background to the Solicitation, page 4
 
15.
In the letter dated February 4, 2008 to William Council, III and attached as Exhibit 2 to your initial Schedule 13D filed on the same date, you list a number of specific corporate actions you advocated for the Company.  These include affording shareholders a binding vote to revoke the company’s poison pill, submitting to a binding shareholder vote the issuer of de-staggering the board of directors, and exploring a share repurchase plan, among other items.  In your discussion of your nominees’ plans if elected to the board, please specifically address whether they will continue to advocate any or all of the corporate actions addressed in the February 4, 2008 letter.
 
Response:  The Proxy Statement has been revised to disclose both the February 4, 2008 Letter and the Nominees’ plans with respect thereto.  Please see pages 5 and 6 of the Proxy Statement.
 
16.
In the first bullet point in this Section, elaborate on the “various proposals” Mr. Kessler made to the Company on behalf of Bristol.
 
Response:  The Proxy Statement has been revised to clarify the content of these discussions.
 
The Shareholder’s Nominees, page 6
 
17.
Refer to the disclosure in the first paragraph on page 6.  You state that your nominees, even if elected, will not be able to take Board action at a Board meeting without the support of at least one other director.  While we understand that this would be the case if only four Board members were present at a Board meeting, we believe it may be misleading, in that, if the full Board is present at a meeting, your nominees would need to gain the support of at least two other Board members to carry a majority of the Board.  Please revise to clarify.
 
Response:  The Proxy Statement has been revised accordingly.  Please see page 7 of the Proxy Statement.
 
May 1, 2009
Page 7

 
18.
Revise to include the business address for Mr. McKilligan.
 
Response:    The Proxy Statement has been revised accordingly. Please see page 7 of the Proxy Statement.
 
19.
Revise to affirmatively indicate whether or not the nominees have consented to be named in the proxy statement and to serve if elected.  See Rule 14a-4(d) of Regulation 14A.
 
Response:  The Proxy Statement has been revised accordingly.  Please see page 7 of the Proxy Statement.
 
Participants in Solicitation of Proxies, page 6
 
20.
Clarify who the “members of Bristol” are and disclose without qualification, whether such persons are participants as defined in Instruction 3 to Item 4 of Schedule 14A.
 
Response:  The Proxy Statement has been revised accordingly.  Please see page 8 of the Proxy Statement.
 
21.
Refer to our last comment above.  In your response letter, analyze why you have not included Bristol Capital Advisors, LLC as a participant in this solicitation.  Alternatively, include Bristol Advisors as a participant and revise the proxy statement to include all relevant information as to that entity.
 
Response:  The Proxy Statement has been revised accordingly.  Please see page 8 of the Proxy Statement.
 
Proxy Information, page 7
 
22.
We note that unmarked gold proxies will be voted FOR the election of your nominees for directors.  We further note that the company is only submitting one proposal.  Explain or delete the reference to the other proposal set forth in your proxy statement. 
 
Response:  The Proxy Statement has been revised as requested.  All references to another proposal have been deleted.
 
23.
We note disclosure that as to other Matters that may properly come before the meeting, the proxy holders will vote the GOLD proxies in their discretion.  As the participants are aware, Rule 14a-4(0(3) contemplates the use of discretionary authority only for matters unknown “a reasonable time before the solicitation.”  Please clarify this in your proxy and form of proxy card.
 
Response:  The Proxy Statement has been revised accordingly.  Please see page 9 of the Proxy Statement.
 
May 1, 2009
Page 8

 
Quorum and Voting, page 8
 
24.
Please delete or explain the reference to the proposal to “declassify the board”.  We may have further comment.
 
Response:  The Proxy Statement has been revised accordingly.  Please see pages 9 and 10 of the Proxy Statement.
 
Cost and Method of Solicitation
 
25.
Incomplete disclosure has been provided under this heading.  Revise to fully comply with Item 4(b) of Schedule 14A.
 
Response:  The Proxy Statement has been revised accordingly.  Please see page 10 of the Proxy Statement.
 
26.
It appears that you intend to solicit proxies by mail, courier services, Internet, or in person.  Please be advised that all written soliciting materials, including any e-mails or scripts to be used in soliciting proxies must be filed under the cover of Schedule l 4A on the date of first use.  Refer to Rule 14a-6(b) and (e).  Please confirm your understanding.
 
Response:  We confirm our understanding of Rule 14a-6(b) and (e).
 
27.
Given that you may solicit proxies via the Internet, please tell us whether you plan to solicit via Internet chat rooms, and if so, tell us which vvebsites you plan to utilize.
 
Response:  We currently have no plans to solicit via the internet.
 
28.
Please confirm that you will post your proxy materials on a specified, publicly-accessible Internet Web site (other than the Commission’s EDGAR Web site) and provide record holders with a notice informing them that the materials are available and explaining how to access those materials.  Refer to Release 34-56135 available at http://www.sec.gov/rules/final/2007/34-56135.pdf.
 
Response:  We confirm that we will post your proxy materials on a specified, publicly-accessible Internet Web site and provide record holders with a notice informing them that the materials are available and explaining how to access those materials.  The Proxy Statement has been revised accordingly.  Please see page 2 of the Proxy Statement.
 
Additional Information, page 9
 
29.
Please revise to correct your reference as procedures for submitting proposals for consideration at the 2009 annual meeting of shareholders were required to be included in Advocat’s 2008 proxy statement.  The 2009 proxy statement must include procedures for submitting proposals for consideration at the 2010 annual meeting of shareholders.
 
Response:  The Proxy Statement has been revised accordingly. Please see page 10 of the Proxy Statement.
 
May 1, 2009
Page 9

 
30.
You refer security holders to information that you are required to provide under Schedule 14A that will be contained in the company’s proxy statement for the annual meeting.  We presume that you are relying upon Rule 14a-5(c) to refer to this information.  If so, please note that we believe that reliance upon Rule 14a-5(e) before the company distributes the information to security holders would be inappropriate.  Alternatively, if you determine to disseminate your proxy statement prior to the distribution of the company’s proxy statement, you must provide the omitted information to security holders, Please advise as to your intent in this regard.
 
Response:  We do not intend to disseminate the Proxy Statement prior to the distribution of the Company’s proxy statement.  In the event it becomes necessary to mail the Proxy Statement before the Company discloses this information, Bristol intends to mail the Proxy Statement and file additional definitive materials with the SEC disclosing this information promptly after the information has been provided by the Company.  Bristol would also consider a means reasonably designed to disseminate this information by press release or a supplemental mailing to the Company’s shareholders.
 
Form of Proxy
 
31.
You include a “blanket” item on the form of proxy, where you solicit authority to act upon any matter that may come before the Annual Meeting or any postponements or adjournments thereof.  However, since you must specifically describe how the proxy will be voted and provide all of the information required by Schedule 14A (other than those matters for which Rule 14a-4(e) confers discretionary authority to act), this may inappropriate.  See Rule 14a4(a)(3).  While you may seek explicit authority to vote to adjourn the meeting to solicit additional proxies, it appears the authority you seek is broader.  In addition, it is not described in the text of the proxy statement.  Please advise or revise.
 
Response:  The Proxy Card has been revised accordingly.
 
32.
You state on the form of proxy that it will be valid “until the sooner of one year from the date indicated on the reverse aide and the completion of the Annual Meeting.”  Pursuant to Rule 42-4(d)(2) and (3), a proxy may only be used to vote at the identified Annual Meeting or any adjournment thereof.  Please revise to clarify.
 
Response:  The Proxy Card has been revised accordingly.
 
*               *               *
 
May 1, 2009
Page 2

 
In connection with responding to the Staff’s comments, a certificate signed by each of the participants containing the three acknowledgments requested by the Staff is attached hereto.
 
The Staff is invited to contact the undersigned at (212) 451-2213 with any comments or questions it may have.  We would appreciate your prompt advice as to whether the Staff has any further comments.
 
 
Sincerely,
   
 
/s/ Thomas J. Fleming
   
 
Thomas J. Fleming
 
 
 
ACKNOWLEDGMENT

In connection with responding to the comments of the Staff of the Securities and Exchange Commission (“SEC”) relating to the proxy statement filed by Bristol Investment Fund, Ltd., Bristol Capital Advisors, LLC, Paul Kessler and Richard McKilligan on April 10, 2009 (the “Proxy Statement”), the undersigned acknowledges the following on behalf of the foregoing persons:

 
·
The undersigned is responsible for the adequacy and accuracy of the disclosure in the Proxy Statement.

 
·
The Staff’s comments or changes to disclosure in response to Staff comments in the Proxy Statement reviewed by the Staff do not foreclose the SEC from taking any action with respect to the Proxy Statement.

 
·
The undersigned may not assert Staff comments as a defense in any proceeding initiated by the SEC or any person under the federal securities laws of the United States.


Dated: May 1, 2009
BRISTOL INVESTMENT FUND, LTD.
     
 
By:
Bristol Capital Advisors, LLC
   
Its Investment Advisor
     
 
By:
/s/ Paul Kessler
   
Name:
Paul Kessler
   
Title:
Manager