Advocat Inc.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

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Advocat Inc.

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ADVOCAT INC.
1621 Galleria Boulevard
Brentwood, Tennessee 37027

Dear Shareholder:

You are cordially invited to attend the 2007 annual meeting of shareholders of Advocat Inc. (the “Company”), to be held at the Company’s offices, 1621 Galleria Boulevard, Brentwood, Tennessee 37027 on May 17, 2007, at 9:00 a.m. (Central Daylight Time).

The attached notice of annual meeting and proxy statement describe the formal business to be transacted at the meeting. Following the formal business portion of the annual meeting, there will be a report on the operations of the Company and shareholders will be given the opportunity to ask questions. At your earliest convenience, please vote using the telephone or Internet voting instructions found on the enclosed proxy card or mark, sign and return the accompanying proxy card in the enclosed postage pre-paid envelope. We hope you will be able to attend the annual meeting.

Whether or not you plan to attend the annual meeting, please vote using the telephone or Internet voting instructions found on the enclosed proxy card or complete, sign, date and mail the enclosed proxy card promptly. If you attend the annual meeting, you may revoke such proxy and vote in person if you wish, even if you have previously returned your proxy card. If you do not attend the annual meeting, you may still revoke such proxy at any time prior to the annual meeting by providing written notice of such revocation to L. Glynn Riddle, Jr., Chief Financial Officer and Secretary of the Company. YOUR PROMPT COOPERATION WILL BE GREATLY APPRECIATED.



		William R. Council, III
		Chief Executive Officer

Brentwood, Tennessee
April 12, 2007

ADVOCAT INC.
1621 Galleria Boulevard
Brentwood, Tennessee 37027

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

To the Shareholders of Advocat Inc.:

The annual meeting of shareholders of Advocat Inc., a Delaware corporation (the “Company”), will be held at the Company’s offices, 1621 Galleria Boulevard, Brentwood, Tennessee 37027 on Thursday, May 17, 2007, at 9:00 a.m. (Central Daylight Time) for the following purposes:

(1) To elect two (2) Class 1 directors, to hold office for a three (3) year term and until their successors have been duly elected and qualified;

(2) To transact such other business as may properly come before the meeting, or any adjournment or postponement thereof.

The proxy statement and form of proxy accompanying this notice are being mailed to shareholders on or about April 12, 2007. Only shareholders of record at the close of business on April 9, 2007 are entitled to notice of and to vote at the meeting and any adjournment thereof.

Your attention is directed to the proxy statement accompanying this notice for a more complete statement regarding the matters to be acted upon at the meeting.

We hope very much that you will be able to be with us. The Company’s board of directors urges all shareholders of record to exercise their right to vote at the annual meeting of shareholders personally or by proxy. Accordingly, we are sending you the accompanying proxy statement and the enclosed proxy card.

Your representation at the annual meeting of shareholders is important. To ensure your representation, whether or not you plan to attend the annual meeting, please vote using the telephone or Internet voting instructions found on the enclosed proxy card or complete, date, sign and return the enclosed proxy card. Should you desire to revoke your proxy, you may do so at any time before it is voted in the manner provided in the accompanying proxy statement.


		By Order of the Board of Directors,

		L. Glynn Riddle, Jr., Secretary

Brentwood, Tennessee
April 12, 2007

TABLE OF CONTENTS


PROXY STATEMENT			2
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT			5
PROPOSAL 1 – ELECTION OF DIRECTORS			6
EXECUTIVE OFFICERS			11
EXECUTIVE COMPENSATION			11
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION			22
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS			22
AUDIT COMMITTEE REPORT			23
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM			24
FEES TO BDO SEIDMAN, LLP			24
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE			25
MISCELLANEOUS			25

ADVOCAT INC.
1621 Galleria Boulevard
Brentwood, Tennessee 37027

PROXY STATEMENT

The board of directors is soliciting proxies for this year’s annual meeting of shareholders. This proxy statement contains important information for you to consider when deciding how to vote on matters brought before the meeting. Please read it carefully.

The board has set April 9, 2007 as the record date for the meeting. Shareholders who owned Advocat Inc. common stock on that date are entitled to receive notice of and vote at the meeting. On the record date there were 5,871,287 shares of Advocat common stock outstanding. Holders of the Company’s common stock are entitled to one vote per share owned of record. Cumulative voting is not permitted. The Company has 5,000 shares of Series C Redeemable Preferred Stock outstanding, but such preferred stock is not entitled to vote at the annual meeting of shareholders. The Company has the authority to issue additional shares of preferred stock in one or more series, although no additional series of preferred stock has been designated or issued.

This proxy statement and enclosed proxy were initially mailed or delivered to shareholders on or about April 12, 2007. The Company’s Annual Report for the fiscal year ended December 31, 2006, is being concurrently mailed or delivered with this proxy statement to shareholders entitled to vote at the annual meeting. The Annual Report is not to be regarded as proxy soliciting material.

Why am I receiving this proxy statement and proxy form?

You are receiving this proxy statement and proxy form because you own shares of Advocat common stock. This proxy statement describes issues on which you are entitled to vote.

When you sign the proxy form you appoint L. Glynn Riddle, Jr., the Company’s Chief Financial Officer and Secretary, as your representative at the meeting. Mr. Riddle will vote your shares at the meeting as you have instructed on the proxy form. This way, your shares will be voted even if you cannot attend the meeting.

If your shares are not voted in person or by telephone or on the Internet, they cannot be voted on your behalf unless you provide our corporate secretary with a signed proxy authorizing another person to vote on your behalf. Even if you expect to attend the meeting in person, in order to ensure that your shares are represented, please vote using the telephone or Internet voting instructions found on the enclosed proxy card or complete, sign and date the enclosed proxy form and return it promptly.

Who is soliciting my proxy and who is paying the cost of the solicitation?

The Company’s board of directors is sending you this proxy statement in connection with its solicitation of proxies for use at the 2007 annual meeting. Certain of our directors, officers and employees may solicit proxies by mail, telephone, facsimile or in person. The Company will pay for the costs of solicitation. We do not expect to pay any compensation for the solicitation of proxies, except to brokers, nominees and similar recordholders for reasonable expenses in mailing proxy materials to beneficial owners of Advocat common stock.

What am I voting on?

At the annual meeting you will be asked to vote on the election of two “Class 1 Directors” to serve a three year term on the Company’s board of directors.

Who is entitled to vote?

Only shareholders who owned Advocat Inc. common stock as of the close of business on the record date, April 9, 2007, are entitled to receive notice of the annual meeting and to vote the shares that they held on that date at the meeting, or at any postponement or adjournment of the meeting.

How do I vote?

You may vote your shares either in person at the annual meeting, by telephone or on the Internet or by proxy. To vote by proxy, you should mark, date, sign and mail the enclosed proxy in the prepaid envelope provided. Instructions for voting on the Internet or by telephone may be found in the Proxy Voting Instructions accompanying the Proxy Card. If your shares are registered in your own name and you attend the meeting, you may deliver your completed proxy in person. “Street name” shareholders, that is, those shareholders whose shares are held in the name of and through a broker or nominee, who wish to vote at the meeting will need to obtain a proxy form from the institution that holds their shares if they did not receive one directly. Shares held in street name may also be eligible for internet or telephone voting in certain circumstances if you did not receive a proxy form directly.

Can I change my vote after I return my proxy form?

Yes. You may revoke your proxy and change your vote at any time before the proxy is exercised by filing with Mr. Riddle, either a written notice of revocation or another signed proxy bearing a later date. The powers of the proxy holders will be suspended if you attend the meeting in person and inform the corporate secretary that you wish to revoke or replace your proxy. Your attendance at the meeting will not by itself revoke a previously granted proxy. If you hold your shares in “street name” through a broker, bank or other nominee, you may revoke your proxy by following instructions provided by your broker, bank or nominee. No notice of revocation or later-dated proxy will be effective until received by Mr. Riddle at or prior to the annual meeting.

What is the board’s recommendation and how will my shares be voted?

The board recommends a vote FOR the election of the nominated “Class 1 Directors” listed in this proxy statement. If properly signed and returned in time for the annual meeting, the enclosed proxy will be voted in accordance with the choices specified thereon. If you return a signed proxy, but do not specify a choice, Mr. Riddle, as the person named as the proxy holder on the proxy form, will vote as recommended by the board of directors. If any other matters are considered at the meeting, Mr. Riddle will vote as recommended by the board of directors. If the board does not give a recommendation, Mr. Riddle will have discretion to vote as he thinks best. If a broker submits a proxy that indicates that the broker does not have discretionary authority as to certain shares to vote on one or more matters, those shares will be counted as shares that are present for purposes of determining the presence of a quorum but will not be considered as present and entitled to vote with respect to such matters.

Will my shares be voted if I do not sign and return my proxy form?

If your shares are registered in your name and you do not return your proxy form or do not vote in person at the annual meeting, your shares will not be voted. If your shares are held in street name and you

do not submit voting instructions to your broker, your broker may vote your shares for the election of directors as they think best.

How many votes are needed to hold the annual meeting?

The Company currently has a total of 5,871,287 shares of outstanding common stock. A majority of the Company’s outstanding shares as of the record date (a quorum) must be present at the annual meeting in order to hold the meeting and conduct business. Shares are counted as present at the meeting if: (a) a shareholder is present and votes in person at the meeting; (b) a shareholder has properly submitted a proxy form, even if the shareholder marks abstentions on the proxy form; or (c) a broker or nominee has properly submitted a proxy form, even if the broker does not vote because the beneficial owner of the shares has not given the broker or nominee specific voting instructions and the broker or nominee does not have voting discretion (a “broker non-vote”). A share, once represented for any purpose at the meeting, is deemed present for purposes of determining a quorum for the meeting (unless the meeting is adjourned and a new record date is set for the adjourned meeting), even if the holder of the share abstains from voting with respect to any matter brought before the meeting.

What vote is required to elect directors?

The nominees for director who receive the highest number of FOR votes cast will be elected. Withheld votes and broker non-votes, if any, are not treated as votes cast and, therefore, will have no effect on the proposal to elect directors.

Can I vote on other matters or submit a proposal to be considered at the meeting?

The Company has not received timely notice of any shareholder proposals to be considered at the annual meeting, and shareholders may submit matters for a vote only in accordance with the Company’s bylaws. The board of directors does not presently know of any other matters to be brought before the annual meeting.

It is contemplated that the Company’s 2008 Annual Meeting of shareholders will take place in June 2008. Shareholders’ proposals will be eligible for consideration for inclusion in the proxy statement for the 2008 Annual Meeting pursuant to Rule 14a-8 under the Securities Exchange Act of 1934 if such proposals are received by the Company before the close of business on December 14, 2007. Notices of shareholders’ proposals submitted outside the processes of Rule 14a-8 will generally be considered timely (but not considered for inclusion in our proxy statement), pursuant to the advance notice requirement set forth in the Company’s bylaws. For shareholders seeking to present a proposal at the 2008 annual meeting without inclusion of such proposal in the Company’s proxy materials, the proposal must be received by the Company no later than February 27, 2008.

Are there any dissenters’ rights or appraisal rights with respect to any of proposals described in this proxy statement?

There are no appraisal or similar rights of dissenters respecting the matters to be voted upon.

How do I communicate with directors?

The Board has established a process for shareholders to send communications to the Board or any of the directors. Shareholders may send communications to the board or any of the directors by sending such communication addressed to the Board of Directors or any individual director c/o Advocat Inc. 1621 Galleria Boulevard, Brentwood, Tennessee 37027. All communications will be compiled and submitted to the Board or the individual directors on a monthly basis.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

How much stock do the Company’s directors, executive officers, and principal shareholders own?

Advocat is authorized to issue 20,000,000 shares of common stock and 1,000,000 shares of preferred stock. As of April 9, 2007, there were 5,871,287 shares of common stock and 5,000 shares of Series C Preferred Stock issued and outstanding. The following table shows, as of April 9, 2007, the amount of Advocat common stock beneficially owned (unless otherwise indicated) by (a) each director and director nominee; (b) the Named Executive Officers (as defined in “Executive Compensation”, below); (c) all of the Company’s directors and Named Executive Officers as a group and (d) all shareholders known by the Company to be the beneficial owners of more than 5% of the outstanding shares of Advocat common stock. Based on information furnished by the owners and except as otherwise noted, the Company believes that the beneficial owners of the shares listed below, have, or share with a spouse, voting and investment power with respect to the shares. The address for all of the persons listed below is 1621 Galleria Boulevard, Brentwood, Tennessee 37027, except as listed in the footnotes to the table below.


	Shares Beneficially Owned ⁽¹⁾
Name	Number ⁽¹⁾		Percent⁽²⁾
Altrinsic Global Advisors, LLC ⁽³⁾		400,000		6.8	%
100 First Stamford Place, 6^th Floor
Stamford, CT 06902

Wallace E. Olson ⁽⁴⁾		637,867		10.9	%
Suite 604, 736 Georgia Avenue
Chattanooga, TN 37402

William R. Council, III ⁽⁵⁾		131,900		2.2	%

William C. O’Neil, Jr. ⁽⁶⁾		22,200			*

Raymond L. Tyler, Jr. ⁽⁷⁾		51,000			*

Richard M. Brame ⁽⁸⁾		17,000			*

Robert Z. Hensley ⁽⁹⁾		10,000			*

L. Glynn Riddle, Jr. ⁽¹⁰⁾		54,000			*

All directors and executive officers as a group (7 persons)⁽¹¹⁾		923,967		15.1	%

* less than 1%


⁽¹⁾		Unless otherwise indicated, the persons or entities identified in this table have sole voting and investment power with respect to all shares shown as beneficially owned by them, subject to community property laws, where applicable.

⁽²⁾		The percentages shown are based on 5,871,287 shares of common stock outstanding plus, as to each individual and group listed, the number of shares of common stock deemed to be owned by such holder pursuant to Rule 13d-3 under the Exchange Act, assuming exercise of options held by such holder that are exercisable within 60 days of April 9, 2007.

⁽³⁾		Based solely on a Schedule 13G filed by Altrinsic Global Advisors, LLC on February 14, 2007.

⁽⁴⁾		Mr. Olson’s shares include 1,300 shares owned jointly with his daughter and 633,900 owned by a partnership controlled by Mr. Olson. Includes 2,667 shares purchasable upon exercise of options.

⁽⁵⁾		Includes 125,000 shares purchasable upon exercise of options.

⁽⁶⁾		Includes 21,200 shares purchasable upon exercise of options.

⁽⁷⁾		Includes 50,000 shares purchasable upon exercise of options.

⁽⁸⁾		Includes 2,000 shares purchasable upon exercise of options.

⁽⁹⁾		Includes 10,000 shares purchasable upon exercise of options.

⁽¹⁰⁾		Includes 50,000 shares purchasable upon exercise of options.

⁽¹¹⁾		Includes 260,867 shares purchasable upon exercise of options.

PROPOSAL 1

ELECTION OF DIRECTORS

How many directors are nominated?

The Company’s certificate of incorporation provides that the number of directors to be elected by the shareholders shall be at least three and not more than 15, as established by the board of directors from time to time. The number of directors is currently set at five.

The certificate of incorporation requires that the Company’s board of directors be divided into three classes which are as nearly equal in number as possible. The directors in each class will serve staggered three-year terms or until a successor is elected and qualified. Class 1 directors, if reelected, will serve until the 2010 annual meeting, the Class 2 director is currently serving until the 2008 annual meeting and the Class 3 directors are currently serving until the 2009 annual meeting. At each annual meeting of shareholders after the first annual meeting, the number of directors equal to the number of the class whose term expires at the time of such meeting will be elected to hold office for three years or until their successors are elected and qualified.

What happens if a nominee refuses or is unable to stand for election?

The board may reduce the number of seats on the board or designate a replacement nominee. If the board designates a replacement nominee, shares represented by proxy will be voted FOR the replacement nominee. The board presently has no knowledge that any nominee will refuse, or be unable, to serve.

Must director nominees attend our annual meeting?

It is the Company’s policy that all of its directors attend the annual meeting if possible. All directors attended the 2006 annual meeting of shareholders. All directors and nominees are expected to be in attendance at the 2007 meeting.

Who are the board nominees?

Information regarding the nominees is provided below, including name, age, principal occupation during the past five years, the year first elected as a director of Advocat and the expiration date of such director’s term. Each of the Class 1 nominees for director are presently directors of the Company.

The following directors have been nominated to continue in office for a new term or until the election and qualification of his respective successors in office:

Information About Class 1 Director Nominees — Current Term Ending 2007


			Director
Name of Directors	Age		Since	Principal Occupation Last Five Years
William C. O’Neil, Jr.		72	Inception	Member of the Board of Directors of the Company; Private Investor; Director of HealthWays, a specialty health care service company; Director of Sigma Aldrich Corp., a manufacturer of research chemicals; Director of American HomePatient, Inc. a provider of home health care products and services.

Robert Z. Hensley		49	July 2005	Member of the Board of Directors of the Company since July 2005; President and owner of Life’s A Beach Publications LLC, a private publishing company, from 2003 to present; Managing member and principal owner of two real estate and rental property development companies from 2001 to present; Currently a Director of HealthSpring, Inc., Spheris, Inc. and Comsys IT Partners, Inc.; Audit Partner at Ernst & Young, LLP from July 2002 to September 2003; Audit Partner at Arthur Andersen, LLP from 1990 to 2002; Managing Partner at Arthur Andersen, LLP from 1997 to 2002. Mr. Hensley holds a Master of Accountancy degree, a BS in Accounting and is a Certified Public Accountant.

Who are the Continuing Directors?

The following directors will continue in office for the remainder of their respective terms or until the election and qualification of their respective successors in office:

Information about Class 2 Continuing Director — Current Term Ending 2008


Name of Director	Age		Director Since	Principal Occupation Last Five Years
Wallace E. Olson		60	March 2002	Chairman of the Board of Directors of the Company from October 2002 to present; Member of the Board of Directors of the Company since March 2002. He has been a private investor, managing his personal finances, since May 1996.

Information About Class 3 Continuing Directors — Current Term Ending 2009


Name of Nominees	Age		Director Since	Principal Occupation Last Five Years
William R. Council, III		45	October 2002	Member of the Board of Directors of the Company; President and Chief Executive Officer from March 2003 to present; Interim Chief Executive Officer from October 2002 to March 2003; Executive Vice President, Chief Financial Officer and Secretary of the Company from March 2001 to December 2002. Mr. Council is a Certified Public Accountant.

Richard M. Brame		53	December 2002	Member of the Board of Directors of the Company; President of Regency Health Management, LLC from July 1999 to present; President of Regency Healthcare, LLC from 2006 to present; President of Ooltewah Investments, Inc. from 1992 to 2006. President of the General Partner of San Angelo Nursing Center, LP from October 2001 to March 2005.

Is the board independent?

The board of directors believes that four of the Company’s current five directors, i.e., all of the non-management directors, are independent as Nasdaq defines independence under Nasdaq Rule 4200(a)(15). The Company’s non-management directors meet in executive sessions, without management present, on a regular basis.

What committees has the board established?

The board of directors has established an audit committee, a compensation committee and a corporate governance committee.

The corporate governance committee, which considers director nominations, was established during 2006. The entire board has adopted Corporate Governance Guidelines, which include guidelines on the composition, selection and performance of the board. The Company’s Corporate Governance Guidelines are posted on the Company’s website at www.irinfo.com/AVC. There is currently no separate corporate governance committee charter.

The corporate governance committee believes that any nominee that it recommends for a position on the Company’s board of directors must possess high standards of personal and professional integrity, and have demonstrated business judgment and such other characteristics as it deems appropriate to demonstrate that he or she would be effective, in conjunction with the other directors and nominees for director, in serving the best interest of the Company’s shareholders. The corporate governance committee’s assessment of existing directors and new director nominees includes issues of diversity, age, contribution to the meetings, the ability to work with other directors and skills such as understanding of long

term health care, health care background, and the perceived needs of the board at that point in time. The corporate governance committee may solicit recommendations for director nominees from other directors, the Company’s executive officers or any other source that it deems appropriate. To evaluate any potential nominee, the corporate governance committee will review and evaluate the qualifications of any proposed director candidate and conduct inquiries into his or her background to the extent that it deems appropriate under the circumstances.

The corporate governance committee will review and evaluate the qualifications of any director candidates who have been recommended by shareholders of the Company in compliance with policies described above. Any shareholder submitting a recommendation for a director candidate must submit it to the secretary at the Company’s corporate headquarters not later than the 120^th calendar day before the date the Company’s proxy statement was released to shareholders in connection with the previous year’s annual meeting. The secretary of the Company will forward all recommendations to the corporate governance committee. The shareholder’s recommendation must include information about the shareholder making the recommendation and about the proposed director candidate. All proposed director candidates will be evaluated in the same manner, regardless of the source of the initial recommendation.

The corporate governance committee is composed of Mr. Hensley as chairman, Mr. O’Neil, Mr. Brame and Mr. Olson. The board believes that each member of the corporate governance committee is independent under the NASDAQ rules. The corporate governance committee held one meeting during 2006 and has held one meeting in 2007 to recommend the director nominees for the annual meeting.

Audit Committee. The Company has a separately-designated standing audit committee that is established in accordance with Section 3(a)(58)(A) of the Exchange Act (15 U.S.C. 78c(a)(58)(A)). The audit committee supervises matters relating to the audit function, reviews the Company’s quarterly reports, and reviews and approves the annual report of the Company’s independent registered public accounting firm. The audit committee also has oversight with respect to the Company’s financial reporting, including the annual and other reports to the Securities and Exchange Commission and the annual report to the shareholders. The audit committee presently is composed of four directors: Mr. O’Neil as chairman, Mr. Olson, Mr. Brame and Mr. Hensley. The Board of Directors in its business judgment, has determined that all members of the audit committee are independent directors, qualified to serve on the audit committee pursuant to Rule 4200(a)(15) under Nasdaq’s Rule 4350(d)(2)(A) regarding heightened independence standards for audit committee members. The Board has determined that Mr. Hensley qualifies as an “audit committee financial expert” as described in Regulation S-K Item 401(h). There were five meetings of the audit committee during 2006. The audit committee has adopted a written charter, a copy of which is posted on our web site at www.irinfo.com/AVC.

Compensation Committee. The compensation committee presently is composed of four directors: Mr. Brame as chairman, Mr. O’Neil, Mr. Olson and Mr. Hensley. The board believes that each member of the compensation committee is independent under the NASDAQ rules. Responsibilities of this committee include approval of remuneration arrangements for executive officers of the Company, review of compensation plans relating to executive officers and directors, including benefits under the Company’s compensation plans and general review of the Company’s employee compensation policies. There is currently no separate compensation committee charter. During 2006, the compensation committee held three meetings.

How often did the board of directors meet during 2006?

During fiscal 2006, the board of directors held thirteen meetings. Each director attended at least 75% of the aggregate of (i) the total number of meetings of the board of directors and (ii) the total number of meetings held by all committees on which the individual director served.

How are directors compensated?

Directors who are not officers, employees or consultants of the Company (currently directors Brame, Hensley, O’Neil and Olson) receive a director’s fee of $36,000 annually, $3,500 per board meeting attended and $1,000 per committee meeting attended (except when held on the same day as board meetings). The Chairmen of the Board, Audit Committee and Compensation Committee are paid $2,500 per meeting for serving as meeting chairperson. Such directors are also entitled to participate in the Company’s health care plan. Directors who are officers or employees of the Company or its affiliates have not been compensated separately for services as a director. Directors are reimbursed for expenses incurred in connection with attendance at board and committee meetings. The following table shows the amounts paid to each of our non-employee directors during 2006.


	Non-Employee Director Compensation
	For the Year Ended December 31, 2006
	Fees Earned or Paid in Cash
	Regular		Supplemental			Option		All Other
Director	Fees ($)⁽¹⁾		Fees ($)⁽²⁾			Awards ($)⁽⁶⁾		Compensation ($)⁽⁷⁾	Total ($)
Wallace E. Olson		36,000		41,500	⁽³⁾		42,533	11,160		131,193
William C. O’Neil, Jr.		36,000		39,500	⁽⁴⁾		57,420	N/A		132,920
Richard M. Brame		36,000		34,500	⁽⁵⁾		31,900	N/A		102,400
Robert Z. Hensley		36,000		27,000			159,500	N/A		222,500


⁽¹⁾		“Regular fees” represent an annual directors fee of $36,000 paid to Directors who are not officers, employees, or consultants of the Company.

⁽²⁾		“Supplemental fees” are paid to Directors for attendance at Board meetings and Committee meetings.

⁽³⁾		Mr. Olson received $15,000 for serving as Chair of the Board meetings.

⁽⁴⁾		Mr. O’Neil received $12,500 for serving as Chair of the Audit Committee meetings.

⁽⁵⁾		Mr. Brame received $7,500 for serving as Chair of the Compensation Committee meetings.

⁽⁶⁾		These options were granted in December 2005 and relate to the service as a director in 2005, however, they were granted subject to shareholder approval, which was not obtained until June 2006. For financial accounting purposes, no expense was recorded until 2006. Expense is based on shares vested during the period and valued under the assumptions contained in Note 11 to our Consolidated Financial Statements.


	Shares Vested
	During 2006
Wallace E. Olson		2,667
William C. O’Neil, Jr.		3,600
Richard M. Brame		2,000
Robert Z. Hensley		10,000


⁽⁷⁾		Includes insurance premiums paid by the Company for non-employee Directors.

In addition, each non-employee director received a grant of stock only stock appreciation rights (“SOSARs”) on March 7, 2007 for 1,000 shares at an exercise price of $11.59 per share. The SOSARs vest one-third on each of the first, second and third anniversaries of the grant date. This grant, although made in 2007, related to services provided in 2006.

What is the board’s recommendation with respect to the election of the Class 1 Directors?

The board unanimously recommends a vote “FOR” the nominees listed above.

EXECUTIVE OFFICERS

Who are the Company’s executive officers?

The following table sets forth certain information concerning the executive officers of the Company as of March 31, 2007.


Name of Officer	Age		Officer Since	Position with the Company
William R. Council, III		45	March 5, 2001	President and Chief Executive Officer from March 2003 to present; Interim Chief Executive Officer from October 2002 to March 2003; Executive Vice President, Chief Financial Officer and Secretary of the Company from March 5, 2001 to December 2002. Mr. Council is a Certified Public Accountant.

Raymond L. Tyler, Jr.		56	Oct. 18, 2002	Executive Vice President and Chief Operating Officer of the Company from December 2003 to present; Senior Vice President of Operations of the Company from October 2002 to December 2003; Vice President of Operations of the Company from January 2001 to October 2002.

L. Glynn Riddle, Jr.		47	Dec. 9, 2002	Executive Vice President, Chief Financial Officer and Secretary of the Company from December 2002 to present; Controller of the Company’s Assisted Living Division from February 2002 to December 2002. Mr. Riddle is a Certified Public Accountant.

EXECUTIVE COMPENSATION

The following section describes the compensation that the Company pays its chief executive officer, chief operating officer and chief financial officer at December 31, 2006 or during the 2006 fiscal year (collectively, the “Named Executive Officers”).

Compensation Discussion And Analysis

Decisions on compensation of our senior executives are made by the compensation committee of our Board of Directors. The compensation committee consists of Mr. Brame, Mr. Hensley, Mr. Olson and Mr. O’Neil. Each member of the compensation committee is a non-employee director. It is the responsibility of the compensation committee to assure the Board that the executive compensation

programs are reasonable and appropriate, meet their stated purpose and effectively serve our needs and the needs of our shareholders.

We believe that the executive compensation program should align the interests of shareholders and executives. Our primary objective is to provide high quality patient care while maximizing shareholder value. The compensation committee seeks to forge a strong link between our strategic business goals and our compensation goals. We believe our executive compensation program is consistent with this overall philosophy for all management levels. We believe that the more employees are aligned with our strategic objectives, the greater our success on both a short-term and long-term basis.

Our executive compensation program has been designed to support the overall strategy and objective of creating shareholder value by:

	•		Performance based. Emphasizing pay for performance by having a significant portion of executive compensation “at risk.”

	•		Retention. Providing compensation opportunities that attract and retain talented and committed executives on a long-term basis.

	•		Balance. Appropriately balancing the Company’s short-term and long-term business, financial and strategic goals.

In connection with this overall strategy, we also strive to give assurance of fair treatment and financial protection so that an executive will be able to identify and consider transactions that would be beneficial to the long term interests of shareholders but which might have a negative impact on the executive, without undue concern for his personal circumstances. A further consideration is to safeguard the business of the Company, including protection from competition and other adverse activities by the executive during and after employment.

The Company’s strategic goals are:

	•		Profitability. To maximize financial returns to its shareholders, in the context of providing high quality service.

	•		Quality. To achieve leadership in the provision of relevant and high quality health services.

	•		Stability. To be a desirable employer and a responsible corporate citizen.

In order to accomplish our objectives, the compensation committee strives to design its executive compensation in a way that when the Company meets or exceeds its annual operating goals, the annual executive pay targets (i.e., base salary plus incentive) are competitive with the compensation of similar U.S. public health care companies having similar revenues.

Compensation Consultant

The compensation committee has engaged Compensation Strategies, Inc. to help the compensation committee with its compensation program design, review senior executive compensation, prepare comprehensive competitive compensation analyses for our named executive officers, and make suggestions regarding the components of compensation, amounts allocated to those components, and the total compensation opportunities for the CEO and the other named executive officers. Compensation Strategies also provides the compensation committee with information on executive compensation trends

and best practices and advice for potential improvements to the executive compensation program. Compensation Strategies also advises the Committee on the design of the compensation program for non-employee directors. In 2006, Compensation Strategies was paid approximately $28,500 for such services.

In its analysis of Advocat’s compensation, Compensation Strategies considered a peer group of similarly sized companies in the long term health industry. The companies that Compensation Strategies used as it peer group included:


Allied Healthcare International Inc.		National HealthCare Corporation
Amedisys, Inc.		Odyssey HealthCare Inc.
American HomePatient, Inc.		Option Care, Inc.
American Retirement Corporation		Pediatric Services of America, Inc.
Amsurg Corp.		Radiologix, Inc.
Capital Senior Living Corporation		Vistacare, Inc.
Emeritus Corporation

Elements of Our Compensation Program for Named Executive Officers

As a result, we have generally established the following elements of compensation for our named executive officers:

Base Salary.

We pay base salaries to our named executive officers which are intended to be at or near the market median for base salaries of similar companies. These amounts are evaluated annually. We believe that such base salaries are necessary to attract and retain executive talent. In evaluating appropriate pay levels and salary increases for our named executive officers, the compensation committee considers achievement of our strategic goals, level of responsibility, individual performance, internal equity and external pay practices. Regarding external pay practices, the compensation committee reviews compensation practices of the peer companies, as determined from information gathered by our compensation consultants. The base salaries of our named executive officers are as follows:


Name	Position	2006 Salary	2007 Salary
William R. Council, III	Chief Executive Officer	$389,000	$425,000
Raymond L. Tyler, Jr.	Chief Operating Officer	$285,000	$296,000
L. Glynn Riddle, Jr.	Chief Financial Officer	$211,000	$220,000

Annual Incentives.

Annual incentive (bonus) awards are designed to focus management attention on key operational goals for the current fiscal year. Our named executive officers may earn a bonus that is partially dependant upon achievement of their specific operational and financial goals, as well as quality of care targets. For 2006, the potential annual cash bonus for our named executive officers was subject to the following target and maximum:


Position	Bonus Target	Bonus Maximum
Chief Executive Officer	50% of base salary	100% of base salary
Chief Operating Officer	40% of base salary	80% of base salary
Chief Financial Officer	35% of base salary	70% of base salary

The bonus amount is made up of the following categories:


Net Operating Income	60	%
Quality Performance Measures	15	%
Discretionary	25	%

Net Operating Income. For 2006, at least 60% of the available bonus percentage for each executive was tied to Company profitability. This metric is measured using budgeted operating income/loss, adjusted for the non-cash impact of professional liability expense. In addition, the compensation committee has the discretion to make other adjustments for unusual/unbudgeted items. The portion of the bonus under Net Operating Income is adjusted based on performance as follows:

	•		90% of budget, executive earns 25% of the target bonus for this category;

	•		100% of budget, executive earns 50% of the target bonus for this category;

	•		125% of budget, executive earns 100% of the target bonus for this category.

In addition, for each percentage point above 125% above budget, the executive earns an additional 1% bonus up to a maximum of 200% of the target bonus for this category. Thus, if the Net Operating Income amount equals or exceeds 225% of the budget, the CEO would be eligible for a bonus equal to 120% of his 50% target or 60% of his base salary.

Quality Performance Measures. In 2006, 15% of the bonus was based on quality measures, with half of the possible bonus in this category based on regulatory survey results and half based on quality indicators. The regulatory surveys element includes the performance based on a comparison to the average number of citations per facility compared to the applicable state average – both on a weighted average basis. If the Company’s facilities average better than the state average, one quarter of this bonus is earned. Another quarter of the bonus is based on achieving 12 or less substandard (“G” tag or worse) tags on regulatory surveys in the year.

The quality indicators are based on the performance of our facilities compared to industry quality indicators. One third of the quality indicators component is earned based on our exceeding peer group and national averages for each of falls, skin, and weight-loss quality indicators.

Discretionary. In 2006, at the discretion of the compensation committee, 25% of the bonus is based on subjective evaluation. Items considered important by the compensation committee, such as the successful listing of our stock on the Nasdaq Capital Market, team building, strategic investments, acquisition decisions, improvement in shareholder relations and other matters, were considered in the discretionary portion of the bonus at the sole discretion of the compensation committee in the case of CEO, COO, CFO and other officers.

Additional factors considered in the discretionary portion of the bonus also included balance sheet improvements, such as:

	•		Accounts receivable management;

	•		Obtaining an audit report without an explanatory paragraph regarding our Company’s ability to continue as a going concern;

	•		Improving our debt structure through the refinancing and restructuring of our long-term debt;

	•		Improving our capital structure through the elimination of the conversion feature of the preferred stock;

	•		Completion of the sale of our North Carolina assisted living facilities;

	•		Collection of workers compensation retro premiums;

	•		Collection of DCMS note receivable; and

	•		Appropriate management of payables and accruals.

Based on all three elements of the annual bonuses, the compensation committee approved the following total bonuses for each of the named executive officers:


Name	Position	2006 Bonus	Percent of Base Salary
William R. Council, III	Chief Executive Officer	$264,041	68%
Raymond L. Tyler, Jr.	Chief Operating Officer	$150,628	53%
L. Glynn Riddle, Jr.	Chief Financial Officer	$100,547	48%

Long-Term Incentives.

Our long-term incentive compensation program has historically consisted of nonqualified stock options, which are related to improvement in long-term shareholder value. Stock option grants provide an incentive that focuses the executive’s attention on managing the Company from the perspective of an owner with an equity stake in the business. These grants also focus operating decisions on long-term results that benefit us and long-term shareholders.

The option grants to executive officers offer the right to purchase shares of common stock at their fair market value on the date of the grant. These options will have value only if the Company’s stock price increases. The number of shares covered by each grant is intended to reflect the executive’s level of responsibility and past and anticipated contributions to the Company. The Company sought shareholder approval of an increase in the number of shares available under its Key Personnel Plan at its 2001 annual meeting. The shareholders did not approve the amendment. In accordance with its terms, the Key Personnel Plan expired in May 2004. Accordingly, no further grants can be made under that plan.

At our last annual meeting, the compensation committee approved and recommended that the shareholders adopt the Advocat Inc. 2005 Long-Term Incentive Plan (the “2005 Plan”), which was approved by our shareholders. The compensation committee believes that the 2005 Plan will enable the compensation committee to again grant long-term incentives to the employees of the Company as described above.

The purposes of the 2005 Plan are to (i) attract and retain current and prospective employees and other service providers; (ii) motivate such persons, by means of appropriate incentives, to achieve long range goals; (iii) provide incentive compensation opportunities that are competitive with those of other similar companies; and (iv) further align the interests of such persons with those of the Company’s shareholders by offering compensation that is based on the Company’s common stock and/or contingent on attaining certain performance goals and thereby promoting the long-term financial interest of the Company, including the growth in value of the Company’s equity and enhancement of long-term shareholder return.

Given that the Company had not granted any options in approximately five years because of the lack of available options under its Key Personnel Plan, on December 13, 2005, the compensation committee approved a one time special grant of options to purchase a total of approximately 332,400 shares of the Company’s common stock to approximately 85 individuals, subject to the approval of the 2005 Plan by the shareholders. Although these options were granted in 2005 at an exercise price equal to the fair market value on the date of grant, because the grant was subject to shareholder approval, no

compensation expense was recorded until shareholder approval was obtained. The increase in the Company’s stock price during this period resulted in a non-cash compensation expense in 2006 of approximately $5.2 million. Although this expense was required to be recorded in 2006, the option grant related to 2005 compensation. However, since the financial accounting expense was recorded in 2006, these amounts are included in the following compensation tables.

In March of 2007, the compensation committee approved the grant of stock-only stock appreciation rights (“SOSARs”). SOSARs are stock appreciation rights that are settled in shares of Company stock. The SOSARs have an exercise price equal to the closing price of the stock on the date of grant and vest one-third on each of the 1^st, 2^nd and 3^rd anniversaries of the date of grant. Since the value of the SOSAR to the recipient is dependent on the increase in the value of the underlying stock, an award of this nature is also aligned with the interests of the shareholders. The grant of the SOSARs in March 2007 was based on performance in 2006. Generally, the grant of stock options or stock only stock appreciation rights is recommended to the compensation committee by the Chief Executive Officer excluding grants to himself with guidance from the compensation consultants in approving the grants. The compensation committee considers the recommendations along with a review of the group of individuals recommended. While we do not currently have written policies for the issuance of stock options we have never relied upon either the release of material information or the non-release of material information when issuing the grants. The compensation committee is currently discussing more definitive written policies for the issuance of stock-based compensation.

Retirement and Post Employment Compensation.

We have long sponsored a qualified defined contribution plan (the “401(k) Plan”), which is available to all employees, including our named executive officers. Qualified plans such as the 401(k) Plan carry with them a limit on the amount of compensation that “highly compensated” employees can defer. Each of our named executive officers is considered highly compensated and thus is greatly curtailed in their ability to contribute to the 401(k). Accordingly, the Company also maintains a non-qualified Executive Incentive Retirement Plan (“EIRP”). The EIRP provides that we will match eligible employees’ retirement savings on a dollar for dollar basis, up to 8% of their salary. The EIRP provides that the Company makes a cash payment to each participating employee on a quarterly basis. All of the Company’s named executive officers participated in the Executive Incentive Retirement Plan in 2006, with the amounts of the Company contribution being disclosed in the Summary Compensation Table under Other Annual Compensation. As this is paid to the executive in cash, the executive is free to invest or not invest the money as he sees fit.

In addition, each of our named executive officers has an employment agreement with the Company as described in more detail under “Potential Payments upon Termination or Change-in-Control” below. These agreements formalize the terms of the employment relationship, and assure the executive of fair treatment during employment and in the event of termination as well as requiring compliance with certain restrictions on competition. Employment agreements promote careful and complete documentation and understanding of employment terms, including strong protections for our business, and avoid frequent renegotiation of the terms of employment. Conversely, employment agreements can limit our ability to change certain employment and compensation terms. We provide severance protection to our senior executives in these employment agreements. This includes protection in the event of outright job termination not for Cause (“Cause” being limited to specified actions that are directly and significantly harmful to Advocat) or in the event we change the executive’s compensation opportunities, working conditions or responsibilities in a way adverse to the executive such that it is deemed a Constructive Discharge. We believe that this protection is designed to be fair and competitive to aid in attracting and retaining experienced executives. We believe that the protection we provide, including the level of severance payments and post-termination benefits, is appropriate and within the range of competitive practices.

We also provide severance payments and benefits if the executive should resign or be terminated without Cause within six months after a change in control. This protection permits an executive to evaluate a potential change in control without concern for his or her own situation or the need to seek employment elsewhere. Change in control transactions take time to unfold, and a stable management team can help to preserve our operations either to enhance the value delivered to a buyer in the transaction or, if no transaction is consummated, to ensure that our business will continue without undue disruption and retain its value. Finally, we believe that the change in control protections in place encourage management to consider on an ongoing basis whether a strategic transaction might be advantageous to our shareholders, even one that would vest control of Advocat in a third party. The compensation committee believes that the potential cost of executive change in control severance benefits are well within the range of reasonableness relative to general industry practice, and represents an appropriate cost relative to its benefits to Advocat and its shareholders.

The employment agreements also subject our executive officers to significant contractual restrictions intended to prevent actions that potentially could harm our business, particularly after termination of employment. These business protections include obligations not to compete, not to hire away our employees, not to interfere with our relationships with suppliers and customers, not to disparage us, not to reveal confidential information, and to cooperate with us in litigation. Business protection provisions are included in agreements and equity awards. In addition, we have adopted an Employee Standards and Code of Conduct that require all of our employees, including our executive officers, to adhere to high standards of conduct. Failure to comply with this Code of Conduct or our Corporate Compliance Program or applicable laws will subject the executive to disciplinary measures, which may include loss of compensation, stock, and benefits, and termination of employment for cause.

Role of Executive Officers in Determining Compensation

The compensation committee makes all final determinations with respect to executive officers’ compensation, based on information provided by its independent compensation consultants and an appraisal of the Company’s financial status. Advocat’s Chief Executive Officer does make recommendations to the compensation committee relating to the compensation of executive officers who directly report to him, but the compensation committee has full autonomy in determining executive compensation.

Tax and Accounting Considerations

Section 162(m) of the Internal Revenue Code of 1986, as amended, generally disallows a tax deduction to public companies for executive compensation in excess of $1.0 million. We have not historically paid any or our named executive officers compensation in excess of $1.0 million and it is not anticipated that we will pay any of our named executive officers compensation in excess of $1.0 million in 2007, and, accordingly, to date we have not adopted a policy in this regard.

Incentive Plan for 2007

The compensation committee has also approved the 2007 annual incentive plan. The 2007 plan is similar to the 2006 plan except that the following categories make up the potential bonus amount:


Net operating income (as defined)	70	%
Discretionary/quality measures/individual performance	30	%
Total	100	%

Net Operating Income. 70% of the bonus is based on operating income performance. This metric will be measured using budgeted operating income/loss, adjusted for the non-cash impact of professional liability expense. In addition, the Board will have the discretion to make other adjustments for unusual/unbudgeted items.

The potential bonus available would be adjusted based on actual performance, as follows:

	•		80% (or less) of budget — executive would earn 0% of the target bonus for this category.

	•		81% to 100% of budget — executive would earn 5% of the target bonus for this category for each 1% of budget achieved above 80%.

	•		101% to 125% — 15% of the incremental earned net operating income would be placed into a pool, to be shared among the participants. Sharing of the pool to be discretionary and/or pro rata.

	•		Above 125% — additional amounts may be awarded at the discretion of the Board of Directors.

Discretionary: 30% of the bonus would be based on subjective matters of performance to be awarded at the discretion of the board, including quality of care measures.

Compensation Committee Report

The compensation committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management of the Company and, based on such review and discussions, the compensation committee recommended to the board of directors of the Company that the Compensation Discussion and Analysis be included in this Proxy Statement.


Compensation Committee:		Richard M. Brame, Chair
		William C. O’Neil, Jr.
		Robert Z. Hensley
		Wallace E. Olson

This report of the Compensation Committee shall not be deemed incorporated by reference by any general statement incorporating by reference this proxy statement into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that we specifically incorporate this information by reference, and shall not otherwise be deemed filed under these acts.

How much compensation did the Company pay the Named Executive Officers during 2006?

The following table sets forth the compensation paid to the Named Executive Officers for their services in all capacities to the Company for the 2006 fiscal year.

Summary Compensation Table


Name and Principal				Option	Other Annual	All Other
Position	Year	Salary($)	Bonus($)⁽¹⁾	Awards ⁽²⁾	Compensation($)⁽³⁾	Compensation($)⁽⁴⁾	Total ($)
(a)	(b)	(c)	(d)	(e)	(f)	(g)
William R. Council, III President and Chief Executive Officer	2006	389,000	264,041	1,191,000	31,098	1,555	1,876,694

Raymond L. Tyler, Jr^. Executive Vice President and Chief Operating Officer	2006	285,000	150,628	397,000	22,805	2,834	858,267

L. Glynn Riddle, Jr. Executive Vice President and Chief Financial Officer	2006	211,000	100,547	794,000	16,917	1,516	1,123,980


⁽¹⁾		Includes Annual Incentive Bonus amounts which were expensed during 2006 and paid in March 2007.

⁽²⁾		Includes options granted in December 2005 pursuant to the 2005 Plan which were subject to shareholder approval. The options were valued and included in stock based compensation expense in 2006; however, the grants were based on 2005 performance. The option awards are valued under the assumptions contained in Note 11 to our Consolidated Financial Statements. As discussed below, the Named Executive Officers were granted SOSARs in March 2007 which were related to performance by the Named Executive Officers in 2006.

⁽³⁾		Includes contributions under the Company’s Executive Incentive Retirement Plan.

⁽⁴⁾		Includes matching contributions under the Company’s 401(k) plan as well as a holiday bonus of $680, $680 and $612 paid in December 2006 to Mr. Council, Mr. Tyler and Mr. Riddle, respectively.

As discussed in the Compensation Discussion and Analysis, the Named Executive Officers received a grant of stock only stock appreciation rights in March 2007. These grants vest one-third on each of the first, second and third anniversaries of the date of grant and have an exercise price of $11.59 per share which equals the closing price of our stock on the date of grant. Mr. Council received 25,000 shares, Mr. Tyler received 15,000 shares and Mr. Riddle received 10,000 shares. Such grants were based on the performance of the Named Executive Officer in 2006; however, the grant of equity awards is required to be included in the table for the year(s) when recognized for financial statement purposes.

What plan based awards did the Company grant to the Named Executive Officers in 2006 and under what terms?

The following table describes non-equity incentive awards granted in March 2007 to our Named Executive Officers which were based on performance in 2006 and stock option grants made to our Named Executive Officers in 2005 which were subject to shareholder approval and thus were recognized for financial statement purposes in 2006.

Grants of Plan-Based Awards


											All Other
										All Other	Option
										Stock	Awards:
										Awards:	Number of		Exercise or
		Estimated Future Payouts Under Non-					Estimated Future Payouts Under			Number	Securities		base price		Total fair
		Equity Incentive Plan Awards ⁽¹⁾					Equity Incentive Plan Awards			of Shares	Underlying		of option		market
	Grant	Threshold	Target		Maximum		Threshold	Target	Maximum	of Stock	Options (#)		awards		value on
Name	Date	($)	($)		($)		($)	($)	($)	(#)	⁽²⁾ ⁽³⁾		($/sh) ⁽⁴⁾		grant date

William R. Council III	N/A	—		194,500		389,000	—	—	—	—		—		—		—
Raymond L. Tyler, Jr.	N/A	—		114,000		228,000	—	—	—	—		—		—		—
L. Glynn Riddle, Jr.	N/A	—		73,850		147,700	—	—	—	—		—		—		—
William R. Council III	12/13/05	—		—		—	—	—	—	—		75,000	$	5.44	$	1,191,000
Raymond L. Tyler, Jr.	12/13/05	—		—		—	—	—	—	—		25,000	$	5.44	$	397,000
L. Glynn Riddle, Jr.	12/13/05	—		—		—	—	—	—	—		50,000	$	5.44	$	794,000


⁽¹⁾		Amounts represent target and maximum bonus percentages for 2006 and are based upon the salaries of the executive officers as of December 31, 2006. The target amount is based on the Company achieving 125% of budget. The amount actually paid under this non-equity incentive plan is included in the Summary Compensation Table (column d).

⁽²⁾		These options were granted in December 2005, but were subject to shareholder approval. As a result, the expense was recognized for financial statement purposes in 2006 although the grant of the options related to performance for 2005. This table does not include the SOSARs granted in March 2007 which related to performance for 2006 as discussed above.

⁽³⁾		These awards are also included in the Summary Compensation Table (column e) and the Outstanding Equity Awards at Year End table.

⁽⁴⁾		Exercise or base price of option awards is based on the fair market price on the date of grant

How many equity awards are currently held by the Named Executive Officers?

Outstanding Equity Awards at Year End December 31, 2006

Option Awards

Stock Awards

Equity

incentive

Equity

plan

incentive

incentive plan

awards:

plan

awards:

number

awards:

Number of

number of

Market

market or payout

securities

Number

value of

unearned

value of

underlying

of shares

shares

unearned

unexercised

Option

that have

shares that

options (#)

unearned

exercise

expiration

not

not vested

have not

Name

exercisable

unexercisable

options (#)

price ($)

date

vested

vested (#)

(#)

vested (#)

William R. Council III

50,000

—

0.35

04/09/2011

—

William R. Council III

75,000

—

5.44

12/13/2015

—

Raymond L. Tyler, Jr.

25,000

—

0.35

04/09/2011

—

Raymond L. Tyler, Jr.

25,000

—

5.44

12/13/2015

—

L. Glynn Riddle, Jr.

50,000

—

5.44

12/13/2015

—

No Named Executive Officers exercised equity awards during 2006.

Is the Company a party to any key employment agreements or advisor agreements?

Yes. Effective March 31, 2006, the Company entered into employment agreements (the “Employment Agreements”) with Mr. Council to serve as Chief Executive Officer, Mr. Tyler to serve as Chief Operating Officer and Mr. Riddle to serve as Chief Financial Officer. The Employment Agreements each have an initial term of one year. Thereafter, the Employment Agreements renew automatically for one-year periods unless 30 days notice is given by either the Company or the employee. The Employment Agreements may be terminated by the Company without cause at any time and by the employee as a result of “constructive discharge” (e.g., a reduction in compensation or a material change in responsibilities) or a “change in control” (e.g., certain tender offers, mergers, sales of substantially all of the assets or sales of a majority of the voting securities). In the event of a termination by the Company without cause, at the election of the employee upon a constructive discharge or change in control or upon the Company giving notice of its intent not to renew his employment agreement, Mr. Council is entitled to receive a lump sum severance payment in an amount equal to 30 months of his monthly base salary, and Mr. Tyler and Mr. Riddle are each entitled to receive lump sum severance payments in an amount equal to 12 months of monthly base salary. Furthermore, upon such termination, the employees may elect to require the Company to repurchase options granted under the Company’s stock option plans for a purchase price equal to the difference between the fair market value of the common stock at the date of termination and the stated option exercise price, provided that such fair market value is above the stated option price. In the event an Employment Agreement is terminated earlier by the Company for cause (as defined therein), or by an employee other than upon a constructive discharge or a change in control, the employees will not be entitled to any compensation following the date of such termination other than the pro rata amount of their then current base salary through such date. Upon termination of employment, other than in the case of

then current base salary through such date. Upon termination of employment, other than in the case of termination by the Company without cause or at the election of the employee upon a constructive discharge or upon a change in control, the employees are prohibited from competing with the Company for 12 months.

Potential Payments upon Termination or Change-in-Control

The following tables estimate the amounts that would be paid to each of the Named Executive Officers in the event of a termination as of December 31, 2006 under each potential reason for termination.

William R. Council, III


					Termination			Change in
					without			Control			Change in
					Cause or			Resulting in			Control Not
	Voluntary		Termination		Constructive			Termination or			Resulting in
Estimated Payments	Termination		for Cause		Discharge			Resignation			Termination			Death		Disability
Severance—Salary				—	$	972,500		$	972,500			—			—		—
Severance—Bonus		—		—	$	264,041	(1)	$	264,041	(1)		—			—		—
Vesting of unvested equity awards		—		—		—	(2)		—	(2)		—	(2)		—		—
Repurchase of outstanding options		—		—	$	1,583,250	(3)	$	1,583,250	(3)		—			—
Benefits/Perquisites		—		—	$	55,452	(4)	$	55,452	(4)		—			—		—


TOTAL		—		—	$	2,875,243		$	2,875,243			—			—		—


⁽¹⁾		Based on the annual incentive earned by Mr. Council during 2006 which was not paid as of December 31, 2006.

⁽²⁾		As of December 31, 2006, Mr. Council did not have any equity awards which were not already fully vested. In March 2007 Mr. Council received SOSARs which vest over a 3 year period.

⁽³⁾		Based on options to purchase 125,000 shares of common stock held by Mr. Council times 16.07, the closing price of Advocat’s stock on the last trading date of the year, less the exercise price of the options. Does not include the SOSARs held by Mr. Council because they were not granted until March 7, 2007

⁽⁴⁾		Based on estimated cost of continued health insurance, disability insurance, 401(k) Company match and EIRP amounts for 18 months following termination.

Raymond L. Tyler, Jr.


					Termination			Change in
					without			Control			Change in
					Cause or			Resulting in			Control Not
	Voluntary		Termination		Constructive			Termination or			Resulting in
Estimated Payments	Termination		for Cause		Discharge			Resignation			Termination			Death		Disability
Severance—Salary		—		—	$	285,000		$	285,000			—			—		—
Severance—Bonus		—		—	$	150,628	(1)	$	150,628	(1)		—			—		—
Vesting of unvested equity awards		—		—		—	(2)		—	(2)		—	(2)		—		—
Repurchase of outstanding options		—		—	$	658,750	(3)	$	658,750	(3)		—			—		—
Benefits/Perquisites		—		—	$	57,550	(4)	$	57,550	(4)		—			—		—


TOTAL		—		—	$	1,151,928		$	1,151,928			—			—		—


⁽¹⁾		Based on the annual incentive earned by Mr. Tyler during 2006 which was not paid as of December 31, 2006.

⁽²⁾		As of December 31, 2006, Mr. Tyler did not have any equity awards which were not already fully vested. In March 2007 Mr. Tyler received SOSARs which vest over a 3 year period.

⁽³⁾		Based on options to purchase 50,000 shares of common stock held by Mr. Tyler times $16.07, the closing price of Advocat’s stock on the last trading date of the year, less the exercise price of the options. Does not include the SOSARs held by Mr. Tyler because they were not granted until March 7, 2007.

⁽⁴⁾		Based on estimated cost of continued health insurance, disability insurance, 401(k) Company match and EIRP amounts for 18 months following termination.

L. Glynn Riddle, Jr.


					Termination			Change in
					without			Control			Change in
					Cause or			Resulting in			Control Not
	Voluntary		Termination		Constructive			Termination or			Resulting in
Estimated Payments	Termination		for Cause		Discharge			Resignation			Termination			Death		Disability
Severance—Salary		—		—	$	211,000		$	211,000			—			—		—
Severance—Bonus		—		—	$	100,547	(1)	$	100,547	(1)		—			—		—
Vesting of unvested equity awards		—		—		—	(2)		—	(2)		—	(2)		—		—
Repurchase of outstanding options		—		—	$	531,500	(3)	$	531,500	(3)					—		—
Benefits/Perquisites		—		—	$	46,843	(4)	$	46,843	(4)		—			—		—


TOTAL		—		—	$	889,890		$	889,890			—			—		—


⁽¹⁾		Based on the annual incentive earned by Mr. Riddle during 2006 which was not paid as of December 31, 2006.

⁽²⁾		As of December 31, 2006, Mr. Riddle did not have any equity awards which were not already fully vested. In March 2007 Mr. Riddle received SOSARs which vest over a 3 year period.

⁽³⁾		Based on options to purchase 50,000 shares of common stock held by Mr. Riddle times $16.07, the closing price of Advocat’s stock on the last trading date of the year, less the exercise price of the options. Does not include the SOSARs held by Mr. Riddle because they were not granted until March 7, 2007.

⁽⁴⁾		Based on estimated cost of continued health insurance, disability insurance, 401(k) Company match and EIRP amounts for 18 months following termination.

Does the Company have a code of ethics for executive officers?

The Company has a code of ethics for our executive officers. A copy of the code of ethics can be found on the Company’s website at www.irinfo.com/AVC.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Company’s compensation committee currently consists of directors Olson, Brame, O’Neil and Hensley. No interlocking relationship exists between the members of the Company’s Board of Directors or compensation committee and the board of directors or compensation committee of any other company.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company does not currently have any related party transactions in effect.

Does the Company have a policy in place with respect to contracts between the Company and persons affiliated with the Company?

Advocat has a policy that any transactions between Advocat and its officers, directors and affiliates will be on terms as favorable to Advocat as can be obtained from unaffiliated third parties. Such transactions with such persons will be subject to approval by the audit committee of the board.

AUDIT COMMITTEE REPORT

The audit committee provides assistance to the board in fulfilling its obligations with respect to matters involving the accounting, auditing, financial reporting and internal control functions of Advocat. Among other things, the audit committee reviews and discusses with management and with Advocat’s independent registered public accounting firm (or “independent auditors”) the results of the year-end audit of Advocat, including the audit report and audited financial statements. The board of directors, in its business judgment, has determined that all members of the audit committee are “independent” directors, qualified to serve on the audit committee pursuant to Rules 4200(a)(15) and 4350(d) of the NASD’s listing standards. As set forth in the audit committee charter, management of the Company is responsible for the preparation, presentation and integrity of the Company’s controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. The independent auditors are responsible for auditing the Company’s financial statements and expressing an opinion as to their conformity with generally accepted accounting principles.

In connection with its review of Advocat’s audited financial statements for the fiscal year ended December 31, 2006, the audit committee reviewed and discussed the audited financial statements with management and the independent auditors, and discussed with the Company’s auditors the matters required to be discussed by SAS 61 (Codification of Statements on Auditing Standards, AU 380), as currently in effect. In addition, the audit committee received the written disclosures and the letter from BDO Seidman, LLP (“BDO”) required by Independence Standards board Standard No. 1 (Independence Discussions with Audit Committees), as currently in effect and discussed with BDO their independence from Advocat. The audit committee has determined that the provision of non-audit services rendered by BDO to Advocat is compatible with maintaining the independence of BDO from Advocat, but the audit committee will periodically review the non-audit services rendered by BDO.

The members of the audit committee are not professionally engaged in the practice of auditing or accounting and are not experts in the fields of accounting or auditing, including in respect of auditor independence. Members of the audit committee rely without independent verification on the information provided to them and on the representations made by management and the independent auditors. Accordingly, the audit committee’s oversight does not provide an independent basis to determine that management has maintained appropriate accounting and financial reporting principles or appropriate internal control and procedures designed to assure compliance with accounting standards and applicable laws and regulations. Furthermore, the audit committee’s considerations and discussions referred to above do not assure that the audit of the Company’s financial statements has been carried out in accordance with the standards of the Public Company Accounting Oversight Board (United States), that the financial statements are presented in accordance with generally accepted accounting principles or that the Company’s auditors are in fact “independent.”

Based on the review and discussions referred to above and subject to the limitations on the role and responsibilities of the audit committee referred to above and in the charter, the audit committee recommended to Advocat’s board of directors that the audited financial statements be included in Advocat’s annual report on Form 10-K for its fiscal year ended December 31, 2006, for filing with the Securities and Exchange Commission.

Who are the members of the audit committee?

The members of the audit committee are Mr. O’Neil, Mr. Brame, Mr. Hensley and Mr. Olson.

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Who is the Company’s independent registered public accounting firm?

The Company’s audit committee has selected BDO Seidman, LLP (“BDO”) as the Company’ principal independent registered public accounting firm (“independent auditors”) for the 2007 fiscal year. BDO has served as the Company’s independent auditors since the 2002 fiscal year. Representatives from BDO are expected to be present at the annual meeting, and will have an opportunity to make a statement if they desire to do so. BDO representatives are expected to be available to respond to appropriate questions.

FEES TO BDO SEIDMAN, LLP

What fees were paid to the Company’s independent auditors during fiscal 2006?

For the fiscal years ended December 31, 2006 and 2005, the total fees paid to our auditors, BDO, were as follows:


	2006		2005
Audit Fees⁽¹⁾	$	645,000	$	289,000
Audit-Related Fees⁽²⁾		10,000		9,000
Tax Fees⁽³⁾		147,000		79,000

Total Fees for Services Provided	$	802,000	$	377,000


⁽¹⁾		Audit Fees include fees billed for professional services rendered in connection with the audit of the Company’s financial statements, audit of internal control over financial reporting (pursuant to Section 404 of Sarbanes-Oxley) for the year ended December 31, 2006 and fees charged for the review of the Company’s quarterly financial statements. These fees also include assistance with the review of documents filed with the SEC.

⁽²⁾		Audit Related Fees consist of audits of the Company’s savings plan and trust.

⁽³⁾		Tax Fees include those charged for tax advice, planning and compliance.

In accordance with the charter of our audit committee and consistent with the policies of the Securities and Exchange Commission, all auditing services and all non-audit services to be provided by any independent auditor of the Company shall be pre-approved by the audit committee. All of the services above were approved by our audit committee. The pre-approval requirement was waived for approximately one percent of the 2005 fees, as permitted by SEC regulations, with the waived fees included in tax fees above. All 2006 fees were pre-approved. In assessing requests for services by the independent auditor, the audit committee considers whether such services are consistent with the auditor’s independence, whether the independent auditor is likely to provide the most effective and efficient service based upon their familiarity with the Company, and whether the service could enhance the Company’s ability to manage or control risk or improve audit quality.

The audit committee has considered whether the provision of these services is compatible with maintaining the principal accountant’s independence.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s executive officers and directors, and persons who own more than 10% of the registered class of the Company’s equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission (“SEC”). Such executive officers, directors and greater than 10% shareholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file. The SEC requires public companies to disclose in their proxy statements whether persons required to make such filings missed or made late filings. Based on a review of forms filed by its reporting persons during the last fiscal year, the Company believes that they complied with the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934, except that each of the directors and executive officers were late in filing the Form 4 with respect to the options granted in December 2005. Although the option was granted in December 2005, it was subject to shareholder approval. As a result, the Form 4 was not required until shareholder approval was obtained. The annual meeting was held on June 1, 2006, at which time the Plan was approved. Messrs. Riddle, Tyler and Hensley filed their Form 4s on June 23, 2006. Messrs. Brame, O’Neil and Council filed their Form 4s on June 26, 2006 and Mr. Olsen filed his Form 4 on June 27, 2006.

MISCELLANEOUS

It is important that proxies be returned promptly to avoid unnecessary expense. Therefore, shareholders who do not expect to attend in person are urged, regardless of the number of shares of stock owned, to date, sign and return the enclosed proxy promptly.

1621 Galleria Boulevard
Brentwood, Tennessee 37027
615.771.7575

MR A SAMPLE
DESIGNATION (IF ANY)
ADD 1
ADD 2
ADD 3
ADD 4
ADD 5
ADD 6

(SCALE)

000004

Electronic Voting Instructions

You can vote by Internet or telephone!
Available 24 hours a day, 7 days a week!

Instead of mailing your proxy, you may choose one of the two voting methods outlined below to vote your proxy.

VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR.

Proxies submitted by the Internet or telephone must be received by 11:59 p.m., Central Time, on May 16, 2007.

Vote by Internet

• Log on to the Internet and go to

www.investorvote.com

• Follow the steps outlined on the secured website.

Vote by telephone

• Call toll free 1-800-652-VOTE (8683) within the United States, Canada & Puerto Rico any time on a touch tone telephone. There is NO CHARGE to you for the call.

• Follow the instructions provided by the recorded message.

Using a black ink pen, mark your votes with an X as shown in this example. Please do not write outside the designated areas.

6 IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. 6

A Proposals — The Board of Directors recommends a vote FOR the nominees listed.

1. Election of Class I Directors:

For

Withhold

For

Withhold

01 - - William C. O’Neil, Jr.

02 - Robert Z. Hensley

2. In their discretion, on such other matters as
may properly come before the meeting.


For	Against	Abstain
o	o	o


	B Non-Voting Items Change of Address — Please print new address below.


C Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below

Signatures of Shareholder(s) should correspond exactly with the name printed hereon. Joint owners should each sign personally. Executors, administrators, trustees, etc., should give full title and authority.

Date (mm/dd/yyyy) — Please print date below.		Signature 1 — Please keep signature within the box.	Signature 2 — Please keep signature within the box.

/	/

YOUR VOTE IS IMPORTANT
Regardless of whether you plan to attend the Annual Meeting
of Shareholders, you can be sure your shares are represented at the
meeting by promptly returning your proxy in the enclosed envelope.

6 IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. 6

Proxy — Advocat Inc.

Annual Meeting of Shareholders, May 17, 2007

THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS

The undersigned hereby appoints L. Glynn Riddle, Jr., as proxy, with power of substitution, to vote all shares of the undersigned at the annual meeting of the shareholders of Advocat Inc., to be held on Thursday, May 17, 2007, at 9:00 a.m. Central Daylight Time, at the Company’s offices, 1621 Galleria Boulevard, Brentwood, Tennessee 37027 and at any adjournments or postponements thereof, in accordance with the instructions on the reverse.

THE SHARES REPRESENTED HEREBY WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, THE SHARES WILL BE VOTED FOR THE NOMINEES IN THE ELECTION OF CLASS I DIRECTORS AND IN THE DISCRETION OF THE PROXIES ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING,

PLEASE SIGN AND DATE ON THE REVERSE SIDE AND RETURN PROMPTLY

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þ	No fee required.

o	Fee computed on table below per Exchange Act Rules 14a-6(i)(4) 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):


o	Fee paid previously with preliminary materials.

o	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.