EXHIBIT 99.3
MEMORANDUM OF UNDERSTANDING
This Memorandum of Understanding ("MOU") contains the essential terms of a
settlement (the "Settlement") among Assisted Living Concepts, Inc. ("ALC");
William McBride III, Keren Brown Wilson, Stephen J. Gordon, Rhonda S. Marsh
(nka, Rhonda S. McBride), Bradley G. Razook, Richard C. Ladd, and Gloria
Cavanaugh (collectively, the "Individual Defendants") (together, ALC and the
Individual Defendants shall be referred to herein as the "ALC Defendants");
Schroder & Co., Inc., Morgan Stanley Dean Witter, and SmithBarney, Inc.
(collectively, the "Underwriters"); and plaintiffs on behalf of themselves and
all members of a class to be certified for settlement purposes (the "Settlement
Class") in In re Assisted Living Concepts, Inc. Securities Litigation, Civil No.
CV 99-167-AA (Consolidated Cases) pending in the District of Oregon (the
"Action"). ALC, the ALC Defendants, and the Underwriters shall be referred to
collectively herein as "Settling Defendants"; all plaintiffs and members of the
class shall be referred to collectively as "Plaintiffs"; and the law firms of
Stoll Stoll Berne Lokting & Shlachter, P.C., Bernstein Litowitz Berger &
Grossmann, LLP, and Schiffrin & Barroway, LLP, shall be referred to collectively
as "Plaintiffs' Co-Lead Counsel."
1. The Settlement shall be in the total amount of $30 million,
consisting of the payment by or on behalf of Settling Defendants to Plaintiffs
of $20,981,615 in cash and the delivery of a secured promissory note, the terms
of which are described below, in the amount of $9,018,385 (the "Settlement
Fund"). Participation in the Settlement by the ALC Defendants' insurance
carriers (the "Carriers") by delivery prior to July 24, 2000 to the ALC
Defendants of the Carriers' written consent to the Settlement and of the
Carriers' agreement to contribute $20 million to the Settlement Fund as set
forth herein is a condition to the Settlement. Upon deposit, subject to the
Court's denial of final approval of the Settlement, the Settlement Fund shall
become the property of Plaintiffs. The Settlement Fund shall be payable as
follows:
(a) Within three (3) business days after preliminary approval
is given to the Settlement by the Court in this Action or within sixty (60) days
of confirmation of the Carriers' participation in the Settlement, whichever
occurs earlier (but in no event later than October 23, 2000), the Carriers, on
behalf of the ALC Defendants, shall pay the sum of $20,000,000 and the
Underwriters shall pay the sum of $981,615 into an escrow account bearing
interest or holding U.S. Treasury obligations maintained on behalf of the
Settlement Class by Stoll Stoll Berne Lokting & Shlachter, P.C., as escrow
agents, subject to Court oversight (together with any other account designated
for this purpose by Plaintiffs' Co-Lead Counsel after final court approval of
the Settlement and subject to Court oversight (the "Escrow Fund")).
(b) Within three (3) business days after preliminary approval
is given to this Settlement by the Court or within sixty (60) days of
confirmation of the Carriers' participation in the Settlement whichever occurs
earlier (but no later than October 23, 2000). ALC shall deliver to Plaintiffs'
Co-Lead Counsel a promissory note from ALC in the original amount of $9,018,385
(the "Note"), made payable as directed by Plaintiffs' Co-lead Counsel, and
secured
by real property collateral satisfactory to Plaintiffs' Co-Lead Counsel as to
the terms and nature of the security interest and as to the nature and value of
the collateral. The Note shall provide that it is to be paid by ALC by
depositing immediately available federal funds into the Escrow Fund in four (4)
equal quarterly installments commencing with an initial quarterly payment due on
or before ninety (90) days following the Carriers' confirmation that they will
participate in the Settlement as set forth herein (but in no event later than
October 23, 2000), and the remaining three payments due in ninety (90) day
increments thereafter. The Note shall not bear interest if paid on a timely
basis. ALC shall have the right to prepay the Note in part or in full at any
time without penalty, subject to the default provisions set forth in paragraph
1(c) below. Plaintiffs will reconvey, through escrow, portions of the real
property collateral as requested by ALC in order to permit ALC to finance or
sell such collateral, provided that all of the following conditions are
satisfied: (1) ALC, through the escrow agent for such sale or financing
transaction, shall pay any and all net proceeds from any such sale or financing
(not in excess of outstanding liability on the Note) to the Escrow Fund to
reduce the outstanding liability on the Note; (2) the outstanding loan to
collateral value ratio and the nature, quality, and uninterrupted priority of
the remaining collateral, as determined by Plaintiffs' Co-Lead Counsel, remain
the same as at the time the real property collateral was accepted by Plaintiffs'
Co-Lead Counsel, and Plaintiffs' Co-Lead Counsel otherwise shall be satisfied
that the remaining collateral will be sufficient to secure full payment of the
Note when due; and (3) any such financing or sale transaction is on terms which
reasonably maximize the amount of financing or sale proceeds generated in light
of the collateral proposed to be released. In addition, following any quarterly
payment on the Note or other payment in excess of $2 million, Plaintiffs will
reconvey the deeds of trust and other security interests on any excess real
property collateral; provided that the loan to collateral value ratio and the
nature, quality, and uninterrupted priority of the remaining collateral, as
determined by Plaintiffs' Co-Lead Counsel, shall remain the same as at the time
the real property collateral was accepted by Plaintiffs' Co-Lead Counsel, and
Plaintiffs' Co-Lead Counsel otherwise shall be satisfied that the remaining
collateral will be sufficient to secure full payment of the Note when due. Any
prepayment(s) on the Note created by funds deposited in the Escrow Fund from the
sale or financing of collateral shall be credited against and reduce the next
quarterly payment.
(c) The Note shall provide that in the event of a failure by
ALC to make a payment due on the Note within three (3) business days of receipt
of written notice of default, the total unpaid balance shall become immediately
due and payable, interest at the rate of fifteen percent (15%) per annum shall
begin to accrue on the unpaid balance from the date the payment was due until
paid, and the prevailing party shall be entitled to recover reasonable
attorneys' fees and costs incurred in the event of litigation to collect full
payment on the Note.
2. All reasonable costs of class notice and administration of the
Settlement and taxes on interest earned to the extent required by law shall be
paid out of the Escrow Fund. If the Settlement is not approved by the Court,
within five (5) business days of entry of the Court's decision not to approve
the Settlement the balance remaining in the Escrow Fund, including any accrued
interest (excepting a reserve for any taxes owed thereon by Plaintiffs or
Plaintiffs' Co-Lead Counsel), shall be refunded to counsel for ALC, which shall
in turn distribute said sum on a
pro rata basis to the Settling Defendants who contributed the funds, the Note
shall be canceled and returned to ALC, and the security interest in the real
property collateral shall be reconveyed to ALC. In the event the Settlement is
approved by the Court, the interest earned shall remain the property of
Plaintiffs but shall not reduce the obligation to pay a total amount of $30
million on the terms provided for herein. The allocation of the amounts to be
paid to individual Plaintiffs shall be determined by Plaintiffs, subject to
Court approval.
3. Not later than July 28, 2000, and assuming that the condition to
the Settlement set forth in paragraph 1 above is satisfied, the parties shall
submit to the Court a stipulation of class certification for settlement purposes
and all required documents to effectuate the Settlement, including a final
Settlement Agreement, a [Proposed] Preliminary Order, a Summary Notice, a Notice
of Partial Settlement, a Proof of Claim Form and Release, and a [Proposed] Final
Order for preliminary approval by the Court.
4. In the event that the condition requiring the Carriers' written
consent to this Settlement and their agreement to contribute $20,000,000 to the
Settlement Fund as set forth in paragraph 1 above is not satisfied, then this
MOU shall be null and void.
5. Within two (2) weeks after the end of the period by which
Settlement Class members must opt out of the Settlement, Plaintiffs' Co-Lead
Counsel shall give written notice (the "Notice of Opt-Outs") to Defense Counsel
for ALC and the Underwriters of the number of shares of common stock, the number
of five and five-eighths percent (5 5/8%) debentures, and the number of six
percent (6%) debentures purchased by Settlement Class members during the Class
Period who have elected to opt out of the Settlement Class. Upon receipt of the
Notice of Opt-Outs, and in the event that the number of shares purchased during
the Class Period by Settlement Class members electing to opt out of the
Settlement Class represent (i) five percent (5%) or more of the total number of
common shares in the class, as determined by Plaintiffs' damage expert, or (ii)
five percent (5%) or more of the total number of five and five-eighths percent
(5 5/8%) debentures, then, at the option of ALC, within five (5) business days
after receipt of notice from Plaintiffs' Co-Lead Counsel of such determination,
ALC shall provide written notice to Plaintiffs' Co-Lead Counsel of its intention
not to go through with the Settlement. In the event that persons opting out of
the Settlement Class represent five percent (5%) or more of the total number of
six percent (6%) debentures, then, at the option of either ALC or the
Underwriters, within five (5) business days after receipt of notice from
Plaintiffs' Co-Lead Counsel of such determination, ALC or the Underwriters shall
provide written notice to Plaintiffs' Co-Lead Counsel of their intention not to
go through with the Settlement. Upon receipt of said termination notice,
Plaintiffs' Co-Lead Counsel may within fourteen (14) calendar days of receipt of
said termination notice (or such longer period as may be agreed upon in writing
between Plaintiffs' Co-Lead Counsel and counsel for ALC and for the
Underwriters), review the validity of any request to opt out of the Settlement
Class and/or attempt to cause the retraction, revocation, or withdrawal of any
opt-out request. If, within said period, Plaintiffs' Co-Lead Counsel succeed in
causing the filing with the Court of retractions, revocations, or withdrawals of
a sufficient number of opt-out requests such that the number of shares or
debentures represented by the remaining requests to opt out of the Settlement
Class do not
constitute grounds for termination of the Settlement, then the termination
notice shall be deemed a nullity, and the Settlement shall proceed in accordance
with the Final Settlement Agreement.
6. The Stipulation of Settlement shall include a full release in a
form acceptable to all parties of all direct, derivative, and/or representative
claims by Plaintiffs and all members of the Settlement Class against each of the
Settling Defendants, their officers, directors, affiliates, employees, financial
advisors, and counsel arising from the allegations asserted in the Action or
which could have been asserted in the Action and a release of all counsel in the
Action. The Stipulation of Settlement shall also include a release by the
Underwriters of all claims against the remaining Settling Defendants, a release
by the remaining Settling Defendants of all claims against the Underwriters, and
a covenant not to sue by Settling Defendants as to all claims against KPMG
arising from or relating to the allegations asserted in the Action.
Notwithstanding any other provision of this agreement and the Settlement,
Plaintiffs preserve all claims of any nature whatsoever against KPMG and any
other nonreleased party.
7. Each party shall bear its own attorneys' fees and costs. Attorneys'
fees and costs awarded to Plaintiffs' Co-Lead Counsel shall be paid solely out
of and shall not be in addition to the Settlement amount set forth herein.
8. The parties will cooperate in good faith to execute expeditiously a
Final Settlement Agreement. The Settlement is further conditioned upon
receiving final judicial approval of all settlement terms, after notice and a
fairness hearing, a final judgment of dismissal of the Settling Defendants with
prejudice from the Action, and the entry of a contribution bar order precluding
KPMG and/or any defendant not a party to this Settlement from asserting any
claims arising from the allegations asserted in this litigation against any
Settling Defendant.
9. Assuming the Carriers confirm their participation in the
Settlement, Settling Defendants will reasonably cooperate with Plaintiffs'
Counsel by making available for interviews and sworn statements, witnesses under
the control of Settling Defendants as reasonably requested by Plaintiffs'
Counsel, including reasonable follow-up, and by responding to reasonable
document requests. However, Settling Defendants expressly reserve their rights
to object to the production of any document protected from discovery by the
attorney-client work product, or other privileges. In addition, Settling
Defendants shall not hinder or otherwise obstruct Plaintiffs from obtaining
reasonable discovery from any entity described in the complaints filed in this
matter by Plaintiffs, including without limitation HEI, its successor and/or any
current or former members of HEI, or any attorneys or accountants for such
entities or individuals.
10. At the option of ALC, the terms of the Settlement shall remain
confidential until the Stipulation of Settlement is filed with the Court or such
earlier time as determined by ALC. ALC shall give advance notice to Plaintiffs'
Co-Lead Counsel and counsel for the Underwriters before issuing a press release
announcing the Settlement. The Plaintiffs and the Settling Defendants and their
counsel agree that they will refrain from disparaging each other in any public
statements.
STOLL STOLL BERNE LOKTING & STOEL RIVES LLP
SHLACHTER, P.C.
/s/ David Rees 7/3/00 /s/ Barnes H. Ellis 9/5/00
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GARY M. BERNE Dated BARNES H. ELLIS Dated
DAVID F. REES LOIS O. ROSENBAUM
Attorneys for Plaintiffs Attorneys for ALC Defendants
BERNSTEIN LITOWITZ BERGER & CAHILL GORDON & REINDEL
GROSSMANN LLP
/s/ David Rees for 7/3/00 /s/ Leonard A. Spivak 7/3/00
- -------------------------------------- ---------------------------------------
MAX W. BERGER Dated LEONARD A. SPIVAK Dated
STEVEN B. SINGER Attorneys for Underwriters
Attorneys for Plaintiffs
SCHIFFRIN & BARROWAY, LLP STROOCK & STROOCK & LAVAN LLP
/s/ David Rees for 7/3/00
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DAVID KESSLER Dated MELVIN A. BROSTERMAN Dated
Attorneys for Plaintiffs Attorneys for Defendants Richard C. Ladd,
Bradley G. Razook, and Gloria Cavanaugh