In full settlement of the Action against the Settling Defendants, the Settling Defendants will pay a total of $30,000,000 in cash (the “Settlement Payment”) into the Settlement Fund, as follows:

1. ALC’s Contribution to the Settlement Fund:  ALC will pay $10,018,385 into the Settlement Fund, to be documented in a non-interest bearing note (the “Note”) collateralized by certain residences satisfactory to Plaintiffs’ Co-Lead Counsel, and payable in four quarterly installments of approximately $2,255,000 each, commencing no later than October 23, 2000, with a fifth and final payment of $1,000,000 due within ninety days following the final quarterly payment.

2. The Underwriter Defendants’ Contribution to the Settlement Fund: The Underwriter Defendants will pay the sum of $981,615 in cash into the Settlement Fund.

3. Payments on Behalf of the Individual Defendants: On behalf of the Individual Defendants, the Carriers will pay a total of $19,000,000 in cash into the Settlement Fund, as follows:

a.                 In two separate payments, National Union will pay the sum of $9,000,000 in cash into the Settlement Fund.

b.                 Federal will pay the sum of $10,000,000 in cash into the Settlement Fund.

The Settlement does not affect the Class' claims against KPMG, which continue to be prosecuted.

The consideration for the Settlement Payment is the entry by the Court of an Order and Final Judgment which will dismiss the Class Action against the Settling Defendants with prejudice, and bar and permanently enjoin plaintiffs and each Class Member (with the exception of those who request exclusion from the Class by November 15, 2000, in the manner described herein), whether or not such Class Member has submitted a Proof of Claim, from prosecuting the Released Claims, as defined below, and any such Class Member shall be conclusively deemed to have fully, finally and forever released, relinquished and discharged any and all such Released Claims. 

As used herein, “Released Claims” means all claims, rights, causes of action, suits, matters and issues, whether known or unknown arising out of or related to the subject matter of the Action or claims asserted by or on behalf of plaintiffs or any member of the Class, whether individual, class, derivative, representative, legal, equitable or any other type or in any other capacity, against any one or more Released Party.

Upon approval of the Settlement by the Court and upon satisfaction of the other conditions to the Settlement, the Settlement Fund will be distributed as follows:

A. To pay costs and expenses in connection with providing Notice to the members of the Class and administering the Settlement on behalf of the Class;

B.  To pay Plaintiffs’ Counsel’s attorneys’ fees and reimbursement of expenses, with interest thereon (the “Fee Award”), if and to the extent allowed by the Court;

C.  To pay the reasonable costs incurred in the preparation of any tax returns required to be filed on behalf of the Settlement Fund as well as the taxes (and any interest and penalties determined to be due thereon) owed by reason of the earnings of the Settlement Fund, including taxes and tax expenses;

D. Subject to the approval by the Court of the Plan of Distribution, which is attached to this Notice, the balance of the Settlement Fund (the “Net Settlement Fund”), shall be distributed in accordance with the Plan of Distribution to Class Members who submit valid, timely Proofs of Claim (“Authorized Claimants”); and

E.  Based upon the length of time over which the Settlement will be funded, the possibility exists that, upon Court approval, more than one distribution of the Net Settlement Fund will be made.

The Proof of Claim includes a general release of each of the Settling Defendants in the form set forth in the Proof of Claim accompanying this Notice and supported by such documents as specified in the Proof of Claim as are reasonably available to the 

Authorized Claimant.  The Proof of Claim is enclosed herewith.  Extra copies can be obtained from the address noted below:

Assisted Living Concepts Securities Litigation
c/o The Garden City Group, Claims Administrator
P.O. Box 9414
Garden City, New York 11530-9414
Website: www.alcsecuritieslit.com
Phone number: (800) 222-4095

The Settlement Hearing will be held before the Honorable Ann Aiken, United States District Court Judge, on November 30, 2000, at 10:00 a.m. at the Mark O. Hatfield United States Courthouse, District of Oregon, 1000 S.W. Third Avenue, Portland, Oregon 97204, for the purpose of determining whether an Order and Final Judgment should be entered: (1) approving the proposed Settlement as fair, reasonable and adequate; (2) dismissing the Action on the merits and with prejudice as against the Settling Defendants;          (3) approving the Plan of Distribution which is attached hereto; (4) awarding attorneys’ fees and expenses from the Settlement Fund; and (5) barring plaintiffs and all Class members from prosecuting, pursuing, or litigating any of the Released Claims against any of the Settling Defendants.  The Settlement Hearing may be continued or adjourned from time to time by the Court at the Settlement Hearing or any continued or adjourned session thereof without further notice.

Any member of the Class who does not request exclusion by November 15, 2000, may appear at the Settlement Hearing and be heard on any of the foregoing matters; provided, however, that no such person shall be heard, unless his, her or its objection or opposition is made in writing and is filed, together with copies of all other papers and briefs to be submitted to the Court at the Settlement Hearing, by him, her or it (including proof of all purchases of ALC common stock and debentures during the Class Period) with the Court no later than November 15, 2000, and showing due proof of service on the following:

STOLL STOLL BERNE LOKTING & SHLACHTER P.C.
DAVID F. REES, ESQ.
209 S.W. OAK STREET, FIFTH FLOOR
PORTLAND, OREGON 97204

Unless otherwise ordered by the Court, any member of the Class who does not make his objection or opposition in the manner provided shall be deemed to have waived all objections to the foregoing matters. 

Plaintiffs’ Co-Lead Counsel will apply to the Court at the Settlement Hearing described above for a collective award of attorneys’ fees to all plaintiffs’ law firms equal to 25% of the Settlement Fund including any accrued interest thereon, and reimbursement of expenses not to exceed $100,000, which were advanced in connection with the Action, together with interest earned on said sums.

To date, Plaintiffs’ Counsel have not received any payment for their services in conducting this Action on behalf of plaintiffs and the Class, nor have counsel been reimbursed for their out-of-pocket expenses.  The fee requested by Plaintiffs’ Co-Lead Counsel would compensate counsel for their efforts in achieving the Settlement Fund for the benefit of the Class, and for their risk in undertaking this representation on a contingency basis.  The fee requested is within the range of fees awarded to Plaintiffs’ Counsel under similar circumstances in litigation of this type.

Banks, brokerage firms, institutions, and other persons who are nominees for beneficial purchasers who purchased or otherwise acquired ALC common stock or debentures during the Class Period are requested within ten (10) days of receipt of this Notice, to: (1) provide Plaintiffs’ Co-Lead Counsel with the names and addresses of such beneficial purchasers; or (2) forward a copy of this Notice to each such beneficial purchaser and provide Plaintiffs’ Co-Lead Counsel with written confirmation that the Notice has been so forwarded.  Plaintiffs’ Co-Lead Counsel offers to prepay your reasonable costs and expenses of complying with this provision upon submission of appropriate documentation. Additional, postage pre‑paid copies of this Notice may be obtained from Plaintiffs’ Co-Lead Counsel for forwarding to such beneficial owners.  All such correspondence to Plaintiffs’ Co-Lead Counsel should be addressed as follows

  To receive a distribution from the Net Settlement Fund, all persons or entities must:

            1. Establish membership in the Class;

            2. Complete a valid claim form and supply all required documentation;

    3. Submit the completed claim form and documentation so that it is postmarked for mailing to the Claims Administrator on or before

                January 31, 2001.

II. CALCULATION OF LOSS AMOUNT FOR CLAIMS

      A "Loss Amount" will be calculated for each purchase or acquisition of ALC common stock or debentures that is listed in the claim form, and for which adequate documentation is provided.  The calculation of the Loss Amount will depend upon several factors:

            1. The type of publicly traded security purchased or acquired (common stock or debentures);

            2. When the security was purchased or acquired; and

            3. Whether the security was held until the conclusion of the Class Period (March 31, 1999) or whether it was sold during the Class Period and, if so, when it was sold.

III. EFFECT OF STOCK SPLIT DURING THE CLASS PERIOD

      Loss Amounts for ALC common stock will be adjusted to reflect the effect of the two‑for‑one stock split that became effective on July 10, 1997.  Each ALC share purchased prior to July 10, 1997, will be considered to be two shares for the purpose of computing Loss Amounts.  No such adjustment will be made for shares purchased or acquired on or after July 10, 1997.

IV. BASIS FOR CALCULATION OF LOSS AMOUNT

      Loss Amounts are based on the level of artificial inflation in the prices of ALC stock and debentures, as determined by plaintiffs’ damages expert. 

                A. ALC Common Stock

                Plaintiffs’ damages expert calculated the reasonable percentage of artificial inflation in the daily closing market prices for ALC common stock for each day in the Class Period that, in its opinion, was attributable to the alleged wrongdoing.  Plaintiffs’ damages expert analyzed the market price reaction to public disclosures that revealed or described the alleged misrepresentations or their effects.  The expert then measured the percentage price decline associated with each particular disclosure, adjusted that price reaction to eliminate the effects, if any, attributable to general market or industry conditions, and then used standard statistical techniques to ensure that the price reaction was statistically significant.  Plaintiffs’ expert, thus, isolated the price effect that the expert reasonably believed was caused by the alleged fraud.

                By accumulating the total isolated market reaction attributable to each public disclosure of the alleged fraud, plaintiffs’ expert determined the reasonable amount of total artificial inflation in the market price of ALC stock.  Plaintiffs’ damages expert allocated the total artificial inflation as of the end of the Class Period to each quarterly period before that day in direct proportion to the relationship that each such period’s overstatement bore to the total amount of earnings overstatement in ALC’s publicly reported financial statements.  The Company overstated each quarter’s earnings throughout the Class Period; accordingly, the cumulative amount of earnings overstatement grew for each succeeding quarter, which caused the estimated percentage of artificial inflation to increase proportionately with each quarterly earnings announcement.

                        1.  For shares of ALC common stock purchased or acquired during the period from February 6, 1997, through the close of trading on March 31, 1999:

                                a. And that were still held as of the close of trading on March 31, 1999: The Loss Amount is the amount indicated in Table A for the date that share was purchased or acquired.

                                b. And that were sold during the period from February 1, 1999 (the date ALC first disclosed a restatement of certain of its financial statements) through the close of trading on March 31, 1999: The Loss Amount is the amount by which the Loss Amount per share on the date of purchase or acquisition exceeds the Loss Amount per share on the date of sale, each as set forth in Table A.

2.  For shares of ALC Common stock purchased or acquired during the period from February 6, 1997, through the opening of trading on February 1, 1999, and that were sold during the same time period, the Loss Amount is $0, because (i) both the purchase and sale occurred before any adverse information about ALC’s accounting improprieties was publicly disclosed; (ii) the percentage of artificial inflation in the closing market price, as determined by plaintiffs’ damages expert, increased throughout the period from February 6, 1997 through the opening of trading on February 1, 1999; and (iii) plaintiffs have not found evidence that any decline in the price of ALC stock that occurred prior to the opening of trading on February 1, 1999 was related to the alleged fraud.

                B. 6% Convertible Subordinated Debentures due November 2002

                        1.   For ALC’s 6% Convertible Subordinated Debentures Due November 2002 (the "6% Debentures") purchased or acquired during the period from October 21, 1997 through the opening of trading on February 1, 1999:

                                a. And that were still held as of the close of trading on March 31, 1999:  The Loss Amount is the lesser of (i) the purchase price or $80.75 (the price of the 6% Debentures prior to the Company’s February 1, 1999 announcement) minus (ii) the greater of the sale price or $58.20 (the value of the 6% Debentures at the end of the Class Period, as determined by plaintiffs’ damages expert). 

                                b. And that were sold during the period from February 1, 1999 through the close of trading on March 31, 1999:  The Loss Amount is (i) the lesser of the purchase price or $80.75 minus (ii) the greater of the sale price and $58.20.

                                c. And that were sold prior to the opening of trading on February 1, 1999: The Loss Amount is $0, because (i) both the purchase and sale occurred before any adverse information about ALC’s alleged accounting improprieties was publicly disclosed; and (ii) plaintiffs have not found evidence that any decline in the price of the 6% Debentures that occurred prior to the opening of trading on February 1, 1999, was related to the alleged misstatements. 

                        2.   For 6% Debentures purchased or acquired during the period from February 1, 1999, through the close of trading on March 31, 1999, inclusive:

                                a. And that were still held as of the close of trading on March 31, 1999:  The Loss Amount is (i) the lesser of the purchase price or $80.75 minus (ii) $58.20.   

                                b. And that were sold during the period from February 1, 1999, through the close of trading on March 31, 1999: The Loss Amount is (i) the lesser of the purchase price or $80.75 minus (ii) the greater of the sale price and $58.20.

                C.  5 5/8% Convertible Subordinated Debentures due May 2003

                        1.  For ALC’s 5 5/8% Convertible Subordinated Debentures due November 2002 (the "5 5/8% Debentures") that were purchased or acquired during the period from July 22, 1998 through the opening of trading on February 1, 1999:

                                a. And that were still held as of the close of trading on March 31, 1999: The Loss Amount is (i) the lesser of the purchase price or $82.125 (the price of the 5 5/8% Debentures prior to the Company’s February 1, 1999 announcement) minus (ii) the greater of the sale price or $56.78 (the value of the 5 5/8% Debentures at the end of the Class Period, as determined by plaintiffs’ damages expert).

                                b. And that were sold during the period from February 1, 1999 through the close of trading on March 31, 1999: The Loss Amount is the lesser of (i) the purchase price or $82.125 minus (ii) the greater of the sale price or $56.78.   

                                c. And that were sold prior to the opening of trading on February 1, 1999: The Loss Amount is $0, because (i) both the purchase and sale occurred before any adverse information about ALC’s accounting improprieties was publicly disclosed; and (ii) plaintiffs have not found evidence that any decline in the price of the 5 5/8% Debentures that occurred prior to the opening of trading on February 1, 1999, was related to the alleged misstatements. 

                        2.   For 5 5/8% Debentures purchased or acquired during the period from February 1, 1999, through the close of trading on March 31, 1999:

                                a. And that were sold during the period from February 1, 1999, through the close of trading on March 31, 1999: The Loss Amount is (i) the lesser of the purchase price or $82.125 minus (ii) the greater of the sale price or $56.78.

                                b. And that were still held as of the close of trading on March 31, 1999: The Loss Amount is (i) the lesser of the purchase price or $82.125 minus (ii) $56.78.   

V. GENERAL PROVISIONS

                1. Each Authorized Claimant shall recover his or her Loss Amount.  However, in the event that the sum total of Loss Amounts of all Authorized Claimants who are entitled to receive payment out of the Net Settlement Fund is greater than the Net Settlement Fund, each such Authorized Claimant shall receive his/her pro rata share of the Net Settlement Fund, which shall be his/her Loss Amount divided by the total of all Loss Amounts to be paid from the Net Settlement Fund, multiplied by the total amount in the Net Settlement Fund.                      

                2. If the Net Settlement Fund exceeds the sum total amount of the Loss Amounts of all Authorized Claimants entitled to receive payment out of the Net Settlement Fund, the excess amount in the Net Settlement Fund shall be distributed pro rata to all Authorized Claimants entitled to receive payment out of the Net Settlement Fund until such Authorized Claimants have received an amount equal to 100% of their Loss Amounts.

                3. Each Authorized Claimant will be required to provide proof of his or her ownership position in (i) ALC common stock as of February 6, 1997 (the first day of the Class Period); (ii) the 6% Debentures as of October 21, 1997 and (iii) the 5 5/8% Debentures as of July 22, 1998.  Any sales of such securities during the Class Period will first be offset against the Authorized Claimant’s opening position in each security.  Remaining sales will be offset against the Authorized Claimant’s purchases during the Class Period by matching the earliest subsequent sale with the earliest purchase and chronologically thereafter for purposes of the Claim calculations.

                4. All profits on transactions in ALC securities during the Class Period shall be subtracted from all losses to determine the net Claim of each Class Member.  If the Class Member made a net profit, the value of his, her or its Claim shall be zero.

                5. If the Authorized Claimant acquired ALC common stock, 6% Debentures or 5 5/8% Debentures during the Class Period by means of a gift, inheritance or operation of law, the Authorized Claimant’s Claim will be computed by using the price of such security on the original date of purchase and not the date of transfer, unless the transfer resulted in a taxable event or other change in the cost basis of the securities.  To the extent that ALC common stock was originally purchased prior to commencement of the Class Period, and there was no such taxable event or change in cost basis at the time of transfer, the Authorized Claimant’s Claim for that acquisition shall be zero.