UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________________________ to
_______________________________
Commission file number 0-5128
SCOTT'S LIQUID GOLD-INC.
(Exact name of Registrant as specified in its charter)
Colorado 84-0920811
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4880 Havana Street, Denver, CO 80239
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (303) 373-4860
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
$0.10 Par Value Common Stock
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (? 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [x]
The aggregate market value of the Registrant's voting stock held as of
March 8, 2000, by non-affiliates of the Registrant was $5,776,961. This
calculation assumes that certain parties may be affiliates of the Registrant and
that, therefore, 5,963,007 shares of voting stock are held by non-affiliates.
As of March 8, 2000, the Registrant had 10,103,058 shares of its $0.10 par
value common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's 1999 Annual Report to shareholders is incorporated by
reference in Parts I, II and IV. The Registrant's definitive Proxy Statement
for the Annual Meeting of shareholders to be held on May 3, 2000, is
incorporated by reference in Part III.
SCOTT'S LIQUID GOLD-INC.
ANNUAL REPORT ON
FORM 10-K
FOR YEAR ENDED DECEMBER 31, 1999
PART I
Item 1. Business.
Portions of the 1999 Annual Report to shareholders of Scott's Liquid
Gold-Inc. (the "Company" or "Registrant") are attached to this Report as Exhibit
13 and are called in this Report the "Annual Report". The information set forth
under the headings "Description of Business" and "Management Discussion and
Analysis of Financial Condition and Results of Operations" of the Annual Report
hereby is incorporated by reference into this Report.
In the third quarter of 1998, the Company added a retinol product to its
skin care products. This product, sold as Alpha Hydrox Retinol Night ResQ,
includes microsponge-entrapped retinol. It is manufactured by a third party who
is the sole supplier of the product to the Company under a supply and license
agreement. The agreement has a term which continues until the earlier of (1)
the expiration of the last to expire patent relating to the product or (2) June
9, 2008. The supplier may also terminate the agreement if the Company does not
meet minimum purchase requirements.
Item 2. Properties.
The information set forth under "Description of Business - Properties,"
"Management Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" and Note 9 of Notes to
Consolidated Financial Statements of the Annual Report hereby is incorporated by
reference into this Report.
Item 3. Legal Proceedings.
As previously reported, a lawsuit was commenced in May of 1996 against
Neoteric Cosmetics, Inc. and others not related to the Company alleging
infringement of certain patents. Neoteric Cosmetics is the Company's wholly-
owned subsidiary which manufactures and sells skin care products under the name
Alpha Hydrox. The lawsuit was brought by TriStrata Technology, Inc. in the
United States District Court for the District of Delaware. The plaintiff claims
to be the assignee of five patents relating to the use of alpha hydroxy acids to
treat or reduce cosmetic conditions, particularly wrinkles or fine lines. Three
of the patents were issued in 1995; one issued in 1996; and one, which was
issued in 1992, was the subject of a re-examination completed in 1995. The
plaintiff in the lawsuit alleges that Neoteric contributes to and/or induces
infringement of the patents owned by the plaintiff by selling and promoting
Neoteric skin care products for the purpose of visibly reducing a human skin
wrinkle and/or fine lines and for the purpose of treating and/or preventing
cosmetic conditions and dermatologic disorders of the human skin such as
wrinkles and fine lines. The plaintiff requests damages to compensate the
plaintiff for any infringement, an injunction against further infringement, and
treble damages because of an alleged willful and deliberate nature of
infringement. In 1995, after the issuance of one of the patents involved in the
lawsuit, the Company changed its advertising and packaging to remove references
to wrinkles and fine lines. The Company denies the allegations of the
plaintiff, asserts the invalidity of patents, and is mounting a vigorous
defense. Certain defendants in this lawsuit, including the Company, are
cooperating with one another in matters of common interest to defend against
this action. A hearing was held in November of 1998, at which the plaintiff and
the defendants were given the opportunity to present their interpretations
regarding the scope of plaintiff's patents. In late July of 1999, the Court
issued a decision which construed broadly the plaintiff's patent claims. The
Company believes that the Court's recent decision makes more relevant prior uses
of alpha hydroxy acid for treating aging skin, including wrinkles, and
reinforces the Company's view that the plaintiff's patents are invalid. The
Company continues to mount a vigorous defense in this case. The Company cannot
predict the potential outcome of this lawsuit or the ultimate impact on the
Company's financial position or results of operations.
As previously reported, the Company had been a defendant in an
environmental lawsuit brought by the United States Justice Department at the
request of the United States Army, alleging contribution by the Company to
contamination in a groundwater aquifer underlying a portion of the Rocky
Mountain Arsenal. In October of 1996, the Company and the United States, on
behalf of the Department of the Army, negotiated a settlement of this dispute.
The Settlement Agreement, which admits no wrong doing by the Company and which
was approved by the Court on November 6, 1996, required the payment to the
United States of $6 million of which $2.4 million was paid at once by the
Company's insurers (with an additional $600,000 paid in January of 1997) and $1
million was paid by the Company. The additional $2 million, by the terms of the
Agreement, was to be paid by the Company in equal installments of $250,000 over
eight years, beginning on October 31, 1997, together with interest approximating
the Treasury Bill rate. Due to income tax considerations, the Company decided
to liquidate its entire indebtedness to the Army and did so in October of 1997.
In December, 1996, the Company filed lawsuits, now pending in the United States
District Court for the District of Colorado, against three insurers (which did
not participate in the settlement) to recover at least amounts paid to the Army
by the Company, plus punitive damages and attorneys' fees. The Company has
settlements with all but one of its insurers, and as a result of the insurance
settlements in 1996 and 1997, most of the costs incurred to resolve
environmental claims relating to the Rocky Mountain Arsenal have been recovered.
Claims for recovery of the remainder of the costs are pending against one
insurance company.
The Company has applied for federal registration of the trademark "Alpha
Hydrox" with U.S. Patent and Trademark Office. The issuance of this trademark
was challenged on the basis that the name of the Company's product is a
description of the type of acid used as an ingredient. This challenge was
denied by the United States Patent and Trademark Office in 1999. No appeal has
been filed. The Company believes that the issuance of this trademark is
forthcoming in the near future. Whether or not the federal registration of
"Alpha Hydrox" is granted to the Company, the Company claims under common law
the exclusive right to use "Alpha Hydrox" as a trademark and to the right to
prevent the use by others of confusingly similar marks. The outcome of any such
claim, if contested in court, will depend on the facts and circumstances then
existing with respect to the use of the mark in a particular geographical area.
To date, there have been no court contests, but the Company has been successful
in convincing several manufacturers to refrain from the use of names similar to
Alpha Hydrox.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Executive Officers of the Registrant.
Name of Nominee and Director Principal Occupation for
Position Age Since Last Five Years
in the Company
Mark E. Goldstein 43 1983 Chairman of the Board of the
(Chairman of the Board, Company since February 22,
President and 2000, President and Chief
Chief Executive Officer) Executive Officer since
August, 1990. From 1982 to
1990, Vice President-
Marketing of the Company.
Employed by the Company since
1978.
Carolyn J. Anderson 61 1974 Executive Vice President
(Executive Vice since 1974, Chief Operating
President, Chief Officer of the Company since
Operating 1982 and Corporate Secretary
Officer and Corporate since 1973. Employed by the
Secretary) Company since 1970.
Jeffrey R. Hinkle 46 2000 Vice President-Marketing of
the Company since February
22, 2000. From 1995 to
February 2000, Vice President-
Marketing of the Company's
subsidiaries. Employed by
the Company since 1981.
Barry Shepard 69 1982 Treasurer and Chief Financial
(Treasurer and Chief Officer of the Company since
Financial Officer) 1981 when first employed by
the Company.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The information set forth under "Corporate Data" and "Market Information"
of the Annual Report hereby is incorporated by reference into this Report.
Item 6. Selected Financial Data.
The information set forth under "Selected Financial Data" of the Annual
Report hereby is incorporated by reference into this Report.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The information set forth under "Management Discussion and Analysis of
Financial Condition and Results of Operations" of the Annual Report hereby is
incorporated by reference into this Report.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The information set forth under "Management Discussion and Analysis of
Financial Condition and Results of Operations - Market Risks" of the Annual
Report hereby is incorporated by reference into this Report.
Item 8. Financial Statements and Supplementary Data.
The information set forth under "Consolidated Financial Statements," "Notes
to Consolidated Financial Statements," "Report of Independent Public
Accountants" and "Selected Financial Data - Selected Quarterly Financial Data"
of the Annual Report hereby is incorporated by reference into this Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Item 11. Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Item 13. Certain Relationships and Related Transactions.
For Part III, the information set forth in the Company's definitive Proxy
Statement for the Company's Annual Meeting of Shareholders to be held on May 3,
2000, hereby is incorporated by reference into this Report.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a)(1) Financial Statements:
Consolidated Statements of Operations -
Years ended December 31, 1999, 1998 and 1997
Consolidated Balance Sheets -
December 31, 1999 and 1998
Consolidated Statements of Cash Flows -
Years ended December 31, 1999, 1998 and 1997
Consolidated Statements of Shareholders' Equity -
Years ended December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
(2) Financial Statement Schedules:
II - Valuation and Qualifying Accounts -
Years ended December 31, 1999, 1998 and 1997
Inasmuch as Registrant is primarily a holding company and all subsidiaries
are wholly-owned, only consolidated statements are being filed. Schedules other
than those listed above are omitted because of the absence of the conditions
under which they are required or because the information is included in the
financial statements or notes to the financial statements.
(b) Reports on Form 8-K:
The following report was filed by the Company on Form 8-K during the
quarter ended December 31, 1999: A Current Report on Form 8-K dated October 28,
1999, with an event reported under Item 5, Other Events.
(c) Exhibits:
Exhibit Document
No.
3.1 Restated Articles of Incorporation, as amended and
restated through May 1, 1996, incorporated by
reference to Exhibit 3.1 of the Company's Quarterly
Report on Form 10-Q for the quarterly period ended
June 30, 1996.
3.2 Bylaws, as amended through February 27, 1996.
4.1 Indenture of Trust (including form of First Mortgage
Bond Due 2001) dated July 1, 1994, between Registrant
and Norwest Bank Colorado, N.A. as Trustee,
incorporated by reference to Exhibit 4.1 of the
Company's Registration Statement No. 33-76690 on Form
S-2, filed with the Commission on July 7, 1994.
4.2 Combination Deed of Trust, Security Agreement and
Fixture Financing Statement, dated July 29, 1994,
between the Company, as Grantor, the Public Trustee
for the City and County of Denver, Colorado, and
Norwest Bank Colorado, N.A. as Beneficiary,
incorporated by reference to Exhibit 4.2 of the
Company's Registration Statement No. 33-76690 on Form
S-2, filed with the Commission on July 7, 1994.
10.1* Scott's Liquid Gold-Inc. Fourth Amended Health and
Accident Plan effective January 1, 1995.
10.2* Amended Key Executive Disability Plan--Scott's Liquid
Gold-Inc., incorporated by reference to Exhibit 10.2
of Annual Report on Form 10-K for the year ended
December 31, 1997.
10.3* 2000 Key Executive Bonus Plan.
10.4* Indemnification Agreements dated May 6, 1987, between
the Registrant and Mark E. Goldstein, Carolyn J.
Anderson, and Barry Shepard, incorporated by
reference to Exhibit 10.4 of Annual Report on Form 10-
K for the year ended December 31, 1998. An
Indemnification Agreement dated December 23, 1991,
between the Registrant and Dennis H. Field, and an
Amendment to Indemnification Agreement dated January
17, 1992, between the Registrant and Dennis H. Field,
incorporated by reference to Exhibit 10.5 of Annual
Report on Form 10-K for the year ended December 31,
1997. Indemnification Agreement dated February 23,
1993, between the Registrant and James F. Keane,
incorporated by reference to Exhibit 10.4 of Annual
Report on Form 10-K for the year ended December 31,
1998.
10.5* Scott's Liquid Gold-Inc. Employee Stock Ownership
Plan and Trust Agreement, effective January 1, 1989,
and First and Second Amendments thereto.
10.6* Scott's Liquid Gold-Inc. 1993 Stock Option Plan for
Outside Directors, incorporated by reference to
Exhibit 4.7 of the Company's Registration Statement
No. 33-63254 on Form S-8, filed with the Commission
on May 25, 1993.
10.7* Scott's Liquid Gold-Inc. 1998 Stock Option Plan,
incorporated by reference to Exhibit 4.3 of the
Company's Registration Statement No. 333-67141, filed
with the Commission on November 12, 1998.
13 Portions of 1999 Annual Report to Security Holders.
21 List of Subsidiaries incorporated by reference to
Exhibit 21 of Annual Report on Form 10-K for the year
ended December 31, 1998.
23 Consent of Arthur Andersen LLP.
24 Powers of Attorney.
27 Financial Data Schedule.
____________________________________
*Management contract or compensatory plan or arrangement
<TABLE>
Supporting Schedules
Scott's Liquid Gold-Inc and Subsidiaries
Valuation and Qualifying Accounts
Schedule II
Column A Column B Column C Column D Column E
Additions Deductions
Balance at 1 2 Balance at
Description Beginning Charge to Charges to End of
of Period Costs and other Period
Expenses Accounts
<S> <C> <C> <C> <C>
Year Ended December 31, 1999
Allowance for doubtful accounts $679,200 -- $33,700 (1) $645,500
Year Ended December 31, 1998
Allowance for doubtful accounts $635,700 $43,600 $100 (1) $679,200
Year Ended December 31, 1997
Allowance for doubtful accounts $580,400 $68,000 $12,700 (1) $635,700
(1) Uncollectible accounts written off, net of recoveries.
</TABLE>
Report of Independent Public Accountants
To the Board of Directors and Shreholders of scott's Liquid Gold-Inc.:
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements included in Scott's Liquid Gold-Inc.'s 1999
Annual Report incorporated by reference in this Form 10-K, and have issued our
report thereon dated January 25, 2000. Our audit was made for the purpose of
forming an opinion on those statements taken as a whole. The supplemental
Schedule II is the responsibility of the Company's management and is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic consolidated financial statements. This schedule
has been subjected to the auditing procedures applied in the audit of the basic
consolidated financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
Arthur Andersen LLP
Denver, Colorado
January 25, 2000
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Date: March 30, 2000.
SCOTT'S LIQUID GOLD-INC.
a Colorado corporation
By: /s/ Mark E. Goldstein
Mark E. Goldstein, President
Principal Executive Officer
By: /s/ Barry Shepard
Barry Shepard, Treasurer
Principal Financial Officer
By: /s/ Jeffry B. Johnson
Jeffry B. Johnson, Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons of the Registrant and in
the capacities and on the dates indicated:
Date Name and Title Signature
March 30, 2000 Carolyn J. Anderson, )
Director )
) /s/ Barry Shepard
March 30, 2000 Dennis H. Field, ) Barry Shepard, for himself
Director ) and as Attorney-in-Fact for
) the named directors who
March 30, 2000 Mark E. Goldstein, ) together constitute all of
Director ) the members of
) Registrant's Board of
) Directors
March 30, 2000 James F. Keane, )
Director )
)
March 30, 2000 Barry Shepard, )
Director )
EXHIBIT INDEX
Exhibit Document
No.
3.1 Restated Articles of Incorporation, as amended and
restated through May 1, 1996, incorporated by reference to
Exhibit 3.1 of the Company's Quarterly Report on Form 10-Q
for the quarterly period ended June 30, 1996.
3.2 Bylaws, as amended through February 27, 1996.
4.1 Indenture of Trust (including form of First Mortgage Bond
Due 2001) dated July 1, 1994 between Registrant and
Norwest Bank Colorado, N.A. as Trustee, incorporated by
reference to Exhibit 4.1 of the Company's Registration
Statement No. 33-76690 on Form S-2, filed with the
Commission on July 7, 1994.
4.2 Combination Deed of Trust, Security Agreement and Fixture
Financing Statement, dated July 29, 1994, between the
Company, as Grantor, the Public Trustee for the City and
County of Denver, Colorado, and Norwest Bank Colorado,
N.A. as Beneficiary, incorporated by reference to Exhibit
4.2 of the Company's Registration Statement No. 33-76690
on Form S-2, filed with the Commission on July 7, 1994.
10.1* Scott's Liquid Gold-Inc. Fourth Amended Health and
Accident Plan effective January 1, 1995.
10.2* Amended Key Executive Disability Plan--Scott's Liquid
Gold-Inc., incorporated by reference to Exhibit 10.2 of
Annual Report on Form 10-K for the year ended December 31,
1997.
10.3* 2000 Key Executive Bonus Plan.
10.4* Indemnification Agreements dated May 6, 1987, between the
Registrant and Mark E. Goldstein, Carolyn J. Anderson, and
Barry Shepard, incorporated by reference to Exhibit 10.4
of Annual Report on Form 10-K for the year ended
December 31, 1998. An Indemnification Agreement dated
December 23, 1991, between the Registrant and Dennis H.
Field, and an Amendment to Indemnification Agreement dated
January 17, 1992, between the Registrant and Dennis H.
Field, incorporated by reference to Exhibit 10.5 of Annual
Report on Form 10-K for the year ended December 31, 1997.
Indemnification Agreement dated February 23, 1993, between
the Registrant and James F. Keane, incorporated by
reference to Exhibit 10.4 of Annual Report on Form 10-K
for the year ended December 31, 1998.
10.5* Scott's Liquid Gold-Inc. Employee Stock Ownership Plan and
Trust Agreement, effective January 1, 1989, and First and
Second Amendments thereto.
10.6* Scott's Liquid Gold-Inc. 1993 Stock Option Plan for
Outside Directors, incorporated by reference to Exhibit
4.7 of the Company's Registration Statement No. 33-63254
on Form S-8, filed with the Commission on May 25, 1993.
10.7* Scott's Liquid Gold-Inc. 1998 Stock Option Plan,
incorporated by reference to Exhibit 4.3 of the Company's
Registration Statement No. 333-67141, filed with the
Commission on November 12, 1998..
13 Portions of 1999 Annual Report to Security Holders.
21 List of Subsidiaries incorporated by reference to Exhibit
21 of Annual Report on Form 10-K for the year ended
December 31, 1998.
23 Consent of Arthur Andersen LLP.
24 Powers of Attorney.
27 Financial Data Schedule
*Management contract or compensatory plan or arrangement
EXHIBIT NO. 3.2
BYLAWS
OF
SCOTT'S LIQUID GOLD-INC.
(A Colorado Corporation)
Effective as of February 27, 1996
Exhibit B
to
Resolutions of Board of Directors
Dated February 27, 1996
BYLAWS
OF
SCOTT'S LIQUID GOLD-INC.
(A Colorado Corporation)
Effective as of February 27, 1996
TABLE OF CONTENTS
Page
Article I Offices 1
Section 1.1 Business Offices 1
Section 1.2 Principal Office 1
Section 1.3 Registered Office 1
Article II Shareholders' Meetings 1
Section 2.1 Annual Meetings 1
Section 2.2 Special Meetings 2
Section 2.3 Place of Special Meetings 2
Section 2.4 Notice of Meetings 2
Section 2.5 Shareholders' List 3
Section 2.6 Organization 3
Section 2.7 Agenda and Procedure 3
Section 2.8 Quorum 3
Section 2.9 Adjournment 4
Section 2.10 Voting 4
Section 2.11 Inspectors 5
Section 2.12 Meeting by Telecommunication 5
Article III Board of Directors 5
Section 3.1 Authority, Election and Tenure 5
Section 3.2 Number and Qualification 6
Section 3.3 Regular Meetings 6
Section 3.4 Special Meetings 6
Section 3.5 Place of Meetings 6
Section 3.6 Notice of Meetings 6
Section 3.7 Quorum and Voting 7
Section 3.8 Organization, Agenda and Procedure 7
Section 3.9 Resignation 7
Section 3.10 Removal 7
Section 3.11 Vacancies 7
Section 3.12 Executive and Other Committees 8
Section 3.13 Compensation of Directors 8
Section 3.14 Meeting by Telecommunication 9
of Shareholders and Directors by Consent 9
Section 4.1 Waiver of Notice 9
Section 4.2 Action Without a Meeting 9
Article V Officers 10
Section 5.1 Election and Tenure 10
Section 5.2 Resignation, Removal and Vacancies 10
Section 5.3 Chairman of the Board 11
Section 5.4 President 11
Section 5.5 Vice Presidents 11
Section 5.6 Secretary 11
Section 5.7 Treasurer 12
Section 5.8 Assistant Secretaries and Assistant Treasurers 12
Section 5.9 Bond of Officers 12
Section 5.10 Compensation 12
Article VI Indemnification 13
Section 6.1 Indemnification 13
Section 6.2 Provisions Not Exclusive 13
Section 6.3 Effect of Modification 13
Section 6.4 Definitions 13
Section 6.5 Insurance 14
Section 6.6 Expenses as a Witness 14
Section 6.7 Notice to Shareholders 15
Article VII Execution of Instruments; Loans;
Checks and Endorsements; 15
Deposits; Proxies 15
Section 7.1 Execution of Instruments 15
Section 7.2 Borrowing 15
Section 7.3 Loans to Directors, Officers and Employees 15
Section 7.4 Checks and Endorsements 16
Section 7.5 Deposits 16
Section 7.6 Proxies 16
Article VIII Shares of Stock 16
Section 8.1 Certificates of Stock 16
Section 8.2 Shares Without Certificates 17
Section 8.3 Record 17
Section 8.4 Transfer of Stock 17
Section 8.5 Transfer Agents and Registrars; Regulations 17
Section 8.6 Lost, Destroyed or Mutilated Certificates 18
Article IX Corporate Seal 18
Article X Fiscal Year 18
Article XI Corporate Records 18
Section 11.1 Corporate Records 18
Section 11.2 Addresses of Shareholders 19
Section 11.3 Fixing Record Date 19
Section 11.4 Inspection of Corporate Records 19
Section 11.5 Distribution of Financial Statements 19
Section 11.6 Audits of Books and Accounts 19
Article XII Emergency Bylaws and Actions 20
Article XIII Amendments 20
BYLAWS
OF
SCOTT'S LIQUID GOLD-INC.
(A Colorado Corporation)
Section 1.
Article I
Offices
Section 1.1 Business Offices. The Corporation may have one or more offices
at such place or places within or without the State of Colorado as the Board of
Directors may from time to time determine or as the business of the Corporation
may require.
Section 1.2 Principal Office. The initial principal office of the
Corporation shall be as set forth in the Articles of Incorporation. The Board
of Directors, from time to time, may change the principal office of the
Corporation.
Section 1.3 Registered Office. The registered office of the Corporation
shall be as set forth in the Articles of Incorporation, unless changed as
provided by the provisions of the Colorado Business Corporation Act, as it may
be amended from time to time, or any successor law (the "Act").
Section 2.
Article II
Shareholders' Meetings
Section 2.1 Annual Meetings. The annual meetings of shareholders for the
election of directors to succeed those directors whose terms expire and for the
transaction of such other business as may come before the meeting shall be held
each year at such date, time and place, either within or without the State of
Colorado, as may be designated by resolution of the Board of Directors from time
to time; provided, however, that an annual meeting shareholders shall be held
each year on a date that is within the earlier of six months after the close of
the last fiscal year or fifteen months after the last annual meeting. If the
day so fixed for such annual meeting shall be a legal holiday at the place of
the meeting, then such meeting shall be held on the next succeeding business day
at the same hour.
Section 2.2 Special Meetings. Special meetings of shareholders for any
purpose or purposes, unless otherwise prescribed by statute or by the Articles
of Incorporation, may be called at any time by the President or by the Board of
Directors and shall be called by the President or the Secretary upon one or more
written demands (which shall state the purpose or purposes therefor) signed and
dated by the holders of shares representing not less than ten percent of all
votes entitled to be cast on any issue proposed to be considered at the meeting.
The record date for determining the shareholders entitled to demand a special
meeting is the date of the earliest of any of the demands pursuant to which the
meeting is called, or the date that is 60 days before the date on which the
first of such demands is received, whichever is later. Business transacted at
any special meeting of shareholders shall be limited to the purpose or purposes
stated in the notice of such meeting.
Section 2.3 Place of Special Meetings. Special meetings of shareholders
shall be held at such place or places, within or without the State of Colorado,
as may be determined by the Board of Directors and designated in the notice of
the meeting, or, if no place is so determined and designated in the notice,
special meetings of shareholders shall be held at the principal office of the
Corporation.
Section 2.4 Notice of Meetings. Not less than 10 nor more than 60 days prior
to each annual or special meeting of shareholders, written notice of the date,
time and place of each annual and special shareholders' meeting shall be given
to each shareholder entitled to vote at such meeting; provided, however, that if
the authorized shares of the Corporation are proposed to be increased, at least
30 days' notice in like manner shall be given; and provided, further, that if
the Act prescribes notice requirements for particular circumstances (as in the
case of the sale, lease or exchange of the Corporation's assets other than in
the usual and regular course of business, or the merger or dissolution of the
Corporation), the provisions of the Act shall govern. Notice may be given in
person; by telephone, telegraph, teletype, electronically transmitted facsimile,
or other form of wire or wireless communication; and, if so given, shall be
effective when received by the shareholder. Notice may also be given by deposit
in the United States mail, postage prepaid, if addressed to the shareholder at
the address of such shareholder shown in the Corporation's current record of
shareholders, and, of so given, shall be effective when mailed. If three
successive notices mailed to any shareholder in accordance with the provisions
of this Section 4 are returned as undeliverable, no further notices to such
shareholder shall be necessary until another address for such shareholder is
made known to the Corporation. The notice of a special meeting shall, in
addition, state the meeting's purposes.
Section 2.5 Shareholders' List. A complete record of the shareholders
entitled to notice of any shareholders' meeting (or an adjourned meeting
described in Section 9 of this Article II) shall be prepared by the Secretary of
the Corporation. Such shareholders' list shall be arranged by voting groups
and, within each voting group by class or series of shares, shall be
alphabetical within each class or series and shall show the address of, and the
number of shares of each such class and series that are held by, each
shareholder. (When used in these Bylaws, the term "voting group" or "voting
groups" shall have the meaning assigned by the Act.) The shareholders' list
shall be available for inspection by any shareholder beginning on the earlier of
ten days before the meeting for which the list was prepared or two business days
after notice is given and continuing through the meeting and any adjournment
thereof at the Corporation's principal office or at a place identified in the
notice of the meeting in the city where the meeting will be held. A shareholder
or his agent or attorney is entitled on written demand to inspect and, subject
to the requirements of the Act, to copy the list during regular business hours
and during the period it is available for inspection.
Section 2.6 Organization. The President or, in the President's absence, the
Chairman of the Board, or, in the absence of both these persons, any Vice
President shall call meetings of shareholders to order and act as chairperson of
such meetings. In the absence of said officers, any shareholder entitled to
vote at the meeting, or any proxy of any such shareholder, may call the meeting
to order and a chairperson shall be elected by a majority of the votes present
and entitled to be cast at the meeting. The Secretary or any Assistant
Secretary of the Corporation or any person appointed by the chairperson may act
as secretary of such meetings.
Section 2.7 Agenda and Procedure. The Board of Directors shall have the
responsibility of establishing an agenda for each meeting of shareholders,
subject to the rights of shareholders to raise matters, if any, which may
properly be brought before the meeting although not included within the agenda.
The chairperson shall be charged with the orderly conduct of all meetings of
shareholders and may impose rules or procedures for this purpose.
Section 2.8 Quorum. Shares entitled to vote as a separate voting group may
take action on a matter at a meeting only if a quorum of those shares exists
with respect to that matter. Unless otherwise provided in the Act or in the
Corporation's Articles of Incorporation, a majority of the votes entitled to be
cast on a matter by a voting group constitutes a quorum of that voting group for
action on that matter. In the absence of a quorum at any shareholders' meeting,
a majority of the votes present in person or represented by proxy and entitled
to vote on any matter at the meeting may adjourn the meeting from time to time
for a period not to exceed 120 days from the original date of the meeting
without further notice (except as provided in Section 9 of this Article II)
until a quorum shall be present or represented.
Section 2.9 Adjournment. When a meeting is for any reason adjourned to
another date, time or place, notice need not be given of the adjourned meeting
if the date, time and place thereof are announced at the meeting at which the
adjournment is taken. At the adjourned meeting, any business may be transacted
which might have been transacted at the original meeting. If the adjournment is
for more than 120 days from the date of the original meeting, or if, after the
adjournment, a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each shareholder as of the new record
date.
Section 2.10 Voting.
a. Except as provided by law or in the Articles of Incorporation, at every
meeting of shareholders, or with respect to corporate action which may be taken
without a meeting, each outstanding share having voting power is entitled to one
vote, and each fractional share, if any is outstanding, is entitled to a
corresponding fractional vote, on each matter voted on at a shareholders'
meeting.
b. A shareholder may vote the shareholder's shares in person or by proxy. A
shareholder may appoint a proxy by signing an appointment form, either
personally or by the shareholder's attorney-in-fact. A shareholder may appoint
a proxy by transmitting or authorizing the transmission of a telegram, teletype
or other electronic transmission providing a written statement of the
appointment to the proxy, to a proxy solicitor, proxy support service
organization, or other person duly authorized by the proxy to receive
appointments as agent for the proxy, or to the Corporation; except that the
transmitted appointment shall set forth or be transmitted with written evidence
from which it can be determined that the shareholder transmitted or authorized
the transmission of the appointment. An appointment of a proxy is not effective
against the Corporation until the appointment is received by the Corporation.
The appointment is effective for eleven months unless a different period is
expressly provided in the appointment form. An appointment of a proxy shall be
revocable by the shareholder except as may be permitted or provided by law.
c. When a quorum is present at any meeting of shareholders, action on a
matter, other than the election of directors, by a voting group is approved if
the votes cast within the voting group favoring the action exceed the votes cast
within the voting group opposing the action, unless the matter is one upon which
a different vote is required by express provision of a statute, or the Articles
of Incorporation, or these Bylaws, in which case such express provision shall
govern and control the decision on such matter.
Section 2.11 Inspectors. The chairperson of the meeting may at any time
appoint two or more inspectors to serve at a meeting of the shareholders. Such
inspectors shall decide upon the qualifications of voters, including the
validity of proxies, accept and count the votes for and against the matters
presented, report the results of such votes, and subscribe and deliver to the
secretary of the meeting a certificate stating the number of shares of stock
within each voting group that is issued and outstanding and entitled to vote
thereon and the number of shares within each voting group that voted for and
against the matters presented. The voting inspectors need not be shareholders
of the Corporation, and any director or officer of the Corporation may be an
inspector on any matter other than a vote for or against such director's or
officer's election to any position with the Corporation or on any other matter
in which such officer or director may be directly interested.
Section 2.12 Meeting by Telecommunication. If and only if permitted by the
Board of Directors, any or all of the shareholders may participate in an annual
or special shareholders' meeting by, or the meeting may be conducted through the
use of, any means of communication by which all persons participating in the
meeting may hear each other during the meeting. If the Board of Directors
determines to allow shareholders to participate in a shareholders' meeting by
telecommunication, the Board shall establish the terms and conditions under
which shareholders may participate by such means and shall cause the notice of
the meeting to contain such terms and conditions. Only shareholders who comply
with the terms and conditions indicated in such notice shall be entitled to so
participate by telecommunication in the shareholders' meeting. A shareholder
participating in a meeting by telecommunication in compliance with the terms and
conditions established by the Board of Directors is deemed to be present in
person at the meeting.
Section 3.
Article III
Board of Directors
Section 3.1 Authority, Election and Tenure. All corporate power shall be
exercised by or under the authority of, and the business and affairs of the
Corporation shall be managed by, a Board of Directors. The Board of Directors
shall be elected at each annual meeting of shareholders. In an election of
directors, that number of candidates equaling the number of directors to be
elected having the highest number of votes cast in favor of their election shall
be elected to the Board of Directors.
Section 3.2 Number and Qualification. In accordance with the Corporation's
Articles of Incorporation, the number of directors shall be at least three and
not more than nine. Within that range, the number of directors shall be as
stated by resolution of the Board of Directors from time to time (which latest
enacted resolution shall be deemed a part of these Bylaws and is incorporated
herein by reference), but no decrease in the number of directors shall have the
effect of shortening the term of any incumbent director. Directors must be
natural persons at least eighteen years of age but need not be shareholders or
residents of the State of Colorado.
Section 3.3 Regular Meetings. Regular meetings of the Board of Directors
shall be held at such dates, times and places as may be determined by the Board
of Directors. Regular meetings of the Board of Directors may be held without
notice of the date, time, place or purpose of the meeting.
Section 3.4 Special Meetings. Special meetings of the Board of Directors may
be called by the President at any time and shall be called by the President or
the Secretary on the written request of any two directors.
Section 3.5 Place of Meetings. Any meeting of the Board of Directors may be
held at such place or places either within or without the State of Colorado as
shall from time to time be determined by the Board of Directors and as shall be
designated in the resolution of the Board of Directors fixing the date, time and
place of the regular meetings of the Board of Directors or in the notice of
special meeting.
Section 3.6 Notice of Meetings. Notice of the date, time and place of each
special meeting of directors shall be given to each director at least two days
prior to such meeting. The notice of a special meeting of the Board of
Directors need not state the purposes of the meeting. Notice to each director
of any special meeting may be given in person; by telephone, telegraph,
teletype, electronically transmitted facsimile, or other form of wire or
wireless communication; or by mail or private carrier. Oral notice to a
director of any special meeting is effective when communicated. Written notice
to a director of any special meeting, including without limitation notice sent
by electronic mail, is effective at the earliest of: (a) the date received; (b)
five days after it is deposited in the United States mail, properly addressed to
the last address for the director shown on the records of the Corporation, first
class postage prepaid; (c) the date shown on the return receipt if mailed by
registered or certified mail, return receipt requested, postage prepaid, in the
United States mail and if the return receipt is signed by or on behalf of the
director to whom the notice is addressed.
Section 3.7 Quorum and Voting. A majority of the number of directors fixed
by or in accordance with Section 2 of this Article III shall constitute a quorum
at all meetings of the Board of Directors. The vote of a majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors, except as otherwise required by the Act.
Section 3.8 Organization, Agenda and Procedure. The Chairman of the Board
or, in the absence of the Chairman of the Board, the President shall act as
chairperson of the meetings of the Board of Directors. The Secretary, any
Assistant Secretary, or any other person appointed by the chairperson shall act
as secretary of each meeting of the Board of Directors. The agenda of and
procedure for such meetings shall be as determined by the Board of Directors.
Section 3.9 Resignation. Any director of the Corporation may resign at any
time by giving written resignation notice to the Corporation or the Secretary of
the Corporation at the Corporation's principal office. Such resignation shall
take effect at the date of receipt of such notice or at any later time specified
therein and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective, unless it so provides.
A director who resigns may, but is not required to, deliver to the Secretary of
State for filing a statement to that effect.
Section 3.10 Removal. Any director may be removed, either with or without
cause, at any time, at a special meeting of the shareholders called and held for
such purpose if the number of votes cast in favor of removal exceeds the number
of votes cast against removal; provided, however, that if a director is elected
by a voting group of shareholders, only the shareholders of that voting group
may participate in the vote to remove that director. A vacancy in the Board of
Directors caused by any such removal may be filled by the Corporation's
shareholders at such meeting or, if the shareholders at such meeting shall fail
to fill such vacancy, by the Board of Directors as provided in Section 11 of
this Article III.
Section 3.11 Vacancies. If a vacancy occurs on the Board of Directors,
including a vacancy resulting from an increase in the number of directors:
(a) the shareholders may fill the vacancy at the next annual meeting or at a
special meeting called for that purpose; or (b) the Board of Directors may fill
the vacancy; or (c) if the directors remaining in office constitute fewer than a
quorum of the Board of Directors, they may fill the vacancy by the affirmative
vote of a majority of all the directors remaining in office. The term of a
director elected to fill a vacancy pursuant to subparagraph (b) or (c) of the
foregoing sentence expires at the next annual shareholders' meeting. The term
of a director elected to fill a vacancy pursuant to subparagraph (a) of this
Section 11 shall be the unexpired term of such director's predecessor in office;
except that, if the director's predecessor had been elected to fill a vacancy
pursuant to Subparagraph (b) or (c) of this Section 11, the term of a director
elected pursuant to Section (a) of this Section 11 shall be the unexpired term
of the last predecessor elected by the shareholders. If the vacant directorship
was held by a director elected by a voting group of shareholders and one or more
of the remaining directors were elected by the same voting group, only such
directors are entitled to vote to fill the vacancy if it is filled by directors,
and they may do so by the affirmative vote of a majority of such directors
remaining in office; and only the holders of shares of that voting group are
entitled to vote to fill such vacancy if it is filled by the shareholders.
Section 3.12 Executive and Other Committees. Except as otherwise required by
the Act, the Board of Directors, by resolution adopted by the greater of a
majority of the number of directors fixed by or in accordance with Section 2 of
this Article III or the number of directors required to take action pursuant to
Section 7 of this Article III, may designate from among its members an executive
committee and one or more other committees each of which, to the extent provided
in the resolution and except as otherwise prescribed by the Act, shall have and
may exercise all of the authority of the Board of Directors in the management of
the Corporation, except that no committee shall: (a) authorize distributions;
(b) approve or propose to shareholders action that the Act requires to be
approved by shareholders; (c) fill vacancies on the Board of Directors or on any
of its committees; (d) amend the Articles of Incorporation; (e) adopt, amend, or
repeal these Bylaws; (f) approve a plan of merger not requiring shareholder
approval; (g) authorize or approve reacquisition of shares, except according to
a formula or method prescribed by the Board of Directors; or (h) authorize or
approve the issuance or sale of shares, or a contract for the sale of shares, or
determine the designation and relative rights, preferences, and limitations of a
class or series of shares, except that with respect to this clause (h) the Board
of Directors may authorize a committee to do so within limits specifically
prescribed by the Board of Directors. The provision of these Bylaws governing
meetings, action without meeting, notice, waiver of notice, and quorum and
voting requirements of the Board of Directors shall apply to committees and the
members thereof.
Section 3.13 Compensation of Directors. Each director may be paid such
compensation as fixed from time to time by resolution of the Board of Directors,
together with reimbursement for the reasonable and necessary expenses incurred
by such director in connection with the performance of such director's duties.
Nothing herein contained shall be construed to preclude any director from
serving the Corporation in any other capacity or any of its subsidiaries in any
other capacity and receiving proper compensation therefor.
Section 3.14 Meeting by Telecommunication. One or more members of the Board
of Directors or any committee designated by the Board of Directors may hold or
participate in a meeting of the Board of Directors or such committee through the
use of any means of communication by which all persons participating can hear
each other at the same time.
Section 4.
Article IV
Waiver of Notice by Shareholders and Directors and Action
of Shareholders and Directors by Consent
Section 4.1 Waiver of Notice. A shareholder may waive any notice required by
the Act or by the Articles of Incorporation or these Bylaws, and a director may
waive any notice of a directors' meeting, whether before or after the date or
time stated in the notice as the date or time when any action will occur or has
occurred. The waiver shall be in writing, be signed by the shareholder or
director entitled to the notice, and be delivered to the Corporation for
inclusion in the minutes or filing with the corporate records, but such delivery
and filing shall not be conditions of the effectiveness of the waiver.
Attendance of a shareholder at a meeting waives objection to lack of notice or
defective notice of the meeting, unless the shareholder at the beginning of the
meeting objects to holding the meeting or transacting business at the meeting
because of lack of notice or defective notice, and waives objection to
consideration of a particular matter at the meeting that is not within the
purpose or purposes described in the meeting notice unless the shareholder
objects to considering the matter when it is presented. A director's attendance
at or participation in a meeting waives any required notice to him or her of the
meeting unless the director, at the beginning of the meeting or promptly upon
his or her later arrival, objects to holding the meeting or transacting business
at the meeting because of lack of notice or defective notice and does not
thereafter vote for or assent to action taken at the meeting, or if special
notice was required of a particular purpose pursuant to the Act, the director
objects to transacting business with respect to the purpose for which such
special notice was required and does not thereafter vote for or assent to action
taken at the meeting with respect to such purpose.
Section 4.2 Action Without a Meeting. Any action required or permitted to be
taken at a meeting of the shareholders, directors or members of an executive or
other committee, as applicable, may be taken without a meeting if all
shareholders entitled to vote with respect to such action, or all directors or
all members of an executive or other committee, as the case may be, give written
consent to such action in writing. The record date for determining shareholders
entitled to take action without a meeting is the date a writing upon which the
action is taken, pursuant to this Section 2 of Article IV, is first received by
the Corporation. Any shareholder who has signed a writing describing and
consenting to action taken pursuant to this Section 2 of this Article IV may
revoke such consent by a writing signed by such shareholder describing the
action and stating that the shareholder's prior consent thereto is revoked, if
such writing is received by the Corporation before the effectiveness of the
action. Action taken without a meeting shall be effective: in the case of an
action of shareholders, as of the date the last writing necessary to effect the
action is received by the Corporation unless all of the writings necessary to
effect the action specify another date, which may be before or after the date
the writings are received by the Corporation; and in the case of directors'
action, action is taken when the last director signs a writing describing the
action taken unless before such time the Secretary has received a written
revocation of the consent of any other director, and any action so taken shall
be effective at the time taken unless the directors specify a different
effective date.
Section 5.
Article V
Officers
Section 5.1 Election and Tenure. The officers of the Corporation shall
consist of a Chairman of the Board, a President, a Secretary and Treasurer, each
of whom shall be appointed annually by the Board of Directors. The Board of
Directors may also designate and appoint such other officers and assistant
officers as may be deemed necessary. The Board of Directors may delegate to any
such officer the power to appoint or remove subordinate officers, agents or
employees. Any two or more offices may be held by the same person. Each
officer so appointed shall continue in office until a successor shall be
appointed and shall qualify, or until the officer's earlier death, resignation
or removal. Each officer shall be a natural person who is eighteen years of age
or older.
Section 5.2 Resignation, Removal and Vacancies. Any officer may resign at
any time by giving written notice of resignation to the Board of Directors or
the President. Such resignation shall take effect when the notice is received
by the Corporation unless the notice specifies a later effective date, and
acceptance of the resignation shall not be necessary to render such resignation
effective. Any officer may at any time be removed by the Board of Directors.
If any office becomes vacant for any reason, the vacancy may be filled by the
Board of Directors. An officer appointed to fill a vacancy shall be appointed
for the unexpired term of such officer's predecessor in office and shall
continue in office until a successor shall be elected or appointed and shall
qualify, or until such officer's earlier death, resignation or removal. The
appointment of an officer shall not itself create contract rights in favor of
the officer, and the removal of an officer does not affect the officer's
contract rights, if any, with the Corporation and the resignation of an officer
does not affect the Corporation's contract rights, if any, with the officer.
Section 5.3 Chairman of the Board. The Chairman of the Board shall preside
at meetings of the Board of Directors and shall give counsel and advice to the
Board of Directors and the officers of the Corporation on all subjects
concerning the welfare of the Corporation and the conduct of its business. The
Chairman of the Board of Directors shall perform all other duties incident to
the office of the Chairman of the Board and such other duties as the Board may
from time to time determine.
Section 5.4 President. The President shall be the principal executive
officer of the Corporation and, subject to the control of the Board of
Directors, shall in general supervise and control all of the business and
affairs of the Corporation. The President shall, when present, preside at all
meetings of the shareholders. The President in general shall perform all duties
incident to the office of President and such other duties as may be assigned by
the Board of Directors from time to time.
Section 5.5 Vice Presidents. The Vice Presidents, if any, shall perform such
duties and possess such powers as from time to time may be assigned to them by
the Board of Directors or the President. In the absence of the President or in
the event of the inability or refusal of the President to act, the Vice
President (or in the event there be more than one Vice President, the Vice
Presidents in the order designated by the Board of Directors, or in the absence
of any designation, then in the order of the election or appointment of the Vice
Presidents) shall perform the duties of the President and when so performing
shall have all the powers of and be subject to all the restrictions upon the
President.
Section 5.6 Secretary. The Secretary shall perform such duties and shall
have such powers as may from time to time be assigned by the Board of Directors
or the President. In addition, the Secretary shall perform such duties and have
such powers as are incident to the office of Secretary including, without
limitation, the duty and power to give notice of all meetings of shareholders
and the Board of Directors, the preparation and maintenance of minutes of the
directors' and shareholders' meetings and other records and information required
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and for authenticating records of the Corporation, and to be custodian of the
corporate seal and to affix and attest to the same on documents, the execution
of which on behalf of the Corporation is authorized by these Bylaws or by the
action of the Board of Directors.
Section 5.7 Treasurer. The Treasurer shall perform such duties and shall
have such powers as may from time to time be assigned by the Board of Directors
or the President. In addition, the Treasurer shall perform such duties and have
such powers as are incident to the office of Treasurer including, without
limitation, the duty and power to keep and be responsible for all funds and
securities of the Corporation, to deposit funds of the Corporation in
depositories selected in accordance with these Bylaws, to disburse such funds as
ordered by the Board of Directors, making proper accounts thereof, and to render
as required by the Board of Directors statements of all these transactions taken
as Treasurer and of the financial condition of the Corporation.
Section 5.8 Assistant Secretaries and Assistant Treasurers. The Assistant
Secretaries and Assistant Treasurers, if any, shall perform such duties as shall
be assigned to them by the Secretary or the Treasurer, respectively, or by the
President or the Board of Directors. In the absence, inability or refusal to
act of the Secretary or the Treasurer, the Assistant Secretaries or Assistant
Treasurers, respectively, in the order designated by the Board of Directors, or
in the absence of any designation, then in the order of their election or
appointment, shall perform the duties and exercise the powers of the Secretary
or Treasurer, as the case may be.
Section 5.9 Bond of Officers. The Board of Directors may require any officer
to give the Corporation a bond in such sum and with such surety or sureties as
shall be satisfactory to the Board of Directors for such terms and conditions as
the Board of Directors may specify, including without limitation for the
faithful performance of such officer's duties and for the restoration to the
Corporation of any property belonging to the Corporation in such officer's
possession or under the control of such officer.
Section 5.10 Compensation. Officers of the Corporation shall be entitled to
such salaries, emoluments, compensation or reimbursement as shall be fixed or
authorized from time to time by the Board of Directors.
Section 6.
Article VI
Indemnification
Section 6.1 Indemnification. To the extent permitted or required by the Act
and any other applicable law, if any director or officer of the Corporation is
made a party to or is involved in any proceeding because such person is or was a
director or officer of the Corporation, the Corporation shall (a) indemnify such
person from and against any liability, including but not limited to expenses of
investigation and preparation, expenses in connection with appearance as a
witness, and fees and disbursements of counsel, accountants or other experts,
incurred by such person in such proceeding, and (b) advance to such person
expenses incurred in such proceeding. The Corporation may in its discretion,
but is not obligated in any way to, indemnify and advance expenses to an
employee or agent of the Corporation to the same extent as to a director or
officer, and the Corporation may indemnify an employee, fiduciary, or agent of
the Corporation to a greater extent than expressly permitted herein for officers
and directors if not inconsistent with public policy.
Section 6.2 Provisions Not Exclusive. The foregoing provisions for
indemnification and advancement of expenses are not exclusive, and the
Corporation may at its discretion provide for indemnification or advancement of
expenses in a resolution of its shareholders or directors, in a contract or in
its Articles of Incorporation.
Section 6.3 Effect of Modification. Any repeal or modification of the
foregoing provisions of this Article for indemnification or advancement of
expenses shall not affect adversely any right or protection stated in such
provisions with respect to any act or omission occurring prior to the time of
such repeal or modification. If any provision of this Article or any part
thereof shall be held to be prohibited by or invalid under applicable law, such
provision or part thereof shall be deemed amended to accomplish the objectives
of the provision or part thereof as originally written to the fullest extent
permitted by law, and all other provisions or parts shall remain in full force
and effect.
Section 6.4 Definitions. As used in this Article, the following terms have
the following meanings:
a. Act. When used with reference to an act or omission occurring prior to the
effectiveness of any amendment to the Act which occurs after the effectiveness
of the adoption of this Article, the term "Act" shall include such amendment
only to the extent that the amendment permits a corporation to provide broader
indemnification rights than the Act permitted prior to the amendment.
b. Corporation. The term "Corporation" includes any domestic or foreign
entity that is a predecessor of the Corporation by reason of a merger or other
transaction in which the predecessor's existence ceased upon consummation of the
transaction.
c. Director or Officer. A "director" or "officer" is an individual who is or
was a director or officer of the Corporation or an individual who, while a
director or officer of the Corporation, is or was serving at the Corporation's
request as a director, officer, partner, trustee, employee, fiduciary, or agent
of another domestic or foreign corporation or other person or entity or of an
employee benefit plan. A director or officer is considered to be serving an
employee benefit plan at the Corporation's request if his or her duties to the
Corporation also impose duties on, or otherwise involve services by, the
director or officer to the plan or to participants in or beneficiaries of the
plan. The terms "director" and "officer" include, unless the context requires
otherwise, the estate or personal representative of a director, or officer.
d. Liability. The term "liability" means the obligation incurred with respect
to a proceeding to pay a judgment, settlement, penalty, fine (including any
excise tax assessed with respect to an employee benefit plan), or reasonable
expenses.
e. Proceeding. The term "proceeding" means any threatened, pending or
completed action, suit, or proceeding whether civil, criminal, administrative or
investigative, and whether formal or informal.
Section 6.5 Insurance. The Corporation may purchase and maintain insurance
on behalf of a person who is or was a director, officer, employee, fiduciary, or
agent of the Corporation, or who, while a director, officer, employee,
fiduciary, or agent of the Corporation, is or was serving at the request of the
Corporation as a director, officer, partner, trustee, employee, fiduciary, or
agent of another domestic or foreign corporation or other person or entity or of
an employee benefit plan, against liability asserted against or incurred by the
person in that capacity or arising from his or her status as a director,
officer, employee, fiduciary, or agent, whether or not the Corporation would
have power to indemnify the person against the same liability under the Act.
Any such insurance may be procured from any insurance company designated by the
Board of Directors, whether such insurance company is formed under the laws of
this state or any other jurisdiction of the United States or elsewhere,
including any insurance company in which the Corporation has an equity or any
other interest through stock ownership or otherwise.
Section 6.6 Expenses as a Witness. The Corporation may pay or reimburse
expenses incurred by a director, officer, employee, fiduciary, or agent in
connection with an appearance as a witness in a proceeding at a time when he or
she has not been made a named defendant or respondent in the proceeding.
Section 6.7 Notice to Shareholders. If the Corporation indemnifies or
advances expenses to a director under this Article in connection with a
proceeding by or in the right of the Corporation, the Corporation shall give
written notice of the indemnification or advance to the shareholders with or
before the notice of the next shareholders' meeting. If the next shareholder
action is taken without a meeting at the instigation of the Board of Directors,
such notice shall be given to the shareholders at or before the time the first
shareholder signs a writing consenting to such action.
Section 7.
Article VII
Execution of Instruments; Loans; Checks and Endorsements;
Deposits; Proxies
Section 7.1 Execution of Instruments. The President or any Vice President
shall have the power to execute and deliver on behalf of and in the name of the
Corporation any instrument requiring the signature of an officer of the
Corporation, except as otherwise provided in these Bylaws or when the execution
and delivery of the instrument shall be expressly delegated by the Board of
Directors to some other officer or agent of the Corporation.
Section 7.2 Borrowing. No loan shall be contracted on behalf of the
Corporation, and no evidence of indebtedness for borrowed money shall be issued,
endorsed or accepted in its name, unless authorized by the Board of Directors or
a committee designated by the Board of Directors so to act. Such authority may
be general or confined to specific instances. When so authorized, an officer
may (a) effect loans at any time for the Corporation from any bank or other
entity and for such loans may execute and deliver promissory notes or other
evidences of indebtedness of the Corporation; and (b) mortgage, pledge or
otherwise encumber any real or personal property, or any interest therein, owned
or held by the Corporation as security for the payment of any loans or
obligation of the Corporation, and to that end may execute and deliver for the
Corporation such instruments as may be necessary or proper in connection with
such transaction.
Section 7.3 Loans to Directors, Officers and Employees. The Corporation may
lend money to, guarantee the obligations of and otherwise assist directors,
officers and employees of the Corporation, or directors of another corporation
of which the Corporation owns a majority of the voting stock, only upon
compliance with the requirements of the Act.
Section 7.4 Checks and Endorsements. All checks, drafts or other orders for
the payment of money, obligations, notes or other evidences of indebtedness,
bills of lading, warehouse receipts, trade acceptances and other such
instruments shall be signed or endorsed for the Corporation by such officers or
agents of the Corporation as shall from time to time be determined by resolution
of the Board of Directors, which resolution may provide for the use of facsimile
signatures.
Section 7.5 Deposits. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the Corporation's credit in such banks
or other depositories as shall from time to time be determined by resolution of
the Board of Directors, which resolution may specify the officers or agents of
the Corporation who shall have the power, and the manner in which such power
shall be exercised, to make such deposits and to endorse, assign and deliver for
collection and deposit checks, drafts and other orders for the payment of money
payable to the Corporation or its order.
Section 7.6 Proxies. Unless otherwise provided by resolution adopted by the
Board of Directors, the President or any Vice President: (a) may from time to
time appoint one or more agents of the Corporation, in the name and on behalf of
the Corporation, (i) to cast the votes which the Corporation may be entitled to
cast as the holder of stock or other securities in any other corporation,
association or other entity whose stock or other securities may be held by the
Corporation, at meetings of the holders of the stock or other securities of such
other corporation, association or other entity, or (ii) to consent in writing to
any action by such other corporation, association or other entity; (b) may
instruct the person so appointed as to the manner of casting such votes or
giving such consent; and (c) may execute or cause to be executed in the name and
on behalf of the Corporation and under its corporate seal, or otherwise, all
such written proxies or other instruments as may be deemed necessary or proper.
Section 8.
Article VIII
Shares of Stock
Section 8.1 Certificates of Stock. The shares of the Corporation may but
need not be represented by certificates. Unless the Act or another law
expressly provides otherwise, the fact that the shares are not represented by
certificates shall have no effect on the rights and obligations of shareholders.
If the shares are represented by certificates, such certificates shall be signed
either manually or in facsimile by the President and the Secretary or such other
representatives of the Corporation as are designated by the Board of Directors.
If the person who signed, either manually or in facsimile, a share certificate,
no longer holds office when the certificate is issued, the certificate is
nevertheless valid. Every certificate representing shares issued by the
Corporation shall state the number and class of shares and the designation of
the series, if any, the certificate represents, and shall otherwise be in such
form as is required by law and as the Board of Directors shall prescribe.
Section 8.2 Shares Without Certificates. The Board of Directors may
authorize the issuance of any class or series of shares of the Corporation
without certificates. Such authorization shall not affect shares already
represented by certificates until they are surrendered to the Corporation.
Within a reasonable time following the issue or transfer of shares without
certificates, the Corporation shall send the shareholder a complete written
statement of the information required on certificates by the Act.
Section 8.3 Record. A record shall be kept of the names and addresses of the
Corporation's shareholders, in a form that permits preparation of a list of
shareholders that is arranged by voting group and within each voting group by
class or series of shares, that is alphabetical within each class or series, and
that shows the addresses of, and the number of shares of each class and series
and the date of issuance of the shares (and in case of cancellation, the date of
cancellation) held by, each shareholder. The person or other entity in whose
name shares of stock stand on the books of the Corporation shall be deemed the
owner thereof, and thus a holder of record of such shares of stock, for all
purposes as regards the Corporation.
Section 8.4 Transfer of Stock. Transfers of shares of the stock of the
Corporation shall be made only on the books of the Corporation by the registered
holder thereof, or by such registered holder's attorney thereunto authorized,
and on the surrender of the certificate or certificates for such shares properly
endorsed.
Section 8.5 Transfer Agents and Registrars; Regulations. The Board of
Directors may appoint one or more transfer agents or registrars with respect to
shares of the stock of the Corporation. The Board of Directors may make such
rules and regulations as it may deem expedient and as are not inconsistent with
these Bylaws, concerning the issue, transfer and registration of certificates
for shares of the stock of the Corporation.
Section 8.6 Lost, Destroyed or Mutilated Certificates. In case of the
alleged loss, destruction or mutilation of a certificate representing stock of
the Corporation, a new certificate may be issued in place thereof, in such
manner and upon such terms and conditions as the Board of Directors may
prescribe, and shall be issued in such situations as required by the Act.
Section 9.
Article IX
Corporate Seal
The corporate seal shall be in the form approved by resolution of the Board
of Directors. Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or in any other manner reproduced. The impression of the
seal may be made and attested by either the Secretary or any Assistant Secretary
for the authentication of contracts or other papers requiring the seal.
Section 10.
Article X
Fiscal Year
The fiscal year of the Corporation shall be the year established by the
Board of Directors.
Section 11.
Article XI
Corporate Records
Section 11.1 Corporate Records. The Corporation shall comply with the
provisions of the Act regarding maintenance of records and shall keep such
records at such place as the Act may designate or, if the Act does not designate
the place for such records, then at such place or places as may be from time to
time designated by the Board of Directors.
Section 11.2 Addresses of Shareholders. Each shareholder shall furnish to the
Secretary of the Corporation or the Corporation's transfer agent an address to
which notices from the Corporation, including notices of meetings, may be
directed and if any shareholder shall fail so to designate such an address, it
shall be sufficient for any such notice to be directed to such shareholder at
such shareholder's address last known to the Secretary or transfer agent.
Section 11.3 Fixing Record Date. The Board of Directors may fix in advance a
date as a record date for the determination of the shareholders entitled to a
notice of or to vote at any meeting of shareholders or entitled to receive
payment of any dividend or other distribution or allotment of rights in respect
of any change, conversion or exchange of stock, or for the purpose of any other
lawful action. Such record date shall not be more than 70 days before the
meeting or action requiring a determination of shareholders; except that the
record date for determining shareholders entitled to take action without a
meeting or entitled to be given notice of action so taken is the date upon which
a writing upon which such action is taken is first received by the Corporation.
Only such shareholders as shall be shareholders of record on the date so fixed
shall be so entitled with respect to the matter to which the same relates. If
the Board of Directors shall not fix a record date as above provided, then the
record date shall be determined in accordance with the Act.
Section 11.4 Inspection of Corporate Records. Shareholders shall have those
rights to inspect and copy the Corporation's records as provided in the Act.
Section 11.5 Distribution of Financial Statements. Upon the written request
of any shareholder of the Corporation, the Corporation shall mail to such
shareholder its last annual and most recently published financial statement, if
any.
Section 11.6 Audits of Books and Accounts. The Corporation's books and
accounts may be audited at such times and by such auditors as shall be specified
and designated by resolution of the Board of Directors.
Section 12.
Article XII
Emergency Bylaws and Actions
Subject to repeal or change by action of the shareholders, the Board of
Directors may adopt emergency bylaws and exercise other powers in accordance
with and pursuant to the provisions of the Act.
Section 13.
Article XIII
Amendments
The Board of Directors may amend or repeal these Bylaws or adopt new
bylaws. The shareholders may also amend or repeal these Bylaws or adopt new
bylaws.
SUMMARY PLAN DESCRIPTION
FOR THE
SCOTT'S LIQUID GOLD - INC. & AFFILIATED COMPANIES
EMPLOYEE BENEFIT HEALTH AND WELFARE PLAN
GROUP NO. 398
The Employee Benefit Health and Welfare Plan as summarized in this booklet is
provided through a combination of insured and self-funded benefits. The final
interpretation of any specific provision herein, regardless of whether it is
paid out of the self-funded or insured portion, is governed by the terms of a
master Plan Document.
This booklet describes the Employee Benefit Health and Welfare Plan in an easily
understood manner as in effect on January 1, 1999, (and as subsequently
amended), and is both the Summary Plan Description and the Plan Document. It
does not, however, create or confer any rights, as it merely summarizes some of
the essential provisions of the Plan and may not describe your particular
circumstances.
The Plan is intended to be consistent with any contracts for policies of
insurance under which the contributions are made, and with any contracts for
medical review services. To the extent the terms of the Plan are inconsistent
with such contracts, the terms of such contracts shall prevail.
The Plan will not be deemed to constitute a contract of employment or give any
participant the right to be retained in the service of the employer or to
interfere with the right of the employer to discharge or otherwise terminate the
employment of any participant.
The claims are administered by:
Mountain States Administration
13901 E. Exposition Avenue
Aurora, CO 80012
phone: (303) 360-9600 Local in Colorado
(800) 828-8847 Toll Free in Colorado
(800) 828-8012 Toll Free outside of Colorado
Hours: Monday - Friday 8:00 a.m. - 4:30 p.m. MST
This revised booklet describes the Plan of Benefits in effect as of January 1,
1999.
1
TABLE OF CONTENTS
SCHEDULE OF MEDICAL BENEFITS 1
ELIGIBILITY 6
CASE MANAGEMENT AND ALTERNATE TREATMENT PROVISION 20
COVERED MEDICAL EXPENSES 21
GENERAL PLAN EXCLUSIONS AND LIMITATIONS 41
DEFINITIONS 48
GENERAL INFORMATION - FACTS ABOUT YOUR PLAN 66
HOW TO FILE A CLAIM 77
SUMMARY PLAN DESCRIPTION 80
LIST - DEPARTMENT OF LABOR 83
SCHEDULE OF MEDICAL BENEFITS 84
SCHEDULE OF DENTAL BENEFITS 89
DENTAL CARE PROGRAM 90
COVERED DENTAL EXPENSES 92
DENTAL EXPENSES NOT COVERED 94
GROUP LIFE INSURANCE 95
2
FOREWORD
The employer has initiated the Plan to provide benefits for its employees and
their eligible dependents, and it shall be maintained for this exclusive
purpose.
The employer intends the Plan to be continuous, but since future conditions
affecting your employer cannot be anticipated or foreseen, the employer reserves
the right to amend, modify or terminate the Plan at any time, which may result
in the termination or modification of the coverage. Expenses incurred prior to
the Plan's termination will be paid as provided under the terms of the Plan
prior to its termination.
The employer desires to provide a health care benefit plan that financially
assists employees and dependents with health care expenses and provides
affordable care. While part of increasing health care costs result from new
technology and important medical advances, another significant cause is the way
health care services are used.
Employee benefits are affected by certain limitations and conditions which
require the employee to be a wise consumer of health services and to use only
those services he or she needs.
Some studies indicate that a high percentage of the cost for health care
services may be unnecessary. For example, hospital stays can be longer than
necessary. Some hospitalizations may be entirely avoidable, such as when
surgery could be performed at an outpatient facility with equal safety.
Alternative care at home, other alternative methods of treatment, or medical
care not otherwise covered under the Plan may be suggested to patients for which
additional inpatient care is medically necessary. This allows the patient to be
discharged from the hospital sooner than would otherwise be possible, providing
a savings to the employee and the Plan while maintaining care equal to a
hospital confinement.
BILLING AUDIT BONUS
The Plan will pay the employee a cash bonus if he/she finds an overcharge on a
hospital bill (excluding double billings and very obvious mistakes which would
be caught during claims processing).The overcharge must be for a covered
expense. To receive the bonus, the employee must follow the following
procedures:
* Within five (5) working days of receiving your hospital bill, call Mountain
States Administration at 303-360-9600 or 1-800-828-8847 to inform them that you
have found an error(s) in the bill. This must be done before the hospital bill
has been processed by Mountain States Administration.
3
* Next, within the same five (5) day period, you must follow up with a letter
to Mountain States Administration explaining how or why the bill is in error.
* Once the error is confirmed with the hospital by Mountain States
Administration and a corrected bill is received, you will receive your audit
savings.
SPECIAL ENROLLMENT PERIOD
The Health Insurance Portability and Accountability Act of 1996 (HIPAA) requires
the employer to inform employees of their rights to Special Enrollment under
this Plan when they or their eligible dependents decline coverage during the
enrollment period.
If the employee is declining enrollment for themselves or their dependents
(including their spouse) because of another group health plan or other group
health insurance coverage, the employee may in the future be able to enroll
themselves or their dependents in this Plan, provided that they request
enrollment within thirty (30) days after their alternative group health coverage
ends. In order to qualify for the special enrollment period if enrollment was
declined because of alternative group health coverage, your employer must
receive a written statement from the employee at the time of the enrollment
period stating that other group coverage was the reason for declining
enrollment.
In addition, if the employee has a new dependent as a result of marriage, birth,
adoption, or placement for adoption, the employee and new dependents may be able
to enroll provided that the employee requests enrollment within thirty (30) days
after the marriage, birth, adoption, or placement for adoption.
Individuals who enroll under these special enrollment conditions are not
considered late entrants.
If the employee has any questions, please discuss this with personnel in the
Benefits Department at the time of enrollment.
SCHEDULE OF MEDICAL BENEFITS
All eligible and covered medical charges are subject to applicable deductible
and coinsurance provisions unless indicated differently below. Charges are
limited to usual, customary, and reasonable for the area in which services are
rendered. Charges excluded as not covered, over usual, customary, and
reasonable or as otherwise noted, do not count toward either deductible or out-
of-pocket coinsurance. This is a summary of benefits only; for specific
restrictions and limitations, see detailed explanations elsewhere in the Plan.
The Plan has entered into an arrangement with The Alliance for covered
participants in the Denver area and PHCS for participants living or traveling
outside Colorado. The Alliance is an employer-owned cooperative and PHCS is a
preferred provider organization (PPO) which negotiates hospital, doctor and
other provider fees with contracting health care providers.
LIFETIME MAXIMUM $5,000,000 per Covered Person
(While covered under this Plan) 2,000 for Temporomandibular Joint Disorders
30,000 for Alcoholism or Substance Abuse
Treatment
25,000 for Hospice Benefits
The term "lifetime maximum" means the total amount of benefits which may be
payable while covered under this Plan, or any other health plan sponsored by
Scott's Liquid Gold - Inc. and Affiliated Companies. It will not be interpreted
to mean the lifetime of the covered person.
CALENDAR YEAR DEDUCTIBLE
(Combined Medical and Dental) Single Coverage Maximum: $100
Family Coverage Maximum:$200
DEDUCTIBLE CARRYOVER If a covered person has not met his/her deductible in
the first nine (9) months of the year, then any charges
incurred in the last three (3) months will apply to the
deductible for both the current year and the next
calendar year.
The term "deductible" means a specified dollar amount of covered expenses which
must be incurred during a calendar year, or as specified, before any other
covered expenses can be considered for payment.
COINSURANCE FOR ELIGIBLE MEDICAL EXPENSES
For Single Coverage After the single coverage deductible, eligible
under the Plan expenses (other than outpatient mental health
disorders, alcoholism or substance abuse or as
otherwise noted) are paid 80% of the next $5,000, then
100% for the balance of the calendar year.
4
For Family Coverage After the family coverage deductible, eligible
under the Plan expenses (other than outpatient mental health
disorders, alcoholism or substance abuse, or as
otherwise noted) are paid at 80% of the next $10,000
(individual or family), then 100% for the balance of
the calendar year.
The term "coinsurance" means the amount payable by the Plan for a covered
expense. The covered person is required to pay the amount not paid by the Plan.
AIDS BENEFIT Eligible expenses for treatment of Acquired Immune
Deficiency Syndrome (AIDS), AIDS-related Complex, or
HIV-positive are paid as for any other illness, subject
to deductible and coinsurance provisions.
ALCOHOLISM AND SUBSTANCE ABUSE BENEFITS
(See specific restrictions on page 36.)
Inpatient Covered as any other illness, subject to deductible and
coinsurance provisions, to a maximum of thirty (30)
days per calendar year.
Outpatient Eligible expenses are subject to the deductible
provision and are then paid at 50% to 50 visits per
calendar year. Alcoholism and substance abuse
inpatient, partial, and outpatient treatment combined:
Calendar year maximum, per person: $15,000
Lifetime maximum, per person: $30,000
CHIROPRACTIC SERVICES Eligible expenses are limited to forty (40) visits in
six (6) consecutive months for vertebral column
problems only, and are subject to deductible and
coinsurance provisions. (See #15, page 22.)
HOME HEALTH CARE Eligible expenses are paid, subject to deductible and
coinsurance provisions, to a maximum of sixty (60)
visits per calendar year. (See specific restrictions on
page 32.)
HOSPICE BENEFIT 100% of eligible expenses not to exceed a maximum of
six (6) months from the time a covered person is
certified terminally ill and subject to a $25,000
lifetime maximum. (See specific restrictions on page
34.)
5
HOSPITAL ROOM LIMIT Semiprivate rate, paid subject to deductible and
coinsurance provisions.
IMMUNIZATION BENEFIT The deductible is waived and 100% of eligible charges
are paid for routine immunizations, vaccinations, and
preventive shots for eligible participants. (See
Covered Medical Expenses, #51, page 26 for additional
information.)
INTENSIVE CARE UNIT & Usual, customary, and reasonable, subject to
SPECIAL CARE UNIT deductible and coinsurance provisions.
MENTAL HEALTH DISORDER BENEFITS
(See specific restrictions on page 36.)
Inpatient Covered as any other illness, subject to deductible and
coinsurance provisions, to a maximum of forty-five (45)
days per calendar year.
Outpatient Eligible expenses are subject to the deductible
provision and then paid at 50% to 100 visits per
calendar year.
NEWBORN WELL-BABY CARE Usual, customary, and reasonable hospital nursery
expenses, subject to deductible and coinsurance
provisions. Eligible physician charges are paid
under the Routine Care Benefit. (See Covered
Medical Expenses, page 37 for additional information.)
OUTPATIENT DIAGNOSTIC 100% of the first $200 per calendar year of
LAB AND X-RAY BENEFIT eligible outpatient expenses incurred for illness or
injury, with the deductible waived. Eligible expenses
in excess of $200 are subject to the deductible and
coinsurance provisions.
OUTPATIENT SURGICAL 100% of eligible expenses incurred in conjunction
BENEFIT with a surgical procedure performed on an outpatient
basis, and incurred on the date of surgery, with the
deductible waived.
6
PRE-ADMISSION TESTING 100% of eligible expenses incurred for outpatient tests
within seven (7) days of a scheduled hospital
admission, with the deductible waived. (See page 37.)
ROUTINE CARE BENEFIT 100% of the first $250 per calendar year, with the
deductible waived for examinations and diagnostic tests
related to routine wellness care, including flu shots
and pneumovax injections for adults, and well
baby/child checkups. (See Covered Medical Expenses,
#51, page 26 for additional information.)
SECOND SURGICAL OPINION 100% of the amount charged by physician rendering a
second opinion, with the deductible waived. (See page
38.)
SKILLED NURSING CARE One-half of hospital semiprivate rate where
FACILITY previously confined, to a maximum of sixty (60) days
per illness or injury, subject to deductible and
coinsurance provisions. (See page 38.)
SMOKING CESSATION Charges for generally recognized programs to
BENEFIT stop smoking are eligible to a $200 maximum per person,
subject to deductible and coinsurance provisions, in
any three (3) year period for employees and spouses who
have been covered by the Plan at least eighteen (18)
months. (See page 39).
SUPPLEMENTAL ACCIDENT 100% of the first $500 of eligible expenses
BENEFIT incurred within ninety (90) days of the accident, due
to a non-work related accident, with the deductible
waived. Eligible expenses in excess of $500 or ninety
(90) day period are subject to the deductible and
coinsurance provisions.
TMJ BENEFIT Eligible expenses incurred for the diagnosis and
treatment of temporomandibular joint dysfunction are
paid, subject to deductible and coinsurance provisions,
to the $2,000 lifetime maximum. (See #59, page 27.)
TRANSPLANT BENEFIT Covered transplants are paid as any other illness,
subject to deductible and coinsurance provisions. (See
#60, page 27).
7
VISION BENEFITS Eye exams by an ophthalmologist or optometrist are
covered, subject to deductible and coinsurance
provisions. Prescription lenses and frames are covered
at 100% to a $50 maximum per calendar year, with the
deductible waived. (See #22, page 23.)
WEIGHT REDUCTION Charges for weight reduction programs under direct
BENEFIT physician supervision are eligible to a $1,000
maximum, subject to deductible and coinsurance
provisions, in any five (5) year period for employees
only, who have been covered by the Plan at least twenty
four (24) months.
(See page 40).
MEDICAL CASE Medical Case Management optimizes the treatment
MANAGEMENT and recovery phase of major illness or injury.
Services otherwise not covered under the Plan will
be eligible for reimbursement if recommended by
the medical case management coordinator.
8
ELIGIBILITY
EMPLOYEES ELIGIBLE FOR COVERAGE
Employees eligible for coverage under the Plan are as follows:
1. Full-time regular employees who have completed the waiting period and who
are scheduled to work at least thirty (30) hours per week in the employment
of the employer.
2. Ineligible employees who have an employment status change which makes them
eligible for coverage will be given credit for prior service in order to
determine their effective date of coverage.
Eligibility for Medicaid or the receipt of Medicaid benefits will not be taken
into account in determining eligibility.
EMPLOYEE'S EFFECTIVE DATE OF COVERAGE
The employee will be covered under the Plan provided he/she meets eligibility
and waiting period requirements as listed, and provided any required
contributions are made.
Employees will be eligible on the first day following the completion of ninety
(90) days of continuous, full-time employment.
When an employee has satisfied the above requirements, such employee must
complete and submit an enrollment card and any additional forms required by the
employer within thirty (30) days of his or her date of full-time employment. If
the employee submits an enrollment card and any additional forms required by the
employer within thirty (30) days of his or her date of full-time employment, and
then requests a change within the ninety (90) day waiting period, the change
will be honored as a timely entrant request.
If an employee fails to enroll within thirty (30) days of full-time employment
such employee will be considered a late entrant unless he/she becomes eligible
under the special enrollment periods provision. Coverage for a late entrant
will begin the date the application is received.
DEPENDENTS ELIGIBLE FOR COVERAGE
Dependents eligible for coverage under the Plan are as follows:
1. The employee's lawful wife or husband, unless legally separated, or, with
documentation or appropriate paperwork, a spouse by a common-law marriage
agreement. A dependent spouse who is eligible for coverage under his or her
employer's health benefit plan is not eligible for coverage under this Plan,
regardless of the benefits or the contribution required by the other plan.
9
2. A child from birth to age nineteen (19), or to age twenty-three (23) if
attending an accredited high school, college, university or vocational
school on a full-time basis, provided:
a. they are not married; and
b. they are primarily dependent upon the employee for support and
maintenance; and
c. they are not covered, as an employee, by another employer group health
plan.
3. Semester breaks do not jeopardize a child's full-time status. However, if a
child is not attending as a full-time student during the semester following
the break, that child will no longer be considered a dependent under the
Plan. Coverage will terminate as of the first day of the semester following
the break.
4. A previously ineligible dependent child who later becomes a full-time
student at an accredited educational institution may be enrolled under the
Plan as a new dependent within thirty (30) days of the date the semester
begins. Proof of full-time attendance from the registrar of the educational
institution must be provided to the plan administrator within the same
thirty (30) day period.
If the employee notifies the employer and completes and submits enrollment
forms more than thirty (30) days from the date of eligibility of such
dependent, the dependent will be considered a late entrant unless they
become eligible under the special enrollment periods provision. Coverage
for a late entrant will begin the date the application is received.
5. The term "child" as used herein shall mean an employee's natural child,
stepchild, legally adopted child, or a child placed under the legal
guardianship of the employee or the covered spouse of the employee who
resides in the employee's home in a parent-child relationship, or a child
for whose medical care an employee or the covered spouse of the employee is
legally responsible through a divorce decree or other court order. In each
case, the child must satisfy the requirements in #2 above.
Coverage for adopted children under the age of eighteen (18) begins on the
date of placement for the purpose of adoption and is continued unless the
placement is disrupted prior to legal adoption of the child. Provided the
child is enrolled within thirty (30) days of placement, the pre-existing
condition limitation will not apply. If the employee completes and submits
enrollment forms more than thirty (30) days from the date of placement, the
adopted child will be considered a late entrant unless they become eligible
under the special enrollment periods provision. Coverage for a late entrant
will begin the date the application is received.
Any child covered by a Qualified Medical Child Support Order (QMCSO) is
required to be covered under the Plan as of the date of the QMCSO or
coinciding with the 10
effective date of coverage, whichever is later. If the covered person
does not carry dependent coverage, the Plan will enroll the child(ren)
named in the QMCSO, and the covered person must pay any required
contribution for family coverage. If the coverage is for a stepchild
and the parent named in the QMCSO is covered under the stepparent's
health plan, the Plan must enroll that stepchild. All Plan provisions
for late entrants will apply.
6. A dependent child's coverage may be extended beyond age, if the child is:
a. incapable of self-sustaining employment by reason of mental retardation
or physical disability; and
b. primarily dependent upon the employee for support and maintenance; and
c. they are not covered, as an employee, by another employer group health
plan.
A letter of certification from the parents of the child and the attending
physician is required stating that the condition began before or during the
year in which the child reached the attained age and showing proof of
incapacity and dependency. Such proof must be submitted within thirty (30)
days of the dependent's attainment of age nineteen (19), or within thirty
(30) days of age twenty-three (23) in case of a full-time student. During
the two (2) years after the child reaches the attaining age, the Plan may
ask for regular proof of the child's continued disability. A physician's
examination may be required as part of the proof. After the two (2) year
period, the Plan cannot ask for proof more than once a year. The Plan may
require that a physician examine the child before granting a continuation of
the dependent's coverage. The Plan chooses the doctor and pays the fees for
all required examinations.
This provision stops on the earliest of the following dates:
a. The date the child is no longer disabled according to the Plan.
b. The date the Plan is not furnished with proof of the child's
disability when requested.
Situations specifically excluded from the definition of a dependent are:
1. A spouse eligible for coverage under his or her employer's health benefit
plan.
2. A spouse who is legally separated or divorced from the employee. Such
spouse must have met all requirements of a valid separation or divorce
contract in the state granting such separation or divorce.
3. If both husband and wife are eligible as employees, only one (1) may carry
dependent coverage.
4. A person cannot be covered under the Plan as an employee and as a dependent.
5. Dependents whose permanent residence is not in the United States are not
eligible for coverage.
Note: The Plan may require proof (such as a copy of the employee's income tax
form, court order, legal adoption or legal guardianship papers) that the spouse
or child qualifies as a dependent under the employee's coverage.
DEPENDENT'S EFFECTIVE DATE OF COVERAGE
Dependent coverage will not take effect unless the employee's coverage is in
effect.
Eligible dependents become covered under the Plan as follows, provided any
required contributions are made:
1. If the dependent is eligible as a dependent on the employee's effective
date, such dependent becomes eligible under the Plan on the date the
employee's coverage commences.
2. If the dependent becomes an eligible dependent after the employee's
effective date, such dependent becomes eligible for coverage on the date
he/she is obtained.
3. If coverage is due to a Qualified Medical Child Support Order (QMCSO),
coverage will become effective on the date of the QMCSO or coinciding with
the effective date of coverage, whichever is later.
Eligibility for Medicaid or the receipt of Medicaid benefits will not be taken
into account in determining eligibility.
When a dependent has met one (1) of the eligibility requirements above, the
employee must complete and submit an enrollment card and any additional forms
required by the employer within thirty (30) days of the initial date of the
dependent's eligibility. If the employee fails to enroll within thirty (30)
days of the initial date of the dependent's eligibility, such dependent will be
considered a late entrant unless he/she becomes eligible under the special
enrollment periods provision. Medical coverage for a late entrant will begin
the date the application is received.
The following rules apply for coverage of newborn children from the moment of
birth:
A newborn child will be covered automatically from the date of birth, provided
that within 30 days of their birth, the employee completes and submits all
necessary enrollment forms changing to family coverage (if necessary) and
agreeing to pay the required contribution (if any) for family coverage.
If the employee fails to enroll such newborn within thirty (30) days of the date
of birth, the newborn will be considered a late entrant unless he/she becomes
eligible under the special enrollment periods provision. Medical coverage for a
late entrant will begin the date the application is received.
Note: Newborn "well-baby" care is subject to the newborn's own deductible, out-
of-pocket maximum, and all Plan provisions.
11
CHANGE IN STATUS
It is the covered employee's responsibility to advise the employer and to make
in writing any change in dependent status. This includes changes due to
marriage, divorce, legal separation, the addition of newborns or adopted
children, and any desire to change beneficiaries.
If a person covered under the Plan changes status from employee to dependent or
dependent to employee, and the person is covered continuously under the Plan
before, during and after the change in status, credit will be applied to all
Plan provisions including deductibles and all amounts applied to maximums.
If the employee and their spouse are both covered under the Plan as employees,
with single coverage, either the employee or their spouse may change to family
coverage within thirty (30) days if:
1. the employee is adding a newborn, adopted child, or child placed for
adoption; or
2. the employee or their spouse terminates employment or ceases to be in a
class of employees eligible for coverage with the employer.
If the employee or their spouse is covered under the Plan and the employee who
is covering the dependent children terminates coverage, dependent coverage may
be transferred to the other covered employee as long as coverage has been
continuous.
SPECIAL ENROLLMENT PERIODS (CHANGE IN EMPLOYEE STATUS)
If an eligible employee or dependent declined coverage under the Plan at the
time of initial eligibility (and stated in writing at the time that coverage was
declined because of alternative group health coverage); or there is an employee
status change as defined below, the employee may make a written request to
change coverage by completing an enrollment form. Such request must be made
within thirty (30) days of the employee status change, and such addition or
change will take effect on the later of:
1. the date of the loss of eligibility under another group health plan or
through a health insurance issuer offering group health insurance coverage;
or
2. for a marriage, the date of marriage; or
3. for a birth, the date of birth; or
4. for an adoption or placement for adoption, the date of the adoption or
placement.
The special enrollment rights may apply with respect to an employee, a dependent
of an employee, or both.
12
The term "special enrollment periods (change in employee status)" means only the
following:
1. A loss of eligibility for an employee and/or affected dependents under
another group health plan or through a health insurance issuer offering
group health insurance coverage due to:
a. legal separation,
b. divorce,
c. death,
d. termination of employment,
e. reduction in work hours,
f. employer contributions for the coverage were terminated, or
g. COBRA continuation coverage under the other plan has been exhausted.
An individual does not have to elect COBRA continuation coverage or exercise
similar continuation rights in order to preserve the right to special
enrollment. However, an individual does not have a special enrollment right
if the individual loses the other coverage as a result of the individual's
failure to pay premiums/ contributions or for termination of coverage for
cause (such as making a fraudulent claim or an intentional misrepresentation
of a material fact in connection with the Plan).
2. A change in family status due to:
a. marriage,
b. birth of a child, or
c. adoption or placement for adoption of a child.
The special enrollment rules allow an eligible employee to enroll when he or she
marries or has a new child (as a result of marriage, birth, adoption, or
placement for adoption). A spouse of a participant can be enrolled separately
at the time of marriage or when a child is born, adopted, or placed for
adoption. The spouse can be enrolled together with the employee when they marry
or when a child is born, adopted, or placed for adoption. A child who becomes a
dependent of a participant as a result of marriage, birth, adoption, or
placement for adoption can be enrolled when the child becomes a dependent.
Similarly, a child who becomes a dependent of an eligible employee as a result
of marriage, birth, adoption, or placement for adoption can be enrolled if the
employee enrolls at the same time. Individuals who enroll under these special
enrollment conditions are not considered late entrants.
DELETING A DEPENDENT
To remove a dependent from the employee's coverage, the employee must complete a
change form. The employer must receive this form within thirty (30) days after
the effective date of change. If the employee fails to timely remove an
ineligible dependent, 13
the employer reserves the right to recoup any benefit payments made on behalf of
such dependent back to the date such dependent should have been deleted.
WAIVER OF PARTICIPATION
Waiver of participation means an employee's failure to enroll himself/herself
and his/her eligible dependent(s) within thirty (30) days of his or her date of
full-time employment. This waiver will also include coverage under the Plan
which was canceled by the employee while the person remained eligible.
Waiver of participation means that future coverage under the Plan is subject to
the Plan's special enrollment periods provision or enrollment as a late entrant.
A "late entrant" means an employee or dependent who does not enroll during the
initial period in which he/she is eligible to enroll, or during a special
enrollment period when there is a change in family status or loss of group
health coverage under another plan. Medical coverage for a late entrant will
begin the date the application is received.
PRE-EXISTING CONDITION EXCLUSION
The pre-existing condition exclusion applies only to late entrants.
This Plan includes a pre-existing condition exclusion period of six (6) months
for a late entrant. Generally, participants are not eligible to receive
benefits under this Plan for a pre-existing condition during this period.
However, if the participant has been covered under another health plan within
sixty-three (63) days of the date of enrollment into this Plan, the pre-existing
condition exclusion period may be reduced by the prior coverage.
A pre-existing condition must relate to a condition (whether physical or
mental), regardless of the cause of the condition, for which medical advice,
diagnosis, care, or treatment was recommended or received within the six (6)
month period ending on the enrollment date. The enrollment date is defined as
the first date the person becomes covered under the Plan or, if earlier, the
first day of any waiting period for such enrollment.
The pre-existing condition exclusion does not apply to:
1. Genetic information in the absence of a diagnosis of the condition related
to the genetic information.
2. Pregnancy.
3. A newborn child or newly adopted child under age eighteen (18) if the child
is covered within thirty (30) days of the date of birth, adoption, or
placement for adoption (or who has creditable coverage from birth, adoption,
or placement for adoption without a significant break in coverage).
4. Conditions first discovered during the waiting period.
14
The medical pre-existing condition exclusion period will not exceed six (6)
months after the enrollment for a late entrant. A pre-existing condition must
be reduced by the period of creditable coverage the participant has under any
previous plan as of the enrollment date. The enrollment date is defined as the
first date the person becomes covered under the Plan or, if earlier, the first
day of any waiting period for such enrollment.
"Late entrant" means an employee or dependent who does not enroll during the
initial period in which he or she is eligible to enroll, or during a special
enrollment period when there is a change in family status or loss of group
health coverage under another plan.
The pre-existing condition exclusionary period runs concurrently with the
waiting period that the employee needs to satisfy before becoming effective
under the Plan and before any benefits are payable under this Plan.
In order to make a determination of whether the participant is eligible for
credit for prior coverage, the participant must submit a Certificate of Prior
Health Coverage or any other evidence of prior coverage. If the employee was
covered under more than one (1) plan, provide documentation of coverage from
each health plan. Please submit this information to the Benefits Department
immediately upon receipt from the prior employer. Employees may request a
certificate, free of charge, for themselves or their dependent(s) before losing
coverage or within two (2) years of losing coverage. Please let the Benefits
Department know if assistance is needed in obtaining this information from the
prior employer or carrier.
If it is determined that the employee and/or his/her eligible dependents:
1. will receive only a partial credit for the prior coverage towards satisfying
the pre-existing condition exclusion period; or
2. will have to satisfy the entire pre-existing condition exclusion period;
based on the information on the prior certificate of health coverage, Mountain
States Administration will inform the employee of this determination. If the
employee wishes to appeal this decision or provide additional evidence of
creditable coverage, contact the eligibility department at Mountain States
Administration.
LOSS OF COVERAGE DUE TO MISREPRESENTATION
The employer has the right to rescind any coverage of the employee and/or
his/her dependents for cause, such as making a fraudulent claim or an
intentional misrepresentation of a material fact in connection with the Plan.
The employer will refund all contributions paid for any coverage rescinded;
however, claims paid will be offset from this amount. The employer reserves the
right to collect additional monies if claims are paid in excess of the
employee's and/or dependent's paid contributions.
15
EMPLOYEE TERMINATION OF COVERAGE
(See COBRA Continuation Coverage on page 66.)
The coverage of any employee will automatically terminate at midnight on the
earliest date indicated below:
1. On the date employment ends.
2. On the date an employee ceases to be in a class of employees eligible for
coverage.
3. On the date the required contribution for coverage is not made, unless due
to a clerical error whereby past contributions may be paid to bring coverage
current.
4. On the date coverage is discontinued with respect to the class of employees
to which such employee belongs.
5. On the date the Plan is terminated with respect to all employees, or on the
date a benefit provided under the Plan is terminated.
6. On the date the employee retires.
7. On the date the employee becomes an active full-time member of the armed
forces of any country for more than thirty (30) days.
8. On the date of the employee's death.
9. On the date the employee elects to terminate coverage.
(For non-work related disability over ninety (90) days, see Extension of Medical
Benefits on page 18.)
DEPENDENT TERMINATION OF COVERAGE
(See COBRA Continuation Coverage on page 66.)
Dependents' coverage will automatically cease at midnight on the earliest date
indicated below:
1. On the date the employee's coverage terminates.
2. On the date the employee ceases to be in a class eligible for dependent
coverage.
3. On the date the required contribution for dependent coverage is not made,
unless due to a clerical error whereby past contributions may be paid to
bring coverage current.
4. On the date the Plan is terminated with respect to all dependents or on the
date a dependent benefit provided under the Plan is terminated.
5. On the date such dependent ceases to be a dependent of the employee as
defined herein.
6. On the date the dependent becomes an active full-time member of the armed
forces of any country for more than thirty (30) days.
7. On the date of the employee's death.
8. On the date the employee elects to terminate the dependent's coverage.
9. On the date the dependent becomes effective as an employee under the Plan.
LEAVE OF ABSENCE
1. During an approved Medical Leave of Absence certified by a physician and
approved by the Plan Administrator (unless covered under the Family and
Medical Leave Act, in which case the better benefits apply) coverage may
continue under the Plan for up to ninety (90) days providing all required
contributions to the Plan are made by the covered employee; or
2. During a personal leave of absence approved by the Plan Administrator
(unless covered under the Family and Medical Leave Act, in which case the
better benefits apply), coverage may continue under the Plan for a maximum
of six (6) months providing all required contributions to the Plan are made
by the covered employee.
Regardless of any other provisions of this Plan, benefits will be paid in
accordance with the rules and regulations as specified by the Family and Medical
Leave Act (Public Law 103-3).
Family and Medical Leave Act (FMLA)
If a covered employee ceases work due to an employer approved Family Medical
Leave of Absence in accordance with the requirements of Public Law 103-3,
coverage will be continued under the same terms and conditions which would have
been provided had the covered employee continued work, provided the employee
continues to pay any required contributions. Contributions will remain at the
same employer/employee percentage level as on the date immediately prior to the
leave (unless contributions change for other employees in the same
classifications).
If the covered employee does not return to work after the approved Family
Medical Leave or if the covered employee has given the employer notice of intent
not to return to service during the leave, coverage may be continued under the
Continuation of Coverage (COBRA) provision of this Plan provided coverage has
not lapsed, effective with the date notification is given to the employer and
provided the covered employee elects to continue under the COBRA provision. The
covered employee will be totally responsible for paying contributions during
COBRA continuation if elected. Coverage continued during a family or medical
leave will not be counted toward the maximum COBRA continuation period. 16
If the covered employee fails to make the required contribution for coverage to
continue during FMLA leave within thirty (30) days after the date the
contribution was due, the covered employee's coverage will terminate effective
on the date the contribution was due. If coverage under this Plan was
terminated during an approved family medical leave due to non-payment of
required contributions by the employee and the employee returned to work
immediately upon completion of that leave, coverage will be reinstated on the
date the employee returns to work without having to satisfy any waiting period
or the pre-existing conditions limitation provision in this Plan provided the
employee resumes any necessary contribution and enrolls for coverage within
thirty (30) days of the return to work.
It is the intent of the Plan to comply with all existing Family and Medical
Leave Act regulations. If for some reason the information presented in the Plan
differs from actual FMLA regulations, the Plan reserves the right to
administrate Plan benefits in compliance with such actual regulations.
Active Military Duty and Military Reservists
Employees or covered dependents who are called to active military duty will no
longer be considered eligible for benefits under this Plan, but may elect
continuation of coverage.
Those individuals returning from active duty in the armed forces may have
coverage reinstated under this Plan, for themselves and any eligible dependent,
provided:
1. such individual was covered under the Plan on the day employment with
his/her employer ended due to being called to active duty in the armed
forces; and
2. such individual becomes re-employed with his/her employer subsequent to
being discharged from active duty, or within two (2) years if such
individual was hospitalized or recovering from an illness or injury on the
date of his/her discharge; or
3. such individual who, under normal circumstances, would have a) remained in
the service of his/her employer and b) satisfied the eligibility
requirements under this Plan, makes application for coverage within thirty
(30) days following his/her date of rehire.
The coverage provided will be the benefits currently provided by the Plan. If
an individual returns to employment within the same calendar year, eligible
charges accumulated toward the satisfaction of provisions such as the out-of-
pocket and deductible provisions or calendar year maximums will be taken into
consideration when determining benefits available for the remainder of the
calendar year.
It is the intent of the Plan to comply with all existing regulations of The
Uniformed Services Employment and Reemployment Rights Act (U.S.E.R.R.A.) of
1993. If for some reason the information presented in the Plan differs from the
actual regulations of the U.S.E.R.R.A., the Plan reserves the right to
administrate Plan benefits in compliance with such actual regulations. 17
LAYOFF
If coverage terminates due to a company layoff, there is no continuation of
coverage except what is chosen through the COBRA election.
All Plan provisions will continue as though there were no lapse of coverage
status if COBRA was elected during this termination period and coverage was
uninterrupted to the date of rehire.
RECALL FROM LAYOFF
As a general rule, a person who is laid off and called back to full-time regular
employment within ninety (90) days of the date, receives credit for prior time
worked. However, this employee must fill out the appropriate enrollment forms.
For persons recalled from layoff and still in the ninety (90) day waiting period
prior to the coverage effective date, the waiting period is shortened by the
number of days worked during their previous employment.
For persons whose health coverage was in effect when they were laid off,
coverage is effective on the first day they return to work at their previous
level.
EXTENSION OF MEDICAL BENEFITS: (Disability)
Should coverage terminate because a covered employee is disabled by a non-work
related injury or sickness so as to be continuously prevented from returning to
work within ninety (90) days, and, further prevented from engaging in any
occupation, benefits under this Plan will continue (provided any required
employee contributions are paid) until the earliest of:
1. nine (9) months from the date coverage terminates; or
2. the date the covered employee becomes covered under another group plan; or
3. the date such total disability terminates.
Proof of disability must be furnished to the Plan Administrator if requested.
Dependent coverage in effect at the time employee coverage terminates will
continue, provided that required contributions to the Plan are made and provided
the dependent remains eligible for benefits as defined by this plan. However,
such dependent coverage shall only extend until the earliest of:
1. nine (9) months from the date employee coverage terminates; or
18
2. the date the covered employee becomes covered under another group plan; or
3. the date the employee's total disability ceases; or
4. the date the covered dependent becomes covered under another group plan.
The employee may elect continuation coverage under COBRA once the extension of
benefits has expired. Although such election will require premium payments,
such continuation coverage will ensure against all covered medical expenses and
may enable the employee to provide dependent coverage for a longer period of
time, provided such
dependent coverage already exists under this Plan.
DEATH (SURVIVOR) BENEFITS
Upon the death of an employee covered under the Plan for fewer than 365 days,
the then covered family members of the employee shall, at company expense,
automatically be covered under the Plan for the lesser of the number of calendar
days the employee was covered by the Plan or ninety (90) days. For employees
who were participants in the Plan for 365 days or more, such extended benefits
shall be provided for 180 days following the employee's death. Such extension
shall not extend beyond the date that such dependent(s) become eligible, either
as an individual or as a dependent, under any other group type of employee
benefit program arranged through any other employer, trust, or association.
Covered family members may elect continued coverage under the COBRA provisions
once survivor benefits have expired.
ELIGIBILITY DATE FOR REINSTATED EMPLOYEES
An employee whose coverage terminates due to termination of employment or ceases
to be in a class of employees eligible for coverage and who resumes employment
with the employer or has a status change which makes them eligible for coverage
must meet the same eligibility and waiting period requirements as that of a new
hire, with the waiting period starting on the date of rehire.
REINSTATEMENT OF COVERAGE
If the employee or his or her covered dependents qualify and elect COBRA
continuation and subsequently again become eligible for coverage under the Plan
during the designated COBRA continuation period (with no break in coverage), the
employee and his or her covered dependent(s) are not required to re-qualify as a
new Plan participant. All Plan provisions will continue as though there were no
lapse of coverage status.
ACQUISITION OF A NEW COMPANY - WHEN COVERAGE BEGINS
When enrollment requirements are met, coverage for eligible employees, and their
eligible dependents, who are employed by the newly acquired company will be
effective as of the date of the acquisition, or the date of termination of the
prior company's coverage, whichever is later, if they were covered under a plan
offered by the prior company on the
19
day before the date of the acquisition. The waiting period will be waived.
If a bodily injury or sickness is a pre-existing condition, but would not have
been a pre-existing condition under the prior plan had it remained in force, it
will not be a pre-existing condition under this Plan. Credit will be given for
any pre-existing period satisfied under the prior plan. A certificate of prior
health coverage may be required to substantiate the creditable period of
coverage.
The employee and his/her eligible dependents will be given credit for
deductibles and coinsurance provided they submit evidence of amounts satisfied
under the prior plan.
New hires will be subject to the waiting period, pre-existing condition
exclusion, and all other Plan provisions.
20
CASE MANAGEMENT AND ALTERNATE TREATMENT PROVISION
The Plan reserves the right to allow for care at home or other alternative
methods of treatment or medical care not otherwise covered under the Plan. In
cases where the patient's condition is expected to be or is of a serious nature,
the Plan Administrator may arrange for review and/or case management services
from a professional qualified to perform such services. The Plan Administrator
shall have the right to alter or waive the normal provisions of the Plan when it
is reasonable to expect a cost effective result without a sacrifice to the
quality of patient care, provided such care is approved by the Plan's case
management organization, the patient (or patient's legal representative), the
attending physician, the Plan Administrator, and the Plan's reinsurance carrier.
Benefits provided under this section are subject to all other Plan provisions.
Alternative care will be determined on the merits of each individual case and
any care or treatment provided will not be considered as setting any precedent
or creating any future liability, with respect to that covered person or any
other covered person.
21
COVERED MEDICAL EXPENSES
Unless specifically provided for in the Plan, covered medical expenses shall
include, subject to the "General Plan Exclusions and Limitations," only usual,
customary, and reasonable medically necessary charges for services and supplies
which are incurred by a covered person and are:
1. Administered or ordered by a physician.
2. Medically necessary for the diagnosis and treatment of a non-work related
illness or injury unless otherwise specifically included as a covered
expense.
3. Not excluded under any provision or section of the Plan.
An expense is incurred on the date of treatment, service or purchase. Covered
expenses are limited to:
1. Acupuncture performed by a physician (M.D. or D.O.) or licensed
acupuncturist when medically necessary to treat a covered illness or injury.
2. Medical care and treatment of alcoholism or substance abuse furnished on an
inpatient or outpatient basis by a hospital, treatment facility, physician,
or licensed therapist for psychotherapy under direct supervision of an M.D.,
D.O., Ph.D., Ed.D., or Psy.D., and as described later in this section of the
Plan. When direct supervision is not required by the state, that licensed
therapist will be a recognized provider.
3. Allergy testing, treatment, and injections. RAST (radioallergosorbent test)
allergy testing will be allowed only when medically necessary as the only
alternative to traditional allergy testing.
4. Professional ambulance service when the covered person cannot be safely
transported by any other means to the nearest facility where emergency care
or treatment is rendered or when medically necessary, from one facility to
another for care; or for professional ambulance from the facility to the
patient's home when medically necessary. Air ambulance is covered only when
terrain, distance or condition warrants. Ambulance charges for convenience
are not covered.
5. Expenses made by an ambulatory surgical center, urgent care facilities, or
minor emergency medical clinic when treatment has been rendered.
6. Expenses for amniocentesis testing and/or genetic counseling, when
recommended by a physician for a covered person who is expected to deliver
at age thirty-five (35) or older, or for a documented high-risk pregnancy,
or family history of genetic disorder. Any procedure intended solely for
sex determination is not covered.
22
7. The cost and administration of an anesthetic by a physician or by a nurse
anesthetist (CRNA) if necessary for a covered surgery. Benefit allowances
are based on the complexity of the surgical procedure, the amount of time
needed to administer the anesthetic, and the patient's physical condition at
the time the service is provided. Standby anesthesia is a benefit when
anesthesia services may potentially be required. These benefits depend upon
the procedure and the circumstances of the case.
8. Assistant surgeon's fee when the procedure requires an assistant surgeon due
to medical necessity.
9. Expenses for the testing to determine the diagnosis, medication and medical
management of the medication for attention deficit disorder will be covered
as any other illness under the Plan. All other expenses for treatment of
attention deficit disorder will be covered under the mental health disorders
provision of the Plan.
10.Biofeedback and equipment medically necessary for the treatment of a covered
illness or injury.
11.Birthing centers.
12.Birth control pills, birth control injections, prescription birth control
devices, and birth control implants. Removal of Norplant or a similar birth
control implant is not covered unless it is medically necessary to remove it
due to a medical complication involving the implant. All eligible charges
for implanting Norplant are prorated into five (5) equal portions. Each
year over the five (5) year period, one (1) portion (20% of the total
charges) is payable, provided the person remains covered under this Plan.
13.Blood transfusions, blood processing costs, blood transport charges, blood
handling charges, administration charges, the cost of blood, plasma and
blood derivatives, and pre-surgical autologous storage of blood. Any credit
allowable for replacement of blood plasma by donor or blood insurance will
be deducted from the total of eligible covered expenses.
14.Cardiac exercise therapy when prescribed by a physician after cardiac
surgery or myocardial infarction.
15.Chiropractic services will only be covered for the detection and correction
by manual or mechanical means of a structural imbalance, distortion or
subluxation in the human body or for the removal of nerve interference,
where such interference is the result of or related to distortion,
misalignment, or subluxation of or in the vertebral column. Maximum payable
per six (6) consecutive month period is forty (40) visits.
16.Accredited facilities, clinics, or centers involved in the testing and
treatment of chronic pain for a covered illness or injury.
23
17.Cleft palate and cleft lip expenses as described later in this section of
the Plan.
18.Dental treatment as described later in this section of the Plan. Associated
medical charges for facility, anesthesia, etc. and related eligible
charges are covered when dental surgery requires hospitalization.
19.Electrocardiograms, electroencephalograms, pneumoencephalograms, basal meta
bolism tests, or similar well-established diagnostic tests generally
approved by physicians throughout the United States.
20.The rental or purchase (whichever is less) of durable medical equipment.
When purchase of durable medical equipment is covered, repair, maintenance,
replacement, and adjustments will also be covered. Items such as air
conditioners, purifiers, vibrating chairs, whirlpools, saunas, and
dehumidifiers are not covered items.
21.Extracorporeal shock therapy (lithotripsy) for treatment of kidney stones.
22.Eye examinations by an ophthalmologist or optometrist (in those
jurisdictions where permitted by law) for the purpose of prescribing
corrective lenses. These vision benefits will include prescription lenses
and frames and the replacement of lost, stolen, or broken eyeglass lenses,
frames, or contacts payable to a maximum of $50 per person, per calendar
year, not subject to deductible or coinsurance.
23.Prescription eyeglasses, frames or contact lenses will be covered when their
function is to replace the human lens absent at birth or lost through
intraocular surgery or ocular injury or when caused by a medically
ascertainable problem. This benefit is not subject to the $50 maximum
stated in the Vision Benefit provision. Limitation will be to one (1) pair
of prescription eyeglasses or contact lenses, unless due to a change in
prescription as a result of the surgery, injury, or medically ascertainable
problem.
The Plan will also cover eyeglasses or contact lenses when prescribed by the
covered person's physician as the only method of treatment available for the
treatment of aphakia or keratoconus.
24.Fetal surgery will be considered as part of the mother's care.
25. Head halter or other traction apparatus.
26.Expenses for treatment of kidney disorder by hemodialysis or peritoneal
dialysis as an inpatient in a hospital, or other facility, or for expenses
in an outpatient facility or in your home, including the training of one (1)
attendant to perform kidney dialysis at home. The attendant may be a family
member. When home care replaces inpatient or outpatient dialysis
treatments, the Plan will pay for rental of dialysis equipment and
expendable medical supplies for use in your home.
27. Home health care benefits as described later in this section of the Plan.
28. Hospice benefits as described later in this section of the Plan.
24
29.When hospitalized in a licensed hospital, reimbursement will be provided for
care by a hospital for semiprivate room and board, intensive care, coronary
care unit, or private room rate when documented in writing from the
physician as medically necessary for treatment of the condition, and for all
other medically necessary services and supplies. Expenses for a private
room will be paid at the private room rate when the hospital only has
private rooms.
Hospital supplies covered will include one (1) admission kit. Benefits are
also payable for outpatient hospital services and charges made by the
hospital for outpatient surgery, emergency room treatment and other
outpatient medical care.
30.Expenses incurred for the initial diagnosis and testing to determine
infertility and impotency, whether a medical problem exists or not, is
covered; expenses incurred in connection with the treatment, whether a
medical problem exists or not, of infertility, impotency or promotion of
conception, including drug therapy, are not covered.
31. Insulin, related supplies, syringes.
32. Laboratory and pathology services, and x-ray and radiology services.
33. Surgery/procedures necessary for reconstruction of breast(s) after
mastectomy. This benefit includes the costs of prostheses (implants, special
bras, etc.) and physical complications of all stages of mastectomy,
including lymphedemas, as recommended by the attending physician. Coverage
also provides for surgery/ reconstruction on the breast which did not have
the mastectomy, in order to produce a symmetrical appearance.
34.Medical supplies, including, but not limited to: dressings, sutures, casts,
splints, trusses, crutches, colostomy bags, catheters, syringes and needles
for administering covered drugs, medicines or insulin. Over-the-counter
supplies, except for insulin, syringes and needles, and items that would not
serve a useful medical purpose, or which are used for comfort, convenience,
or personal hygiene, are not included.
35.Medical care and treatment of mental health disorder furnished on an
inpatient or outpatient basis by a hospital, psychiatric hospital, mental
health facility, physician, nurse practitioner or licensed therapist for
psychotherapy under direct supervision of an M.D., D.O., Ph.D., Ed.D., or
Psy.D., and as described later in this section of the Plan. When direct
supervision is not required by the state, that licensed therapist will be a
recognized provider.
36. Licensed or registered midwife.
37.Any expenses for care or treatment provided by the United States government
for non-service connected disabilities will be reimbursed to the Veterans
Administration to the extent that the services are otherwise covered under
the Plan.
38. Occupational therapy, only when prescribed by a physician as to type and
duration and when the therapy is generally expected to improve bodily
function. Occupational therapy for vocational testing, occupational
training or retraining, even when due to a covered condition is
not covered.
25
39. Outpatient Surgery, paid at 100%, subject to Plan deductibles and
coinsurance.
40.Oxygen and other gases, and equipment necessary for its administration.
41. Physical therapy performed by a physician or licensed physical therapist.
42.The services of a legally qualified physician for medical care and/or
surgical treatments including but not limited to office visits, home visits,
hospital inpatient care, consulting physician services, hospital outpatient
visits/exams, clinic care, and second opinion consultations.
43.Physician's assistant fee when the procedure requires a physician's
assistant due to medical necessity, in lieu of the service of an assistant
surgeon.
44. Expenses for pre-admission testing, as described later in this section of
the Plan.
45.Prescription drugs requiring the written prescription of a physician.
Growth hormone therapy must be previously authorized with a letter from the
physician documenting the need for such therapy in advance of dates of
service. Newly approved drugs are not automatically covered, and must be
authorized by the Plan Administrator.
46.Expenses incurred for private-duty nursing services by a practicing
registered nurse (R.N.) or licensed practical nurse (L.P.N.) for:
a. inpatient care only if the hospital does not have intensive care
facilities or can not provide the level of care necessary; or
b. outpatient care in the covered person's home or other outpatient
location.
The private nurse cannot be employed by the hospital and cannot reside in
the same household with the covered person nor be related by blood, marriage
or legal adoption to the employee or employee's spouse.
All claims for private-duty nursing services must include a physician's
certification that such services are medically necessary and indicate the
nurse's degree and license number.
47. Prostheses and orthopedic appliances including, but not limited to:
a. artificial arms, legs, larynx or eyes;
b. leg braces, including attached shoes;
c. arm and back braces;
d. maxillofacial prostheses;
e. cervical collars; and
f. non-cosmetic surgical implants.
26
Benefits include charges for the fitting, adjusting, repair or maintenance
of such prosthetic or orthopedic appliances. Covered expenses are limited
to the initial placement of prosthetic or orthopedic appliances when
required to replace natural limbs or eyes lost while covered under this
Plan.
Orthopedic shoes are covered only when they are used with an attached leg
brace. Prescription orthotics and arch supports are covered when medically
necessary for treatment of a covered illness or injury.
48. Radiation therapy, chemotherapy, radium, and radioactive isotope therapy.
49. Rehabilitation expenses as described later in this section of the Plan.
50.Respiratory therapy ordered by a physician and performed by a registered
respiratory therapist or qualified medical personnel.
51.Expenses for routine medical checkups, including pap smears, mammograms,
prostate examinations and other routine diagnostic x-ray and lab tests; well-
baby care; flu shots and pneumovax injections for adults; or any charge for
checkup purposes not incident to or necessary to diagnose an injury or
illness, to a maximum paid of $250 per person, per calendar year.
Routine immunizations, vaccinations, and preventive shots recommended or
required by the American Academy of Pediatrics and Department of Education,
for eligible dependent children. Immunizations are also covered for covered
adult participants.
52.Expenses for second or third surgical opinion as described later in this
section of the Plan.
53. Skilled nursing care facility benefits as described later in this section
of the Plan.
54.Accredited facilities, clinics or centers involved in sleep testing and
treatment for a covered illness or injury.
55.Smoking cessation as described later in this section of the Plan.
56.Speech therapy, only when prescribed by a physician, with an estimated
duration of treatment, and only for conditions caused by injury, illness or
congenital defect or as a loss due to surgery.
Speech therapy services must be performed by a therapist with a Clinical
Competence Certification or Equivalency Statement from either the American
Speech and Hearing Association or the Peer Review Board of the State Speech
and Hearing Association.
57.Services for voluntary sterilization: tubal ligations or vasectomies for
employees and dependent spouses. Reversals are covered for employees only
to a lifetime maximum of $1,000 for male employees and $2,000 for female
employees.
27
58.A surgical procedure performed by a physician, nurse practitioner working
within the scope of their license, or licensed or registered midwife. There
will be a reduction for secondary surgeries/procedures performed in the same
operative session.
59.Medical or surgical services for the diagnosis, testing and treatment of
temporomandibular joint (TMJ) disorders, regardless of the reason(s) such
services are necessary. Benefits are limited to a maximum paid per person
of $2,000 per lifetime.
60.Transplant and replacement procedures, including but not limited to the
following, are covered as any other illness:
a. artery or vein transplants;
b. bone marrow transplants, including a bone marrow transplant for breast
cancer;
c. cornea transplants;
d. heart valve replacements;
e. implantable prosthetic lenses in connection with cataracts;
f. joint replacements;
g. kidney transplants;
h. prosthetic bypass or replacement vessels;
i. human heart transplants (mechanical, artificial or other than human
heart transplants are not covered);
j. heart and lung transplants;
k. lung transplants;
l. liver transplants;
m. pancreas transplants;
n. peripheral stem cell transplants; and
any human organ transplant not considered to be experimental or
investigational in nature under standards set by the Health Care Financing
Administration (HCFA) and/or the National Institute of Health (NIH).
Procedures that are considered experimental or investigational in nature may
be covered subject to review by three licensed physicians who are board
certified in the appropriate transplant specialty.
In addition, the following limitations apply:
a. Donor and Search and Procurement Expenses: If a covered person receives
a transplant, the donor's expenses and the search and procurement expenses
will be considered to be the covered person's even if the donor is covered
under the same family plan as the covered person. Benefits will be paid
for the donor's covered charges to the extent an actual charge is made
that is not paid or payable by any other plan covering the donor. The
maximum benefit that will be paid is limited to $10,000. The maximum
amount may be increased to cover expenses over $10,000 subject to medical
review for determination of coverage.
b. Charges for Transportation, Lodging and Meals: If the recipient is a
minor, this will include both parents, otherwise just the recipient and
one (1) other adult.
c. Mandatory Second Surgical Opinion Requirement. This must certify that
the
28
patient has no alternative procedure, service, or course of treatment that would
be effective in the treatment of the patient's condition.
61.Expenses for a covered illness or injury incurred while traveling outside
the United States on business or pleasure. Expenses incurred outside the
United States, if the covered person traveled to such a location for the
primary purpose of obtaining medical services, drugs, or supplies, are not
covered.
62.Weight control for employees only, as described later in this section of the
Plan.
63.Wigs and artificial hairpieces will be covered to a maximum paid of $150 per
person, per lifetime, upon receipt of a physician's prescription that
indicates a medical condition for the hair loss.
ACCIDENT BENEFIT
Expenses for an accidental bodily injury will be paid at 100% for the first $500
for covered services provided within ninety (90) days from the accident.
Thereafter, the deductible and coinsurance provisions apply. Expenses paid at
100% do not count toward the deductible nor do they count toward the out-of-
pocket maximum.
This benefit shall not include eye refractions, eyeglasses, hearing aids,
prosthetic devices or their fitting.
CHILDBIRTH CENTERS
Charges made by a childbirth center are covered for services and supplies
furnished for:
1. prenatal care; and
2. delivery of child(ren).
A birthing center is a licensed facility which:
1. provides: (a) prenatal care; (b) delivery and immediate postpartum care;
and (c) care of a child born at the birthing center; and
2. is directed by a physician specializing in obstetrics and gynecology; and
3. has a physician or licensed or registered midwife present at all births and
during the immediate postpartum period; and
4. extends staff privileges to physicians who practice obstetrics and
gynecology in the area; and
5. has at least two (2) beds or birthing rooms for use by patients during labor
and delivery; and
29
6. provides full-time skilled nursing services (directed by an R.N. or licensed
or registered midwife) in the delivery and recovery rooms; and
7. provides diagnostic x-ray and lab services for the mother and newborn; and
8. has the capacity to administer a local anesthetic and perform minor surgery
(including episiotomy and repair of perineal tear); and
9. is equipped and staffed to handle medical emergencies and provide immediate
life support measures; and
10.accepts only patients with low risk pregnancies if a stand-alone facility,
not part of a hospital; and
11.has a written agreement with an area hospital for emergency transfer of
patients and ensures its staff is aware of such procedures; and
12. provides an on-going quality assurance program; and
13.keeps a medical record on each patient.
CLEFT PALATE AND CLEFT LIP
The Plan will provide benefits for cleft palate and cleft lip. Cleft palate is
defined as a birth deformity in which the palate (the roof of the mouth) fails
to close, and cleft lip is defined as a birth deformity in which the lip fails
to close.
The Plan will cover expenses incurred for the following services when provided
by a physician, other professional provider, and facilities necessary for
treatment.
1. Oral and facial surgery, surgical management and follow up care by plastic
surgeons and oral surgeons.
2. Habilitative speech therapy.
3. Otolaryngology treatment.
4. Audiological assessments and treatment.
5. Orthodontic treatment.
6. Prosthodontic treatment.
7. Prosthetic treatment such as obturators, speech appliances, and feeding
appliances.
DENTAL BENEFITS (Under the Medical Plan)
The Plan will provide benefits for expenses incurred for the following dental
services only: 30
1. Excision of exostosis of the jaw (removal of bony growth).
2. Surgical correction of accidental injuries of the jaws, cheeks, lips,
tongue, floor of the mouth, and soft palate (provided the procedure is not
done in preparation for dentures or dental prosthesis).
3. Treatment of fracture of facial bones.
4. Incision and drainage of cellulitis (inflammation of soft tissue).
5. Incision of accessory sinuses, salivary glands or ducts.
6. Extraction of impacted teeth partially or totally covered by bone.
7. Dental Implants.
The Plan will pay for the charges for a semiprivate room and covered hospital
ancillary services in a hospital if the covered person has a hazardous medical
condition (such as heart disease) which requires that an otherwise non-covered
dental procedure be performed in the hospital. The Plan will not pay for the
services of the physician, dentist, or oral surgeon in relation to that
non-covered dental procedure even if the hospital charges are paid.
The Plan will allow benefits for accident-related dental expenses not otherwise
covered under any other provision of the Plan when all of the following criteria
have been met.
1. The covered person is in need of dental services, supplies, and appliances
because of an accident in which he/she sustained injuries of the mouth or
oral cavity.
2. The injury occurred on or after the covered person's effective date of
coverage.
3. Treatment must be for injuries to sound natural teeth.
4. Treatment must be necessary to restore the teeth to the condition they were
in immediately before the accident.
5. Services must be performed within six (6) months after the accident, unless
it can be shown that it was not medically possible to provide treatment
within this period of time.
6. All services must be performed while the covered person's coverage is in
effect.
The Plan will not pay for restoring the mouth, teeth, or jaws because of
injuries from biting or chewing.
Limitations and Exclusions
1. Restorations - Benefits for restorations are limited to those services,
supplies, and appliances determined to be appropriate in restoring the
mouth, teeth, or jaws to the condition they were in immediately before the
accident. 31
No benefits will be paid for duplicate, or spare dental appliances,
personalized restorations, cosmetic replacement of serviceable restorations,
and materials (such as precious metals) that are more expensive than
necessary to restore damaged teeth.
2. Surgical Preparations for Dentures - Artificial implanted devices and bone
grafts for denture wear are not covered under the medical portion of the
Plan.
HOME HEALTH CARE
Home health care benefits will include covered charges which meet all of the
following requirements:
1. They are medically necessary for the care of a covered individual who is
totally disabled and who would otherwise have been confined as a bed patient
in a hospital or skilled nursing facility, provided:
a. the covered person is under the direct care of a doctor; and
b. the plan of treatment for the home health care agency is established in
writing by the attending doctor prior to the start of such treatment.
Periodic assessment visits by either a physician or a licensed nurse will be
required to determine the patient's condition, progress and level of care
needs. After the period of time specified on the prescribed treatment plan,
continuation of care depends on a reevaluation of the patient's status.
2. They are for services provided by a home health agency. A "home health
agency" means an agency which meets the following requirements:
a. its primary services are those listed in 4. below; and
b. it is federally certified as a home health agency; and
c. it is licensed, if licensing is required.
3. Home health care benefits will include charges by a home health care agency
to a maximum of sixty (60) visits per calendar year. A visit by a
representative of a home health care provider, other than an aide, will be
one (1) home health care visit. A visit by a home health care aide will be
counted as one (1) visit for any four (4) hours or portion thereof.
4. Home health care benefits will be allowed for the following services:
a.Professional nursing services performed by a registered nurse (R.N.), or
under the supervision of an R.N.
b.Physical therapy performed by a registered physical therapist.
c.Occupational therapy performed by a properly accredited registered
occupational therapist (OTR) or a certified occupational therapy assistant
(COTA).
d.Respiratory and inhalation therapy performed by a therapist trained or
licensed to provide these services.
e.Speech therapy and audiology given for speech disorders caused by a
primary or secondary muscular or structural abnormality. Services must be
provided by a properly accredited speech therapist who has received a
Clinical Competence Certification or Equivalency Statement from either the
American Speech and Hearing Association or the Peer Review Board of the
State Speech and Hearing Association.
f.Medical social services ordered by the attending physician and provided
by a qualified medical or psychiatric social worker to assist you or your
family in dealing with a specific medical condition. The individual
providing such services must possess a degree in social work, psychology
or counseling, or the documented equivalent in a combination of education,
training and experience.
g.Home health aide services required and supervised by a registered nurse
or a physical, speech or occupational therapist.
h.Medical supplies furnished to the covered person by the home health
agency during visits for services.
i. Nutrition counseling by a nutritionist or dietitian.
j.The following additional items and services are eligible expenses under
a home health care program. However, some of these expenses may also be
covered under benefits otherwise provided by the Plan:
1) Prostheses and orthopedic appliances.
2) Rental or purchase of durable medical equipment.
3) Expenses for prescription drugs, medicines, or insulin.
Limitations and Exclusions for Home Health Care
No home health care benefits will be paid for:
1. Custodial Care. The Plan will pay for one-time training for a family
member, household resident, or non-professional person employed by the
patient or family. This training covers the services necessary for the
custodial or maintenance levels of care.
2. Non-Covered Services. The following list of services are not home health
care benefits. However, some of these expenses may be covered under
benefits otherwise provided by the Plan:
a. Blood, blood plasma, or blood derivatives.
b. Services provided by a hospital.
c. Services provided by a physician.
d. Services related to non-covered conditions and surgeries, as excluded in
the Plan.
e. Services or supplies for personal comfort or convenience, including
homemaker services.
f. Services related to well-baby care.
g. Food or meal services other than dietary counseling.
32
3. Psychiatric Social Worker Services. The services of a psychiatric social
worker which are not related to a home health program prescribed by a
physician may be covered and paid as outpatient benefits as described in
Mental Health Disorders, Alcoholism or Substance Abuse.
4. Review of Treatment. The Plan reserves the right to review treatment plans
at periodic intervals.
HOSPICE CARE
Definition
An alternative way of caring for terminally ill individuals which stresses
palliative care as opposed to curative or restorative care. Hospice care
focuses upon the patient/family as the unit of care. Supportive services are
offered to the family before and after the death of the patient. Hospice care
addresses physical, social, psychological, and spiritual needs of the patient.
All Hospice Benefits
Benefits are allowed for hospice care provided under active physician and
nursing management through a licensed hospice agency which is responsible for
coordinating all hospice care services, regardless of the location or facility
in which such services are furnished. Hospice care is provided in the covered
person's home or on an inpatient basis in a licensed health care facility.
Benefits are allowed only for a terminally ill covered person with a life
expectancy of six (6) months or less, who, alone or in conjunction with a family
member or members, has voluntarily requested admission and been accepted into a
hospice program.
All claims must include a physician's certification of the covered person's
illness, including a prognosis for life expectancy and a statement that hospice
care is medically necessary and a copy of the hospice agency's treatment plan.
Benefit Period
The benefit period for hospice care is limited to six (6) months from the date
the terminally ill person entered hospice care or until death if the covered
person continues to live beyond the prognosis for life expectancy. The maximum
paid for hospice care is $25,000 per person, per lifetime. Coverage may be
extended until the death of the covered person if he or she exceeds the $25,000
lifetime maximum.
The following services are covered:
1. Inpatient hospice care provided on a regularly scheduled basis in a hospice
facility governed by the hospice board of directors to ensure the overall
continuum of patient care.
33
2. Home hospice care services provided in the covered person's home to meet the
covered person's physical requirements and/or to accommodate a covered
person's maintenance or supportive needs. This benefit is payable for any
combination of the following:
a.Professional nursing services provided by or under the supervision of a
registered nurse (R.N.).
b.Home health aide services under the supervision of a registered nurse or
specialized rehabilitative therapist.
c.Physical therapy performed by a registered physical therapist.
d.Occupational therapy performed by a properly accredited registered
occupational therapist (OTR) or a certified occupational therapy assistant
(COTA).
e.Speech therapy and audiology provided by a properly accredited speech
therapist who has received a Clinical Competence Certification or
Equivalency Statement from either the American Speech and Hearing
Association or the Peer Review Board of the State Speech and Hearing
Association.
f.Respiratory and inhalation therapy performed by a therapist trained or
licensed to provide these services.
g.Nutrition counseling by a nutritionist or dietitian.
h.Medical social services provided by a qualified individual who possesses
a degree in social work, psychology, or counseling or the documented
equivalent in a combination of education, training and experience. Such
services must be provided at the recommendation of a physician for the
purpose of assisting the covered person or immediate family in dealing
with a specified medical condition.
i.Family counseling related to the covered person's terminal condition.
j.Respite care which provides temporary relief for the covered person's
family or other care giver for unforeseen emergencies and from the daily
demands of care for the patient.
k.Short-term inpatient care or continuous home care which may be required
during a period of crisis, for pain control or for acute intervention
alternatives and chronic symptom management. Benefits are limited to a
separate thirty (30) day period for such care.
l.Medical supplies, including prescription drugs and biological drugs.
m.Prostheses and orthopedic appliances.
n.Rental or purchase of durable medical equipment.
Limitations and Exclusions for Hospice Care
1. Non-Covered Services. The following items and services are not covered
expenses under this hospice care program. However, some of these expenses
may be covered under benefits otherwise provided by the Plan:
a. Blood, blood plasma, or blood derivatives.
b. Services provided by a hospital.
c. Services related to non-covered conditions and surgeries, as excluded in
the Plan.
d. Services related to well-baby care.
34
e.Food services or meals other than dietary counseling.
f.Services or supplies for personal comfort or convenience, including
homemaker services, except in crisis periods or in association with
respite care.
g.Estate planning, drafting of wills, or other legal services.
h.Funeral arrangements or services.
2. Review of Treatment. The Plan reserves the right to review treatment plans
at periodic intervals.
3. Any covered charge paid under hospice benefits will not be considered a
covered charge under any other benefit in the Plan.
HOSPITAL AUDIT SAVINGS
If you discover an overcharge or mistake on an inpatient or outpatient hospital
bill, (excluding double billings and very obvious mistakes which would be caught
during claims processing) you will receive (by check) 50% of the error to a $500
maximum per confinement if the following procedures are followed. This
reimbursement is considered to be taxable income.
1. Within five (5) days of receiving your hospital bill, call Mountain States
Administration at 303-360-9600 or 1-800-828-8847 to inform them that you
have found an error(s) in the bill. This must be done before the hospital
bill has been processed by Mountain States Administration.
2. Next, within the same five (5) day period, you must follow up with a letter
to Mountain States Administration explaining how or why the bill is in
error.
3. Once the error is confirmed with the hospital by Mountain States
Administration and a corrected bill is received, you will receive your audit
savings.
MATERNITY
This Plan complies with the requirements of the Newborns' and Mothers' Health
Protection Act (NMHPA) of 1996. This Plan may not, under federal law, restrict
benefits for any length of hospital stay in connection with childbirth for the
mother or newborn child to less than forty-eight (48) hours following a normal
vaginal delivery, or less than ninety-six (96) hours following a cesarean
section, or require that a provider obtain authorization from the Plan for
prescribing a length of stay not in excess of the above periods. The Plan may
not penalize individuals nor provide incentives for earlier discharge, although
the Plan may allow earlier discharge if the mother and physician agree.
Maternity expenses are covered as any other medical illness, including expenses
for the diagnosis and care of a pregnancy and for the delivery services.
Benefits are limited to covered employees and covered spouses as follows:
1. Maternity benefits will be subject to all Plan provisions.
2. Delivery must occur while the individual is a covered person under the Plan
in order for delivery expenses to be a covered expense.
35
3. Fetal surgery will be considered as part of the mother's care.
4. Expenses incurred as a result of elective induced abortions are covered for
employees or spouses only, limited to one (1) procedure every three (3)
years to a maximum of $300 per procedure.
Dependent children are not covered for maternity benefits unless due to a
complication of pregnancy as defined below.
Complications of Pregnancy
Complications of pregnancy mean conditions with diagnoses that are distinct from
pregnancy, but which are adversely affected by or are caused by a pregnancy.
These expenses are covered as any other illness.
Complications of pregnancy include: acute nephritis, nephrosis, cardiac
decompression, puerperal infection, toxemia, missed abortion, ectopic pregnancy
that is terminated, spontaneous termination of pregnancy occurring during a term
of gestation in which there is not a viable birth (this does not include
voluntary or elective abortion), or other similar medical and surgical
conditions of comparable severity.
Complications of pregnancy do not include: Cesarean section delivery, false or
premature labor, occasional spotting, physician prescribed rest during
pregnancy, morning sickness, hyperemesis gravidarum, pre-eclampsia, or other
similar conditions associated with management of a difficult pregnancy but which
do not constitute a diagnostically distinct complication of pregnancy.
MENTAL HEALTH DISORDERS, ALCOHOLISM OR SUBSTANCE ABUSE
Outpatient Treatment: Eligible charges are covered and payable per the Schedule
of Medical Benefits.
Inpatient Treatment: Eligible charges are covered and payable per the Schedule
of Medical Benefits. Each two (2) days of partial hospitalization will count as
one (1) day inpatient care.
"Partial Hospitalization" means continuous treatment at a hospital or treatment
facility for at least three (3) hours but not more than twelve (12) hours in any
twenty-four (24) hour period.
Expenses for outpatient treatment do not apply toward medical out-of-pocket
maximums.
Special Limitations for Alcoholism or Substance Abuse Treatment
1. When the purpose of admission is for convalescent or custodial care, no
benefits are available. In those instances where the type of care rendered
during a continuous period of confinement develops into convalescent or
custodial care, that portion of the
36
stay beginning on the day of such development is excluded from benefit.
2. If a covered person shall remain in a hospital or treatment center after
being advised by appropriate authority at said hospital or center that
further inpatient care is unnecessary, benefits under this section will not
be furnished for the remainder of that inpatient admission.
3. Benefits for inpatient care for alcoholism or substance abuse are available
only when facility or physician discharging the covered person so certifies.
That the covered person completed the full continuum of care.
4. Admissions solely for detoxification, which do not include
rehabilitation, are not covered.
NEWBORN CARE
Hospital Confined - Surgical and birthing centers, hospital and doctor's charges
for a newborn, "well-baby" including circumcision, shall be considered a covered
expense from birth until initial discharge from the hospital. Newborn well-baby
care is subject to the newborn's own deductible and out-of-pocket maximum.
Non-Hospital Confined - Routine examination and checkup charges, including
immunizations, are covered expenses and payable according to the Schedule of
Medical Benefits. Doctor visits for treatment of sickness or injury shall be
treated as an illness, subject to the newborn's own deductible and out-of-pocket
maximum.
In order for newborn care to be covered the employee must follow the enrollment
requirements. Please refer to page 6. Failure to properly enroll the newborn
child will result in a denial of benefits.
PRE-ADMISSION TESTING (Deductible Waived)
The Plan will pay for covered expenses for pre-admission testing on an
outpatient basis performed within seven (7) days prior to a hospitalization for
surgery. The charges must be related to the illness or injury that ultimately
causes confinement. Pre-admission testing that is repeated in the hospital will
not be paid unless medically necessary.
REHABILITATION CENTER BENEFIT
The Plan will pay for covered expenses the employee or his/her eligible
dependent incur for a sickness or injury that results in the need for
rehabilitation services as provided or offered in a rehabilitation hospital or
center. The employee or his/her eligible dependent must be under the care of a
physician for any benefits to be payable.
"Rehabilitation services" means a formal program of treatment that:
1. is provided to those individuals who have severe disabling impairments of
recent onset or recent progression or persons who have not had prior
exposure to these services and who require an identifiable intensity of
services; and
2. is performed in a rehabilitation hospital or center either as an inpatient
or an outpatient; and
37
3. is prescribed by a physician as medically necessary and is periodically
reviewed; and
4. is prescribed in place of a stay in the acute setting of a hospital or is an
extension of a hospital stay; and
5. is provided in a hospital or facility that is licensed and qualified to
render rehabilitation services.
The primary emphasis of the program is providing, in a coordinated manner, those
comprehensive services deemed appropriate to the needs of a person with a
disability, in a program designed to achieve objectives of improved health,
welfare and the realization of one's maximum physical, social, psychological and
vocational potential for useful and productive activity.
Services must be of such a level of complexity or the condition of the patient
must be such that services can be safely performed only by the qualified
therapist or pathologist.
The Plan will not pay benefits for any alcoholism and/or substance abuse
rehabilitation expenses under this provision.
SECOND SURGICAL OPINIONS (Deductible Waived)
Second surgical opinions will be paid at 100% for exams, x-rays and lab work
incurred on an outpatient basis by a qualified physician, in the approved
specialty, to substantiate medical necessity of the procedure to be performed.
The physician giving the second opinion must not be professionally affiliated
with the treating physician. A final opinion will be paid for in case of a
conflict between the first two (2) opinions.
SKILLED NURSING CARE FACILITY BENEFIT
Expenses incurred for daily room and board and general nursing services for each
day of confinement in a skilled nursing care facility are payable for no more
than sixty (60) days per illness or injury. The daily rate allowed cannot
exceed one-half of the semiprivate room charges made by the hospital in
which the covered person was confined before transfer to the facility.
To be paid under this benefit the confinement means confinement in a skilled
nursing care facility must:
1. begin while covered under this benefit; and
2. start within fourteen (14) days after discharge from:
a. a hospital confinement of at least three (3) consecutive days; or
b. a prior covered skilled nursing care facility confinement; and
3. be necessary for care or treatment of the same bodily injury or sickness
which caused the hospital confinement; and
38
4. occur while the covered person is under the regular care of a physician who
certified the required confinement.
Expenses for private duty nursing or special nursery services are not covered
under this benefit.
SMOKING CESSATION
Charges related to any generally recognized program specifically established to
aid in the cessation of cigarette smoking are covered provided such services are
performed at a facility which is under the direct supervision of a physician.
This benefit will be paid at an amount not to exceed $200 per person in any
three (3) year period, for covered employees and/or covered spouses.
SURGICAL BENEFITS
Surgical benefits are provided for surgeries resulting from illness or
accidental bodily injury. The maximum amount of payment for a particular
surgery is based upon the Usual, Customary, and Reasonable surgical charge
(UCR). The definition of UCR is on page 64.
More than one (1) surgery performed by one (1) or more physicians during the
course of only one (1) operative period is called a "multiple surgery." Because
allowances for surgery include benefits for pre- and post-surgical care, total
benefits for multiple surgeries are reduced so that pre- and post-surgery
allowances of the major surgery are not duplicated. The reduced benefits vary,
depending upon the circumstances of the multiple surgery. Variables include the
number of incisions required, the location of the incision and the complexity of
each surgical procedure.
Multiple surgery benefits for procedures performed on the same day, under the
same anesthesia, will be allowed as follows:
1. For surgeries performed through the same incision, the Plan will allow 100%
of the usual, customary, and reasonable allowance for the procedure with the
greatest value, plus 50% of the usual, customary, and reasonable allowance
for each additional procedure.
2. For surgeries performed through different incisions, the Plan will allow
100% of the usual, customary, and reasonable allowance for the procedure
with the greatest value, plus 80% of the UCR allowance for the other
procedure(s).
3. For similar procedures performed on the same day on opposite sides of the
body, the Plan will allow 100% of the usual, customary, and reasonable
allowance for the first procedure plus 80% of the UCR allowance for the
other procedure(s).
39
4. Multiple surgeries performed on the same foot: The Plan will allow 100% of
the UCR allowance for the procedure of greatest value. For the procedure of
the second greatest value, the Plan will allow 50% of the UCR allowance, and
for all other surgeries the Plan will allow 25% of the usual, customary, and
reasonable allowance.
5. For similar surgical procedures performed on both feet on the same day, the
Plan will allow 100% of the UCR allowance for the procedure with the
greatest value plus 80% of the UCR allowance for the procedure of the second
greatest value and 50% of the UCR allowance for the procedure with the third
greatest value. For each additional surgery, the Plan will allow 25% of the
UCR allowance.
Surgical benefits are payable whether the operation is performed in the hospital
or in the doctor's office. The physician's assistant expenses will be
calculated at 15% and the assistant surgeon's expense will be calculated at 20%
of the covered surgeon's fees.
WEIGHT REDUCTION BENEFIT
Charges related to weight reduction, weight control, and/or physical fitness,
are covered provided such services are performed at a facility which is under
the direct supervision of a physician. This coverage is restricted in that such
charges may not exceed $1,000 in any five (5) year period. 40
GENERAL PLAN EXCLUSIONS AND LIMITATIONS
The Plan will not provide benefits for any of the items listed in this section
regardless of medical necessity or recommendation of a physician. This list is
intended to give you a general description of expenses for services and supplies
not covered by the Plan, and is not all inclusive:
1. Ambulance expense for convenience is not covered. Any expense for
commercial transport, private aviation, or air taxi services are not covered
regardless of the circumstances or their Federal Aviation Authority
Certification. Any expenses for transportation by private automobile,
commercial, or public transportation are not covered. The Plan will not pay
for any of these services even if other means of transportation were not
available.
2. Any expenses for artificial insemination, including but not limited to, in
vitro fertilization, GIFT procedure, surrogate parents, or expenses related
to other direct attempts to induce pregnancy including drug and hormone
therapy.
3. Services and treatment, including drugs related to behavioral disorders,
communication delays, conduct problems, learning disabilities, and
developmental delays, special education, counseling, therapy, or training.
Expenses incurred for initial diagnostic testing to determine the diagnosis
will be covered. (However, expenses for the medication and medical
management of the medication for attention deficit disorders will be
covered.)
4. Expenses for birthing classes.
5. Expenses for breast pumps and infant formula.
6. Any expenses which are reimbursed or which are repaid through any charitable
or governmental public program.
7. Expenses required only for the convenience of the covered person or the
covered person's physician.
8. Expenses for removal of corns, calluses, or trimming of toenails, except
when necessary in the treatment of a metabolic or peripheral vascular
disease. (Prescription orthotics and arch supports are covered when
medically necessary for treatment of a covered illness or injury.)
9. Any expenses for cosmetic surgery, or the revision of a previous procedure
performed for cosmetic purposes, including, but not limited to, breast
augmentation. Cosmetic surgery is beautification or aesthetic surgery to
improve an individual's appearance by surgical alteration of a physical
characteristic. Cosmetic surgery for psychiatric or psychological reasons,
or to change family characteristics or conditions due to aging is not
covered. For Plan participants who elect reconstruction after mastectomy
the following reconstructive surgery is covered: 1) reconstruction of the
breast on which the mastectomy has been performed; 2) surgery and
reconstruction of the other breast to produce a symmetrical appearance; and
3) coverage for prostheses and physical complications of all stages of
mastectomy in a manner determined in consultation with the attending
physician and the patient. Such coverage may be subject to annual
deductibles and coinsurance provisions as may be deemed appropriate and as
are consistent with those established for other benefits under the Plan.
Benefits for cosmetic surgery and related expenses are allowed only when
such surgery is required as the result of a congenital anomaly or an
accidental injury.
10.Any expense as a result of a court order will only be paid if it would
ordinarily be a covered expense under the plan.
11. Any expenses related to custodial care, sanitarium care, or rest care.
12.Expenses for deluxe or luxury items: examples are motorized equipment when
manually operated equipment can be used. The Plan will cover deluxe
equipment only when additional features are required for effective medical
treatment, or to allow the covered person to operate the equipment without
assistance.
Air conditioners, purifiers, humidifiers, corrective shoes, heating pads,
hot water bottles, exercise equipment, whirlpools, waterbeds or other
floatation mattresses, self-help devices, and other clothing and equipment
which is not medical in nature are not covered, regardless of the relief
they provide for a medical condition.
13.Any expenses for dental services or dental supplies, except where
specifically indicated as a covered expense.
14.Expenses incurred for diagnostic admissions. If the covered person is
admitted as an inpatient to a hospital for diagnostic procedures, and could
have received these services as an outpatient without endangering his/her
health then the Plan will not pay for hospital room and board charges or
other charges that would not have been incurred if the covered person had
received the services as an outpatient.
15.Expenses incurred for domiciliary care. Care provided in a residential
institution, treatment center, half-way house, or school because a covered
person's own home arrangements are not appropriate, and consisting chiefly
of room and board, is not covered, even if therapy is included.
16.Expenses for examinations for employment, licensing, insurance or adoption
purposes.
17.Expenses which are deemed experimental or investigational or are considered
an unproven health practice as determined by a medical review organization,
The Health Care Financing Administration (HCFA) and/or the consensus of the
medical industry or community.
18.Expenses for any eye surgery in connection with radial keratotomy or any
procedure designed to correct farsightedness, nearsightedness or
astigmatism. This includes any related charges for medical or hospital
services and/or supplies
19.Hair transplants, implants or drugs even if there is a physician's
prescription and medical reason for the hair loss.
20. Expenses for health club membership.
21.Hearing aids and supplies, hearing examinations, evaluation for hearing
aids, and hearing therapy. This exclusion shall not apply to the initial
purchase of a hearing aid if the loss of hearing is a result of a surgical
procedure performed while coverage is in effect.
22.Expenses related to hypnosis whether for medical or anesthesia purposes,
except where approved for smoking cessation.
23.Any expenses for testing or treatment of an illness or injury which is not
recommended by, or for which a covered person is not under the regular care
of, a physician.
24.Expenses incurred in connection with the treatment of infertility,
impotency, or promotion of conception, including drug and hormone therapy.
25.Inpatient admissions before coverage becomes effective. When inpatient
services begin before coverage under the Plan becomes effective, the entire
hospital or facility stay will not be covered.
26.Any expenses for late claims filing. Expenses submitted for coverage more
than fifteen (15) months after the date of service are late.
27.Services or supplies for which there is no legal obligation to pay, or
charges which would not be made but for the availability of benefits under
the Plan.
28.Expenses for lifestyle and personal growth counseling.
29. Expenses for mailing or sales tax.
30. Marital counseling or related services.
31.Any expenses incurred by a masseur, physical culturist, or physical
education instructor are not covered.
32.Any expenses for preparing medical reports, including preparation and
presentation, or itemized bills, unless requested by Mountain States
Administration, to a maximum of $50.
33.Expenses for examinations and treatment conducted for the purpose of medical
research.
41
34.Any expenses not medically necessary for diagnosis or treatment, except as
specifically indicated as a covered medical expense.
35.Expenses for missed appointments in a provider's office and/or charges
incurred when scheduled services are canceled by the covered person.
36.Any services, supplies or drugs related to non-covered services or
complications arising from such non-covered services are not a benefit (such
as non-covered artificial conception, cosmetic surgery, sex change
operations, and experimental/ investigational procedures).
37.Non-medical expenses such as training, education instructions, educational
materials, or studies, modifications to home, vehicle, or work place to
accommodate medical conditions, even if they are performed or prescribed by
a physician.
38.Expenses for services or supplies not included as a covered expense under
the Plan, even though provided, ordered or referred by a recognized provider
of the Plan, unless authorized as a part of Medical Case Management.
39.The Plan will not pay for occupational, physical, or speech therapy or
chiropractic services to maintain function at a level to which it has been
restored, or when no further significant practical improvement can be
expected.
40.Orthognathic (Jaw) Surgery. The only circumstances under which benefits
will be allowed for upper or lower jaw augmentation or reduction procedures
is when restoration is required as the result of an accidental injury or
congenital defect.
41.Any expenses for professional services performed by a person who ordinarily
resides in the covered person's household or who is related to the covered
person, such as a spouse, parent, child, brother or sister, whether such
relationship is by blood or exists in law.
42.Services or supplies used primarily for personal comfort or convenience that
are not related to the treatment of the covered person's condition.
Examples: guest trays, beauty and barber shop services, gift shop purchase,
telephone, television, more than one (1) admission kit per hospitalization,
and personal laundry services.
43.Accidents, when no-fault automobile coverage exists or should have existed
had there been compliance with applicable no-fault regulations. Expenses in
excess of applicable no-fault reimbursements are covered expenses.
If you are a non-owner operator, passenger, or a pedestrian injured by a
vehicle even though the vehicle(s) involved are not covered by personal
injury protection (PIP) or no-fault automobile insurance, the Plan will pay
eligible benefits related to a covered person's injuries.
43.Services related to post-mortem testing.
42
44.Expenses that are subject to the pre-existing condition exclusion provision.
45.Expenses for prescription drugs or substances not approved for general use
by the Food and Drug Administration (FDA) and drugs which have been labeled
"Caution, Limited by Federal Law for Experimental Use".
46.Benefits for prescription drugs and medicines will not be provided when a
written prescription is not required in order to purchase a certain drug or
medicine, even when a prescription number has been assigned.
47.Expenses incurred prior to the covered person's effective date of coverage
and expenses after the date the employee ceases to be covered under the
Plan.
48.Care in any private institution, or any institution owned or operated by the
federal, state, or local government, which would be provided to the covered
person without charge were it not for the fact that benefits were available
to such covered person under the Plan. This exclusion will not apply if the
claim is made by the Veterans Administration under Title 38 of the U.S. Code
for treatment of a veteran not having a service connected disability.
49.Psychoanalysis or psychotherapy that can be credited towards earning a
degree or furtherance of the education or training of a covered person
regardless of diagnosis or symptoms that may be present.
50.Any treatment or service furnished by: a physician or other health care
provider who is a resident or intern of a general hospital, a physician or
health care provider who is reimbursed for his or her services by a general
hospital, or a physician or health care provider who is a resident of a
covered person's household or member of the immediate family.
51.Benefits for restoration or reconstructive surgery and related expenses are
allowed only when such surgery is required as a result of a congenital
anomaly, accidental injury, disease process or its treatment. Please see
information regarding mastectomy reconstruction benefits on page 24.
52.Any expenses for rhinoplasty, blepharoplasty or brow lift except expenses
for rhinoplasties and blepharoplasties to correct a functional condition, or
expenses for rhinoplasty to correct a condition as a result of an accidental
injury.
54.Expenses incurred for treatment, testing, procedures, devices, drugs,
therapy and training and self-help programs include but are not limited to:
a. Any type of goal-oriented or behavior modification therapy.
43
b. Educational programs such as diabetic instruction, cardiac class or
arthritis class.
c. Holistic medicine, environmental medicine, and naturopathic medicine.
d. Megavitamin therapy.
e. Myotherapy or massage therapy.
f. Recreational, sex addiction, primal scream, and Z therapies.
g. Religious or marital counseling.
h. Rolfing.
i. Self-help, stress management.
j. Sensitivity or assertiveness training.
k. Transactional analysis, encounter groups, and transcendental meditation
(TM).
55.Any services, care or treatment for transsexualism, gender dysphoria, sexual
reassignment or change, sexual dysfunction or inadequacy procedures,
including drugs, medication, implants, hormone therapy, surgery, medical or
psychiatric care or treatment.
56.Travel expenses of a physician attending a covered person or travel expenses
of a covered person, although recommended by a physician, except as
specifically indicated as a covered medical expense.
57.Any expenses which exceed the usual, customary, and reasonable expenses for
the care rendered.
58.Vision therapy, orthoptic training (eye muscle exercise).
59.Vitamins, minerals, nutritional supplements, appetite suppressants, dietary
supplements, and formulas whether or not prescribed by a physician.
60.Any charges for any condition, disability or expense resulting from or
sustained as a result of voluntary participation in or being engaged in an
illegal occupation, riot, commission of or attempted commission of an
assault or a felonious act.
61.Any charges for any condition, disability or expense resulting from or
sustained as a result of war or act of war, declared or undeclared, civil
war, insurrection, rebellion or revolution, or to any act or condition
incident to any of the foregoing, unless as a result of a random act.
62.Weekend hospital admission unless due to an emergency or unless surgery is
scheduled within twenty-four (24) hours.
Admissions prior to surgery. If the employee or his/her dependent is
admitted to the hospital prior to the day of surgery, no benefits will be
paid for expenses incurred during that period prior to surgery unless the
admission is medically necessary due to: (a) an emergency situation; or (b)
complications which require admission prior to the day of surgery.
63.Expenses for treatment, supplies, instruction or activities for weight
reduction,
44
weight control, weight loss programs or physical fitness even if the services
are performed or prescribed by a physician except where specifically
indicated as a covered expense. Obesity in itself is not considered an
illness or disease and benefits are not allowed solely for its evaluation
and treatment.
64.Any expenses for any condition or disability which is due to injury or
illness arising out of or in the course of any occupation or employment for
wage or profit or which would entitle the covered person to any benefit
under a workers' compensation act, law or similar legislation, including
those situations whereby the covered person lawfully chose not to be covered
or waived or failed to assert his/her rights under a workers' compensation
law, act or similar legislation.
45
DEFINITIONS
The terms as used herein shall be deemed to define terms that may be used in the
wording of the Plan Document. These definitions shall not be construed to
provide coverage under any benefit unless specifically provided.
"Accident" means a sudden and unforeseen event, definite as to time and place.
"Administrator" means, as defined by federal law, the Plan Administrator.
"Affiliated Companies" means all wholly owned subsidiaries of Scott's Liquid
Gold - Inc.
"Alcoholism" means a morbid state caused by excessive or compulsive consumption
of alcohol.
"Alcoholism and Substance Abuse Treatment Facility" means an institution which
meets all of the following:
1. Provides a program for diagnosis, evaluation, and effective treatment of
alcoholism and/or substance abuse;
2. Provides detoxification services needed with its effective treatment
program;
3. Provides infirmary level medical services or arrangements with a hospital in
the area for any other medical services that may be required;
4. Is at all times supervised by a staff of physicians;
5. Provides at all times skilled nursing care by licensed nurses who are
directed by a full-time registered nurse (R.N.);
6. Prepares and maintains a written plan of treatment for each patient based on
medical, psychological and social needs which is supervised by a physician;
and
7. Meets licensing standards.
"All Day" shall be considered to begin at 12:01 a.m., and to end immediately
prior to 12:01 a.m. standard time at the residence of the employee, as stated in
his/her application/ request for coverage under the Plan; or if none is stated,
at the address of the company.
"Alternate Payee Provision" means the Plan must make payments to your separated/
divorced spouse, state child support agencies or Medicaid agencies if required
by a qualified medical child support order (QMCSO) or state Medicaid law.
"Ambulance" means a specially designed or equipped vehicle which is licensed for
transferring the sick or injured. It must have customary patient care, safety,
and life-saving equipment, and must utilize trained personnel. 46
"Ambulatory Surgical Center" means an institution or facility, licensed by the
jurisdiction in which it is located, either free standing or as part of a
hospital with permanent facilities, equipped and operated for the primary
purpose of performing surgical procedures and which a patient is admitted to and
discharged from within a twenty-four (24) hour period. An office maintained by
a physician for the practice of medicine or dentistry, or for the primary
purpose of performing terminations of pregnancy, shall not be considered to be
an ambulatory surgical center.
"Anesthesia" means general anesthesia which produces unconsciousness in varying
degrees with muscular relaxation and a reduction or absence of pain. Regional
or local anesthesia produces similar effects to a limited region of the body
without causing loss of consciousness. Anesthesia is administered by a
physician or certified registered nurse anesthetist (CRNA).
"Assignment of Benefits" means payments will also be made in accordance with any
assignment of rights required by a state Medicaid plan.
"Benefit Percentage" means that portion of eligible expenses to be paid by the
Plan in accordance with the coverage provisions as stated in the Plan. It is the
basis used to determine any out-of-pocket expenses which are to be paid by the
participant.
"Calendar Year" means a period of time commencing on January 1 and ending on
December 31 of the same year.
"Child" - Refer to "Dependents Eligible for Coverage," #2, page 7.
"Claims Administrator" means Mountain States Administration (MSA). MSA has been
hired as the third party contract administrator by the Plan Administrator to
perform claims processing and other specified administrative services in
relation to the Plan. The contract administrator is not an insurer of health
benefits under this plan, is not a fiduciary of the plan, and does not exercise
any of the discretionary authority and responsibility granted to the plan
administrator. The contract administrator is not responsible for plan financing
and does not guarantee the availability of benefits under this plan.
"Cleft Lip" means a birth deformity in which the lip fails to close.
"Cleft Palate" means a birth deformity in which the palate (the roof of the
mouth) fails to close.
"Close Relative" means the spouse, parent, brother, sister, child, (to include
step-relations), or spouse's parent, brother, sister or child (to include step
relations).
"COBRA" refers to the Consolidated Omnibus Budget Reconciliation Act of 1985
signed into law (Pub. L. 99-272) April 7, 1986, which amends the Internal
Revenue Code, the Public Health Service Act, and Title I of the Employee
Retirement Income Security Act of 1974 to require certain group health plans of
covered employers to give employees and certain family members the opportunity
to continue their health care coverage at group rates in certain instances where
the coverage would otherwise end.
47
Exhaustion of COBRA continuation coverage means that an individual's COBRA
continuation coverage ceases for any reason other than either failure of the
individual to pay premiums on a timely basis, or for cause (such as making a
fraudulent claim or an intentional misrepresentation of a material fact in
connection with the plan).
"College" - See definition of University.
"Common-Law Marriage" means a marriage in which the covered person resides as
common-law and files both federal and state taxes as married, provides evidence
of cohabitation as husband and wife, and by general reputation the two (2)
individuals are living together as husband and wife and claiming to be such, and
submits a notarized affidavit verifying common-law marriage status. By general
reputation is meant the understanding among the neighbors and acquaintances with
whom the parties associate in their daily lives, that they are living together
as husband and wife, and not that they are merely living together.
"Company" means Scott's Liquid Gold - Inc. & Affiliated Companies, and any
subsidiary or affiliate which adopts the Plan and business and becomes a party
to the Plan.
"Condition" means a medical condition. Refer to page 57 for the definition of
"Medical Condition."
"Consultation" means a service provided by another physician at the request of
the physician in charge of your case. The consulting physician often has
specialized skills that are helpful in diagnosing or treating the illness or
injury.
"Contribution" means the amount payable by the employer or the amount payable by
the employer/employee jointly for participation in the benefits of the Plan.
"Convalescent Nursing Facility" - See definition of "Skilled Nursing Care
Facility".
"Cosmetic Procedure/Surgery" means a procedure performed solely for the
improvement of a covered person's appearance rather than for the improvement or
restoration of bodily function. Cosmetic procedures performed for psychiatric
or psychological reasons or to change family characteristics or conditions due
to aging are not covered under the Plan.
"Covered Expense/Covered Service" means any necessary usual, customary, and
reasonable item of expense at least a portion of which is covered under the
Plan.
"Covered Person" means any employee or dependents of an employee and/or a person
and his/her dependents who are included in a class or group of persons to which
the Plan has been extended, meeting the eligibility requirements for coverage as
specified in the Plan, and are properly enrolled in the Plan.
"Creditable Coverage" means coverage of an individual under any of the
following:
1. A group health plan (see definition below);
2. Health insurance coverage as defined below (without regard to whether the
coverage is offered in the group market, the individual market, or
otherwise);
3. Part A or Part B of Medicare;
4. Medicaid, other than coverage consisting solely of benefits under the
program for distribution of pediatric vaccines;
5. Medical and dental care for members and certain former members of the
uniformed services, and for their dependents.
6. A medical care program of the Indian Health Service or of a tribal
organization;
7. A State health benefits risk pool;
8. A health plan offered under the Federal Employees Health Benefits Program;
9. A public health plan, which means any plan established or maintained by a
State, county, or other political subdivision of a State that provides
health insurance coverage to an individual who are enrolled in the plan; and
10.A health benefit plan under the Peace Corps Act.
Creditable coverage does not include:
1. Accident only coverage including accidental death and dismemberment;
2. Disability income insurance;
3. Liability insurance, including general liability insurance and automobile
liability insurance;
4. Coverage issued as a supplement to liability insurance;
5. Workers' compensation or similar insurance;
6. Automobile medical payment insurance;
7. Credit-only insurance (for example, mortgage insurance); and
8. Coverage for on-site medical clinics.
9. Limited Scope Benefits. Refer to page 57 for the definition of "Limited
Scope Benefits."
10.Long-term care benefits.
11.Supplemental benefits. Refer to page 63 for the definition of "Supplemental
Benefits".
12.Non-coordinated benefits such as: (a) coverage for only a specific disease
or illness (for example, cancer only policies) or hospital indemnity or
other fixed dollar indemnity insurance (for example, $100/day) which are
provided under a separate policy, certificate, or contract of insurance; (b)
there is no coordination between the provision of benefits and an exclusion
of benefits under any group health plan maintained by the same plan
administrator; and (c) the benefits are paid with respect to an event
without regard to whether benefits are provided under any group health plan
maintained by the same plan administrator.
"Custodial Care" means that type of care or service, wherever furnished and by
whatever name called, which is designed primarily to assist in meeting the needs
of daily living of a covered person, whether or not totally disabled, in the
activities included, but not limited to: bathing, dressing, feeding,
preparation of special diets, assistance in walking or in getting in and out of
bed, and supervision over medication which can normally be self-administered.
"Dentist" means a person duly licensed to practice dentistry by the governmental
authority having jurisdiction over the licensing and practice of dentistry in
the locality where the service is rendered.
"Dependent" - Refer to "Dependents Eligible for Coverage" on pages 6 through 9.
"Durable Medical Equipment" means equipment which is able to withstand repeated
use, used to serve a medical purpose, and not generally useful to a person in
the absence of illness or injury.
"Effective Date" means the date as of which the employer and any subsidiary or
affiliate adopts the Plan; or the date the employee and his/her eligible
dependent are properly enrolled in the Plan as specified in the eligibility
requirements for coverage.
"Eligible Expenses" means any medically necessary treatments, services or
supplies that are not specifically excluded from coverage elsewhere in this
Plan.
"Emergency Services" means treatment for an illness or injury which develops
suddenly and unexpectedly and which in the absence of immediate medical
treatment would result in the condition becoming significantly worse, or result
in the death of the covered person.
"Employee" means a person employed by the company and/or who is included in a
class or group of persons to which the Plan has been and continues to be
extended, and who is properly enrolled in the Plan.
"Employer" as defined by ERISA Section 3(5), is "any person acting directly as
an employer, or indirectly in the interest of an employer, in relation to an
employee benefit plan; and includes a group or association of employers acting
for an employer in such capacity." Specific to this Plan, "employer" means
Scott's Liquid Gold - Inc. & Affiliated Companies, and any subsidiary or
affiliate which adopts the Plan and business and becomes a party to the Plan.
48
"Enrollment Date" (enrollment date and first day of coverage) means the
following:
1. Enrollment date means the first day of coverage or, if there is a waiting
period, the first day of the waiting period (typically the date employment
begins).
2. First day of coverage means, in the case of an individual covered for
benefits under a group health plan in the group market, the first day of
coverage under the plan and, in the case of an individual covered by health
insurance coverage in the individual market, the first day of coverage under
the policy.
"ERISA" refers to the Employee Retirement Income Security Act of 1974 or any
provision or section thereof which is herein specifically referred to as such
act, provision or section which may be amended from time to time.
"Exclusion" means any provision of the Plan whereby coverage for a specific
service or condition is entirely eliminated regardless of medical necessity.
"Experimental or Investigational Services" means:
1. Care, procedure, treatment or technology which: (a) is not widely accepted
as safe, effective and appropriate for the injury or sickness throughout the
recognized medical profession and established medical societies in the
United States; or (b) is experimental, in the research or investigational
stage, or conducted for research or similar purposes.
2. Drugs and tests which: (a) the Federal Food and Drug Administration has not
approved for general use; (b) are considered experimental; or (c) are for
investigational use. Drugs and tests approved for a specific medical
condition but which are used for another condition, will be considered
experimental.
In determining any of the above, the Plan will rely on recognized medical
sources such as, but not limited to, the Data Project of the American Medical
Association, the National Institute of Health, the U.S. Food and Drug
Administration, the Health Care Finance Administration (HCFA), and other broadly
accepted medical authorities and sources.
"Family" means a covered employee and his/her eligible dependents.
"Full-Time Employment" means a basis whereby a regular employee is employed by
the company and scheduled to work at least thirty (30) hours per week. Such
work may occur either at the usual, customary, and reasonable place of business
of the company or at a location to which the business of the company requires
the employee to travel, and for which he or she receives regular earnings from
the company.
"Full-Time Student" means an employee's dependent child who is enrolled in and
regularly attending an accredited college or university, high school or
vocational school for the minimum number of credit hours required by that
school, college or university in order to maintain full-time student status.
49
"Genetic Information" means information about genes, gene products, and
inherited characteristics that may derive from the individual or a family
member. This includes information regarding carrier status and information
derived from laboratory tests that identify mutations in specific genes or
chromosomes, physical medical examinations, family histories, and direct
analysis of genes or chromosomes.
"Group Health Insurance Coverage" means health insurance coverage offered in
connection with a group health plan.
"Group Health Plan" means a plan (including a self-insured plan) of, or
contributed to by, an employer (including a self-employed person) or employee
organization to provide health care (directly or otherwise) to the employees,
former employees, the employer, others associated or formerly associated with
the employer in a business relationship, or their families.
"Health Insurance Coverage" means benefits consisting of medical care (provided
directly, through insurance or reimbursement, or otherwise) under any hospital
or medical service policy or certificate, hospital or medical service plan
contract, or HMO contract offered by a health insurance issuer.
"Health Insurance Issuer" means an insurance company, insurance service, or
insurance organization (including an HMO) that is required to be licensed to
engage in the business of insurance in a State and that is subject to State law
that regulates insurance (within the meaning of Section 514(b)(2) of ERISA).
Such term does not include a group health plan.
"Hemodialysis" means the treatment of an acute or chronic kidney ailment during
which impurities are removed from the blood with dialysis equipment.
"HIPAA" means The Health Insurance Portability and Accountability Act of 1996,
enacted on August 21, 1996. HIPAA amends the Public Health Service Act (PHS
Act), the Employee Retirement Income Security Act of 1974 (ERISA), and the
Internal Revenue Code of 1986 (CODE), significantly expanding employee access to
health care coverage.
"Home Health Care Agency" means a public or private agency or organization that
specializes in providing medical care and treatment in the home. Such a
provider must meet all of the following conditions:
1. It is primarily engaged in and duly licensed, if such licensing is required,
by the appropriate licensing authority to provide skilled nursing services
and other therapeutic services.
2. It has policies established by a professional group associated with the
agency or organization. This professional group must have at least one (1)
physician and at least one (1) graduate registered nurse (R.N.) to govern
the services provided and it must provide full-time supervision of such
services by a physician or graduate registered nurse (R.N.). 50
3. It maintains a complete medical record on each patient.
4. It has a full-time administrator.
5. It is a provider of services under Medicare.
In rural areas where there are no agencies which meet the above requirements or
areas in which the available agencies do not meet the needs of the community,
the services of visiting nurses may be substituted for the services of an
agency.
"Home Health Care Plan" means a program for continued care and treatment of the
covered person established and approved in writing by the covered person's
attending physician. Home Health Care must be either: (a) an alternate form of
treatment which is cost effective or reasonable compared to other options, or
(b) must begin within seven (7) days following discharge from an inpatient
hospital confinement of at least three (3) days, be for the same or related
condition, and the attending physician must certify that the proper treatment of
the illness or injury would require continued confinement in a hospital in the
absence of Home Health Care.
"Hospice" means a health care program providing a coordinated set of services
rendered at home, in outpatient settings or in institutional settings for
covered persons suffering from a condition that has a terminal prognosis. A
hospice must have an interdisciplinary group of personnel which includes at
least one (1) physician and one (1) graduate registered nurse (R.N.), and it
must maintain central clinical records on all patients. A hospice must meet the
standards of the National Hospice Organization (NHO) and applicable state
licensing requirements.
"Hospice Benefit Care Period" means a specified amount of time during which the
covered person undergoes treatment by a hospice. Such time period begins on the
date the attending physician of a covered person certifies a diagnosis of
terminally ill, and the covered person is accepted into a hospice program.
"Hospital" means an institution which meets all of the following conditions:
1. It is licensed and operated in accordance with the laws of jurisdiction in
which it is located which pertain to hospitals; is engaged primarily in
providing medical care and treatment to ill and injured persons on an
inpatient basis at the patient's expense; maintains on its premises all the
facilities necessary to provide for diagnosis and medical and surgical
treatment of an illness or an injury; and such treatment is provided by or
under the supervision of physicians with continuous twenty-four (24) hour
nursing services by graduate registered nurses (R.N.s).
2. It qualifies as a hospital, a psychiatric hospital, or a tuberculosis
hospital and is accredited by the Joint Commission on the Accreditation of
Health Care Organizations (JCAHO).
51
3. It is a provider of services under Medicare.
4. It is not, other than incidentally, a place for rest, a place for the aged
or a nursing home.
5. A free-standing facility which is licensed to treat alcohol and substance
abuse will meet the definition of a hospital.
"Hospital Miscellaneous Expenses" means the actual charges made by a hospital in
its own behalf for services and supplies rendered to the covered person which
are medically necessary for the treatment of such covered person. Hospital
miscellaneous expenses do not include charges for room and board or for
professional services of a physician and drugs or supplies not consumed or used
in the hospital.
"Illness/Sickness" means any bodily sickness, disease or mental/nervous
disorder. For purposes of this plan, pregnancy will be considered as any other
illness.
"Incurred Expenses/Services" means those treatments, services and supplies
rendered to a covered person. Such expenses shall be considered to have
occurred at the time or on the date the treatment, service or purchase is
actually provided.
"Injury" means sudden and instant damage to the body, which is unintended and
undesigned by the individual and which results directly from and independently
of all other causes of loss covered by the Plan.
"Inpatient" refers to the classification of a covered person when that person is
admitted to a hospital, hospice, or convalescent facility for treatment, and
charges are made for room and board to the covered person as a result of such
treatment, upon the recommendation of a physician.
"Intensive Care Unit" means a section, ward, single room or coronary care unit
within the hospital which is separated from other facilities and:
1. is operated exclusively for the purpose of providing professional medical
treatment for critically ill patients; and
2. has special supplies and equipment necessary for such medical treatment
available on a standby basis for immediate use; and
3. provides constant observation and treatment by registered nurses (R.N.s) or
other highly trained hospital personnel.
"Laboratory, Pathology Services, X-Ray and Radiology Services" means:
Laboratory and pathology services - testing procedures required for the
diagnosis or treatment of a condition. Generally, these services involve the
analysis of a specimen of tissue or other material which has been removed from
the body. Diagnostic medical procedures requiring the use of technical
equipment for evaluation of body systems are also considered laboratory
services. Examples: electrocardiograms (EKGs) and 52
electroencephalograms (EEGs).
X-ray and radiology services - services including the use of radiology, nuclear
medicine, and ultrasound equipment to obtain a visual image of internal body
organs and structures, and the interpretation of these images.
"Late Entrant" means an employee or dependent who does not enroll during the
initial period in which he or she is eligible to enroll, or during a special
enrollment period when there is a change in family status or loss of coverage
under another plan. Coverage for a late entrant will begin the date the former
coverage ended as long as the application is made within thirty (30) days.
"Life-Threatening Emergency" shall mean the sudden and unexpected onset of a
condition which threatens life, limb, or organ system and requires immediate
medical or surgical intervention, but in no case later than twenty-four (24)
hours after onset.
"Limitation" means any provision other than an exclusion, which restricts
coverage under the Plan, regardless of medical necessity.
"Limited Scope Benefits" are dental, vision or other types of benefits which
are not deemed an integral part of the Plan and the participant has the right to
elect to receive such coverage and pay an additional contribution for such
coverage; or a benefit provided under a separate plan or policy. They are
limited in scope to a narrow range or type of benefits that are generally
excluded from hospital/medical/surgical benefit packages.
"Maternity" means that physical state which results in childbirth, abortion, or
miscarriage, and any medical complications arising out of or resulting from such
state.
"Medicaid" - Title XIX (Grants to states for Medical Assistance Programs) of the
United States Social Security Act as amended.
"Medical Condition" means any condition, whether physical or mental, including,
but not limited to, any condition resulting from illness, injury (whether or not
the injury is accidental), pregnancy, or congenital malformation. However,
genetic information is not a condition.
"Medically Necessary" means health care services, supplies or treatment which,
in the judgment of the attending physician, are appropriate and consistent with
the diagnosis and which, in accordance with generally accepted medical
standards, could not have been omitted without adversely affecting the patient's
condition or the quality of medical care rendered.
"Medicare" means the programs established by Title I of Public Law 89-98 (79
Statute 291) as amended entitled "Health Insurance for the Aged Act," and which
includes Parts A and B and Title XVIII of the Social Security Act (as amended by
Public Law 89-97, 79) as amended from time to time.
"Mental Health Disorder" means neurosis, psychoneurosis, psychopathy,
personality
53
disorder, psychosis, or mental or emotional diagnosed disease or disorder of any
kind. Anorexia nervosa, bulimia nervosa, and eating disorders are classified as
manifest mental disorders.
"Mental Retardation and/or Physical Disability" means the inability of a person
to be self-sufficient as a result of a condition such as mental retardation,
cerebral palsy, epilepsy or another neurological disorder and diagnosed by the
physician as permanent and continuing.
"Midwife" means a person licensed or certified to practice as a midwife who has
completed the academic and clinical requirements set forth by specific states
who provide this license or certification. It is issued upon passing a state
board exam and a practical exam, and by meeting a set number of supervised
experiences and births.
"Minor Emergency Medical Clinic" means a freestanding facility which is engaged
primarily in providing minor emergency and episodic medical care to a covered
person. A board-certified physician, a registered nurse (R.N.) and a registered
x-ray technician must be in attendance at all times that the clinic is open.
The clinic's facilities must include x-ray and laboratory equipment and a life
support system. For the purposes of the Plan, a clinic meeting these
requirements will be considered to be a minor emergency medical clinic, by
whatever actual name it may be called. However, a clinic located on or in
conjunction with or in any way made a part of a regular hospital shall be
excluded from the terms of this definition.
"Named Fiduciary" means Scott's Liquid Gold - Inc. & Affiliated Companies, which
has the authority to control and manage the operation and administration of the
Plan.
"Newborn" refers to an infant from the date of his/her birth until initial
discharge from the hospital.
"Nurse" means a graduate registered nurse (R.N.), a licensed practical nurse
(L.P.N.) who is licensed in the state in which the services are performed.
"Nurse Practitioner" means a registered nurse (other than an immediate family
member or employee of the employer) who: (1) completes a program of study
affiliated with a college or university; (2) passes a nurse practitioner
certification examination given by the American Nurses Association; (3) acts
within the scope of that certification in treating the injury or sickness; and
(4) who is licensed by the law of the state in which services are rendered.
"Office Visit" means a face to face meeting between a physician and a patient
for the purpose of medical treatment or service.
"Orthopedic Appliance" means any rigid, or semi-rigid support used to restrict,
eliminate, or support motion in a part of the body that is diseased, injured,
weak or deformed.
"Outpatient" refers to treatment either outside of a hospital setting or at a
hospital when room and board charges are not incurred.
54
"Outpatient Psychiatric Facility" means an administratively distinct
governmental, public, private or independent unit or part of such unit that
provides outpatient mental health services and which provides for a psychiatrist
who has regularly scheduled hours in the facility, and who assumes the overall
responsibility for coordinating the care of all patients. This definition
includes alcoholism and substance abuse facilities.
"Participant" as defined in ERISA Section 3(7), means: "any employee or former
employee of an employer, or any member or former member of an employee
organization, who is or may become eligible to receive a benefit of any type
from an employee benefit plan which covers employees of such employer or member
of such organization, or whose beneficiaries may be eligible to receive any such
benefit".
"Participant Coverage" means coverage (as stated in the Plan Document and as
amended) that is provided to a covered participant and his or her eligible
dependents.
"Physician" means a legally licensed physician who is acting within the scope of
his/her license and any other professional provider required to be recognized
for benefit payment purposes under the law of the state in which the employee
receives treatment and is acting within the scope of his/her license, but is not
a close relative of the employee.
"Placement for Adoption" is defined under ERISA Sec. 609(c)(3)(B) as follows:
"The term "placement," or being "placed," for adoption, in connection with any
placement for adoption of a child with any person, means the assumption and
retention by such person of a legal obligation for total or partial support of
such child in anticipation of adoption of such child."
For group health plan purposes, these provisions override state laws requiring
the legal guardianship of a child placed for adoption to remain with the
appropriate agency until the adoption is finalized.
"Plan" means without qualification the Plan Document.
"Plan Administrator/Plan Sponsor" means Scott's Liquid Gold - Inc. & Affiliated
Companies which is responsible for the day-to-day functions and management of
the Plan. The Plan Administrator/Plan Sponsor may employ persons or firms to
process claims and perform other Plan related services.
"Pre-Existing Condition" must relate to a condition (whether physical or
mental), regardless of the cause of the condition, for which medical advice,
diagnosis, care, or treatment was recommended or received within the six (6)
month period ending on the enrollment date.
"Pregnancy" means that physical state which results in childbirth, abortion, or
miscarriage, and any medical complications arising out of or resulting from such
state.
"Private-Duty Nursing Services" means services that require the training,
judgment, and 55
technical skills of an actively practicing registered nurse (R.N.) or licensed
practical nurse (L.P.N.). Such services must be prescribed by the attending
physician for the continuous medical treatment of a condition.
"Prosthesis" means any device that replaces all or part of a missing body organ
or body member.
"Provider" means a person or facility that is recognized by the Plan as a health
care provider, and fits one (1) or more of the following descriptions:
1. Professional Provider. A physician or other professional provider who is
recognized by the Plan.
2. Other Professional Provider. A professional provider (except a physician)
who is recognized by the Plan and licensed, certified, or registered by the
state or jurisdiction where services are provided to perform designated
health care services. Services of such a provider must be among those
covered by the Plan and are subject to review by a medical authority
appointed by the Plan. A professional supplier of medical supplies and
equipment is considered an other professional provider.
3. Facility Provider. An alcoholism or substance abuse treatment center, home
health agency, hospice agency, hospital, or other facility which the Plan
recognizes as a health care provider.
4. Other Facility. A facility provider (except a hospital, alcoholism or
substance abuse treatment center, home health agency, or hospice agency)
that the Plan recognizes as a provider and that is licensed or certified to
perform designated health care services by the state or jurisdiction where
services are provided. Services of such a provider must be among those
covered by the Plan and are subject to review by a medical authority
appointed by the Plan. Examples: ambulatory surgery center, dialysis
center, Veteran's Administration, or Department of Defense Hospital.
"Psychiatric Care" also known as psychoanalytic care, means treatment for a
mental illness or disorder, or a functional nervous disorder.
"Psychiatric Hospital" means an institution which meets the following
requirements:
1. maintains diagnostic and medical facilities on its premises or in facilities
under its control; and
2. primarily provides care and treatment to registered inpatients for mental
illness, emotional or nervous disorder, psychosis, neurosis, character or
personality disorder or other mental or emotional disease or disorder; and
3. is supervised by a staff of one (1) or more physicians; and
4. has twenty-four (24) hour nursing service by registered nurses (R.N.s) on
duty or call; and
56
5. complies with all licensing or legal requirements; and
6. is not primarily a nursing, convalescent or rest home or a place for the
aged or custodial care.
A part of an institution operated as a nursing, convalescent, rehabilitation or
geriatric unit primarily for nursing care is not considered a psychiatric
hospital.
"Psychologist" means an individual holding the degree of Ph.D., Ed.D and Psy.D.
acting within the scope of his/her license.
"Qualified Medical Child Support Order (QMCSO)" means a judgment, decree or
order issued by a court, domestic relations magistrate or administrator that
provides for child support related to health benefits or enforces a state
medical child support order under the Social Security Act (for Medicaid
purposes). It requires that the child(ren) named in the order have the right to
receive benefits from their parent through any group medical plan under which
the parent is enrolled, whether or not the parent has family coverage. The
required contribution for coverage will be that of family coverage. The QMCSO
must contain:
1. the name and last known mailing address of the participant;
2. the name and mailing address of each child (alternate recipient) covered by
the order;
3. a reasonable description of the type of coverage to be provided by the group
health plan to each alternate recipient or the manner in which coverage will
be determined;
4. the period of time to which the order applies; and
5. the identification of each plan to which the order applies.
"Qualifying Beneficiary (under COBRA)" is a covered employee and/or the spouse
and/or child of a covered employee who, on the date before a qualifying event
occurred, was eligible for benefits under this group health plan. Effective
January 1, 1997, a qualified beneficiary includes a child who is born to or
placed for adoption with the covered employee during the period of COBRA
coverage.
"Rehabilitation Facility" means a distinct organizational entity, either
separate or within a larger institution or agency which meets the following
requirements:
1. provides individualized, goal-oriented, comprehensive and coordinated
services designed to minimize the effects of physical, mental, social and
vocational disadvantages and to effect a realization of the individual's
potential; and
2. is accredited for its stated purpose by the Joint Commission on
Accreditation of Health Care Organizations (JCAHO) or the Commission on
Accreditation of Rehabilitation Facilities (CARF); and 57
3. is certified for its stated purpose by Medicare for Medicare reimbursement;
and
4. is licensed and complies with its stated purpose under all relevant state
and local laws.
"Rehabilitation Services" means the process of providing, in a coordinated
manner, those comprehensive services deemed appropriate to the needs of a person
with a disability, in a program designed to achieve objectives of improved
health, welfare and the realization of one's maximum physical, social,
psychological and vocational potential for useful and productive activity.
"Restorative or Reconstructive Surgery" means surgery to restore or improve
bodily function to the level experienced before the event which necessitated the
surgery or, in the case of a congenital defect, to a level considered normal.
Such surgery may have a coincidental cosmetic effect.
"Room and Board" refers to all charges by whatever name called which are made by
a hospital, hospice, or convalescent nursing facility as a condition of
occupancy. Such charges do not include the professional services of physicians
nor intensive nursing care by whatever name called.
"Schedule of Benefits" means the outline of benefits.
"Second Surgical Opinion" means expenses incurred for examination, x-ray, and
lab performed by a qualified physician in the approved specialty to substantiate
medical necessity of the procedure to be performed. A third opinion will be
paid in case of a conflict between the first two (2) opinions.
"Semiprivate" refers to a class of accommodations in a hospital or convalescent
nursing facility in which at least two (2) patient beds are available per room.
"Significant Break in Coverage" means a period of sixty-three (63) consecutive
days during all of which the individual does not have any creditable coverage,
except that neither a waiting period nor an affiliation period is taken into
account in determining a significant break in coverage.
"Skilled Nursing Care Facility" means an institution, or distinct part thereof,
operated pursuant to law and one which meets all of the following conditions:
1. It is licensed to provide, and is engaged in providing professional nursing
services on an inpatient basis, for persons convalescing from injury or
illness. Services are rendered by a graduate registered nurse (R.N.) or by
a licensed practical nurse (L.P.N.). In addition they provide physical
restoration service to assist patients to reach a degree of body functioning
to permit self-care in essential daily living activities.
2. Its services are provided for compensation from its patients and under the
full-time supervision of a physician or graduate registered nurse (R.N.).
58
3. It provides twenty-four (24) hour per day nursing service by licensed
nurses, under the direction of a full-time graduate registered nurse (R.N.).
4. It maintains a complete original record on each patient.
5. It has an effective organization review plan.
6. It is not, other than incidentally, a place for rest, the aged, drug
addicts, alcoholics, mentally handicapped, custodial or educational care, or
care of mental disorders.
7. It is approved and licensed by Medicare.
This term shall also apply to an institution referring to itself as a
convalescent nursing facility, extended care facility, convalescent nursing
home, or any such other similar nomenclature.
"Sound Natural Teeth" means teeth which are whole or properly restored, are
without impairment or periodontal disease, and are not in need of the treatment
provided for reasons other than dental injury.
"Subrogation/Third Party Liability" means the transfer of one's liabilities for
another; in this case the temporary assumption of the claimant's liabilities by
the Plan prior to repayment by the party of primary liability. The Plan
contains a subrogation clause and the claimant is obligated to obtain any monies
available from third parties to reduce the Plan's losses.
"Substance Abuse" means addiction or abuse of alcohol, legal or illegal drugs,
or any other substance used in a way which results in producing abnormal
behavior and/or a mind-altered state.
"Supplemental Benefits" means benefits that are provided under a separate
policy, certificate, or contract of insurance, such as: (1) Medicare
supplemental health insurance, also known as Medigap or MedSupp insurance; (2)
coverage supplemental to that provided under the Civilian Health & Medical
Program of the Uniformed Services (also known as CHAMPUS supplemental programs);
and (3) similar supplemental coverage provided to coverage under a group health
plan. Refer to Creditable Coverage on page 50.
"Surgery" means any operative or diagnostic procedures performed for the
treatment of illnesses or injuries by an instrument or cutting procedure through
any natural body opening or incision, including the necessary treatment of
fractures and dislocations, severe sprains and casting thereof, but not
including simple sprains or bruises.
"TEFRA" refers to the Tax Equity and Fiscal Responsibility Act of 1982, as
amended from time to time.
59
"Therapies: Chemotherapy, Radiation, Occupational, Physical and Speech" mean:
Chemotherapy - drug therapy administered as treatment for malignant conditions
and diseases of certain body systems.
Radiation therapy - x-ray, radon, cobalt, betatron, telocobalt, and radioactive
isotope treatment for malignant diseases and other medical conditions.
Occupational therapy - the use of educational, vocational, and rehabilitative
techniques to improve a patient's functional ability to live independently.
Physical therapy - the use of physical agents to treat disability resulting from
disease or injury. Physical agents used include heat, cold, electrical
currents, ultrasound, ultraviolet radiation, massage, and therapeutic exercise.
Speech therapy (also called speech pathology) - services used for diagnosis and
treatment of speech and language disorders.
"Total Disability (Totally Disabled)" means the physical state of a covered
person resulting from an illness or injury which wholly prevents that individual
from performing the duties pertaining to his/her customary employment.
Individuals must be under the continuous care of a physician. All
determinations of a final definition of a disability are the decision of the
Plan Administrator. In the case of a dependent, "Total Disability (Totally
Disabled)" means unable to perform the normal activities of a person of same age
and sex in good health.
"University" means an accredited institution of higher education.
"Urgent Care/Extended Care Facility" means a freestanding facility which is
engaged primarily in providing minor emergency and episodic medical care to a
covered person. A physician and registered nurse (RN) must be in attendance at
all times. The facility may or may not have an x-ray technician and x-ray and
laboratory equipment. The facility must have a life support system available.
"Usual, Customary, and Reasonable (UCR)" refers to the designation of a charge
as being the usual charge made by a physician or other provider of services,
supplies, medications, or equipment that is deemed medically necessary, is not
experimental, and does not exceed the general level of charges made by other
providers rendering or furnishing such care or treatment within the same area.
The term "area" in this definition means a county or such other area as is
necessary to obtain a representative cross section of such charges.
Due consideration will be given to the nature and severity of the condition
being treated and any medical complications or unusual circumstances which
require additional time, skill or expertise.
"Waiting Period" means the period of time that must pass before an employee or
dependent is eligible to enroll under the terms of a group health plan. If an
employee or dependent enrolls as a late entrant or on a special enrollment date,
any period before such late or special enrollment is not a waiting period.
"Well-Baby Care" means medical treatment, services or supplies rendered to a
child or newborn solely for the purpose of health maintenance and not for the
treatment of an illness or injury.
60
GENERAL INFORMATION
IMPORTANT FACTS ABOUT YOUR PLAN
THE HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT OF 1996 (HIPAA)
If your coverage terminates under this Plan, recent changes in Federal law may
affect your health coverage if you become eligible to enroll in another health
plan which limits or excludes coverage for pre-existing conditions.
The Health Insurance Portability and Accountability Act of 1996 (HIPAA) limits
the circumstances under which coverage may be excluded for conditions which
exist before you enroll in a new Plan. Under the law, beginning with health
care plans with "plan year" dates of July 1, 1997, and after, a pre-existing
condition exclusion period may be reduced under certain circumstances by the
period you were covered under this Plan. To assist you in verifying coverage,
the Plan will issue a certificate to you (and your eligible dependents) that
will provide evidence of your coverage under this Plan at the time your coverage
terminates.
You have the right to receive such a certificate for any period of health
coverage since July 1, 1996. If you were not covered under this Plan
consecutively for a period of at least eighteen (18) months, you may need to
provide documentation for earlier periods of health care coverage, not covered
by the certificate issued by this Plan. This will require that you contact
previous providers of health coverage.
It is the intent of the Plan to comply with all existing HIPAA regulations. If
for some reason the information presented in the Plan differs from actual HIPAA
regulations, the Plan reserves the right to administer HIPAA in accordance with
such actual regulations.
OPTIONAL CONTINUATION OF COVERAGE (COBRA)
Continuation of Coverage Under Federal Law (COBRA)
If you have additional health coverage in effect before the time of your COBRA
eligibility, you may still elect COBRA continuation coverage under this Plan.
As mandated by Federal law, the Plan offers optional continuation coverage to
the employee and/or his/her dependents if coverage would otherwise end due to
one (1) of the following events:
1. Termination of the employee's employment for any reason except gross
misconduct. Coverage may continue for the employee and his/her eligible
dependents.
2. A reduction in hours worked by the employee which results in loss of Plan
eligibility. Coverage may continue for the employee and his/her eligible
dependents.
3. The employee's death. Coverage may continue for his/her eligible
dependents.
4. Divorce or legal separation from his/her spouse. Coverage may continue for
that 61
spouse and his/her eligible dependents.
5. The employee becomes entitled to Medicare. Coverage may continue for
eligible dependents who are not entitled to Medicare.
6. Loss of eligibility of a covered dependent child due to Plan eligibility
requirements. Coverage may continue for that dependent.
7. The employer files a Chapter 11 bankruptcy petition and the employee was
covered as a qualified retiree at the time of the filing. Coverage may
continue for qualified retirees and their beneficiaries if coverage ends or
is substantially reduced within one (1) year before or after the filing for
bankruptcy.
Note: To choose this continuation coverage, an individual must be a covered
person under the Plan on the day before the qualifying event. In the case of
bankruptcy, an individual must have retired on or before the date coverage was
substantially reduced, or be a beneficiary of the retired employee on the day
before the bankruptcy.
Notification Requirement
The qualifying individual has the responsibility to inform the employer, in
writing, of a divorce, legal separation, or a child losing dependent status
under the Plan within sixty (60) days of the qualifying event. Failure to
provide this notification within sixty (60) days will result in the loss of
continuation coverage rights.
The employer has the responsibility of notifying Mountain States Administration
in writing of the employee's death, termination of employment, reduction in
hours, entitlement to Medicare, or the employer's bankruptcy within thirty (30)
days of the qualifying event.
The employer will notify the qualifying individual of continuation coverage
rights in writing within fourteen (14) days of the notice described above. The
qualifying individual will then have sixty (60) days to elect continuation
coverage. Failure to elect continuation coverage within sixty (60) days after
notification by the employer will result in loss of continuation coverage
rights.
Maximum Period of Continuation Coverage
The maximum period of continuation coverage for individuals who qualify due to
termination of employment or reduction in hours worked is eighteen (18) months
from the date of the qualifying event.
If a qualified beneficiary is disabled (as determined under the Social Security
Act) at the time of termination or reduction in hours, continuation coverage for
the qualifying individual may be extended to twenty-nine (29) months, provided
the qualifying individual notifies the employer either within the eighteen (18)
month continuation coverage period, or within sixty (60) days after receiving
notification of disability. The covered person must notify the employer of a
determination by Social Security that the individual is no longer disabled
within thirty (30) days of such determination.
62
Coverage may continue for up to twenty-nine (29) months if the Social Security
Administration determines that you, or a covered dependent, were or became
totally disabled at any time during the first sixty (60) days of COBRA
continuation coverage. To qualify for the extension, the qualified beneficiary
must submit a copy of the Social Security disability determination notice within
sixty (60) days of the date of such notice to the employer. This paragraph
applies only if you have health coverage under the COBRA law on or after January
1, 1997.
The maximum period of continuation coverage for individuals who qualify due to
any other described qualifying event, except the employer's bankruptcy, is
thirty-six (36) months from the date of the qualifying event.
Qualifying retirees, widows and widowers of retirees who died before the
employer's bankruptcy are entitled to lifetime continuation coverage. However,
if a retiree dies after bankruptcy, the surviving spouse and dependent children
may only elect an additional thirty-six (36) months of continuation coverage
after the death.
If an individual experiences more than one (1) qualifying event, the maximum
period of coverage will be computed from the date of the earliest qualifying
event, but will be extended to the full thirty-six (36) months if required by
the subsequent qualifying event.
However, if the employee's spouse and dependent children would otherwise lose
coverage because of a qualifying event, they will be entitled to thirty-six (36)
months of continuation coverage from the date the employee becomes entitled to
Medicare even if the employee's entitlement to Medicare does not cause loss of
coverage either because he/she is still employed or because he/she had already
terminated employment.
Cost of Continuation Coverage
The cost of continuation coverage is determined by the employer and paid by the
qualifying individual. If the qualifying individual is not disabled, the
applicable premium cannot exceed 102% of the Plan's cost of providing coverage.
The cost of coverage during a period of extended continuation coverage due to a
disability cannot exceed 150% of the Plan's cost of coverage.
The qualified individual must make the first payment within forty-five (45) days
of notifying the Plan of selection of continuation coverage. Future payments
can be made in monthly installments within thirty (30) days of the due date.
Rates and payment schedules are established by the employer and may change when
necessary due to Plan modifications.
The cost of continuation coverage is computed from the date coverage would
normally end due to the qualifying event.
Failure to make the first payment within forty-five (45) days or failure to make
any subsequent payment within thirty (30) days of the established due date will
result in the permanent cancellation of continuation coverage.
63
When Continuation Coverage Ends
Continuation of coverage ends on the earliest of:
1. The date the maximum continuation period expires.
2. The date the qualifying individual becomes entitled to coverage under
Medicare.
3. The first day for which timely payment is not made to the plan.
4. The date the employer no longer offers a group health plan to any of its
employees.
5. The date the qualifying individual becomes covered under any other group
health plan that does not exclude or limit coverage for a pre-existing
condition the qualifying individual may have.
It is the intent of the Plan to comply with all existing COBRA regulations. If
for some reason the information presented in the Plan differs from actual COBRA
regulations, the Plan reserves the right to administer COBRA in accordance with
such actual regulations.
CONVERSION PRIVILEGE
There are no conversion benefits for medical or dental coverage when COBRA
participation ends.
MEDICARE
Health insurance protection is provided in two (2) forms under the Federal
Medicare Program.
Part A: Hospital Insurance
1. Hospital costs for semiprivate room in an accredited hospital up to a
limited number of days.
2. Nursing home care after hospital confinement.
3. Home health visits after hospital discharge.
Part B: Medical Insurance Plan and Supplemental Plan.
1. The supplementary plan provides protection that is not given under the
Part A, Hospital Insurance Program; with the primary function of providing
coverage for the cost of physicians' services.
64
The above Medicare programs, both Parts A and B, will assist in paying part of
the health care cost for individuals age sixty-five (65) or older.
If your employer has less than twenty (20) employees in the current calendar
year, Medicare coverage is primary (and the Plan will be secondary) for active
employees age sixty-five (65) or older and their dependents age sixty-five (65)
or older. The Plan will reduce payment by the amount paid or payable by
Medicare.
If your employer had twenty (20) or more employees in the current or preceding
calendar year, federal law requires that Medicare coverage be secondary to the
Plan. You have the option of rejecting the Plan thereby retaining Medicare as
your primary coverage. If you choose Medicare as primary, you will have no
coverage under the Plan. If you reject coverage under the Plan, that choice
must be made in writing to your employer. When your coverage under the Plan
terminates, you will have a seven (7) month period, beginning on the termination
date, to enroll in Medicare Part B.
Federal law also mandates which plan is primary in the case of certain persons
who are totally disabled or have end stage renal disease.
It is the intent of the Plan to comply with all existing Medicare regulations.
If for some reason the information presented in the Plan differs from actual
Medicare regulations, the Plan reserves the right to administer Medicare in
accordance with such actual regulations.
COORDINATION OF BENEFITS (COB)
The coordination of benefits provision is intended to prevent the payment of
benefits which exceed expenses. It applies when the employee or any eligible
dependent who are covered by the Plan are also covered by any other plan or
plans, excluding an individual insurance policy. When more than one (1)
coverage exists, one (1) plan normally pays its benefits in full and the other
plan pays a reduced benefit. When spouses are employees covered under the Plan,
benefits will not be coordinated within the Plan.
The Plan will always pay either its benefits in full or a reduced amount which,
when added to the benefits payable by the other plan or plans, will not exceed
100% of total allowable expenses.
Allowable expense means a necessary, reasonable and customary item of expense
for health care when the item of expense is covered, at least in part, by one
(1) or more plans covering the individual for whom the claim is made.
The coordination of benefits provision applies whether or not a claim is filed
under the other plan or plans.
65
Definitions
The term "Plan" as used in this section of Coordination of Benefits will mean
any plan providing benefits or services for or by reason of medical, vision, or
dental treatment, and such benefits or services are provided by:
1. Group insurance or any other arrangement for coverage for covered persons in
a group whether on a covered or uncovered basis, including but not limited
to:
a. hospital indemnity benefits; and
b. hospital reimbursement-type plans which permit the covered person to
elect indemnity at the time of claims.
2. Hospital or medical service organizations on a group basis, group practice
and other group prepayment plans.
3. Hospital or medical service organizations on an individual basis having a
provision similar in effect to this provision.
4. Any coverage for students which is sponsored by, or provided through a
school or other educational institution.
5. Any health maintenance organization (HMO).
6. Any coverage under a governmental program, and coverage required or provided
by any statute.
7. Group automobile insurance.
8. Group, blanket or franchise insurance coverage.
9. Individual automobile insurance coverage on an automobile leased or owned by
the company.
10. Individual auto insurance, by whatever name called.
Note: The Plan is always a secondary plan to benefits provided under any
mandatory no-fault auto insurance act in the state in which the covered
individual resides.
If a no-fault policy provides coverage in excess of the minimum required by
state law, the Plan will coordinate benefits with those coverages in effect.
The benefits of the Plan will not be available to you to the extent of
minimum benefits required by the no-fault law for injuries suffered by you
while operating or riding in a
66
motor vehicle owned by you if said vehicle is not covered by no-fault automobile
insurance as required by law. This denial of benefits does not apply to any
other person injured in a motor vehicle accident if the injured person is a
non-owner operator, passenger or pedestrian and such other person is not
covered by no-fault automobile insurance.
The term "Plan" will be construed separately with respect to each policy,
contract, or other arrangement for benefits or services, and separately with
respect to that portion of any such policy, contract, or other arrangement which
reserves the right to take the benefits or services of other Plans into
consideration in determining its benefits and that portion which does not.
The term "Claim Determination Period" means a calendar year during which the
covered person for whom claim is made has been covered under the Plan.
Coordination Procedures
If a covered person is covered under more than one (1) plan, this coordination
of benefits section will apply. This section will be used to determine the
amount of benefits payable under the Plan for a covered person.
One plan is the primary plan, and all the other plans are secondary, in the
order described below. The primary plan pays its benefits first, without taking
the other plans into consideration. The secondary plans then pay benefits up to
the extent of their liability after taking into consideration the benefits
provided by the other plans. Benefits under other plans include benefits which
a covered person could have received if such benefits had been claimed.
1. If a plan has no coordination of benefits provision (or similar provision),
it is automatically the primary plan.
2. If all the plans have coordination of benefits provisions, a plan is primary
if it covers the person as an employee, and secondary if it covers the
person as a dependent.
3. If a person is covered as a dependent child under more than one (1) plan:
a.the plan of the parent whose birthday falls earlier in the year is the
primary plan (month and day only);
b.if the father and mother have the same birthday, the plan covering the
parent longer is the primary plan;
c.if the other plan coordinates benefits based upon the sex of the
parents, then the plan that covers such person as a dependent of a male
person is the primary plan;
d.if the parents are separated or divorced, the rules below will apply:
1) The plan covering the child as a dependent of
the parent with legal custody of the child would be the primary
plan unless
67
2) a court decree sets the obligation for medical
expenses of such child. The plan which covers the child as a dependent
of the parent with such obligation will be the primary plan.
3) If the specific terms of a court decree state
that the parents shall share joint custody, without stating that one
(1) of the parents is responsible for the health care expenses of the
child, the plan covering the child shall follow the order of benefits
determination rules for dependent children of parents who are not
separated or divorced.
4) If a plan is "no-fault" auto insurance or third party liability
insurance, it is the primary plan.
If the primary plan is still not established by 1, 2, 3, or 4 above then the
plan that covers such person for the longest, continuous period of time will be
the primary plan. Regardless of 1 through 4, a plan which covers the person as
an employee (or a dependent of an employee) will be primary to the plan which
covers the person as:
1. a laid-off or retired employee;
2. the dependent of a laid-off, retired or deceased employee; or
3. a COBRA beneficiary who is continuing coverage in accord with federal law.
Payments
A payment made under another Plan may have included an amount that should have
been paid under this Plan. If it does, the Plan Administrator may pay that
amount to the organization that made the payment. That amount will then be
treated as though it was a benefit paid under this Plan. The Plan Administrator
will not pay that amount again. The term "payment made" includes providing
benefits in the form of services. In this case "payment made" means the
reasonable cash value of the benefits provided in the form of services.
Rights of Recovery
Whenever payments have been made by the company, with respect to allowable
expenses, in a total amount, at any time, in excess of the maximum amount of
payment necessary at this time to satisfy the intent of this provision, the
company shall have the right, exercisable alone and at its sole discretion, to
recover such payments to the extent of such excess from among one (1) or more of
the following, as the company shall determine: any persons, companies or other
organizations to, or for, or with respect to whom payments have been made.
Right to Receive and Release Necessary Information
For the purpose of determining the applicability of and implementing the terms
of this provision of the Plan or any provision of similar purpose of any other
plan, the Plan may, without the consent of or notice to any person, release to
or obtain from any insurance company or other organization or person any
information with respect to any person, which the Plan deems to be necessary for
such purposes. Any person claiming benefits under the Plan shall furnish to the
Plan such information as may be necessary to implement this provision.
68
SUBROGATION/THIRD PARTY LIABILITY
Third party liability exists when someone else is legally responsible for the
condition or injury of an employee or his/her dependent while covered for
benefits under the Plan. No benefits will be payable under the Plan for any
services or supplies related to such a condition or injury for which a third
party is determined to be liable until benefits afforded under any third party
coverage have been exhausted.
The Plan may, however, provide benefits if:
1. it is established that a third party liability does not exist; or
2. the employee or his/her dependent provides the Plan with a written lien to
reimburse the Plan the amount of all benefits paid on behalf of such person,
if such person later receives, or settles, or recovers in court, any
benefits or damages from a third party which are/were related to the
condition or injury for which benefits are being or were paid while such
person was covered under the Plan.
Plan Rights When Third Party Liability Exists
1. When a third party is or may be liable for the costs of any covered expenses
payable to the employee or his/her dependent, or on behalf of the employee
or his/her dependent under the Plan, the Plan has subrogation rights. This
means that the Plan has the right, either as co-plaintiffs or by direct
suit, to enforce the employee or his/her dependent claim against a third
party for any benefits paid under the Plan on behalf of such person for the
related condition or injury; and
2. When the employee or his/her dependents fails to cooperate in satisfying the
Plan's subrogation interest, and the Plan must file a lawsuit against such
person or the third party in order to enforce the Plan's rights under this
provision, the employee or his/her dependent for which benefits are being
paid or were paid under the Plan shall be responsible for attorney's fees
and costs incurred by the Plan.
Employee's Obligations When Third Party Liability Exists
If a third party is or may be liable for the costs of any expenses payable to or
on behalf of the employee or his/her dependents under the Plan, the employee
and/or his/her dependents must do the following:
1. promptly notify the Plan of a claim involving or against a third party; and
2. the employee or his/her dependents and his/her attorney must provide a
written lien to the Plan to reimburse the amount of any benefits paid by the
Plan on behalf of such employee or his/her dependents in any action with or
against the third party or the third party's insurance carrier; and
3. if the employee or his/her dependents receives money for the claim by suit,
settlement, or otherwise, the employee or his/her dependents must fully
reimburse the Plan the amount of any benefits provided under the Plan on
his/her behalf which are or were related to a condition or injury for which
the third party is liable. The employee or his/her dependents may not
exclude recovery of benefits paid under the Plan on his/her behalf from any
type of damages or settlement recovered by the employee or his/her
dependents; and
4. cooperate in every way necessary to help the Plan enforce its subrogation
rights; and
5. the employee and his/her dependents may not take any action that might
prejudice the Plan's subrogation rights.
CLAIMS PAYMENTS MADE IN ERROR
If payments in excess of the correct amount due are made, the Plan may recover
all excess amounts paid to providers or to covered persons. Recovery will be
made by reducing or suspending future Plan payments, or by requiring
reimbursement of the overpayment in full, or in installments, until the
overpayment is recovered.
ALTERNATE PAYEE PROVISION
The Plan must make payments to the employee's separated/divorced spouse, state
child support agencies or Medicaid agencies if required by a qualified medical
child support order (QMCSO) or state Medicaid law.
ASSIGNMENT OF BENEFITS
Payments will also be made in accordance with any assignment of rights required
by a state Medicaid plan.
69
HOW TO FILE A CLAIM
Your health care provider should file claims for you. Your health care provider
should submit the following information:
* Plan participant's name, Social Security number and address;
* Patient's name, Social Security number and address, if different from the
participant's;
* Provider's name, tax identification number, address, degree and signature;
* Date(s) of service;
* Diagnosis;
* Procedure codes (describes the treatment of services rendered);
* Assignment of benefits, signed (if payment is to be made to the provider);
* Release of information statement, signed;
* Explanation of benefits (EOB) information if another plan is the primary
payor.
Claims should be submitted for each individual. Please do not attach or staple
claims together. If additional information is needed to process your claim, you
or your health care provider will be notified. If you receive a letter
regarding your claim, prompt completion and return of the letter with any
requested attachments will expedite processing of the claim. Send complete
information to:
For employees outside Colorado:
PHCS (Private Health Care Systems)
P. O. Box 2476
Des Plaines, IL 60017-2476
(800) 227-8197
For Colorado employees:
THE ALLIANCE
650 South Cherry Street
Suite 300
Denver, CO 80246
(800) 996-2447
(303) 333-6767 70
Every attempt will be made to help covered persons understand their
benefits; however, any statement made by an employee of the claims
administrator or the employer will be deemed a representation and not a
warranty. Actual benefit payment can only be determined at the time the
claim is submitted and all facts are presented in writing.
If a definite answer to a specific question is required, please submit a
written request, including all pertinent information, and a statement from
the attending physician (if applicable), and a written reply (which will be
kept on file) will be sent.
Benefits may be assigned to the hospital, doctor or any provider of service.
First notice of claim must be filed within ninety (90) days of occurrence.
All claims should be submitted within a reasonable time frame for prompt
processing. Claims fifteen (15) months or older may be denied.
All persons making a claim shall be notified in writing whether or not the
claim will be paid. This notice will be given or mailed to the claimant
within ninety (90) days of receipt by Mountain States Administration of a
properly filed claim. Under certain circumstances, additional time may be
needed to process the claim. If additional time is needed, the claimant
will be notified in writing. If notice of the claim is not received by the
claimant as stated above, the claim should be considered denied for purposes
of proceeding to the review procedure.
If any part of the claim is denied, the notice will explain the specific
reason(s) for the denial and will include a specific reference to the Plan
provision(s) upon which the denial was based. If applicable, the claimant
will be given a description of any additional information necessary to
process the claim, an explanation of why such information is necessary, and
the steps which may be followed to request a review of the decision.
If the claim is denied in whole or in part, the claimant is entitled to:
a.request a review of the decision;
b.review pertinent documents used in the claim determination;
c.submit any issues and comments in writing.
To request a review, the claimant must file a written request with the Plan
Administrator within sixty (60) days of receiving the original claim
determination. The claimant may request, within that sixty (60) day period
an extension if more time is needed to prepare an appeal.
A final decision on the review will be made by the Plan Administrator, or
his/her designee, though the Plan Administrator may, at his/her discretion,
make an interim review of the initial claim decision. The Plan
Administrator's decision will be made within sixty (60) days after the Plan
Administrator's receipt of the request for appeal. Under certain
circumstances, additional time may be required to complete the review, but
in no event will such period extend beyond one hundred twenty (120) days 71
following receipt of the request. If additional time is needed, the claimant
will be notified in writing.
The decision upon review will be final. It shall be in writing and contain
the specific reason(s) for the decision, contain references to the pertinent
Plan language upon which the decision was based, and be written in a manner
to be understood by the claimant.
72
SUMMARY PLAN DESCRIPTION
1. Name of the Plan:
Scott's Liquid Gold - Inc. & Affiliated Companies Employee Benefit Health
and Welfare Plan
2. Name and address of employer whose employees are covered by the Plan:
Scott's Liquid Gold - Inc.
4880 Havana Street
Denver, Colorado 80239-0019
(303) 373-4860
3. Source of contributions to the Plan:
Scott's Liquid Gold - Inc. & Affiliated Companies and its employees
contribute to the cost of the Plan.
4. Date of the end of the Plan Year:
Plan years end on each May 31. Financial records of the Plan are kept on a
Plan Year basis.
5. Plan Administrator:
Scott's Liquid Gold - Inc.
4880 Havana Street
Denver, Colorado 80239-0019
(303) 373-4860
6. Agent for service of legal process:
The Plan Administrator has authority to control and manage the operation and
administration of the Plan and is the agent for service of legal process.
7. Type of Administration of the Plan:
The partially self-funded Plan is administered directly by the Plan
Administrator. The Plan Administrator has appointed a Third Party
Administrator (TPA) to handle the day-to-day operation of the Plan. The TPA
does not serve as an insurer, but just as a claims (processor) administrator
(refer to #9).
The TPA processes the claims, then requests and receives funds from the Plan
Administrator to pay the claims, and makes payment on the claims to
hospitals and other providers. The Plan Administrator, Scott's Liquid Gold -
Inc. is ultimately responsible for providing Plan benefits, and not the
reinsurance carrier, from whom the Plan Administrator has purchased coverage
for catastrophic claims.
8. Eligibility:
Employees and dependents may participate in the Plan (or be denied coverage)
based on eligibility requirements set forth herein.
9. Claims Administrator:
Mountain States Administration Co., Inc.
13901 E. Exposition Avenue
Aurora, CO 80012
Telephone: (303) 360-9600 Local in Colorado
(800) 828-8847 Toll free in Colorado
(800) 828-8012 Toll free outside Colorado
10. Claims Procedures:
Claims may be submitted and appealed as set forth herein.
11. Federal ID #: 84-0762527
12. Plan Number:
501 Medical and Dental (This is not the group number.)
502 Life & AD&D (This is not the group number.)
13. Plan Termination:
The right is reserved for the company to terminate, suspend, withdraw, amend
or modify the program in whole or in part at any time.
14. ERISA RIGHTS:
As a participant in this Employee Benefit Health and Welfare Plan, you are
entitled to certain rights and protection under the Employee Retirement
Income Security Act of 1974 (ERISA). This act provides that all Plan
participants shall be entitled to:
Examine, without charge, at the Plan Administrator's office and at other
specified locations, such as work sites, all Plan documents, including
insurance contracts, collective bargaining agreements and copies of all
documents filed by the Plan with the U.S. Department of Labor, such as
detailed annual reports and Plan descriptions.
Obtain copies of all documents and other Plan information upon written
request to the Plan Administrator. The Plan Administrator may make a
reasonable charge for the copies.
Receive a summary of the Plan's annual financial report. The Plan
Administrator is required by law to furnish each participant with a copy of
this Summary Annual Report, if requested.
In addition to creating rights for the Plan participants, ERISA imposes
obligations upon the persons who are responsible for the operation of this
Employee Benefit Health and Welfare Plan. The people who operate the Plan,
called "fiduciaries" of the Plan, have a duty to do so prudently and in the
interest of you and other Plan participants and beneficiaries.
No one, including your employer, may fire you or otherwise discriminate
against you in any way to prevent you from obtaining a welfare benefit or
exercising your rights under ERISA. If your claim for a welfare benefit is
denied in whole or in part, you must receive a written explanation of the
reason for denial. You have the right to have the Plan review and
reconsider your claim. Under ERISA there are steps you can take to enforce
the above rights. For instance, if you request materials from the Plan and
do not receive them within thirty (30) days, you may file suit in a federal
court. In such a case, the court may require the Plan Administrator to
provide the materials and pay you up to $110 a day until you receive the
materials, unless the materials were not sent because of reasons beyond the
control of the Administrator. If you have a claim or benefit which is
denied or ignored in whole or in part, you may file suit in a state or
federal court. If it should happen that Plan fiduciaries misuse the Plan's
money or if you are discriminated against for asserting your rights, you may
seek assistance from the U.S. Department of Labor, or you may file suit in a
federal court. The court will decide who should pay court costs and legal
fees. If you are successful, the court may order the person you have sued
to pay these costs and fees. If you lose, the court may order you to pay
these costs and fees, for example if it finds your claim is frivolous.
If you have any questions about this statement or your rights under ERISA,
you should contact the nearest office of the Pension and Welfare Benefits
Administration, U.S. Department of Labor, listed in your telephone
directory, or the Division of Technical Assistance and Inquiries, Pension
and Welfare Benefits Administration, U.S. Department of Labor, 200
Constitution Avenue, N.W., Washington, D.C. 20210.
SCHEDULE OF MEDICAL BENEFITS
All eligible and covered medical charges are subject to applicable deductible
and coinsurance provisions unless indicated differently below. Charges are
limited to usual, customary, and reasonable for the area in which services are
rendered. Charges excluded as not covered, over usual, customary, and
reasonable or as otherwise noted, do not count toward either deductible or out-
of-pocket coinsurance. This is a summary of benefits only; for specific
restrictions and limitations, see detailed explanations elsewhere in the Plan.
The Plan has entered into an arrangement with The Alliance for covered
participants in the Denver area and PHCS for participants living or traveling
outside Colorado. The Alliance is an employer-owned cooperative and PHCS is a
preferred provider organization (PPO) which negotiates hospital, doctor and
other provider fees with contracting health care providers.
LIFETIME MAXIMUM $5,000,000 per Covered Person
(While covered under this Plan) 2,000 for Temporomandibular Joint Disorders
30,000 for Alcoholism or Substance Abuse
Treatment
25,000 for Hospice Benefits
The term "lifetime maximum" means the total amount of benefits which may be
payable while covered under this Plan, or any other health plan sponsored by
Scott's Liquid Gold - Inc. and Affiliated Companies. It will not be interpreted
to mean the lifetime of the covered person.
CALENDAR YEAR DEDUCTIBLE
(Combined Medical and Dental)Single Coverage Maximum: $100
Family Coverage Maximum:$200
DEDUCTIBLE CARRYOVER If a covered person has not met his/her deductible in
the first nine (9) months of the year, then any charges
incurred in the last three (3) months will apply to the
deductible for both the current year and the next
calendar year.
The term "deductible" means a specified dollar amount of covered expenses which
must be incurred during a calendar year, or as specified, before any other
covered expenses can be considered for payment.
COINSURANCE FOR ELIGIBLE MEDICAL EXPENSES
For Single Coverage After the single coverage deductible, eligible
under the Plan expenses (other than outpatient mental health
disorders, alcoholism or substance abuse or as
otherwise noted) are paid 80% of the next $5,000, then
100% for the balance of the calendar year.
73
For Family Coverage After the family coverage deductible, eligible
under the Plan expenses (other than outpatient mental health
disorders, alcoholism or substance abuse, or as
otherwise noted) are paid at 80% of the next $10,000
(individual or family), then 100% for the balance of
the calendar year.
The term "coinsurance" means the amount payable by the Plan for a covered
expense. The covered person is required to pay the amount not paid by the Plan.
AIDS BENEFIT Eligible expenses for treatment of Acquired Immune
Deficiency Syndrome (AIDS), AIDS-related Complex, or
HIV-positive are paid as for any other illness, subject
to deductible and coinsurance provisions.
ALCOHOLISM AND SUBSTANCE ABUSE BENEFITS
(See specific restrictions on page 36.)
Inpatient Covered as any other illness, subject to deductible and
coinsurance provisions, to a maximum of thirty (30)
days per calendar year.
Outpatient Eligible expenses are subject to the deductible
provision and are then paid at 50% to 50 visits per
calendar year. Alcoholism and substance abuse
inpatient, partial, and outpatient treatment combined:
Calendar year maximum, per person: $15,000
Lifetime maximum, per person: $30,000
CHIROPRACTIC SERVICES Eligible expenses are limited to forty (40) visits in
six (6) consecutive months for vertebral column
problems only, and are subject to deductible and
coinsurance provisions. (See #15, page 22.)
HOME HEALTH CARE Eligible expenses are paid, subject to deductible and
coinsurance provisions, to a maximum of sixty (60)
visits per calendar year. (See specific restrictions on
page 32.)
HOSPICE BENEFIT 100% of eligible expenses not to exceed a maximum of
six (6) months from the time a covered person is
certified terminally ill and subject to a $25,000
lifetime maximum. (See specific restrictions on page
39.)
74
HOSPITAL ROOM LIMIT Semiprivate rate, paid subject to deductible and
coinsurance provisions.
IMMUNIZATION BENEFIT The deductible is waived and 100% of eligible charges
are paid for routine immunizations, vaccinations, and
preventive shots for eligible participants. (See
Covered Medical Expenses, #50, page 26 for additional
information.)
INTENSIVE CARE UNIT & Usual, customary, and reasonable, subject to
SPECIAL CARE UNIT deductible and coinsurance provisions.
MENTAL HEALTH DISORDER BENEFITS
(See specific restrictions on page 36.)
Inpatient Covered as any other illness, subject to deductible and
coinsurance provisions, to a maximum of forty-five (45)
days per calendar year.
Outpatient Eligible expenses are subject to the deductible
provision and then paid at 50% to 100 visits per
calendar year.
NEWBORN WELL-BABY CARE Usual, customary, and reasonable hospital
nurseryexpenses, subject to deductible and coinsurance
provisions. Eligible physician charges are paid under
the Routine Care Benefit. (See Covered Medical
Expenses, page 37 for additional information.)
OUTPATIENT DIAGNOSTIC 100% of the first $200 per calendar year of
LAB AND X-RAY BENEFIT eligible outpatient expenses incurred for illness or
injury, with the deductible waived. Eligible expenses
in excess of $200 are subject to the deductible and
coinsurance provisions.
OUTPATIENT SURGICAL 100% of eligible expenses incurred in conjunction
BENEFIT with a surgical procedure performed on an outpatient
basis, and incurred on the date of surgery, with the
deductible waived.
75
PRE-ADMISSION TESTING 100% of eligible expenses incurred for outpatient tests
within seven (7) days of a scheduled hospital
admission, with the deductible waived. (See page 37.)
ROUTINE CARE BENEFIT 100% of the first $250 per calendar year, with the
deductible waived for examinations and diagnostic tests
related to routine wellness care, including flu shots
and pneumovax injections for adults, and well
baby/child checkups. (See Covered Medical Expenses,
#50, page 26 for additional information.)
SECOND SURGICAL OPINION 100% of the amount charged by physician rendering a
second opinion, with the deductible waived. (See page
38.)
SKILLED NURSING CARE One-half of hospital semiprivate rate where
FACILITY previously confined, to a maximum of sixty (60) days
per illness or injury, subject to deductible and
coinsurance provisions. (See page 38.)
SMOKING CESSATION Charges for generally recognized programs to
BENEFIT stop smoking are eligible to a $200 maximum per person,
subject to deductible and coinsurance provisions, in
any three (3) year period for employees and spouses who
have been covered by the Plan at least eighteen (18)
months. (See page 39).
SUPPLEMENTAL ACCIDENT 100% of the first $500 of eligible expenses
BENEFIT incurred within ninety (90) days of the accident, due
to a non-work related accident, with the deductible
waived. Eligible expenses in excess of $500 or ninety
(90) day period are subject to the deductible and
coinsurance provisions.
TMJ BENEFIT Eligible expenses incurred for the diagnosis and
treatment of temporomandibular joint dysfunction are
paid, subject to deductible and coinsurance provisions,
to the $2,000 lifetime maximum. (See #59, page 27.)
TRANSPLANT BENEFIT Covered transplants are paid as any other illness,
subject to deductible and coinsurance provisions. (See
#60, page 27).
76
VISION BENEFITS Eye exams by an ophthalmologist or optometrist are
covered, subject to deductible and coinsurance
provisions. Prescription lenses and frames are covered
at 100% to a $50 maximum per calendar year, with the
deductible waived. (See #22, page 23.)
WEIGHT REDUCTION
BENEFIT Charges for weight reduction programs under
directphysician supervision are eligible to a $1,000
maximum, subject to deductible and coinsurance
provisions, in any five (5) year period for employees
only, who have been covered by the Plan at least twenty
four (24) months. (See page 40).
MEDICAL CASE Medical Case Management optimizes the treatment
MANAGEMENT and recovery phase of major illness or injury.
Services otherwise not covered under the Plan will
be eligible for reimbursement if recommended by
the medical case management coordinator.
77
SCHEDULE OF DENTAL BENEFITS
CALENDAR YEAR MAXIMUM $2,000 per covered person
CALENDAR YEAR DEDUCTIBLE
(Combined medical and dental) Single Coverage Maximum: $100
Family Coverage Maximum: $200
PREVENTIVE AND BASIC After the deductible, eligible expenses are paid
SERVICES at 100% to the calendar year maximum.
MAJOR RESTORATIVE AND After the deductible, eligible expenses are paid
PROSTHODONTIC SERVICES at 50% to the calendar year maximum.
TMJ BENEFITS See under medical benefits.
ORTHODONTIC SERVICES Eligible expenses are paid at 50% to a $1,000 per
calendar year and $2,000 per lifetime maximum, only
for dependent children under 19 years old.
PRE-TREATMENT All benefits of any non-emergency course of
ESTIMATE * treatment exceeding $250 will be reduced by 50% if
pre-estimate has not been obtained.
* Note: If the dentist's office calls the Claims Administrator (Mountain
States Administration) for a pre-estimate on work to be performed immediately,
verification of coverage for the services to be performed is not a guarantee of
payment.
78
DENTAL CARE PROGRAM
If a covered person incurs covered dental expenses, the Schedule of Benefits set
forth in this Plan shall apply.
MAXIMUM BENEFIT AMOUNT
The total amount payable for all covered expenses incurred for a covered person
in a calendar year will not be more than the maximum benefit amount shown in the
Schedule of Dental Benefits ($2,000 per Calendar Year per Covered Person).
DENTAL ELIGIBILITY
If dental coverage is desired, the employee must enroll within thirty (30) days
of date of hire. Benefits will be effective the first working day following
ninety (90) days of continuous full-time employment.
If an employee does not enroll for dental benefits within this time frame and
subsequently desires coverage, there is a twelve (12) month waiting period
before any benefits are payable, except for accidental injuries to sound,
natural teeth. Refer to Late Entrant Provision (For Dental Benefits) on page
91. All other enrollment procedures follow the guidelines outlined under the
Eligibility section on page 6.
PRE-TREATMENT ESTIMATE REQUIREMENT *
Except for initial emergency care, it is necessary that the attending dentist or
physician submit a treatment plan to the Claims Administrator (Mountain States
Administration) prior to rendering services in excess of $250 for a covered
person. Such treatment plan must itemize recommended services, the charge for
each, and if requested, may need to be supported by x-rays. The purpose of the
pre-treatment plan is to resolve questions before, rather than after, work has
begun or is completed. Failure on the part of the dentist or physician to
submit a treatment plan will cause benefits to be reduced by 50%.
* Note: If the dentist's office calls the Claims Administrator (Mountain States
Administration) for a pre-estimate on work to be performed immediately,
verification of coverage for the services to be performed is not a guarantee of
payment. Pre-estimate of benefits indicates only that the services will be
considered as eligible expenses at the time of the call.
DEDUCTIBLE AMOUNT
Single coverage maximum calendar year deductible for both medical and dental
expenses combined is $100. Family coverage maximum calendar year deductible for
both medical and dental expenses combined is $200.
79
LATE ENTRANT PROVISION (FOR DENTAL BENEFITS)
If an employee did not elect coverage for himself or herself and/or his or her
eligible dependents within thirty (30) days of the employee's date of full-time
hire, benefits will be limited as follows:
No benefits will be payable, except for accidental injuries to sound, natural
teeth, until the person has been covered under the Plan for twelve (12)
consecutive months.
The dental waiting period for the late entrant, as described above, must be
reduced by the period of creditable coverage the individual has under any
previous dental plan as of the enrollment date. Refer to creditable coverage on
page 50.
COVERED DENTAL EXPENSES
The term "covered dental expenses" means usual, customary, and reasonable
expenses incurred for a dental service when that service:
1. Is performed by or under the direction of a licensed dentist;
2. Is essential for the necessary care of the teeth;
3. Starts and is completed while the person is covered (Refer to Extended
Dental Benefits on this page); and
4. Is not excluded under the Dental Expenses Not Covered and General Plan
Exclusions and Limitations sections of the Plan.
A dental service is deemed to start on the date it is performed, except that:
1. Full or partial dentures, start when first impressions are taken;
2. Crown, bridge, inlay or onlay, start on the first date of tooth
preparations; and
3. Root canal therapy, starts when the pulp chamber of the tooth is opened.
Note: Any dental claim which is payable under any benefits in this Plan other
than dental benefits will be paid under the other benefits first; then the
dental claim will be calculated under dental benefits. The amount paid under
dental benefits will be only the amount, if any, which exceeds the amount paid
under the other benefits.
EXTENDED DENTAL BENEFITS
Dental benefits will be extended for thirty (30) days following the date the
covered person ceases to be covered under this Plan, but only for an expense
incurred for a dental service which started while the person was covered. In no
event will an oral examination, prophylaxis or x-ray be deemed a dental service
started.
80
COVERED DENTAL EXPENSES
PREVENTIVE AND BASIC SERVICES
Eligible expenses are subject to the deductible and are then paid at 100% of
usual, customary, and reasonable, to the calendar year maximum, and include:
1. Oral exams, initial or periodic.
2. Prophylaxis, including periodontal prophylaxis (perio prophys).
3. Topical application of fluoride for dependents under age nineteen (19).
4. X-rays; one full mouth series per twenty-four (24) months, bitewing films,
and periapicals.
5. Laboratory and other tests and pathology.
6. Topical sealants for dependents under age fourteen (14).
7. Palliative, emergency treatment.
8. Restorative fillings.
9. Oral surgery, including extractions, except those required for orthodontia.
10.General anesthetics when necessary and in connection with oral surgery.
11.Periodontal treatment.
12.Endodontia, including root canal therapy.
13.Injection of antibiotic drugs, prescription drugs and medicines.
14.Space maintainers for deciduous teeth.
15.Consultations.
16.Diagnostic casts, not for TMJ or orthodontia.
17.Dental implants including the attached crown or replacement tooth.
MAJOR RESTORATIVE AND PROSTHODONTIC SERVICES
Eligible expenses are subject to the deductible, and are then paid at 50% of
usual, customary, and reasonable, to the calendar year maximum, and include:
81
1. Major restorative services: inlays, onlays, crowns, crown buildups and
posts.
2. Initial placement of a bridge, a partial or a full denture to replace one or
more teeth extracted while the person is covered by this Plan, including
adjustment during the six (6) months following the placement.
3. Recement a crown, inlay or onlay.
4. Replacement of existing bridge or denture of the original is (a) at least
five (5) years old and unserviceable; or (b) damaged while being worn and
cannot be fixed and while the person is covered under the Plan.
ORTHODONTIC SERVICES
Benefits are payable for orthodontia procedures performed on your covered
dependent children who are age nineteen (19) or less on the date the orthodontia
procedure starts. Coverage is not extended after the date a person ceases to be
a covered person.
Eligible charges are paid at 50% to a $1,000 per calendar year and $2,000 per
lifetime maximum, per person.
Eligible charges must meet all of the following conditions:
1. They are made for a service or supply furnished in connection with an
orthodontic procedure and furnished before the end of the estimated duration
shown in the orthodontic treatment.
2. The service or supply is made part of an orthodontic treatment plan that,
before the orthodontic procedure is performed, has been:
a.sent to Mountain States Administration for review; and
b.returned by Mountain States Administration to the dentist showing
estimated benefits.
82
DENTAL EXPENSES NOT COVERED
Covered dental expenses will not include, and no payment will be made, for
expenses incurred as follows:
1. Services that are cosmetic in nature, excluding orthodontia.
2. Any replacement of a bridge or denture which is or can be made serviceable.
3. Initial installation of a bridge or denture to replace teeth all of which
are missing prior to the person's becoming covered by this Plan.
4. Replacement of a lost, missing or stolen prosthetic device.
5. Replacement of a bridge or denture if the existing bridge or denture is less
than five (5) years old, unless the replacement is required to replace one
or more natural teeth extracted while the person is covered.
6. Procedures, appliances or restorations whose main purpose is to (1) change
vertical dimension; (2) diagnose or treat dysfunction of the
temporomandibular joint; (3) stabilize periodontally involved teeth; or (4)
restore occlusion. (See Special Coverage section under the medical portion
of the Plan.)
7. Veneers of crown or pontics placed on or replacing the upper and lower
first, second and third molars.
8. Bite registrations; precision or semi-precision attachments; or splinting.
9. Instruction for plaque control, oral hygiene and diet.
10.Dental services that do not meet accepted dental standards.
11.Services that are deemed to be medical services (such as TMJ).
12.Services and supplies received from a hospital.
13.Services or procedures considered experimental in nature or not yet approved
by the American Dental Association.
14.Services for which benefits are not payable according to the section,
"General Plan Exclusions and Limitations."
15.Replacement of serviceable restorations with restoration material of
differing chemical composition.
16.Dental treatment involving the use of gold, porcelain or white restoration
materials, if such treatment could have been rendered at a lower cost by
means of a reasonable substitute consistent with generally accepted dental
practice.
83
GROUP LIFE INSURANCE
All eligible employees of Scott's Liquid Gold - Inc. & Affiliated Companies
receive a life insurance policy in the amount listed below:
EMPLOYEE
Life Insurance:
Per eligible employee An amount
equal to their annual earnings
exclusive of bonuses and overtime,
rounded to the next highest $1,000 to
a maximum of $190,000.
Accidental Death & Dismemberment (AD&D):
Per eligible employee Refer to the
schedule in the life insurance policy.
Life insurance is not administered by Mountain States Administration. To obtain
benefits and a certification of coverage, you must contact the Benefits
Department of Scott's Liquid Gold - Inc.
GROUP LIFE INSURANCE
The following is a general outline of the life insurance contract and its
benefits. It is not the contract itself. Copies of the life insurance contract
are required to be distributed to all covered employees. Such contracts may
change from time to time, depending upon the carrier chosen by the companies.
ELIGIBILITY
All regular full-time employees (as defined in the medical plan) are eligible
for term life insurance on the day following thirty (30) calendar days of
uninterrupted employment.
ENROLLMENT
To be covered by the Plan, employees must complete an enrollment card.
COVERAGE
Each employee will be insured for an amount equal to his/her annual earnings
(rounded to the next higher $1,000), to a maximum of $190,000, exclusive of
bonuses and overtime pay. Upon attaining age seventy (70), coverage will be
reduced 50%, an additional 30% at age seventy-five (75), and further reduced by
20% at age eighty (80). 84
BENEFITS/PAYMENT OPTIONS
Upon written proof of death, the proceeds of insurance will be paid to
beneficiaries designated by the insured; and if not so designated, to the
insured's estate. The insured employee may name his/her own beneficiary or
beneficiaries and elect the manner in which the proceeds are to be paid.
Available payment options include payment in one lump sum or part in cash and
the balance in monthly installments. In the absence of an election by the
insured employee, any beneficiary may elect any of the foregoing payment
options.
DISABILITY
Should an insured person become totally disabled prior to age sixty (60), life
insurance will be continued, upon application by the disabled employee, with
waiver of premium, to age sixty-five (65) and the face amount of insurance will
be based upon the employee's last compensation rate. Such insurance shall
terminate upon the attainment of age sixty-five (65), with conversion privilege.
ACCIDENTAL DEATH
Should death occur prior to age seventy (70) through accidental means, an amount
equal to that provided for life insurance shall be paid to a covered employee's
beneficiaries or estate in addition to the standard life insurance benefits.
Under this provision of the Plan, death must occur within ninety (90) days of
the accident, be the direct result of such accident and not the result from
suicide or intentional self-inflicted injury or any attempt threat, while sane
or insane.
Accidental death benefits are not provided if death occurs while totally
disabled, or if coverage is through a conversion policy.
DISMEMBERMENT
Should a loss of limbs or eyesight occur through accidental means, but not as
the result of an occupational accident, benefits as set forth below are payable
under this Plan to the covered employee, provided such loss is not the result of
risks not covered (see "Risks Not Covered" below).
For the loss of both hands, both feet, sight of both eyes, one hand and one
foot, one hand and sight of one eye, or one foot and sight of one eye, an amount
equal to the face value of life insurance will be paid.
One-half of the face value of life insurance will be paid for the loss of one
hand, one foot, or sight of one eye.
Payments for dismemberment shall not reduce the amount of life insurance
payments provided elsewhere in this benefit.
85
RISKS NOT COVERED
No benefit under the accidental death or dismemberment provisions of the Plan
shall be paid for any loss resulting from or contributed to by any of the
following: (1) disease, or bodily or mental infirmity; (2) infection of any
nature not resulting from accidental bodily injury; (3) suicide or intentionally
self-inflicted injury, or attempt thereat, while sane or insane; (4) war,
declared or undeclared, any act of war, or any type of military conflict; (5)
travel in or descent from any kind of aircraft while the covered person was
participating in training or had duties aboard such aircraft, or if such
aircraft was operated by or for the armed forces of any country; (6) injuries
sustained while the insured person was driving a vehicle and the insured
person's blood contained in excess of eighty (80) milligrams of alcohol per one
hundred (100) milliliters of blood.
CONVERSION RIGHTS
Upon termination of the employee's eligibility for life insurance coverage or at
the time coverage is reduced, the employee may be eligible to convert all or
part of the life insurance to an individual policy. If the employee is
interested in converting the life insurance coverage, the employee must consult
with the benefits department concerning the requirements necessary and submit
the application, along with the required initial premium, within thirty (30)
days after the date the life insurance coverage ceases.
Life insurance is not administered by Mountain States Administration. To obtain
benefits and a certification of coverage, the employee must contact the Benefits
Department of Scott's Liquid Gold - Inc.
86
BENEFIT PLAN ADOPTION
Sponsor: Scott's Liquid Gold - Inc. and Affiliated Companies
Plan Document: Self-funded Medical
Summary Plan
Description: Medical, Dental, and Life
Replacement: This Plan replaces the prior plan dated 10/01/94, as
amended, which is hereby terminated.
Takeover Provision: This Plan will not cover expenses which are incurred and
payable under the 10/01/94 Plan. These expenses are payable under the terms
and conditions of that Plan.
Deductibles, coverage levels, maximum benefits and time spent in
satisfying pre-existing condition terms and waiting periods are
hereby grandfathered into this Plan for persons covered by the 10/01/94
plan as amended, as of 1/1/99.
Covered persons who are hospitalized on 1/1/99 will be covered
pursuant to the terms of this Plan for all charges incurred 1/1/99 and
after, provided the prior plan provisions do not contain an Extension of
Benefits Clause.
Legal Compliance: This Plan is intended to comply with all applicable federal
laws and findings of their regulatory authorities and by this provision is
automatically amended to be in minimal compliance as necessary.
Claims Filing Deadline: If, due to provider error or administrative delay,
claims are not filed by the Plan's claim filing deadline, the Plan Administrator
may, at his sole dis-cretion and without setting any precedent, accept and
process such claims as covered by the Plan, provided such claims are submitted
no later than 12 months after the end of the calendar year in which
services are provided.
Effective Date: January 1, 1999
Signature:
Title:
Date:
Scott's Liquid Gold - Inc.
Amendment #1 - 99
Effective June 1, 1999, Scott's Liquid Gold & Affiliated Companies Employee
Benefit Health and Welfare Plan is amended as follows:
Page 22 currently:
12. Birth control pills, birth control injections, birth control devices, and
birth control implants. Removal of Norplant or a similar birth control implant
is not covered unless it is medically necessary to remove it due to a medical
complication involving the implant. All eligible charges for implanting
Norplant are prorated into five (5) equal portions. Each year over the five (5)
year period, one (1) portion (20% of the total charges) is payable, provided the
person remains covered under this Plan.
IS AMENDED TO:
12. Birth control pills, birth control injections, prescription birth control
devices, and birth control implants. Removal of a birth control implant or
device is not covered unless its removal is deemed prudent on the advice of the
treating physician.
Page 26, 1ST paragraph currently:
Benefits include charges for the fitting, adjusting, repair or maintenance of
such prosthetic or orthopedic appliances. Covered expenses are limited to the
initial placement of prosthetic or orthopedic appliances when required to
replace natural limbs or eyes lost while covered under this Plan.
IS AMENDED TO:
Benefits include charges for the fitting, adjusting, repair or maintenance of
such prosthetic or orthopedic appliances. Covered expenses are limited to the
initial placement of prosthetic or orthopedic appliances when required to
replace natural limbs or eyes.
Page 30, the following item is hereby DELETED:
1. The injury occurred on or after the covered person's effective date of
coverage.
Page 30, the following item is hereby DELETED:
2. Services must be performed within six (6) months after the accident, unless
it can be shown that it was not medically possible to provide treatment
within this period of time.
87
Page 91 currently:
3. Initial placement of a bridge, a partial or a full denture to replace one or
more teeth extracted while the person is covered by this Plan, including
adjustment during the six (6) months following the placement.
IS AMENDED TO:
4. Initial placement of a bridge, a partial or a full denture to replace one or
more teeth extracted, including adjustment during the six (6) months
following the placement.
Page 92 currently:
5. Replacement of a bridge or denture if the existing bridge or denture is less
than five (5) years old, unless the replacement is required to replace one
or more natural teeth extracted while the person is covered.
IS AMENDED TO:
6. Replacement of a bridge or denture if the existing bridge or denture is less
than five (5) years old, unless the replacement is required to replace one
or more natural teeth extracted.
REVIEWED AND ACCEPTED:
SCOTTS LIQUID GOLD - INC.
NAME
TITLE
DATE
Scott's Liquid Gold - Inc.
Amendment #2 - 99
Effective August 1, 1999, Scott's Liquid Gold & Affiliated Companies Employee
Benefit Health and Welfare Plan is amended to include the following:
Page 1 is amended to add the following immediately preceding "Calendar Year
Deductible":
PRESCRIPTION DRUG BENEFIT
The Prescription Drug Benefits are described later in this Plan. Prescription
Drugs obtained through Express Scripts are not subject to the deductible as
applied to the Medical portion of this Plan. Prescriptions obtained through non
participating providers will be subject to deductible and copayment provisions.
For information regarding the Prescription Drug Benefit, its deductibles and
coinsurance, please see that portion of the Plan.
The following is amended to be included in the Plan:
PRESCRIPTION DRUG BENEFIT
PHARMACY OPTION NETWORK
Co-payment, per Prescription
For name brands 20%
For Generic drugs 10%
(no minimum co-payment)
MAIL ORDER
Co-payment, per Prescription
For name brands or brand equivalent 20%
For Generic drugs 10%
(no minimum co-payment)
Participating pharmacies have contracted with the Plan to charge Plan
participants reduced fees for covered prescription drugs. Express Scripts is
the administrator of the Prescription Drug Plan. The telephone number for
Express Scripts is 1-800-955-1171.
The Prescription Drug Benefit does not have a deductible. The Co-Payment is
applied to each covered pharmacy drug charge. The Co-Payment is not a covered
charge under the Medical Plan. Any one prescription is limited to a 90 day
supply per prescription or refill.
If a drug is purchased from a non-participating provider, the participant will
pay for his/her prescription in full, and submit the paid receipt to Mountain
States Administration for reimbursement. Reimbursement will be subject to the
co-payment and deductible provisions as described in the Medical portion of the
Plan. 88
MAIL ORDER BENEFIT OPTION
A mail order option is also available under the Plan. If you wish to order by
mail, you need to obtain an order form from the Benefits Department, complete
it, and mail the form together with the physician's original (not copy)
prescription and your co-payment.
COVERED PHARMACY EXPENSES
* Only drugs approved by the FDA are approved by this Plan.
* Up to a 90-day supply for maintenance medications (those that are taken for
a long time, such as drugs sometimes prescribed for heart disease, high blood
pressure, asthma, etc.) whether obtained at a pharmacy or through mail order.
* Federal legend drugs that bear the legend "Caution: Federal law prohibits
dispensing without a prescription", except as noted.
* Insulin and insulin needles/syringes on prescription, glucose testing
strips, ketone testing strips and tablets, diabetic lancets and glucose
monitors.
* Prescriptions for skin care products to treat acne, for individuals through
the age of 25.
* Compounded medication of which at least one ingredient is a prescription
legend drug.
* Drugs prescribed in connection with weight loss.
* Growth hormones with prior approval.
* Contraceptive drugs.
* Imitrex (1 kit per prescription), glucagon (not to exceed 1 vial per
prescription) and bee sting kits (2 per prescription).
* Prescription vitamins and minerals, including Pre-natal vitamins;
prescription required.
* FDA approved medication or supplies used for the treatment of sexual
dysfunction. (Viagra only)
* Physician recommended smoking cessation products - limit of $200 maximum
per year.
PHARMACY EXPENSES NOT COVERED
* Minoxidil (Rogaine) for the treatment of alopecia.
* Non-legend drugs other than insulin.
* Prescriptions for skin care products to treat acne, for individuals 26
years of age or older (without prior approval).
* Sales tax.
* Therapeutic devices or appliances, including support garments and other non
medical substances.
89
* Experimental drugs, except as approved by a physician for the treatment of
a life-threatening medical condition.
* Replacement of lost or stolen prescriptions.
* Infertility drugs with no other approved indications.
* Vitamins, except pre-natal vitamins available only by prescription, and any
other non-prescription supplements.
* Charges for the administration or injection of any drug.
* Prescriptions which you or your eligible dependents are entitled to receive
without charge from any Workers' Compensation laws.
* Medication which is to be taken by or administered to a covered person, in
whole or in part, while he or she is a patient in a licensed Hospital, nursing
home or similar institution which operates on its premises, a facility for
dispensing pharmaceuticals. (Such expenses are covered under the Medical
portion of the Plan).
* Drugs, medicines or supplies that do not require a Physician's
prescription, even if administered or prescribed by a Physician. This shall not
apply in cases where such drugs, medicines, or supplies are the only available
source of nutrients for the covered person.
* Medications, drugs or hormones to stimulate growth unless there is a
laboratory confirmed diagnosis of growth hormone deficiency.
* Drugs with cosmetic indications.
* Newly approved drugs are not automatically covered, and may require Plan
approval.
Page 46, item #55 (GENERAL PLAN EXCLUSIONS AND LIMITATIONS) currently:
55. Any services, care or treatment for transsexualism, gender dysphoria,
sexual reassignment or change, sexual dysfunction or inadequacy procedures,
including drugs, medication, implants, hormone therapy, surgery, medical or
psychiatric care or treatment.
Is amended to:
55. Any services, care or treatment for transsexualism, gender dysphoria,
sexual reassignment or change procedures, including drugs, medication, implants,
hormone therapy, surgery, medical or psychiatric care or treatment.
Page 46, item #59 (GENERAL PLAN EXCLUSIONS AND LIMITATIONS) currently:
59. Vitamins, minerals, nutritional supplements, appetite suppressants, dietary
supplements, and formulas whether or not prescribed by a physician.
90
Is amended to:
59. Vitamins, minerals, nutritional supplements, appetite suppressants, dietary
supplements, and formulas whether or not prescribed by a physician. Please see
the Prescription Drug Benefit portion of the Plan for certain covered
allowances.
REVIEWED AND ACCEPTED:
SCOTTS LIQUID GOLD - INC.
SIGNATURE
TITLE
DATE
91
EXHIBIT NO. 10.3
2000
KEY EXECUTIVE INCENTIVE BONUS PLAN
SCOTT'S LIQUID GOLD-INC.
Purpose of the Plan
The purpose of the Key Executive Incentive Bonus Plan (the "Plan") is to
provide incentive to the Company's key executives to maximize corporate earnings
for 2000 and to reward such executives based upon performance.
Structure of the Plan
This Plan is constructed to reserve exclusively to the shareholders the
first $1 million in pre-tax earnings. Thereafter, for each $1 million in
additional pre-tax earnings, a bonus of $100,000 will be paid as incentive
bonus.
This Plan is also constructed so as to encourage Management to expend every
effort possible to increase pre-tax earnings in excess of $1 million. The more
pre-tax profit the Company makes, the greater the bonus and the greater the
return to the Company's shareholders. Further, by not capping bonuses to be
paid under this Plan, the Board of Directors believes that the incentives to the
Company's executives to make larger and larger profits will not be limited.
Plan Provisions
1. For 2000, a bonus pool equal to 10% of pre-tax earnings in excess of $1
million will be set aside for distribution to the Company's key executives.
2. Partial distributions of the bonus pool may be made in December of 1999,
but the final distribution is only to be made after the close of the year, based
upon audited pre-tax profits, during the quarter following the close of the
fiscal year.
3. Bonuses, if any, for 2000, will be divided among the Company's four
executive officers as follows: President, 35%; Executive Vice President and
Treasurer, 25% each; Vice President - Marketing, 15%.
4. For purposes of this Plan, net pre-tax earnings and pre-tax profits shall
be determined without the deduction or addition of gains or losses from
infrequent or unusual events or transactions or from extraordinary items. The
exclusion of any such event, transaction or item shall be determined by action
of the Compensation Committee of the Board of Directors of the Company after
reviewing the proposed or final statements of income of the Company for the
relevant period and reviewing the accounting treatment of any such event,
transaction or item by the Company's independent accountants.
EXHIBIT NO. 10.5
SCOTT'S LIQUID GOLD-INC.
EMPLOYEE STOCK OWNERSHIP PLAN
AND
TRUST AGREEMENT
TABLE OF CONTENTS
ARTICLE 1
DEFINITIONS
1.1 Account 1
1.2 Anniversary Date 1
1.3 Beneficiary 1
1.4 Break in Service 1
1.5 Code 1
1.6 Committee 1
1.7 Compensation 1
1.8 Defined Benefit Plan 2
1.9 Defined Contribution Plan 2
1.10 Disability 3
1.11 Effective Date 3
1.12 Employee 3
1.13 Employer 3
1.14 Employment Commencement Date 3
1.15 ERISA 3
1.16 Highly Compensated Employee 3
1.17 Hours of Service 5
1.18 Key Employee 6
1.19 Limitation Year 6
1.20 Non-Key Employee 6
1.21 Normal Retirement Date 6
1.22 Participant 7
1.23 Participating Employer 7
1.24 Plan 7
1.25 Plan Entry Date 7
1.26 Plan Sponsor 7
1.27 Plan Year 7
1.28 Reemployment Commencement Date 7
1.29 Related Group 7
1.30 Required Aggregation Group 7
1.31 Service 7
1.32 Stock 7
1.33 Top Heavy Plan 7
1.34 Trust 8
1.35 Trustee 8
1.36 Trust Fund 8
1.37 Valuation Date 9
1.38 Year of Service - Participation 9
1.39 Year of Service - Vesting 9
ARTICLE 2
ELIGIBILITY AND PARTICIPATION
2.1 Eligibility 10
2.2 Years of Service - Participation 10
2.3 Participation Upon Reemployment 10
2.4 Change in Employee Status 10
ARTICLE 3
CONTRIBUTIONS
3.1 Amount of Contribution 12
3.2 Carry Over Contributions 12
3.3 Minimum Employer Contribution 12
3.4 Return of Employer Contributions 13
3.5 Participant Contributions 13
ARTICLE 4
ALLOCATIONS TO ACCOUNTS
4.1 Participant's Account 14
4.2 Allocation of Contributions and Forfeitures 14
4.3 Allocation of Minimum Contribution 14
4.4 Limitations on Allocations to Participants' Accounts 14
4.5 Code 415 Definitions 16
4.6 Allocation of Earnings, Losses and
Changes in Fair Market Value
of the Net Assets of the Trust Fund 19
4.7 Accounting 19
4.8 Methods of Valuation 19
4.9 Stock Dividends, Splits, Rights, Warrants, Options and Other
Reorganizations 20
ARTICLE 5
VESTING OF PARTICIPANT'S ACCOUNT
5.1 Vesting 21
5.2 Vesting Schedule 21
5.3 Full Vesting Upon Termination or Partial
Termination of Plan or
Upon Complete Discontinuance of Contributions 21
5.4 Service Included in Determination of Vested Accounts 22
5.5 Break in Service - Vesting 22
5.6 Forfeiture Occurs 22
5.7 Amendment to Vesting Schedule 22
5.8 Special Accounting After Distribution to
Reemployed Participants 23
ARTICLE 6
DISTRIBUTIONS
6.1 Distributions Not Exceeding $3,500 24
6.2 Distributions Exceeding $3,500 24
6.3 Distributions on Account of Attaining
Age 70 and one/half 25
6.4 Distributions Under Domestic Relations Order 26
6.5 Diversification Distributions 27
6.6 Distribution Methods, Consents and Election 28
6.7 Annuity Distributions to Participants
and Surviving Spouses 29
6.8 Destination of Beneficiary 29
6.9 Direct Rollover/Transfer Provisions 30
ARTICLE 7
EMPLOYER STOCK
7.1 Registration of Distributed Shares of Employer Stock 32
7.2 Put Option 32
7.3 Right of First Refusal 33
7.4 Sale of Stock 33
7.5 Notice 33
7.6 Legend 33
ARTICLE 8
ADMINISTRATION
8.1 Appointments of Committee 34
8.2 Organization and Operation of Committee 34
8.3 Information to be Made Available to Committee 34
8.4 Resignation and Removal of Committee Member;
Appointment of Successors 35
8.5 Duties and Powers of Committee 35
8.6 Advice to Designated Fiduciaries 38
8.7 Majority Control 38
ARTICLE 9
POWERS AND DUTIES OF THE TRUSTEE
9.1 Establishment and Acceptance of Trust 39
9.2 Investments of Trust Funds 39
9.3 Powers of Trustee 39
9.4 Diversification and Prudence Requirements 41
9.5 Payment of Compensation, Expenses and Taxes 41
9.6 Appointment, Resignation, Removal and
Substitution of Trustee 41
9.7 Appointment of Trustee--Acceptance In Writing 42
9.8 Receipt of Contributions 42
9.9 Returns and Reports 42
ARTICLE 10
CONTINUANCE, TERMINATION AND
AMENDMENT OF PLAN AND TRUST
10.1 Termination of Plan 43
10.2 Termination of Trust 43
10.3 Continuance of Plan and Trust by Successor Business 43
10.4 Merger, Consolidation or Transfer of Assets or
Liabilities of the Plan 43
10.5 Distribution of Trust Fund on Termination of Trust 44
10.6 Suspension of Contributions 44
10.7 Amendments to Plan and Trust 44
ARTICLE 11
RELATED GROUP
11.1 Adoption of the Plan 45
11.2 Withdrawal From Plan 45
11.3 Termination of Participation by the Plan Sponsor 45
ARTICLE 12
MISCELLANEOUS
12.1 Participant's Rights 47
12.2 Employer's Obligations 47
12.3 Benefits to be Provided Solely from the Trust Fund 47
12.4 Receipt of Benefits by Fiduciaries 47
12.5 Service by Fiduciaries and Disqualified Persons 47
12.6 Assignment or Alienation 47
12.7 Delegation of Authority by Employer 48
12.8 Notices from Participants to be Filed with Committee 48
12.9 Construction of Agreement 48
12.10Titles 48
12.11Severability 48
12.12Counterparts 48
12.13Plan for Exclusive Benefit of Participants;
Reversion Prohibited 48
12.14Gender, Singular and Plural 49
SCOTT'S LIQUID GOLD-INC.
EMPLOYEE STOCK OWNERSHIP PLAN
AND TRUST AGREEMENT
This Plan is designed to qualify as a stock bonus plan for the primary
purpose of enabling Employees to obtain a proprietary interest in the Employer
by the acquisition of Stock. The Plan is designed to invest primarily in Stock.
The Plan and Trust are created for the exclusive benefit of Participants and
Beneficiaries. The Plan is intended to conform to and qualify under Code 401
and 501.
The Employer adopts this Plan as a restated Plan in substitution for, and
in amendment of, the existing Plan. The provisions of this Plan, as a restated
Plan, shall apply solely to an Employee who performs one Hour of Service for the
Employer on or after the restated Effective Date of the Employer's Plan. If an
earlier effective date for a provision in this restated Plan applies, the
provision shall be effective as of the earlier effective date notwithstanding
the later general Effective Date of the restated Plan.
1
ARTICLE 1
DEFINITIONS
1.1 Account shall mean the separate account or one of the separate accounts
which the Trustee shall maintain for a Participant under the Plan.
1.2 Anniversary Date shall mean the last day of each Plan Year.
1.3 Beneficiary shall mean a person designated by a Participant who is or may
become entitled to a benefit under the Plan. A Beneficiary who becomes entitled
to a benefit under the Plan shall remain a Beneficiary under the Plan until the
Trustee has fully distributed the Participant's benefit to such Beneficiary.
1.4 Break in Service shall have the meaning assigned to it by Section 5.5.
1.5 Code means the Internal Revenue Code of 1986, as amended.
1.6 Committee shall mean the committee appointed pursuant to Article 8.
1.7 Compensation shall mean, for Plan Years beginning on or after January 1,
1994, the Employee's earned income and wages within the meaning of Code
3401(a) and all other payments of remuneration to the Employee by the Employer
(in the course of the Employer's trade or business) for which the Employer is
required to furnish the Employee a written statement under Code 6041(d),
6051(a)(3) and 6052, determined without regard to any rules under Code 3401(a)
that limit the remuneration included in wages based on the nature or location of
the employment or the services performed. Compensation shall include Employer
contributions which are not includable in the gross income of the Employee under
Code 125, 402(a)(8), 402(h), or 403(b) for purposes of Code 401(m),
401(k), 401(a)(4), and 401(1). For purposes of the Key Employee determination
and the Highly Compensated Employee determination, the Plan Administrator shall
apply the Compensation definition by including Employer contributions which are
not includable in the gross income of the Employee under Code 125, 402(a)(8),
402(h), or 403(b) and by disregarding the Code 401(a)(17) limitation. For
purposes of the Code 415 limitations, the Plan Administrator shall apply the
Compensation definition by excluding Employer contributions which are not
includable in the gross income of the Employee under Code 125, 402(a)(8),
402(h), or 403(b).
For Plan Years beginning before January 1, 1994, Compensation shall mean
the total amount of remuneration paid by the Employer to a Participant during a
Plan Year that would be subject to tax under Code 3101(a), without reference
to the limitations imposed by Code 3121(a)(1). However, such term shall
exclude director's fees, travel allowances, expense allowances, office
allowances, relinquished vacation pay, unused sick pay, insurance premiums,
pension and retirement benefits, other allowances, and all contributions by the
Employer to this Plan, to any other tax qualified plan or to any health,
accident, or welfare fund or plan, or similar benefits. For purposes of a
contribution or an allocation under the Plan based on Compensation, Compensation
shall only include amounts actually paid to an Employee during the period he or
she is a Participant in the Plan.
Compensation shall not include amounts in excess of $200,000 (or such
larger amount as the Commissioner of Internal Revenue may prescribe) and
effective for Plan Years beginning after December 31, 1993, Compensation shall
not exceed the $150,000 limitation. The $150,000 limitation is the $150,000
limitation under Code 401 (a)(17), as adjusted by the Commissioner for
increases in the cost of living in accordance with Code 401(a)(17). If a
determination period consists of fewer than 12 months, the $150,000 limitation
will be multiplied by a fraction, the numerator of which is the number of months
in the determination period, and the denominator of which is 12. In determining
the Compensation of a Participant for purposes of the $200,000 limitation or the
$150,000 limitation, the Committee shall increase a Participant's Compensation
by the Compensation of the Participant's spouse and any lineal descendants of
the Participant who have not attained age 19 before the close of the Plan Year
if the Participant is a more than 5% owner of the Employer or a Highly
Compensated Employee in the group of the top 10 Employees ranked by
Compensation. If the application of the immediately preceding sentence causes
the $200,000 limitation or the $150,000 limitation to be exceeded, then the
$200,000 limitation or the $150,000 limitation shall be prorated among the
family members in proportion to each family member's Compensation as determined
under this Section prior to the application of the $200,000 limitation or the
$150,000 limitation.
1.8 Defined Benefit Plan shall have the meaning assigned to it by Section 4.5.
1.9 Defined Contribution Plan shall have the meaning assigned to it by Section
4.5.
1.10 Disability shall mean a disability which permanently renders a Participant
unable to perform satisfactorily the usual duties of his or her employment with
the Employer, as determined by a physician selected by the Committee, and which
results in his or her termination of employment with the Employer.
1.11 Effective Date of the Plan shall mean January 1, 1989. The Employer is
adopting this Plan in substitution for and as an amendment of an existing plan,
the original plan being adopted on October 3, 1978.
1.12 Employee shall mean any individual employed by the Employer; however,
Employee shall not include leased employees within the meaning of Code
414(n)(2), individuals classified by the Employer as independent contractors,
and self-employed persons.
1.13 Employer shall mean Scott's Liquid Gold-Inc. and any member of the Related
Group which adopts the Plan and Trust with the consent of Scott's Liquid
Gold-Inc.
1.14 Employment Commencement Date shall mean the date on which an employee first
performs an Hour of Service for the Employer.
1.15 ERISA shall mean the Employee Retirement Income Security Act of 1974, as
amended.
1.16 Highly Compensated Employee shall mean any Employee who performs service
for the Employer during the Plan Year who:
(1) owned more than 5% of the Employer;
(2) received Compensation from the Employer in excess of $75,000 (as adjusted
pursuant to Code 414(q)(1)) and is one of the 100 Employees who received the
most Compensation from the Employer during the Plan Year;
(3) received Compensation from the Employer in excess of $50,000 (as adjusted
pursuant to Code 414(q)(1)), was a member of the top-paid group for the Plan
Year, and is one of the 100 Employees who received the most Compensation from
the Employer during the Plan Year; or
(4) was an officer of the Employer, received Compensation from the Employer
that was greater than 50% of the dollar limitation in effect under Code
415(b)(1)(A), and is one of the 100 Employees who received the most
Compensation from the Employer during the Plan Year.
Highly Compensated Employee also shall mean any Employee who performs
Service for the Employer during the preceding Plan Year (or 12-month period
preceding the Plan Year) who:
(1) owned more than 5% of the Employer;
(2) received Compensation from the Employer in excess of $75,000 (as adjusted
pursuant to Code 414(q)(1));
(3) received Compensation from the Employer in excess of $50,000 (as adjusted
pursuant to Code 414(q)(1)) and was a member of the top-paid group for such
Plan Year; or
(4) was an officer of the Employer and received Compensation from the Employer
that was greater than 50% of the dollar limitation in effect under Code
415(b)(1)(A).
An Employee is a member of the top-paid group for any Plan Year if the
Employee is in the group consisting of the top 20% of the Employees when ranked
on the basis of Compensation paid during the Plan Year.
If no officer received Compensation from the Employer that was greater than
50% of the dollar limitation in effect under Code 415(b)(1)(A) for the Plan
Year or the preceding 12-month period, the Committee shall treat the highest
paid officer as a Highly Compensated Employee. The number of officers taken into
account shall not exceed the greater of three or 10% of the total number of
Employees (after application of the Code 414(q) exclusions), but no more than
50 officers.
Highly Compensated Employee shall also mean a highly compensated former
Employee. A highly compensated former Employee includes any Employee who
separated or was deemed to have separated from Service prior to the Plan Year,
performs no Service for the Employer during the Plan Year, and was a Highly
Compensated Employee for either the Plan Year in which he or she separated from
Service or any Plan Year ending on or after the Employee's 55th birthday.
If the spouse, lineal ascendant, lineal descendant, or the spouse of a
lineal ascendant or descendent of a more than 5% owner (who is either an
Employee or a former Employee) or one of the 10 most Highly Compensated
Employees (ranked on the basis of Compensation paid during a Plan Year) is an
Employee, the Committee shall aggregate the Highly Compensated Employee and the
Highly Compensated Employee's family members treating them as a single Employee
receiving Compensation and Plan contributions equal to the sum of the
Compensation and Plan contributions for all such family members.
The Committee shall administer the requirements of this Section in
accordance with Code 414(q) and the Treasury regulations thereunder.
1.17 Hours of Service shall mean:
(a) Each hour for which the Employer, either directly or indirectly, pays an
Employee, or for which the Employee is entitled to payment, for the performance
of duties during the Plan Year. The Committee shall credit Hours of Service
under this paragraph (a) to the Employee for the Plan Year in which the Employee
performs the duties, irrespective of when paid.
(b) Each hour for which the Employer, either directly or indirectly, pays an
Employee, or for which the Employee is entitled to payment (irrespective of
whether the employment relationship is terminated), for reasons other than for
the performance of duties during a Plan Year, such as leave of absence,
vacation, holiday, sick leave, illness, incapacity (including Disability),
layoff, jury duty, or military duty. The Committee shall not credit more than
501 Hours of Service under this paragraph (b) to an Employee on account of any
single continuous period during which the Employee does not perform any duties
(whether or not such period occurs during a single Plan Year). The Committee
shall credit Hours of Service under this paragraph (b) in accordance with the
rules of paragraphs (b) and (c) of Labor Reg. 2530.200b-2, which is
incorporated herein by this reference.
(c) Each hour for back pay, irrespective of mitigation of damages, to which the
Employer has agreed or for which the Employee has received an award. The
Committee shall credit Hours of Service under this paragraph (c) to the Employee
for the Plan Years to which the award or the agreement pertains rather than for
the Plan Year in which the award, agreement, or payment is made.
The Committee shall not credit an Hour of Service under more than one of
the above paragraphs. The Committee shall credit Hours of Service the Employee
completes for members of any Related Group and shall credit Hours of Service the
Employee completes as a leased employee within the meaning of Code 414(n)(2).
If the Committee is to credit Hours of Service to an Employee for the 12 month
period beginning with the Employee's Employment Commencement Date or with an
anniversary of such date, then that 12 month period shall be substituted for the
term "Plan Year" wherever the term "Plan Year" appears in this Section.
Solely for purposes of determining whether the Employee incurs a Break in
Service under any provision of this Plan, the Committee shall credit Hours of
Service during an Employee's unpaid absence due to maternity or paternity leave
on the basis of the number of Hours of Service the Employee would receive if the
Employee were paid during the absence or, if the Committee cannot determine the
number of Hours of Service the Employee would receive, on the basis of eight
hours per day during the absence. The Committee shall consider an Employee on
maternity or paternity leave if the Employee's absence is due to the Employee's
pregnancy, the birth of the Employee's child, the placement with the Employee of
an adopted child, or the care of the Employee's child immediately following the
child's birth or placement. The Committee shall credit only the number of Hours
of Service (up to 501 Hours of Service) necessary to prevent the Employee's
Break in Service. The Committee shall credit all Hours of Service described in
this paragraph to the Plan Year in which the absence begins or, if the Employee
does not need these Hours of Service to prevent a Break in Service in the Plan
Year in which the absence begins, the Committee shall credit these Hours of
Service to the immediately following Plan Year.
1.18 Key Employee shall mean any Employee, former Employee, or the Beneficiary
of an Employee or former Employee, if the Employee or former Employee at any
time during the Plan Year which includes the Anniversary Date or any of the four
preceding Plan Years:
(a) is an officer of the Employer earning Compensation greater than 50% of the
limitation under Code 415(b)(1)(A) in effect for such Plan Years. No more than
50 Employees, or if lesser, the greater of three Employees or 10% of the
Employees shall be treated as officers;
(b) is one of the Employees earning Compensation of more than the dollar
limitation under Code 415(c)(1)(A) and owns one of the 10 largest interests in
the Employer;
(c) owns more than 5% of the Employer; or
(d) owns more than 1% of the Employer and earns Compensation in excess of
$150,000.
The constructive ownership rules of Code 318 (or the principles of that
section, in the case of an unincorporated Employer) shall apply to determine
ownership in the Employer. The Committee shall determine who is a Key Employee
in accordance with Code 416(i)(1) and the Treasury regulations thereunder.
1.19 Limitation Year shall mean the Plan Year.
1.20 Non-Key Employee shall mean a Participant who is not a Key Employee and who
is employed by the Employer on the Anniversary Date of the Plan Year, regardless
of whether the Participant satisfies the requirements of Section 4.2 during the
Plan Year.
1.21 Normal Retirement Date shall mean the later of (i) the date on which a
Participant attains age 65, or (ii) the 5th anniversary of the first Plan Year
in which the Participant entered the Plan.
1.22 Participant shall mean any Employee who has entered the Plan on a Plan
Entry Date.
1.23 Participating Employer shall mean any member of the Related Group which has
adopted this Plan.
1.24 Plan shall mean the Scott's Liquid Gold-Inc. Employee Stock Ownership Plan.
1.25 Plan Entry Date shall mean January 1 and July 1 of each Plan Year.
1.26 Plan Sponsor shall mean Scott's Liquid Gold-Inc.
1.27 Plan Year shall mean the 12 month period ending each December 31.
1.28 Reemployment Commencement Date shall mean the first day after a Break in
Service on which an Employee performs an Hour of Service for the Employer.
1.29 Related Group shall mean a controlled group of corporations (as defined in
Code 414(b)), trades or businesses (whether or not incorporated) which are
under common control (as defined in Code 414(c)), an affiliated service group
(as defined in Code 414(m)), and any other entity required to be aggregated
with the Employer pursuant to Code 414(o) and the Treasury regulations
thereunder. If the Employer is a member of a Related Group, the Plan shall treat
all Employees of the members of such Related Group as if employed by a single
employer. Solely for purposes of applying the Code 415 limitations of Article
4, the Committee shall determine any Related Group by modifying Code 414(b)
and (c) in accordance with Code 415(h).
1.30 Required Aggregation Group shall mean (a) each qualified plan of the
Employer in which at least one Key Employee participates at any time during the
five Plan Year period ending on the Anniversary Date (regardless of whether the
Plan has terminated); and (b) any other qualified plan of the Employer which
enables a plan described in (a) to meet the requirements of Code 401(a)(4) or
Code 410.
1.31 Service shall mean any period of time the Employee is in the employ of the
Employer, including any period the Employee is on leave of absence authorized by
the Employer under a uniform, nondiscriminatory policy applicable to all
Employees.
1.32 Stock shall mean the common stock of Scott's Liquid Gold-Inc.
1.33 Top Heavy Plan shall mean that the top heavy ratio for the Plan as of the
Anniversary Date exceeds 60% for a Plan Year if this Plan is the only qualified
plan maintained by the Employer. The top heavy ratio is a fraction. The
numerator of the fraction is the sum of the present value of Accounts of all Key
Employees as of the Anniversary Date (including any contribution not made as of
the Anniversary Date but which Code 416 and the Treasury regulations
thereunder require the Committee to take into account), and distributions made
within the five Plan Year period immediately preceding the Anniversary Date. The
denominator of the fraction is a similar sum determined for all Employees. The
Committee shall calculate the top heavy ratio by disregarding the Accounts
attributable to voluntary deductible Employee contributions, if any, and by
disregarding the Accounts of any Non-Key Employee who was formerly a Key
Employee. The Committee shall calculate the top heavy ratio by disregarding the
Accounts (including distributions, if any, of the Accounts) of an individual who
has not received credit for at least one Hour of Service with the Employer
during the five Plan Year period ending on the Anniversary Date. The Committee
shall calculate the top heavy ratio, including the extent to which it shall take
into account distributions, rollovers, and transfers, in accordance with Code
416 and the Treasury regulations thereunder.
If the Employer maintains other qualified plans, this Plan is a Top Heavy
Plan only if it is part of a Required Aggregation Group, and the top heavy ratio
for both the Required Aggregation Group and the Permissive Aggregation Group
exceeds 60%. The Committee shall calculate the top heavy ratio in the same
manner as required by the first paragraph of this Section, taking into account
all plans within the Required Aggregation Group and the Permissive Aggregation
Group. To the extent the Committee must take into account distributions to an
Employee, the Committee shall include distributions from a terminated plan which
would have been part of the Required Aggregation Group if it were in existence
on the Anniversary Date. The Committee shell calculate the present value of
accrued benefits and any other amounts necessary for this calculation under
Defined Benefit Plans included within the group in accordance with the terms of
those plans, Code 416, and the Treasury regulations thereunder. The accrued
benefit under a Defined Benefit Plan of a Participant other than a Key Employee
shall be determined under the method, if any, that uniformly applies for accrual
purposes under all Defined Benefit Plans maintained by the Employer, or, if
there is no uniform method, as if the Employee's benefit accrued not more
rapidly than the slowest accrual rate permitted under the fractional rule of
accrual of Code 411(b)(1)(C). If an aggregated plan does not have a valuation
date coinciding with the Anniversary Date, the Committee shall value the
Accounts in the aggregated plan as of the most recent valuation date falling
within the 12 month period ending on the Anniversary Date, except as Code 416
and the Treasury regulations thereunder require for the first and second plan
year of a Defined Benefit Plan. The Committee shall calculate the top heavy
ratio with reference to the Anniversary Dates that fall within the same calendar
year.
1.34 Trust shall mean the separate trust created by the Employer under the Plan
in Article 9.
1.35 Trustee shall mean the person or persons appointed by the Plan Sponsor as
Trustee of the Trust Fund established by this Plan and Trust and any duly
appointed or qualified successor trustee.
1.36 Trust Fund shall mean all property of every kind held or acquired by the
Trustee under the Plan.
1.37 Valuation Date shall mean each date on which the Trustee values the Trust
Fund.
1.38 Year of Service - Participation shall have the meaning described in Section
2.2.
1.39 Year of Service - Vesting shall mean each Plan Year in which an Employee
completes not less than 1,000 Hours of Service.
***End of Article 1***
2
ARTICLE 2
ELIGIBILITY AND PARTICIPATION
2.1 Eligibility. Each Employee who was a Participant in the Plan on the day
before the Effective Date shall continue as a Participant in the Plan. For
purposes of eligibility to participate, the Plan shall count all of an
Employee's Years of Service with the Employer and the Related Group. Unless the
Employee elects otherwise, each Employee shall become a Participant in the Plan
on the Plan Entry Date (if employed on that date) coincident with or immediately
following the later of the date on which the Employee completes one Year of
Service or attains age 21. An Employee shall be permitted to irrevocably elect
not to participate prior to or at the time the Employee has first met the
requirements of this Section or of any other plan of the Employer meeting the
requirements of Code 401. A Participant shall not be permitted to elect not to
participate. The Employee shall file the election in writing with the Committee
not later than 60 days prior to completion of the eligibility requirements of
any plan of the Employer meeting the requirements of Code 401. The Employer
shall not make a contribution under the Plan for the Employee making such an
election for any Plan Year.
2.2 Years of Service - Participation. For purposes of eligibility to
participate, Year of Service shall mean a 12 consecutive month period during
which the Employee completes not less than 1,000 Hours of Service, measuring the
beginning of the first 12 month period from the Employment Commencement Date,
and measuring succeeding 12 month periods from each anniversary of the first day
of the Plan Year which includes the first anniversary of the Employee's
Employment Commencement Date, regardless of whether the Employee is entitled to
be credited with 1,000 Hours of Service during the 12 consecutive month period
which commenced with the Employee's Employment Commencement Date. An Employee
who receiver credit for 1,000 Hours of Service during the 12 consecutive month
period which commenced with the Employee's Employment Commencement Date and
during the Plan Year which includes the first anniversary of the Employee's
Employment Commencement Date shall receive credit for two Years of Service for
purposes of eligibility to participate in the Plan.
2.3 Participation Upon Reemployment. A Participant whose employment terminates
shall reenter the Plan as a Participant on the Participant's Reemployment
Commencement Date. An Employee who satisfies the Plan's eligibility conditions
but who terminates employment prior to becoming a Participant shall become a
Participant on the later of the Plan Entry Date on which the Employee would have
entered the Plan had he or she not terminated employment or the Participant's
Reemployment Commencement Date. An Employee who terminates employment prior to
satisfying the Plan's eligibility conditions shall become a Participant in
accordance with the Plan's eligibility conditions of Section 2.1.
2.4 Change in Employee Status. If a Participant does not terminate employment,
but is not an Employee or ceases to be an Employee by reason of employment
within an employment classification, then during the period such Participant is
not an Employee, the Committee shall not allocate any Employer contributions or
forfeitures to the Participant's Accounts except to the extent the Participant
rendered services for the Employer as an Employee. However, during such period,
the Participant, without regard to employment classification, shall continue to
receive credit for vesting under Article 5 for each included Year of Service and
the Participant's Accounts shall continue to share fully in Trust Fund
allocations under Section 4.6. A Participant who is no longer an Employee will
participate immediately upon becoming an Employee. An Employee who is not an
Employee shall participate immediately upon becoming an Employee if the Employee
has satisfied the requirements of Section 2.1 other than being an Employee.
***End of Article 2***
3
ARTICLE 3
CONTRIBUTIONS
3.1 Amount of Contribution. Within the time permitted for the filing of the
Employer's federal income tax return for a Plan Year, including extensions
thereof, the Plan Sponsor shall contribute to the Trust an annual sum in cash or
in Stock as determined by the Employer. The Employer shall contribute to the
Trust for each Plan Year the amount required to enable the Trust to pay
principal and interest due during the Plan Year of the Trust's outstanding debt
obligations. In no event shall the amount of the Employer's contribution exceed
the maximum deductible contribution pursuant to Code 404 for the Plan Year in
which the contribution is being determined.
3.2 Carry Over Contributions. In any year ending before January 1, 1987, if the
Employer's contribution is less than 15% of all Participants' Compensation for
that year, then in the next succeeding year or years, the Employer may make an
additional contribution in an amount equal to the difference between the
contribution previously made in the year ending before January 1, 1987 and 15%
of all Participants' Compensation in such preceding year. In such succeeding
year, if the Employer does not make up such difference between the amount
contributed in the year ending before January 1, 1987 and 15% of all
Participants' Compensation in that year, then the Employer may do so in the
second succeeding year in the same manner, and in the next succeeding years
follow the second succeeding year until such contribution for the year ending
before January 1, 1987 has been made in full. The total amount of contributions,
including carryovers from pre-1987 years, that is deductible in any one taxable
year is limited to 25% of all Participants' Compensation during such year.
3.3 Minimum Employer Contribution. If this Plan is a Top Heavy Plan in any Plan
Year, the contribution for each Non-Key Employee shall be at least equal to a
minimum contribution. The Employer shall provide the top heavy minimum
contribution under this Plan.
If the contribution rate for the Key Employee with the highest contribution
rate is greater than or equal to 3%, the minimum contribution shall be 3% of
Compensation for each Non-Key Employee. If the contribution rate for the Key
Employee with the highest contribution rate is less than 3%, the minimum
contribution for each Non-Key Employee shall equal the highest contribution rate
for a Key Employee.
The contribution rate is the sum of Employer contributions (not including
Employer contributions to Social Security) and forfeitures allocated to the Key
Employee's Account for the Plan Year divided by the Key Employee's Compensation
for the Plan Year. To determine the contribution rate, the Committee shall treat
all qualified top heavy defined contribution plans maintained by the Employer as
a single plan. For Plan Years beginning after December 31, 1988, the Committee
shall not treat Elective Deferrals made to any plan pursuant to a Cash or
Deferred Arrangement as Employer contributions for any Non-Key Employee;
however, the Committee shall treat Elective Deferrals made to any plan pursuant
to a Cash or Deferred Arrangement as Employer contributions for all Key
Employees.
Notwithstanding the preceding provisions of this Section, if a Defined
Benefit Plan maintained by the Employer which benefits a Key Employee depends on
this Plan to satisfy the nondiscrimination rules of Code 401(a)(4) or the
coverage rules of Code 410 (or another plan benefiting the Key Employee so
depends on such Defined Benefit Plan), the minimum contribution for a Non-Key
Employee shall be 3% of the Non-Key Employee's Compensation regardless of the
highest contribution rate for any Key Employee.
If the contribution rate for the Plan Year with respect to a Non-Key
Employee is less than the minimum contribution, the Employer shall increase its
contribution for such Non-Key Employee to the extent necessary so that the
contribution rate for the Plan Year shall equal the minimum contribution. If
more than one entity maintains this Plan, each entity shall make the additional
contribution attributable to the Compensation it pays the Non-Key Employee,
unless the members enter into a separate written agreement allocating the
responsibility for the additional contribution in another manner.
3.4 Return of Employer Contributions. Except as provided in this Section, any
Employer contributions to the Trust shall be irrevocable and neither such
contributions nor any income therefrom shall be used for, nor diverted to,
purposes other than for the exclusive benefit of Participants or their
Beneficiaries under the Plan; however, upon written request from the Employer,
the Trustee shall return to the Employer the amount of the Employer's
contribution made by mistake of fact. Any contribution made by the Employer
because of a mistake of fact must be returned to the Employer within one year
after the date when the contribution was made. The Trustee shall not increase
the amount of the Employer contribution to be returned for any earnings
attributable to the contribution, but the Trustee shall decrease the Employer
contribution to be returned for any losses attributable to the contribution.
3.5 Participant Contributions. Participants shall not be required nor shall
they be permitted to make any contributions to the Trust nor shall the Trust
accept any rollover contributions from any Participant.
***End of Article 3***
4
ARTICLE 4
ALLOCATIONS TO ACCOUNTS
4.1 Participant's Account. The Committee shall establish and maintain an
Account in the name of each Participant to reflect the Participant's benefit
derived from amounts contributed by the Employer and net earnings (or losses) of
the Trust Fund. The Committee shall subtract all distributions made to a
Participant's or a Participant's Beneficiary from the Participant's Account when
the distribution is made. The Committee shall subtract all forfeitures when they
occur from the Participants' Accounts which incurred the forfeitures.
4.2 Allocation of Contributions and Forfeitures. The Committee, as of the
Anniversary Date of each Plan Year, shall allocate each Employer contribution
and forfeitures if any to the Account of each Participant of the Employer in the
same proportion that each such Participant's Compensation for the Plan Year
bears to the Compensation of all Participants of the Employer for the Plan Year.
A Participant who remains in the employ of the Employer after attaining the
Normal Retirement Date shall continue to participate in Employer contributions.
Forfeitures shall be allocated in the Plan Year in which the forfeiture occurs.
If more than one entity maintains the Plan, the Committee shall allocate all
Employer contributions and forfeitures to each Participant in the Plan in
accordance with this Article, without regard to which contributing Employer
employs the Participant. A Participant's Compensation includes Compensation from
all participating Employers, irrespective of which Employers are contributing to
the Plan.
A Participant shall share in the allocation of any Employer contribution
and forfeitures only if he or she has completed 1,000 Hours of Service during
such Plan Year. In addition, a Participant must be an Employee of the Employer
on the last day of the Plan Year in order to share in the contribution for such
Plan Year. However, a Participant shall share in Employer contributions and
forfeitures for the Plan Year in which the Participant retires, dies, or becomes
Disabled, regardless of the Hours of Service the Participant completes during
the Plan Year and regardless of whether he or she is an Employee of the Employer
on the last day of the Plan Year.
4.3 Allocation of Minimum Contribution. The Committee shall allocate any
additional contribution to the Account of the Non-Key Employee for whom the
Employer makes the contribution in accordance with Section 3.3.
4.4 Limitations on Allocations to Participants' Accounts. The amount of Annual
Additions which the Committee may allocate under this Plan on a Participant's
behalf for a Limitation Year may not exceed the Maximum Permissible Amount. If
the amount the Employer otherwise would contribute to the Participant's Accounts
would cause the Annual Additions for the Limitation Year to exceed the Maximum
Permissible Amount, the Employer shall reduce the amount of its contribution so
that the Annual Additions for the Limitation Year shall equal the Maximum
Permissible Amount. The Excess Amount will be deemed to consist of the Annual
Additions last allocated. The Committee shall determine the Excess Amount by
treating the Annual Additions attributable to a welfare benefit fund or an
individual medical account, if any, as allocated first, irrespective of the
actual allocation date.
Prior to determining the Participant's actual Compensation for the
Limitation Year, the Employer may determine the Maximum Permissible Amount for a
Participant on the basis of a reasonable estimation of the Participant's
Compensation for the Limitation Year, uniformly determined for all Participants
similarly situated. As soon as is administratively feasible after the end of the
Limitation Year, the Committee shall determine the Maximum Permissible Amount
for the Limitation Year based on the Participant's actual Compensation for the
Limitation Year.
Disposition of Excess Amount. If there is an Excess Amount with respect to
a Participant for a Limitation Year because of contributions based on estimated
Compensation or because of the allocation of forfeitures, the Committee shall
dispose of such Excess Amount as follows:
(a) If the Plan covers the Participant at the end of the Limitation Year, then
the Committee shall use the Excess Amount to reduce future Employer
contributions (including any allocation of forfeitures) under the Plan for the
next Limitation Year and for each succeeding Limitation Year, as is necessary,
for the Participant.
(b) If, after the application of paragraph (a) of this Section, as Excess
Amount still exists, and the Plan does not cover the Participant at the end of a
Limitation Year, then the Committee shall hold the Excess Amount unallocated in
a suspense account. The Committee shall apply the suspense account to reduce
Employer contributions for all remaining Participants in the next Limitation
Year, and in each succeeding Limitation Year if necessary. If a suspense account
is in existence at any time during a Limitation Year, all amounts in the
suspense account must be allocated to Participant's Accounts before any Employer
or Employee contributions may be made to the Plan for the Limitation Year.
(c) The Committee shall not distribute any Excess Amounts to Participants,
former Participants, or Beneficiaries.
If there is an Excess Amount with respect to a Participant for a Limitation
Year for any reason other than forfeitures or the estimation of Compensation,
the Committee shall dispose of such Excess Amount by reallocating the Excess
Amount to the remaining Participants who are eligible for an allocation of
Employer contributions for the Plan Year in which the Limitation Year ends. The
Committee shall make this reallocation on the basis of the allocation method
under the Plan as if the Participant whose Accounts otherwise would receive the
Excess Amount is not eligible for an allocation of Employer contributions.
More than One Plan. The Committee shall attribute the total Excess Amount
allocated as of the Anniversary Date to the Scott's Liquid Gold-Inc. 401(k)
Plan.
4.5 Code 415 Definitions. For purposes of this Article, the following terms
shall have the meaning described in the paragraphs below:
(a) Annual Additions shall mean the sum of the following amounts allocated on
behalf of a Participant for a Limitation Year, of (1) all Employer
contributions; (2) all forfeitures; and (3) all Employee contributions effective
for Plan Years beginning after December 31, 1986. Annual Additions shall also
include Excess Amounts reapplied to reduce Employer contributions under Section
4.4. Amounts allocated after March 31, 1984 to an individual medical account (as
defined in Code 415(l)(2)) and included as part of a pension and annuity plan
maintained by the Employer shall be Annual Additions. Furthermore, Annual
Additions shall include contributions paid or accrued after December 31, 1985
for taxable years ending after December 31, 1985 attributable to post-retirement
medical benefits allocated to the separate account of a key employee (as defined
in Code 419A(d)(3)) under a welfare benefit fund (as defined in Code 419(e))
maintained by the Employer, but only for purposes of the dollar limitation
applicable to the Maximum Permissible Amount.
Pursuant to Code 415(c)(6), if no more than one-third of the total
Employer contributions for the Plan Year which are deductible under
Code 404(a)(9) are allocated to the Accounts of Participants who are
Highly Compensated Employees during the Plan Year, then any Employer
contributions which are used by the Trust to pay interest on an exempt
loan, and any Stock purchased with an exempt loan which are allocated
as forfeitures, are not included as annual additions. The Employer
contributions must be used to pay such interest not later am the due
date including extensions, for filing the Employer's federal income
tax return for the Plan Year.
(b) Defined Benefit Plan shall mean a retirement plan which does not provide
for individual accounts for Employer contributions. The Committee shall treat
all Defined Benefit Plans (whether or not terminated) maintained by the Employer
as a single plan.
(c) Defined Benefit Plan Fraction shall mean the fraction described below:
Projected annual benefit of the Participant
under all Defined Benefit Plans of the Employer
The lesser of (1) 125% (subject to the 100%
Limitation described in paragraph (h)
of this Section) of the dollar
limitation in effect under Code 415(b)(1)(A)
for the Limitation Year, or (2) 140% of the
Participant's average Compensation for the
Participant's highest three consecutive Years of Service
To determine the denominator of this fraction, the Committee shall
make any adjustment required under Code 415(b) and shall determine a
Year of Service in accordance with Section 1.39. The "projected annual
benefit" is the annual retirement benefit (adjusted to an actuarially
equivalent straight life annuity if the plan expresses such benefit in
a form other than a straight life annuity or qualified joint and
survivor annuity) of the Participant under the terms of the Defined
Benefit Plan with the assumptions that the Participant continues
employment until the normal retirement age as stated in the Defined
Benefit Plan (or current age, if later), that the Participant's
Compensation continues at the same rate as in effect in the Limitation
Year under consideration, and that all other relevant factors used to
determine benefits under the Defined Benefit Plan remain constant as
of the current Limitation Year for all future Limitation Years.
Current Accrued Benefit. If the Participant accrued benefits in one or
more Defined Benefit Plans maintained by the Employer which were in
existence on May 5, 1986, the dollar limitation used in the
denominator of this fraction shall not be less than the Participant's
current accrued benefit. A Participant's current accrued benefit is
the sum of the annual benefits under such defined benefit plans which
the Participant had accrued as of the end of the 1986 Limitation Year
(the last Limitation Year beginning before January 1, 1987),
determined without regard to any change in the terms or conditions of
the Plan made after May 5, 1986 and without regard to any cost of
living adjustment occurring after May 5, 1986. This current accrued
benefit rule applies only if the Defined Benefit Plans individually
and in the aggregate satisfied the requirements of Code 415 as in
effect at the end of the 1986 Limitation Year.
(d) Defined Contribution Plan shall mean a retirement plan which provides for
an individual account for each Participant and for benefits based solely on the
amount contributed to the Participant's Account, and any income, expenses,
gains, losses, and forfeitures of Accounts of other Participants which the plan
may allocate to such Participant's Account. The Committee shall treat all
Defined Contribution Plans (whether or not terminated) maintained by the
Employer as a single plan. For purposes of the limitations of this Article, the
Committee shall treat employee contributions made to a Defined Benefit Plan
maintained by the Employer as a separate Defined Contribution Plan. The
Committee shall also treat as a Defined Contribution Plan an individual medical
account (as defined in Code 415(l)(2)) included as part of a Defined Benefit
Plan maintained by the Employer and, for taxable years ending after December 31,
1985, a welfare benefit fund under Code 419(e) maintained by the Employer to
the extent there are post-retirement medical benefits allocated to the separate
account of a key employee (as defined in Code 419A(d)(3)).
(e) Defined Contribution Plan Fraction shall mean the fraction described below:
The sum as of the close of the Limitation Year of the
Annual Additions to the Participant's Accounts under all
Defined Contribution Plans of the Employer
The sum of the lesser of the following amounts determined
for the Limitation Year and for each prior Year of Service
with the Employer: (1) 125% (subject to the 100%
Limitation in paragraph (h) of this
Section) of the dollar limitation in
effect under Code 415(c)(1)(A) for the Limitation Year
(determined without regard to the special dollar
limitations for employee stock ownership plans), or
(2) 35% of the Participant's Compensation
for the Limitation Year
For purposes of determining the Defined Contribution Plan fraction,
the Committee shall not recompute Annual Additions in Limitation Years
beginning prior to January 1, 1987 to treat all Employee contributions
as Annual Additions. If the Plan satisfied Code 415 for Limitation
Years beginning prior to January 1, 1987, the Committee shall
redetermine the Defined Contribution Plan Fraction and the Defined
Benefit Plan Fraction as of the end of the 1986 Limitation Year in
accordance with this paragraph. If the sum of the redetermined
fractions exceeds 1.0, the Committee shall subtract permanently from
the numerator of the Defined Contribution Plan Fraction an amount
equal to the product of (1) the excess of the sum of the fractions
over 1.0, times (2) the denominator of the Defined Contribution Plan
Fraction. In making the adjustment, the Committee shall disregard any
accrued benefit under the Defined Benefit Plan which is in excess of
the current accrued benefit (as determined in Section 4.5(c)). This
Plan continues any transitional rules applicable to the determination
of the Defined Contribution Plan Fraction under the Employer's Plan as
of the end of the 1986 Limitation Year.
(f) Excess Amount shall mean the excess of the Participant's Annual Additions
for the Limitation Year over the Maximum Permissible Amount.
(g) Maximum Permissible Amount shall mean the lesser of (1) $30,000 (or, if
greater, 25% of the defined benefit dollar limitation under Code
415(b)(1)(A)), or (2) 25% of the Participant's Compensation for the Limitation
Year. If there is a short Limitation Year because of a change in Limitation
Year, the Committee shall multiply the $30,000 (or adjusted) limitation by the
following fraction:
Number of months in the short Limitation Year
12
(h) 100% Limitation shall mean, if it applies, that the Committee shall
determine the denominator of the Defined Benefit Plan Fraction and the
denominator of the Defined Contribution Plan Fraction by substituting 100% for
125% each place 125% appears in the definition of Defined Benefit Plan Fraction
and Defined Contribution Plan Fraction under this Section. The 100% Limitation
applies during any Limitation Year this Plan is a Top Heavy Plan only if (1) the
Plan's top heavy ratio exceeds 90%, or (2) the Plan's top heavy ratio is greater
than 60%, and the Employer does not provide extra minimum benefits which satisfy
Code 416(h)(2).
4.6 Allocation of Earnings, Losses and Changes in Fair Market Value of the Net
Assets of the Trust Fund. Earnings and losses of the Trust Fund and changes in
the fair market value of the net assets of the Trust Fund (including dividends
other than dividends on Stock, interest and other income, expenses, losses, and
changes in the fair market value of Stock) shall be computed by the Trustee and
allocated to the Participants in the ratio which the total dollar value of the
Account (whether or not vested) of each Participant in the Trust Fund bears to
the aggregate dollar value of the Accounts of all Participants as of the last
Valuation Date. An Excess Amount or suspense account (as described in Section
4.4) shall not share in the allocation of net income, gain or loss described in
this Section.
When the Employer declares a cash dividend with respect to Stock, the
provisions of this paragraph shall apply. The Employer may, in its sole
discretion, pay the cash dividend with respect to Stock held by the Trust either
directly to Participants or to the Trustee. If paid to the Trustee, the Trustee
shall allocate the dividend to the Participant's Account. The dividend shall be
allocated among Participants in the ratio that the total dollar value of the
Participant's Account (whether or not vested) in the Trust Fund bears to the
aggregate dollar value of the Accounts of all Participants as of the last
Valuation Date.
4.7 Accounting. The Account for each Participant maintained by the Committee
shall indicate the dollar value of his or her current Account in the Trust Fund
as of the last previous Valuation Date. The Committee shall provide to each
Participant at least annually, a written statement setting forth the current
value of the Participant's Account.
4.8 Methods of Valuation. All assets of the Trust Fund shall be valued at fair
market value, which in no event shall be less than the market price for such
Stock as established by the average current bid and asked closing prices quoted
over the NASDAQ system or, absent a quotation on such system or any national or
regional stock exchange, then as determined by an independent appraisal by a
person who customarily makes such appraisals.
4.9 Stock Dividends, Splits, Rights, Warrants, Options and Other
Reorganizations. Any securities received by the Trustee as a stock split or
dividend or as a result of a reorganization or the recapitalization of the
Employer shall be allocated as of each Anniversary Date in the same manner as
the Stock to which it is attributable has been allocated. If any rights,
warrants, or options are issued on Stock held in the Trust, the Trustee may in
its sole discretion exercise them for the acquisition of additional Stock to the
extent that cash is then available. Any rights, warrants or options on Stock
that cannot be exercised for lack of cash may be sold by the Trustee and the
proceeds allocated as current income received on Stock.
***End of Article 4***
5
ARTICLE 5
VESTING OF PARTICIPANT'S ACCOUNT
5.1 Vesting. If any Participant reaches his or her Normal Retirement Date,
dies, or suffers Disability while an Employee, his or her entire Account shall
be 100% vested. Vested shall mean a Participant or Beneficiary has an
unconditional claim, legally enforceable against the Plan to the Participant's
Account.
5.2 Vesting Schedule. Upon separation from service for reasons other than
Retirement of the Normal Retirement Date, Disability, or death, the vested
percentage of a Participant's Account shall equal the Participant's Account
multiplied by the percentage corresponding to the Participant's Years of Service
with the Employer under the following vesting schedule, such vesting schedule to
be effective with respect to a Participant who earns one Hour of Service in a
Plan Year beginning after December 31, 1988.
Percentage of
Years of Service Account
Which is
Vested
Less than 5 0%
5 or more 100%
When the Committee determines this Plan is a Top Heavy Plan, the Committee
shall calculate a Participant's vesting percentage in accordance with the
following top heavy vesting schedule:
Percentage of
Years of Service Account
Which is
Vested
Less than 2 0%
2 but less than 3 20%
3 but less than 4 40%
4 but less than 5 60%
5 or more 100%
If in any subsequent Plan Year, the Plan ceases to be a Top Heavy Plan, the
Committee shall revert to the vesting schedule in effect before this Plan became
a Top Heavy Plan. Any such reversion shall be treated as a Plan amendment
pursuant to the terms of this Article.
5.3 Full Vesting Upon Termination or Partial Termination of Plan or Upon
Complete Discontinuance of Contributions. Upon the termination or partial
termination of this Plan or upon complete discontinuance of contributions, the
Accounts of all Participants as of the date of such termination, partial
termination, or complete discontinuance of contributions occurred, shall be
fully vested. The temporary suspension of Employer contributions shall not
constitute a termination or partial termination of this Plan and shall not
require full vesting.
5.4 Service Included in Determination of Vested Accounts. All Years of Service
with the Employer shall be included for the purpose of determining a
Participant's vested percentage, except the following service shall be excluded:
(a) Years of Service excluded by reason of a Break in Service under Section
5.5; and
(b) Years of Service with any of the subsidiaries of the Plan Sponsor prior to
the date the subsidiary became a member of the Related Group.
5.5 Break in Service - Vesting. For purposes of determining Years of Service
under this Article, a Participant incurs a Break in Service if during any Plan
Year the Participant does not complete more than 500 Hours of Service with the
Employer. Forfeiture Break in Service shall mean five consecutive Breaks in
Service.
For the sole purpose of determining the vested percentage of a
Participant's Account which accrued for the Participant's benefit prior to a
Forfeiture Break in Service, the Committee shall disregard any Year of Service
after the Participant first incurs a Forfeiture Break in Service. The Committee
shall exclude Plan Years prior to a Break in Service if the number of
consecutive Breaks in Service equals or exceeds the greater of five or the
aggregate number of the Years of Service prior to the Break provided the
Participant is 0% vested in his or her Accounts derived from Employer
contributions at the time the Participant has a Break in Service. The aggregate
number of Years of Service before a Break in Service does not include any Years
of Service not required to be taken into account under this exception by reason
of any prior Break in Service.
5.6 Forfeiture Occurs. The nonvested portion of a Participant's Account shall
be forfeited on the last day of the Plan Year when the Participant incurs five
consecutive one-year Breaks in Service.
5.7 Amendment to Vesting Schedule. Though the Employer reserves the right to
amend the vesting schedule at any time, the Committee shall not apply the
amended vesting schedule to reduce the vested percentage of any Participant's
Account (determined as of the later of the date the Employer adopts the
amendment, or the date the amendment becomes effective) to a percentage less
than the vested percentage computed under the Plan without regard to the
amendment.
If the Employer makes a permissible amendment to the vesting schedule, each
Participant who has performed at least one Hour of Service in any Plan Year
beginning after December 31, 1988 and who has at least three Years of Service
with the Employer may elect to have the vested percentage of his or her Account
computed under the Plan without regard to the vesting schedule amendment. For
Participants who do not have at least one Hour of Service in any Plan Year
beginning after December 31, 1988, the election described in the preceding
sentence applies only to Participants having at least five Years of Service with
the Employer. The Participant shall file the election with the Committee within
60 days after the latest of the following three dates: (a) the date the
Employer adopts the amendment; (b) the date the amendment is effective; or
(c) the date the Participant receives written notice of the amendment. The
Committee, as soon as administratively feasible, shall forward a copy of any
amendment to the vesting schedule to each affected Participant, together with an
explanation of the effect of the amendment, the appropriate form upon which the
Participant may make an election to remain under the vesting schedule provided
under the Plan prior to the amendment and notice of the time within which the
Participant shall make an election to remain under the prior vesting schedule.
For purposes of this Section, an -amendment to the vesting schedule includes any
Plan amendment which directly or indirectly affects the computation of the
vested percentage of a Participant's Account.
5.8 Special Accounting After Distribution to Reemployed Participants. When any
Participant (whose Account was not 100% vested upon termination of employment
and who received a distribution) becomes reemployed prior to incurring a
Forfeiture Break in Service, the Account shall continue to be maintained with
respect to that portion of his or her interest, if any, which is not
distributed. The interest of such Participant in such Account shall continue to
vest pursuant to Section 5.2.
***End of Article 5***
6
ARTICLE 6
DISTRIBUTIONS
6.1 Distributions Not Exceeding $3,500. The Committee shall direct the Trustee
to distribute the Participant's Account in the form of a lump sum, not later
than 60 days after the close of the Plan Year in which the Participant's
employment terminates for any reason, including death, disability, or attainment
of the Normal Retirement Date, if the Participant's vested Account (at the time
of the distribution) does not exceed $3,500. If the Participant's vested
Account, at the time of any distribution, exceeds $3,500, the Committee shall
treat a distribution as exceeding $3,500 for purposes of all subsequent Plan
distributions to the Participant.
6.2 Distributions Exceeding $3,500. The Trustee shall distribute the
Participant's Account in the form and at the time elected by the Participant,
pursuant to Section 6.6. If the Participant or the Beneficiary does not elect in
writing to a time or method of payment in accordance with Section 6.6, the
Committee shall direct the Trustee to commence distribution of a Participant's
vested Account in accordance with this Section, not later than 60 days after the
close of the Plan Year in which the Participant's employment terminates for any
reason, including death, disability, or attainment of the Normal Retirement
Date. Notwithstanding the immediately preceding sentence, a Participant (or the
Participant's Beneficiary, if the Participant is deceased) shall consent, in
writing, within the 90 day period ending on the annuity starting date (see
Section 6.6), to any distribution if the Participant's vested Account, at the
time of the distribution exceeds $3,500, and the Participant has not attained
the later of Normal Retirement Date or age 62. The failure of a Participant to
consent to a distribution of any part of his or her vested Account which could
be distributed under the Plan before attaining the later of Normal Retirement
Date or age 62 shall be deemed to be an election to defer distribution of the
Participant's vested Account until the time for distribution specified in the
immediately following paragraph.
Unless the participant elects otherwise, the Committee shall direct the
Trustee to distribute the Participant's vested Account in a lump sum not later
than the 60th day after the close of the Plan Year in which occurs the latest of
the following events:
(a) the Participant attains age 65 (or Normal Retirement Date, if earlier);
(b) the 10th anniversary of the first day of the Plan Year in which the
Participant commenced participation in the Plan; or,
(c) the Participant terminates service with the Employer.
Notwithstanding the preceding provisions of this Section, the Committee shall
direct the Trustee to distribute any amount required to be distributed under
Section 6.3 (or under Code 415) prior to the time described in this Section.
Distributions Upon Death Which Exceed $3,500. Upon the death of the
Participant, the Committee shall direct the Trustee to distribute the
Participant's vested Account remaining in the Trust at the time of the
Participant's death to the Participant's Beneficiary in the form and at the time
elected by the Beneficiary in accordance with Section 6.6. The Beneficiary's
election is subject to any restrictions designated in writing by the Participant
and not revoked as of the date of the Participant's death. In the absence of an
election by the Beneficiary, the Committee shall direct the Trustee to
distribute the Participant's Account in a lump sum, as soon as administratively
practicable following the Participant's death (or the date on which the
Committee receives notification of, or otherwise confirms the Participant's
death), but not later than 60 days after the close of the Plan Year in which the
Participant's death or notification occurred.
6.3 Distributions on Account of Attaining Age 70 and one half. The provisions
in this Section take precedence over all other provisions in this Article. The
Committee shall direct the Trustee to distribute under this Section not later
than the Participant's Required Beginning Date. Notwithstanding the immediately
preceding sentence, the Committee shall direct the Trustee to distribute a
Participant's vested Account in accordance with a properly executed transitional
election (as provided in the last paragraph of this Section).
Required Beginning Date. Required Beginning Date shall mean the April 1
following the close of the calendar year in which the Participant attains age
70 and one half. However, if the Participant, prior to separating from Service,
attained age 70 and one half before January 1, 1988, and, for the five Plan
Year period ending in the calendar year in which the Participant attained
age 70 and one half and for all subsequent years, the Participant did not own
more than 5% of the Employer, the Required Beginning Date shall be the April 1
following the close of the calendar year in which the Participant separates
from Service or, if earlier, the April 1 following the close of the
calendar year in which the Participant owns more than 5% of the Employer.
Furthermore, if a Participant who did not own more than 5% of the Employer
attained age 70 and one half during 1988 and did not separate from Service
prior to January 1, 1989, the Participant's Required Beginning Date shall be
April 1, 1990. A mandatory distribution at the Participant's Required Beginning
Date shall be in lump sum unless the Participant makes a valid election to
receive an alternative form of distribution.
Minimum Distribution Requirements for Participants. The Trustee shall not
distribute the Participant's vested Account under a method of distribution
which, as of the Required Beginning Date, does not satisfy the minimum
distribution requirements under Code 401(a)(9) and the applicable Treasury
regulations.
Minimum Distribution Requirements for Beneficiaries. The method of
distribution to the Participant's Beneficiary shall satisfy Code 401(a)(9) and
the applicable Treasury regulations. If the Participant's death occurs after his
or her Required Beginning Date (or if earlier, the date an irrevocable annuity
commences to the Participant), the distribution period to the Beneficiary shall
not exceed the distribution period which had commenced for the Participant. If
the Participant's death occurs prior to his or her Required Beginning Date, the
method of distribution to the Beneficiary shall provide for distribution to the
Beneficiary over a period not exceeding 5 years after the date of the
Participant's death.
If the designated Beneficiary is the Participant's surviving spouse, the
Trustee may delay distribution until December 31 of the calendar year in which
the Participant would have attained age 70 and one half, if later. If the
surviving spouse dies after the Participant but before distributions commence
to the surviving spouse, the provisions of this Section (other than the
immediately preceding sentence) shall be applied as if the surviving spouse
were the Participant.
Transitional Elections. If the Participant (or Beneficiary) signed a
written distribution designation prior to January 1, 1984, the Committee shall
distribute the Participant's vested Account in accordance with that designation.
The Committee shall not comply with a pre-1984 distribution designation if any
of the following applies: (a) the method of distribution would have disqualified
the Plan under Code 401(a)(9) as in effect on December 31, 1983; (b) the
Participant did not have an Account as of December 31, 1983; (c) the
distribution designation does not specify the timing and form of the
distribution and the death Beneficiaries (in order of priority); (d) the
substitution of a Beneficiary modifies the distribution period; or (e) the
Participant (or Beneficiary) modifies or revokes the distribution designation.
In the event of a revocation, the Plan shall distribute, not later than December
31 of the calendar year following the year of revocation, the amount which the
Participant would have received under this Section if the election had not been
in effect or, if the Beneficiary revokes the election, the amount which the
Beneficiary would have received under this Section if the election had not been
in effect. The Committee shall apply this Section to rollovers and transfers in
accordance with the Code 401(a)(9) regulations.
6.4 Distributions Under Domestic Relations Order. Nothing contained in this
Plan shall prevent the Trustee, in accordance with the direction of the
Committee, from complying with the provisions of a qualified domestic relations
order (as defined in Code 414(p)). Prior to January 1, 1994, an alternate
payee under a qualified domestic relations order was not entitled to a
distribution prior to the time the Participant attained the earliest retirement
age (as defined under Code 414(p)) under the Plan. Effective January 1, 1994,
the Plan permits distribution to an alternate payee under a qualified domestic
relations order at any time, irrespective of whether the Participant has
attained the earliest retirement age under the Plan. A distribution to an
alternate payee prior to the Participant's attainment of the earliest retirement
age is available only if (a) the order specifies distribution at that time or
permits an agreement between the Plan and the alternate payee to authorize an
earlier distribution; and (b) if the present value of the alternate payee's
benefits under the Plan exceeds $3,500 and the order requires, the alternate
payee consents to any distribution occurring prior to the Participant's
attainment of the earliest retirement age. Nothing in this Section shall be
construed to permit a Participant to receive a distribution at a time otherwise
not permitted under the Plan, nor does it permit the alternate payee to receive
a form of distribution not permitted under the Plan.
The Committee shall establish reasonable procedures to determine the
qualified status of a domestic relations order. Upon receiving a domestic
relations order, the Committee promptly shall notify the Participant and any
alternate payee named in the order, in writing, of the receipt of the order and
the Plan's procedures for determining the qualified status of the order. Within
a reasonable period of time after receiving the domestic relations order, the
Committee shall determine the qualified status of the order and shall notify the
Participant and each alternate payee, in writing, of its determination. The
Committee shall provide notice under this paragraph by mailing to the
individual's address specified in the domestic relations order, or in a manner
consistent with Department of Labor regulations.
If any portion of the Participant's vested Account is distributable during
the period the Committee is making its determination of the qualified status of
the domestic relations order, the Committee shall make a separate accounting of
the amounts distributable. If the Committee determines the order is a qualified
domestic relations order within 18 months following receipt of the order, the
Committee shall direct the Trustee to distribute the distributable amounts in
accordance with the order. If the Committee does not make its determination of
the qualified status of the order within the 18 months following receipt of the
order, the Committee shall direct the Trustee to distribute the distributable
amounts in the manner the Plan would distribute if the order did not exist and
shall apply the order prospectively if the Committee later determines the order
is a qualified domestic relations order.
If not prohibited by the provisions of the qualified domestic relations
order, the Committee may direct the Trustee to invest any partitioned amount in
a segregated Account and to invest the account in federally insured, interest-
bearing savings accounts or time deposits (or a combination of both), or in
other fixed income investments. The Trustee shall make any distributions
required under this Section by separate benefit checks or other separate
distribution to the alternate payees.
6.5 Diversification Distributions. A Participant shall make an election under
this Section on a form prescribed by the Committee at any time during the Plan
Year for which the election is to be effective. In the written election, the
Participant shall specify the dollar amount desired to be distributed. The
Trustee shall distribute to a Participant in accordance with such an election
under this Section within the 90 day period (or as soon as administratively
practicable) after the Participant files the written election with the Trustee.
Notwithstanding any other provision of this Plan, any Participant who has
attained age 55 and who has completed at least 10 years of participation in the
Plan (hereinafter referred to as a "Qualified Participant") shall be entitled to
elect, within 90 days after the end of any Plan Year in the Participant's
Qualified Election Period, to receive a distribution of up to 25% of the total
number of shares of Stock that were allocated to the Participant's Account after
December 31, 1986 and prior to July 1, 1994, less any shares of such Stock that
have previously been distributed to the Participant. With respect to the last
Plan Year in a Participant's Qualified Election Period, the preceding sentence
shall be applied by substituting "50%" for "25%." An election to receive a
distribution of Stock under this Subsection may not be made by a Qualified
Participant unless the fair market value (as of any valuation date during the
Participant's Qualified Election Period) of the Stock that has been allocated to
the Participant's Account and that was acquired by or contributed to the Plan
after December 31, 1986 and prior to July 1, 1994, exceeds $500.
(a) The "Qualified Election Period" for a Qualified Participant is the period
consisting of the six-consecutive Plan Years beginning with the Plan Year in
which the Participant first becomes a Qualified Participant. However, if a
Participant became a Qualified Participant prior to January 1, 1987, such
Participant's Qualified Election Period is the period consisting of the five-
consecutive Plan Years beginning with the Plan Year that ended on December 31,
1987, and such Participant shall be entitled to make his or her first election
under this Section (relating to the Plan Year that ended on December 31, 1987)
by September 6, 1988.
(b) Any distribution of Stock pursuant to a Qualified Participant's election
under this Section shall be made within 90 days after the end of the period
during which the Qualified Participant was entitled to make the election under
this Section. Any Stock so distributed shall be subject to the put option.
6.6 Distribution Methods, Consents and Election. Subject to any restrictions
prescribed by Section 6.3, a Participant or Beneficiary may elect a lump sum
distribution in Stock commencing within a reasonable period of time on or after
60 days following the end of the Plan Year in which the Participant terminated
employment with the Employer. Fractional shares shall be paid in cash. For
purposes of a distribution under the Plan, the value of a Participant's Account
shall be its value as of the Valuation Date immediately preceding the date of
the distribution.
Not earlier than 90 and not later than 30 days before the Participant's
annuity starting date, the Committee shall provide a benefit notice to a
Participant who is eligible to make an election or required to consent under
this Article. For purposes of this Article, the term "annuity starting date"
means the first day of the first period for which the Plan pays an amount as an
annuity or in any other form. The benefit notice shall explain the optional
methods of distribution from the Plan, including the material features and
relative values of those methods, and the Participant's right to defer
distribution until he or she attains age 70 and one half. If a distribution is
one to which Code 401(a)(11) and 417 do not apply, such distribution may
commence less than 30 days after the notice required under Treas. Reg. \
1.411(a)- 11(c) is given, provided that:
(a) the Committee clearly informs the Participant that the Participant has a
right to a period of at least 30 days after receiving the notice to consider the
decision of whether or not to elect a distribution (and, if applicable, a
particular distribution option), and
(b) the Participant, after receiving the notice, affirmatively elects a
distribution.
If a Participant or Beneficiary makes an election under this Section, the
Committee shall direct the Trustee to distribute the Participant's vested
Account in accordance with that election. The Participant or Beneficiary shall
make an election under this Section by filing his or her election form with the
Committee at any time before the Trustee otherwise would distribute a
Participant's Account in accordance with the requirements of this Article.
6.7 Annuity Distributions to Participants and Surviving Spouses. The annuity
distribution provisions of Code 417 shall not apply to any Participant in the
Plan except to:
(a) a Participant with respect to whom the Plan is a direct or indirect
transferee from a plan subject to the Code 417 requirements, and the Plan
received the transfer after December 31, 1984, unless the transfer is an
elective transfer;
(b) a Participant who elects a life annuity distribution; and
(c) a Participant whose benefits under a defined benefit plan maintained by the
Employer are offset by benefits provided under this Plan.
6.8 Destination of Beneficiary. For all purposes of this Plan, the
Participant's Beneficiary shall be the Participant's surviving spouse, if any,
and the surviving spouse shall receive the Participant's Accounts in the Trust
Fund upon the death of the Participant. However, if there is no surviving
spouse, or if the spouse has previously consented to the designation of another
Beneficiary, a Participant's Beneficiary shall be the person designated by the
Participant on a written form prescribed by and delivered to the Committee. Any
consent by a spouse to the designation of a Beneficiary other than the spouse
must be in writing, must acknowledge the effect of such consent, must be
witnessed by a Plan Representative or notarized by a notary public, and must
meet one of the following three requirements:
(a) The consent must designate a specific Beneficiary that cannot be changed
without the additional consent of the spouse in a form meeting the requirements
of this Section;
(b) The consent must specifically provide that the Participant may change the
designation of a Beneficiary without any further consent by the spouse, and the
spouse must acknowledge in the consent that he or she is giving up the right to
limit his or her consent to a specific Beneficiary; or
(c) The consent must meet the requirement of clause (b) of this sentence,
except that the Participant's right to change a Beneficiary without any further
consent by the spouse may be limited to a change among certain Beneficiaries.
If a Participant dies without leaving a surviving spouse, the
Participant's Accounts shall be distributed to the Beneficiary
designated by the Participant.
If a Participant, who does not have a spouse, fails to designate a
Beneficiary before his or her death, or if no designated Beneficiary survives
the Participant, the Committee shall direct the Trustee to pay his or her
account in the Trust Fund first to his or her surviving spouse, if any, next to
his or her descendents by right of representation, if any, or if none, then to
his or her personal representative. If no personal representative has been
appointed, if actual notice of such is given to the Committee within 60 days
after the Participant's death, and if his or her Account does not exceed $3,500,
the Committee may direct the Trustee to pay his or her Account to such person as
may be entitled to it under the laws of descent of the state where such
Participant resided at the date of his or her death. In such case, the Committee
may require such proof in writing or identity from such person as the Committee
may deem necessary.
6.9 Direct Rollover/Transfer Provisions. This Section applies to distributions
made on or after January 1, 1993. Notwithstanding any provision of the Plan to
the contrary that would otherwise limit a Distributee's election under this
Section, a Distributee may elect, at the time and in the manner prescribed by
the Committee, to have any portion of an Eligible Rollover Distribution paid
directly to an Eligible Retirement Plan specified by the Distributee in a Direct
Rollover. The following definitions shall apply for purposes of this Section:
(a) Eligible Rollover Distribution: An Eligible Rollover Distribution is any
distribution of all or any portion of the balance to the credit of the
Distributee, except that an Eligible Rollover Distribution does not include:
(1) any distribution that is one of a series of substantially equal periodic
payments (not less frequently than annually) made for the life (or life
expectancy) of the Distributee or the joint lives (or joint life expectancies)
of the Distributee and the Distributee's designated Beneficiary, for a specified
period of ten years or more;
(2) any distribution to the extent the distribution is required under Code
401 (a)(9); and
(3) the portion of any distribution that is not includable in gross income
(determined without regard to the exclusion for net unrealized appreciation with
respect to employer securities).
(b) Eligible Retirement Plan: An Eligible Retirement Plan is an individual
retirement account described in Code 408(a); an individual retirement annuity
described in Code 408(b); an annuity plan described in Code 403(a); or a
qualified trust described in Code 401(a), that accepts the Distributee's
Eligible Rollover Distribution. However, in the case of an Eligible Rollover
Distribution to the surviving spouse, an Eligible Retirement Plan is an
individual retirement account or individual retirement annuity.
(c) Distributee: A Distributee includes an Employee or former Employee. In
addition, the Employee's or former Employee's surviving spouse and the
Employee's or former Employee's spouse or former spouse who is the alternate
payee under a qualified domestic relations order, as defined in Code 414(p),
are Distributees with regard to the interest of the spouse or former spouse.
(d) Direct Rollover: A Direct Rollover is a payment by the Plan to the
Eligible Retirement Plan specified by the Distributee.
***End of Article 6***
7
ARTICLE 7
EMPLOYER STOCK
7.1 Registration of Distributed Shares of Employer Stock. Although the Employer
expects to register the Stock, Stock distributed by the Trustee may be
restricted as to sale or transfer of such shares or other securities under
federal and state securities laws, which restrictions would be similarly
applicable to all Stock of the same class. This Section shall not require the
Participant to sell the Stock to the Employer or Trustee, but is imposed to
comply with the rules and regulations of the United States Securities and
Exchange Commission.
7.2 Put Option. If all or a portion of the Stock held in a Participant's
Account is subject at the time of distribution by the Trustee to restrictions
under any federal or state securities laws, any regulations thereunder, or any
agreement, such that the Stock distributed to the Participant cannot be freely
traded or is not readily tradeable within the meaning of 409(l)(1) and any
Treasury Regulations promulgated thereunder, the Employer shall issue a "put
option" to any Participant who receives a distribution of Stock. The put option
must permit the Participant to sell the distributed Stock to the Employer at any
time during two option periods, at the fair market value of the shares. The
first put option period is for at least sixty days beginning on the date of
distribution. The second put option period is for at least sixty days beginning
after the new determination of the fair market value of Stock by the Committee
(and notice to the Participant) in the following Plan Year. The put option must
provide that if the Participant exercises the put option, the Employer, or the
Plan if the Plan so elects, shall repurchase the Stock as follows:
(a) If the distribution is a total distribution, payment of the fair market
value of a Participant's distributed Stock shall be made either in a single sum
or substantially equal annual installments over a period of time not longer than
five years at the discretion of the Committee. The first installment shall be
paid not later than 30 days after the Participant exercises the put option. The
Plan shall pay a reasonable rate of interest and provide adequate security on
amounts not paid after 30 days.
(b) If the distribution is not a total distribution, the Plan shall pay the
Participant an amount equal to the fair market value of the Stock repurchased no
later than 30 days after the Participant exercises the put option.
(c) The Employer shall be required to purchase the Stock at the fair market
price established by the current bid and asked closing prices quoted by persons
independent of the Employer, (i) determined on the date the put option is
exercised if the exercise is by a disqualified person, as defined in Code
4975(e)(2), or (ii) in all other cases, determined as of the most recent
Valuation Date.
(d) The closing for purposes of consummating the transaction under this Section
shall be held at the place, on the date and at the time to which the selling
Participant and the Employer may agree, provided that the closing shall be held
not later than 30 days after the exercise of the put option by the selling
Participant.
7.3 Right of First Refusal. If Stock is distributed to a Participant from his
or her Account at a time when it is not readily tradable on an established
public market, the Stock is subject to a "right of first refusal." The right of
first refusal must provide that, before any subsequent transfer, the shares must
first be offered for purchase in writing to the Employer, and then to the Trust,
at the then fair market value. A bona fide written offer from an independent
prospective buyer is deemed to be the fair market value of the Stock for this
purpose. The Employer and the Committee (on behalf of the Trust) have a total of
14 days to exercise the right of first refusal on the same terms offered by a
prospective buyer. The Employer may require that a Participant entitled to a
distribution of Stock execute an appropriate stock restriction agreement
(evidencing the right of first refusal) before receiving a certificate for
Stock.
7.4 Sale of Stock. The Participant may elect to sell, subject, however, to any
limitations discussed in this Article, all or any part of any securities
distributed.
7.5 Notice. Any offer, acceptance of an offer, or any other communication
required or permitted to be given to any Participant or the Trustee under this
Article shall be deemed to have been given if and when such notice, payment or
other communication is deposited in the United States Mail, first class, postage
prepaid, addressed to such person as is addressed currently in the records of
the Committee, and it shall be the obligation of each parson to notify the
Committee of any change of address.
7.6 Legend. The Committee shall have the right to require an appropriate legend
referring to the terms and conditions of this Article be placed on the
certificate representing the outstanding Stock.
***End of Article 7***
8
ARTICLE 8
ADMINISTRATION
8.1 Appointments of Committee. The Plan Sponsor shall appoint the Committee.
The Committee shall be the plan administrator. At least one member of the
Committee shall be a Director of the Plan Sponsor. The members of the Committee
shall be the named fiduciary of the Plan. Each such member of the Committee
shall serve at the pleasure of the Plan Sponsor and may resign at any time upon
written notice to the Plan Sponsor. The Committee may appoint any person or
entity to serve in more than one fiduciary capacity. The Plan Sponsor may
specify a period of time before such resignation can become effective. The Plan
Sponsor shall have the power to fill vacancies among the foregoing fiduciaries.
8.2 Organization and Operation of Committee. The Committee shall have at least
two members. The Committee may adopt such procedures as each deems desirable for
the conduct of its respective affairs and may appoint or employ a secretary or
other agents, any of whom may be, but need not be, an officer or employee of the
Employer. Any agent may be removed at any time by the person appointing or
employing him.
8.3 Information to be Made Available to Committee. To enable the Committee to
perform all of its respective duties under the Plan, the Employer shall provide
the Committee with access to the following information for each Employee:
(a) Name and Address,
(b) Social Security Number,
(c) Birth Date,
(d) Dates of commencement and termination of employment,
(e) Reason for termination of employment,
(f) Hours worked during each year,
(g) Annual Compensation, and
(h) Employer contributions and such other information as the Committee may
require.
To the extent the information is available in Employer records, the
Employer shall provide the Committee with access to information relating to any
contributions made to each Participant and any benefits received on behalf of
each Participant under the Plan. If such information is not available from the
Employer's records, the Committee shall obtain such information from the
Participants. The Committee and the Employer may rely on and shall not be liable
because of any information which an Employee provides, either directly or
indirectly. As soon as possible following any Participant's death, Disability,
retirement or other termination of employment, the Employer shall certify in
writing to the Committee such Participant's name and the date and reason for
such Participant's termination of employment.
8.4 Resignation and Removal of Committee Member; Appointment of Successors. Any
Committee member may resign at any time by giving written notice to the Plan
Sponsor, effective upon receipt of such notice. At any time any Committee member
may be removed from the Plan Sponsor without cause. As soon as practicable,
following the death, resignation or removal of any Committee member, the Plan
Sponsor shall appoint a successor by resolution. Written notice of the
appointment of a successor Committee member shall be given by the Employer to
the Trustee. Until receipt by the Trustee of such written notice, the Trustee
shall not be charged with knowledge or notice of such change.
8.5 Duties and Powers of Committee.
(a) In General. The Committee shall decide all questions arising in the
administration, interpretation and application of the Plan and Trust, including
all questions relating to eligibility, vesting, and distribution, except as may
be reserved under this Plan to the Employer or its Plan Sponsor. The Committee
may designate any person (other than Trustee) to discharge any of the
Committee's fiduciary responsibilities under the Plan (other than a Trustee
responsibility) and may employ one or more persons to render advice with regard
to any responsibility the Committee has under the Plan. The Committee from time
to time shall direct the Trustee concerning the payments to be made out of the
Trust Fund pursuant to this Plan. All notices, directions, information and other
communications to and from the Committee shall be in writing.
(b) Record Keeping. The Committee shall keep a record of all of the Committee's
proceedings and shall keep all such books of account, records, and other data as
may be necessary or advisable in its judgment for the administration of this
Plan and Trust, including records to reflect the affairs of this Plan, to
determine the amount of vested and/or forfeitable interest of the respective
Participants in the Trust Fund, and to determine the amount of all benefits
payable under this Plan. The Committee shall maintain separate Accounts for each
Participant. Subject to the requirements of law, any person dealing with the
Committee may rely on, and shall incur no liability in relying on, a certificate
or memorandum in writing signed by the Committee as evidence of any action taken
or resolution adopted by the Committee.
(c) Reporting and Disclosure. The Committee shall be responsible for all
applicable reporting and disclosure requirements. The Committee shall prepare,
file with the United States Secretary of Labor, the United States Secretary of
the Treasury, or the Pension Benefit Guaranty Corporation, when applicable, and
furnish to Participants and Beneficiaries, when applicable, the following:
(i) Summary plan description;
(ii) Plan description;
(iii) Description of modifications and changes;
(iv) Annual Report:
(v) Terminal and supplementary reports;
(vi) Registration Statement; and
(vii) Any other return, report or document required by law.
(d) Statement of Benefits Accrued and Vested. The Committee shall furnish any
Participant or Beneficiary who so requests in writing a statement indicating, on
the basis of the latest available information, such Participant's total Account
and the vested portion thereof, if any, and shall furnish such a written
statement to any Participant who terminates employment with the Employer during
the Plan Year and who is entitled to the vested portion of his or her Accounts
under the Plan as of the end of the Plan Year, taking into consideration any
benefits which have been paid with respect to such Participant during the Plan
Year. The statement shall be an individual statement and shall contain the
information required in the Annual Registration Statement which the Committee is
required to file with the Secretary of the Treasury.
(e) Inspection of Documents. The Committee is to make available for inspection
copies of the Plan description in the latest Annual Report and the agreements
under which the Plan was established or operated. In addition, the Committee is
to comply with every other requirement imposed on him or her by law.
(f) Claims Procedure.
(i) Filing and Initial Determination of Claim. Any Participant or Beneficiary
may file a claim for a plan benefit to which such Participant believes such
Participant is entitled. Such a claim must be in writing and delivered to the
Committee in person or by certified mail, postage prepaid. Within 60 days after
receipt of such claim, the Committee shall deliver personally or send to the
claimant by certified mail, postage prepaid, notice of the granting or denying,
in whole or in part, of such claim. The Committee shall have full discretion to
deny or grant a claim in whole or in part.
(ii) Duty of Committee Upon Denial of Claim. The Committee shall provide to
every claimant who is denied a claim for benefits written notice setting forth
in a manner calculated to be understood by the claimant:
(1) The specific reason or reasons for the denial;
(2) Specific reference to pertinent plan provisions on which the denial is
based;
(3) A description of any additional material or information necessary for the
claimant to perfect the claim and an explanation of why such material is
necessary; and
(4) An explanation of the Plan's claim review procedure.
(iii) Request for Review of Claim Denial. Within 60 days after receipt by
the claimant of written notification of the denial in whole or in part of his or
her claim, the claimant, upon written application to the Committee in person or
by certified mail, postage prepaid, may request a review of such denial, may
review pertinent documents, and may submit issues and comments in writing. Upon
its receipt of the request for review, the Committee shall notify the Plan
Sponsor of the request.
(iv) Claims Reviewer. Upon its receipt of notice of a request for review, the
Plan Sponsor shall appoint a person other than a Committee member to be the
claims reviewer. The Committee shall deliver to the claims reviewer all
documents submitted by the claimant and all other documents pertinent to the
review. The claims reviewer shall make a prompt decision on the review. The
decision on review shall be written in a manner calculated to be understood by
the claimant, and shall include specific reasons for the decision and specific
references to the pertinent Plan provisions on which the decision is based. The
decision on review shall be made no later than 60 days after the Committee's
receipt of a request for review, unless special circumstances require an
extension of time for processing, in which case a decision shall be rendered not
later than 120 days after receipt of the request for review.
(v) Legal Remedy. After exhaustion of the claims procedures provided under this
Plan, nothing shall prevent any person from pursuing any other legal remedy.
(g) Funding Policy. The policy of the Employer is that this Plan shall be
funded with Employer contributions. The Committee shall determine the Plan's
short-term and long-term financial needs and regularly communicate these
requirements to the appropriate persons. To the extent that Stock are purchased
with proceeds of an exempt loan as provided under Section 9.3(g), the policy of
the Committee shall require that the Employer contribute sufficient funds to
enable the Trustee to pay the principal and interest then due on such loan. The
Committee will determine whether the Plan has a short-term need for liquidity,
(for example, to purchase Stock or repay the amount due and owing on an exempt
loan) or whether liquidity is a long-term goal and investment goal is a more
current need. The Committee shall communicate such information to the Trustee so
that investment policy can be coordinated with the Plan's needs.
(h) Bonding of Fiduciaries and Plan Officials. The Committee shall procure
bonds for every fiduciary of the Plan and every plan official who handles funds
of the Plan, in an amount not less than 10% of the amount of funds handled and
in no event less than $ 1,000, except the Committee shall not be required to
procure such bonds if:
(1) The person is excepted from the bonding requirement by law, or
(2) The Secretary of Labor exempts the Plan from the bonding requirements.
The bonds shall conform to the requirements of law.
8.6 Advice to Designated Fiduciaries. Any fiduciary designated by the Committee
may employ with the consent of the Committee one or more persons to render
advice as regards any responsibility of such designated fiduciary under the
Plan.
8.7 Majority Control. The Committee shall act by a majority of its members then
in office, either at a meeting or by written consent without a meeting.
***End of Article 8***
9
ARTICLE 9
POWERS AND DUTIES OF THE TRUSTEE
9.1 Establishment and Acceptance of Trust. The Trustee shall receive any
contributions paid to it in cash or in Stock. All contributions so received
together with the income therefrom shall be held, managed, and administered in
trust pursuant to the terms of this Plan. The Trustee hereby accepts the Trust
created hereunder and agrees to perform the duties under this Plan on its part
to be performed.
9.2 Investments of Trust Funds. Any cash received by the Trustee for the
Account of any Participant or credited to the Account of any Participant shall
be invested primarily in Stock. Subject to the direction of the Committee, the
Trustee is authorized to invest and hold up to 100% of the Trust assets in
Stock. The Trust may purchase Stock from the Employer or from any other source,
and such Stock may be outstanding, newly issued or treasury securities. All such
purchases must be made at fair market value. The determination of fair market
value shall be in accordance with Section 4.9, unless regulations subsequently
promulgated by the Secretary of Labor with respect to ERISA 3(18) provide
otherwise, in which case a determination of fair market value shall be made in
accordance with such regulations.
Any cash received by the Trustee shall be applied first to meet any current
obligation of the Trust Fund incurred for purchase of Stock (i.e., an exempt
loan as provided in Section 9.3(g)) and if the Committee so directs may
thereafter be applied to purchase Stock. If the Committee fails to instruct the
Trustee as to the manner in which the funds held in the Trust Fund should be
invested, then the Trustee may invest the entire Trust Fund in a savings
account, certificates of deposit, money market funds or any other similar
investment, including depositing such cash with the Trustee bank if a bank
serves as Trustee hereunder, or any other investment permitted under Section
9.3(a), other than Stock, provided such investment or the retention of such
investment is prudent under all the facts and circumstances then prevailing.
9.3 Powers of Trustee. The Trustee shall have the following powers and
authority in the administration of the Trust to be exercised in accordance with
and subject to the provisions of Sections 9.2 and 9.4.
(a) Purchase of Property. To invest as directed by the Committee all or any
portion of the Trust Fund in Stock and, unless otherwise directed by the
Committee to invest in Stock, to invest the balance, if any, of the Trust Fund
in any common or preferred stock, including shares or certificates of
participation issued by regulated investment companies or trusts, shares or
units in qualified common trust funds, pooled funds, or pooled investment funds
of an insurance Employer qualified to do business in a state, bonds (including
United States Retirement Plan Bonds), insurance contracts, mortgages, notes or
other property of any kind, real or personal, or in the absence of any direction
from the Committee concerning the method of investing Trust Funds, to invest the
entire Trust Fund as a prudent man would do under like circumstances, taking
into account the special purposes of the Plan.
(b) Retention and Deposit of Funds. To retain in cash so much of the Trust Fund
as the Committee directs to satisfy liquidity needs of the Plan; to deposit any
cash held in the Trust Fund in a bank account without liability for the highest
rate of interest available, including a bank acting as Trustee.
(c) General Authority. To manage, sell, contract to sell, grant options to
purchase, convey, exchange, transfer, abandon, improve, repair, insure, lease
for any time even though commencing in the future, or extending beyond the term
of the Trust, and otherwise deal with all property, real or personal, in such
manner, for such consideration, and on such terms and conditions as the Trustee
shall decide.
(d) Hold Title. To cause any securities or other property to be registered and
held in its name as Trustee, or in the name of one or more of its nominees,
without disclosing the fiduciary capacity, or to keep the same in unregistered
form payable to bearer.
(e) Settle Disputes. To abandon, compromise, contest and arbitrate claims and
demands; to institute, compromise and defend actions at law (but without
obligation to do so); in connection with such powers, to employ counsel as the
Trustee shall deem advisable; and to exercise such powers all at the risk and
expense of the Trust Fund.
(f) Distribute Trust Property. To credit and distribute the Trust as directed
by the Committee. The Trustee shall not be obliged to inquire as to whether any
payee or distributes is entitled to any payment or whether the distribution is
proper within the terms of the Plan, or as to the manner of making any payment
or distribution. The Trustee shall be accountable only to the Committee for any
distribution made by it in good faith on the order or direction of the
Committee.
(g) Incur Indebtedness. To borrow money in such amounts as directed by the
Committee, to assume indebtedness, extend mortgages and encumber by mortgage or
pledge, all as directed by the Committee.
(h) Vote Stock. To vote in the manner directed by the Committee in person or by
proxy any shares of stock or of rights held by the Trust Fund; to participate in
any voting trusts; to participate in and to exchange securities or other
property in reorganization, liquidation, or dissolution of any corporation, the
securities of which are held in the Trust Fund, and to exercise the sale of
stock subscriptions or conversions rights.
(i) Withhold Distribution. To retain (except as provided in Section 9.3(i)) any
funds or properties subject to any dispute without liability for the payment of
interest, and to decline to make payment or delivery of the funds or property
until final adjudication is made by a court of competent jurisdiction.
(j) Pay Obligations. To pay any amount due on any loan or advance made to the
Trust Fund, to charge against and pay from the Trust Fund all taxes of any
nature levied, assessed, or imposed upon the Trust Fund, and to pay all
reasonable expenses and attorney fees necessarily incurred by the Trustee with
respect to any of the foregoing matters.
(k) File Tax Returns. To file any tax return required of the Trustee.
(l) Prepare Reports and Statements. To furnish to the Employer and the
Committee an annual statement of account showing the conditions of the Trust
Fund and all investments, receipts, disbursements and other transactions
effected by the Trustee during the Plan Year covered by the statement and also
stating the asset, of the Trust Fund held at the end of the Plan Year, which
amount shall be conclusive on all persons, including the Employer and the
Committee, except as to any act or transactions which the Employer or Committee
takes exception or makes objections to in writing 90 days after the receipt of
the account, or for which ERISA authorizes a longer period of time within which
to object.
9.4 Diversification and Prudence Requirements. Except in making investments or
reinvestments in Stock of the Employer, the Trustee shall diversify the
investments of the Plan to minimize the risk of large losses, unless under the
circumstances, it is clearly prudent not to do so. The Trustee shall act with
the care, skill, prudence and diligence under the circumstances then prevailing
that a prudent man acting in a like capacity and familiar with such matters
would use in the conduct of an enterprise of a like character and with like
aims. The prudence requirement of the preceding sentence to the extent it
requires diversification shall not be violated by the acquisition or holding of
Stock.
9.5 Payment of Compensation, Expenses and Taxes. A fiduciary shall be paid such
reasonable compensation as shall from time to time be agreed upon in writing;
however, a fiduciary who already receives full-time pay from the Employer shall
receive no compensation from the Plan. A fiduciary shall be reimbursed for any
reasonable expenses, including reasonable counsel fees, incurred by it in the
administration of the Trust. Such compensation and expenses shall be charged
against and paid from the Trust Fund, if not paid by the Employer.
9.6 Appointment, Resignation, Removal and Substitution of Trustee. The Plan
Sponsor by resolution shall appoint a Trustee or Trustees, each of which shall
hold office until resignation or removal by the Plan Sponsor. The Trustee may
resign at any time upon 30 days written notice to the Employer. The Trustee may
be removed at any time by the Employer upon 60 days written notice to the
Trustee with or without cause. Upon resignation or removal of the Trustee, the
Employer, by action of its Plan Sponsor, shall appoint a successor Trustee which
shall have the same powers and duties as are conferred upon the Trustee
appointed under this Plan. Upon acceptance of such appointment by the successor
Trustee, the Trustee shall assign, transfer. and pay over to such successor
Trustee the funds and properties then constituting the Trust Fund. If the
Trustee is an individual, death shall be treated as a resignation, effective
immediately. If any corporate Trustee at any time shall be merged, or
consolidated with, or shall sell or transfer substantially all of its assets and
business to another corporation, whether organized under federal or state laws,
or shall be reorganized or reincorporated in any manner, then the resulting or
acquiring corporation shall be substituted for such corporate Trustee without
the execution of any instrument and without any action upon the part of the
Employer, any Participant or Beneficiary, or any other person having or claiming
to have an interest in the Trust Fund or under the Plan.
9.7 Appointment of Trustee--Acceptance In Writing. The Trustee shall accept its
appointment as soon as practicable by executing this Plan or by delivering a
signed document to the Employer which shall incorporate by reference all of the
terms and conditions of this Plan, a copy of which shall be sent to the
Committee by the Trustee. The Plan Sponsor shall appoint a new Trustee if the
Trustee fails to accept its appointment in writing.
9.8 Receipt of Contributions. The Trustee shall not be responsible in any way
for the collection of contributions provided for under the Trust. The Trustee
shall be responsible only for such sums that it actually receives as Trustee.
The Trustee shall accept and hold under the Trust such contributions of money on
behalf of the Employer and Participants as it may receive from time to time from
the Employer. All such contributions shall be accompanied by written
instructions from the Employer accounting for the manner in which they are to be
credited.
9.9 Returns and Reports. The Employer shall furnish to the Trustee, and the
Trustee shall furnish to the Employer, such information relevant to the Trust as
may be required under the Code and ERISA. The Trustee shall keep such records,
make such identification, and file with the Internal Revenue Service and the
Secretary of Labor such returns and other information concerning the Trust as
may be required of it under the Code and ERISA.
***End of Article 9***
10
ARTICLE 10
CONTINUANCE, TERMINATION AND
AMENDMENT OF PLAN AND TRUST
10.1 Termination of Plan. The expectation of the Employer is to continue this
Plan indefinitely, but the continuance of the Plan is not assumed as a
contractual obligation by the Employer, and the right is reserved to the
Employer, by proper action of its Plan Sponsor, to terminate this Plan in whole
or part at any time. The termination of this Plan by the Employer in no event
shall have the effect of revesting any part of the Trust Fund in the Employer,
except within the limitations of Section 3.4 and except as to the unallocated
balance held in the suspense account under Section 4.4 if permitted under the
Code and ERISA. If the Plan is terminated, Stock acquired with the proceeds of
an exempt loan, as provided in Section 9.3(g), shall after the Trustee repays
the loan continue to be subject to the provisions of Treasury Regulation
54.4975-7(b)(4), (10), (11) and (12) relating to any put, call or other
options and to buy-sell or similar arrangements. The Plan shall be terminated
automatically in the event of the dissolution, consolidation, or merger of the
Employer, or the sale by the Employer of substantially all of its assets, if the
resulting successor corporation or business entity shall fail to adopt the Plan
and Trust under Section 10.3.
10.2 Termination of Trust. The Trust created by execution of this Agreement
shall continue in full force and effect for such time as may be necessary to
accomplish the purposes for which it is created, unless sooner terminated and
discontinued by the Plan Sponsor. Notice of such termination shall be given to
the Trustee by the Committee in the form of an instrument in writing executed by
the Employer pursuant to the action of the Plan Sponsor, together with a
certified copy of the resolution of the Plan Sponsor to that effect.
10.3 Continuance of Plan and Trust by Successor Business. A successor business
may continue this Plan and Trust by proper action of the proprietor or partners,
if not a corporation, and, if a corporation, by resolution of its Plan Sponsor
and by appointing a trustee (which may be the Trustee), plan administrator, or
committee as though the former Trustee or Committee had resigned, and by
executing a proper supplemental agreement to this Plan and Trust with the
Trustee. Within 90 days from the effective date of such dissolution,
consolidation, merger, or sale of assets of the Employer, if such successor
business does not adopt and continue this Plan and Trust, this Plan shall be
terminated automatically as of the end of such 90-day period.
10.4 Merger, Consolidation or Transfer of Assets or Liabilities of the Plan. The
Plan Sponsor may merge or consolidate this Plan with any other Plan and may
transfer the assets or liabilities of the Plan to any other Plan if such
Participant in the Plan (if the Plan then terminated) would receive a benefit
immediately after the merger, consolidation, or transfer which is equal to or
greater than the benefit he or she would have been entitled to receive
immediately before the merger, consolidation, or transfer (if the Plan then had
terminated). However, this Plan shall not merge or consolidate with, and assets
will not be transferred from this Plan to any other Plan which provides for
distributions of accrued benefits in the form of a life annuity, a qualified
joint survivor annuity ("QJSA") or a preretirement survivor annuity ("QPSA"),
unless this Plan is amended at or prior to such merger, consolidation or
transfer to permit a life annuity, a QJSA and/or a QPSA pursuant to the then
applicable requirements under the Code.
10.5 Distribution of Trust Fund on Termination of Trust. If the Trust is
terminated under this Article, the Trustee shall determine the value of the
Trust Fund and of the respective interests of the Participants and Beneficiaries
as of the business day next following the date of such termination. The value of
the Account of each respective Participant or Beneficiary in the Trust Fund
shall be vested in its entirety as of the date of the termination of the Plan.
The Trustee then shall transfer to each Participant or Beneficiary the net
balance of the Participant's Account; however, if the Employer maintains another
defined contribution plan at the time of the termination, the Trustee shall
transfer the Participant's Accounts to an account of the Participant under the
other defined contribution plan of the Employer if the Participant does not
consent in writing to an immediate distribution.
10.6 Suspension of Contributions. If the Plan Sponsor decides it is impossible
or inadvisable to continue to make contributions, it shall have the power by
appropriate resolution or decision to suspend contributions to the Plan.
Suspension shall be a temporary cessation of contributions which shall not
constitute or require a formal termination of the Plan and shall not preclude
contributions. After the date of suspension of contributions, the Plan and Trust
shall remain in force. The Committee shall deliver to the Trustee a copy of the
Plan Sponsor's resolution to suspend contributions.
10.7 Amendments to Plan and Trust. At any time the Employer may amend this Plan
and Trust by action of its Plan Sponsor, provided that no amendment shall cause
the Trust Fund to be diverted to purposes other than for the exclusive benefit
of the Participants and their Beneficiaries; and provided further that no
amendment shall: (a) decrease the percentage of the interest of any Participant
which has become vested, (b) affect the schedule of vesting with respect to any
Participant who has at least three Years of Service as determined under Section
1.39, without such Participant's written consent, (c) discriminate in favor of
employees who are officers, shareholders or Highly Compensated Employees, or
(d) amend provisions applicable to the allocation of any Stock to a
Participant's Account, including without limitation, certain provisions of
Article 4 "Allocations to Accounts," and Section 1.7 "Compensation," more
frequently than once every six months, other than to comport with changes in the
Code, ERISA, or the rules thereunder. Except as restricted under (d) of this
Section, the Plan and Trust may be amended at any time to conform to the
provisions and requirements of federal and state law with respect to employees'
trusts or any amendments to such laws or regulations or rulings issued pursuant
to such laws.
***End of Article 10***
11
ARTICLE 11
RELATED GROUP
11.1 Adoption of the Plan. Any member of the Related Group which the Plan
Sponsor shall designate and declare eligible to adopt and participate in the
Plan may adopt and become a party to this Plan and Trust, subject to and upon
such terms and conditions as the Plan Sponsor may prescribe, including but not
limited to:
(a) The instruments to be executed and delivered by such member of the Related
Group to the Trustee and to the Plan Sponsor;
(b) The extent to which the Plan Sponsor shall act as agent or representative
of such member of the Related Group under the Plan; and
(c) Authorization to the Committee to act for such member of the Related Group
and its employees who will become Participants under the Plan.
The Plan shall be effective with respect to each such adopting member of the
Related Group and its employees on such date as shall be approved by the Plan
Sponsor and specified in the instruments executed by such member of the Related
Group adopting the Plan. Any such member of the Related Group need not sign or
execute the original or the amended Plan and Trust documents. If any such member
of the Related Group adopts the- Plan under this Section, such member and its
employees shall be governed and bound by all the terms and provisions of the
Plan, subject to the terms and conditions upon which such member of the Related
Group adopted the Plan.
11.2 Withdrawal From Plan. Any Employer (other than the Plan Sponsor) may
withdraw from the Plan effective at the end of any calendar quarter by giving at
least 60 days prior written notice to the Plan Sponsor and the Trustee. Upon any
such withdrawal the Trustee shall value the assets of the Trust Fund as of the
date of such withdrawal, and the Trustee shall set apart that portion of the
Trust Fund which, as certified by the Committee, is attributable to such
withdrawing Employer. That portion of the Trust Fund so set apart shall continue
to be held by the Trustee in trust under the terms and provisions of the Plan
and Trust as though such withdrawing Employer had entered into its own separate
trust agreement with the Trustee. Such withdrawing Employer shall be deemed to
have adopted the Plan as its own separate plan and shall have and may exercise
all of the rights, powers, and authorities of the Plan Sponsor under the Plan
and Trust with respect to its separate plan and trust. Upon withdrawal of a
Employer from the Plan, it shall cease to be a Employer under this Plan and
shall not be eligible again to adopt and participate in this Plan unless it
again is designated as eligible under Section 11.1.
11.3 Termination of Participation by the Plan Sponsor. The Plan Sponsor, in its
absolute discretion, may terminate the participation of any member of the
Related Group in the Plan, effective at the end of any calendar quarter, by
giving at least 60 days written notice to such member of the Related Group, the
Committee, and the Trustee. Any such termination of participation by the Plan
Sponsor shall have the same effect as a voluntary withdrawal by an Employer
under Section 11.2 and the procedures set forth in and the provisions of such
Section shall be applicable.
***End of Article 11***
12
ARTICLE 12
MISCELLANEOUS
12.1 Participant's Rights. Except as may be specifically provided for by law,
neither the establishment of the Trust hereby created, nor any modification
thereof, nor the creation of any fund or Account, nor the payment of any
benefits, shall be construed as giving to any Participant or other person any
legal or equitable right against the Employer, or any officer or employee
thereof, or the Trustee, except as herein provided.
12.2 Employer's Obligations. The adoption and continuance of the Plan shall not
be deemed to constitute a contract between the Employer and any Employee or
Participant, nor to be a consideration for, or an inducement or condition of,
the employment of any person. Nothing in this Plan shall be deemed to give any
Employee or Participant the right to be retained in the employ of the Employer,
or to interfere with the right of the Employer to discharge any Employee or
Participant at any time, nor shall it be deemed to give the Employer the right
to require the Employee or Participant to remain in its employ, nor shall it
interfere with the right of any Employee or Participant to terminate his or her
employment at any time.
12.3 Benefits to be Provided Solely from the Trust Fund. All benefits payable
under this Plan shall be paid or provided solely from the Trust Fund, and the
Employer assumes no liability or responsibility for payment of benefits.
12.4 Receipt of Benefits by Fiduciaries. Nothing shall prohibit any fiduciary
from receiving any benefit to which he may be entitled as a Participant or
Beneficiary in the Plan, if such benefit is computed and paid on a basis which
is consistent with the terms of the Plan as applied to all other Participants
and Beneficiaries. The determination of any matters affecting the payment of
benefits to any fiduciary other than a Committee member shall be made by the
Committee. If the Committee is an individual, the determination of any matters
affecting the payment of benefits to the Committee shall be made by a temporary
Committee who shall be appointed by the Board for such purpose. If the Committee
is a group of individuals, the determination of the matters affecting the
payment of benefits to any individual Committee member shall be made by the
remaining Committee members without the vote of such individual Committee
member. If the remaining Committee members are unable to agree on any matters
affecting the payment of such benefits, the Board shall appoint a temporary
Committee to decide the matter.
12.5 Service by Fiduciaries and Disqualified Persons. Nothing in this Plan shall
prohibit anyone from serving as a fiduciary in addition to being an officer,
employee, agent, or other representative of a disqualified person, as defined in
Code 4975(e).
12.6 Assignment or Alienation. Subject to Code 414(p) (relating to qualified
domestic relations orders), neither a Participant nor a Beneficiary may
voluntarily or involuntarily anticipate, assign, or alienate (either at law or
in equity) any benefit provided under the Plan, and the Trustee shall not
recognize any such anticipation, assignment, or alienation. Furthermore, a
benefit under the Plan shall not be subject to attachment, garnishment, levy,
execution, or other legal or equitable process.
12.7 Delegation of Authority by Employer. Whenever the Employer under the terms
of this Agreement is permitted or required to do or perform any act or matter or
thing, the same shall be done and performed only by an officer duly authorized
by its Board of Directors.
12.8 Notices from Participants to be Filed with Committee. Whenever a provision
is made in the Plan that a Participant may exercise any option or election or
designate any Beneficiary, the action of each Participant shall be evidenced by
a written notice signed by the Participant and delivered to the Committee in
person or by certified mail. If a form is furnished by the Committee for such
purpose, a Participant shall give written notice of his or her exercise of any
option or election or of his or her designation of any Beneficiary on a form
provided for such purpose. Written notice shall not be effective until received
by the Committee.
12.9 Construction of Agreement. This Plan and Trust shall be construed, whenever
possible, to be in conformity with the requirements of the Code and ERISA. With
respect to persons subject to Section 16 of the 1934 Act, transactions under
this Plan and Trust are intended to comply with all applicable conditions of
Rule 16b-3 or its successors under the 1934 Act. To the extent any provision of
the Plan and Trust or action by the Committee, Committee or Trustee fails to so
comply, it shall be deemed null and void, to the extent permitted by law and
deemed advisable by the Committee. To the extent not in conflict with the
preceding sentences, the construction and administration of the Plan and Trust
shall be governed by, and its validity determined under, the laws of the state
of Colorado.
12.10 Titles. The titles of paragraphs are included for convenience and not
to be considered in the construction of the provisions hereof.
12.11 Severability. If any provision of this Plan and Trust is illegal or
invalid for any reason, such illegality or invalidity shall not affect the
remaining provisions. On the contrary, such remaining provisions shall be fully
severable, and this Plan and Trust shall be construed and enforced as if such
illegal or invalid provisions never have been inserted in this Plan and Trust.
12.12 Counterparts. This Plan and Trust may be executed in any number of
counterparts, each of which shall be deemed an original, and such counterparts
shall constitute one instrument which may be sufficiently evidenced by one
counterpart.
12.13 Plan for Exclusive Benefit of Participants; Reversion Prohibited. This
Plan and Trust has been established for the exclusive benefit of the
Participants and their Beneficiaries. Under no circumstances shall any funds
contributed to or held by the Trustee at any time revert to or be used or
enjoyed by the Employer except as set forth in Section 3.4 and otherwise to the
extent permitted by law.
12.14 Gender, Singular and Plural. Unless the context requires otherwise,
words denoting the singular may be construed as denoting the plural, and words
of the plural may be construed as denoting the singular, and the masculine
gender shall include the feminine.
IN WITNESS WHEREOF, the parties to this Agreement have executed this
document by their duly authorized officers as of this 29th day of January, 1994.
Attest: SCOTT'S LIQUID GOLD-INC.
EMPLOYER
/s/ Carolyn J. Anderson By:
/s/ Barry Shepard
Carolyn J. Anderson Barry Shepard
Executive Vice President, Treasurer & Assistant
Chief Operating Officer, Secretary
& Corporate Secretary
Date:
6/29/94
Attest: SLG CHEMICALS, INC.
/s/ Carolyn J. Anderson By:
/s/ Barry Shepard
Title:
Treasurer
Date:
6/29/94
Attest: SLG PLASTICS, INC.
/s/ Carolyn J. Anderson By: /s/ Barry Shepard
Title:
Treasurer
Date:
6/29/94
Attest: SLG TOUCH-A-LITE, INC.
/s/ Carolyn J. Anderson By:
/s/ Barry Shepard
Title:
Treasurer
Date:
6/29/94
Attest: AQUAFILTER CORPORATION
/s/ Carolyn J. Anderson By:
/s/ Barry Shepard
Title:
Treasurer
Date:
6/29/94
Attest: ADVERTISING PROMOTIONS
INCORPORATED
/s/ Carolyn J. Anderson By:
/s/ Barry Shepard
Title:
Treasurer
Date:
6/29/94
Attest: NEOTERIC COSMETICS, INC.
/s/ Carolyn J. Anderson By: /s/ Barry Shepard
Title:
Treasurer
Date:
6/29/94
BARRY SHEPARD
CAROLYN J. ANDERSON
MARK E. GOLDSTEIN
TRUSTEE
By: /s/ Barry Shepard
Barry Shepard
Date:
6/29/94
By: /s/ Carolyn J. Anderson
Carolyn J. Anderson
Date:
29 June 1994
By: /s/ Mark E. Goldstein
Mark E. Goldstein
Date:
6/29/94
FIRST AMENDMENT TO THE
SCOTT'S LIQUID GOLD-INC. EMPLOYEE STOCK OWNERSHIP PLAN
1. Plan Sponsor: Scott's Liquid Gold-Inc.
2. Amendment of Plan: The following Amendments to the Scott's Liquid Gold-
Inc. Employee Stock Ownership Plan are adopted, effective as provided in
Paragraph 3:
A. Section 1.37 shall be amended by replacing the existing Section 1.37
with the following language:
1.37 Valuation Date shall mean December 31 of each Plan Year and
each date on which the Trustee values the Trust Fund.
B. Section 4.5(a) shall be amended by deleting the second paragraph of
Section 4.5(a).
C. Section 7.3 shall be amended by replacing the existing Section 7.3
with the following language:
7.3 Right of First Refusal and Voting Rights. Stock that is not
readily tradable on an established public market is subject to the
following rights:
(a) If Stock is distributed to a Participant from his or her
Account at a time when it is not readily tradable on an
established public market, the Stock is subject to a "right
of first refusal." The right of first refusal must provide
that, before any subsequent transfer, the shares must first
be offered for purchase in writing to the Employer, and then
to the Trust, at the then fair market value. A bona fide
written offer from an independent prospective buyer is
deemed to be the fair market value of the Stock for this
purpose. The Employer and the Committee (on behalf of the
Trust) have a total of 14 days to exercise the right of
first refusal on the same terms offered by a prospective
buyer. The Employer may require that a Participant entitled
to a distribution of Stock execute an appropriate stock
restriction agreement (evidencing the right of first
refusal) before receiving a certificate for Stock.
(b) Stock that is not readily tradable on an established public
market allocated to a Participant's Account will be voted by
the Trustee, according to the Participant's instructions
with respect to any corporate matter that involves the
voting of such shares. The Trustee will not vote shares of
Stock allocated to Participants' Accounts for which
instructions are not received from Participants. Stock
contributed to or acquired by the Plan that is not yet
allocated (including Stock held in a suspense account) will
be voted by the Trustee according to the Committee's
instructions with respect to any corporate matter that
involves the voting of such shares.
If the Employer and the Trustee agree, the Trustee may deal
directly with Participants on the pass-through of voting
rights. Otherwise, the Employer may do so and then transmit
to the Trustee the results of the voting instructions
received from Participants. In either case, management and
others may solicit and exercise Participants' voting rights
under the same proxy rules applicable to all stockholders.
The Employer will ensure that forms for voting instructions,
together with all information distributed to shareholders
regarding the exercise of voting rights, are furnished to
the Trustee and to Participants within a reasonable time
before the voting rights are to be exercised.
Shareholder rights, other than voting rights, which can be
exercised by Participants may be passed through to
Participants and exercised in a similar manner to voting
rights or will be exercised in such other manner as is
legally required. However, where the circumstances (such as
the lack of time or the lack of liquid funds to satisfy a
requirement to pay for additional shares of Stock) make it
impractical to pass such rights through to Participants and
no other specific legal requirement exists, the rights will
be exercised (or sold), unless otherwise directed by the
Committee, by the Trustee in a manner that the Trustee deems
prudent under the circumstances and otherwise consistent
with the fiduciary standards of ERISA.
D. Section 9.3(h) shall be amended by replacing the existing Section
9.3(h) with the following language:
(h) Vote Stock. To vote in person or by proxy in the manner
directed by the Committee (or the Participants at a time when
the Stock is not readily tradable on an established public
market) any shares of stock or rights held by the Trust Fund;
to participate in any voting trusts; to participate in and to
exchange securities or other property in reorganization,
liquidation, or dissolution of any corporation, the
securities of which are held in the Trust Fund, and to
exercise the sale of stock subscriptions or conversions
rights.
3. Effective Date: The Effective Date of the First Amendment shall be
January 1, 1989.
4. Terms and Conditions of Plan: Except for the above Amendment, all
terms and conditions of the Plan are unamended and shall remain in full force
and effect.
5. Execution: The Plan Sponsor has executed this Amendment as of the date
set forth below.
Attest: SCOTT'S LIQUID GOLD-INC.
COMPANY
/s/ Carolyn J. Anderson By: /s/ Barry Shepard
Carolyn J. Anderson Barry Shepard
Executive Vice President, Treasurer & Assistant
Chief Operating Officer, Secretary
& Corporate Secretary
Date:
11/11/94
Attest: SLG CHEMICALS, INC.
/s/ Carolyn J. Anderson By: /s/ Barry Shepard
Title:
Treasurer
Date:
11/11/94
Attest: SLG PLASTICS, INC.
/s/ Carolyn J. Anderson By: /s/ Barry Shepard
Title:
Treasurer
Date:
11/11/94
Attest: SLG TOUCH-A-LITE, INC.
/s/ Carolyn J. Anderson By: /s/ Barry Shepard
Title:
Treasurer
Date:
11/11/94
Attest: AQUAFILTER CORPORATION
/s/ Carolyn J. Anderson By: /s/ Barry Shepard
Title:
Treasurer
Date:
11/11/94
Attest: ADVERTISING PROMOTIONS
INCORPORATED
/s/ Carolyn J. Anderson By: /s/ Barry Shepard
Title:
Treasurer
Date:
11/11/94
Attest: NEOTERIC COSMETICS, INC.
/s/ Carolyn J. Anderson By: /s/ Barry Shepard
Title:
Treasurer
Date:
11/11/94
BARRY SHEPARD
CAROLYN J. ANDERSON
MARK E. GOLDSTEIN
TRUSTEE
By: /s/ Barry Shepard
Barry Shepard
Date:
11/11/94
By: /s/ Carolyn J. Anderson
Carolyn J. Anderson
Date:
11 Nov. 1994
By: /s/ Mark E. Goldstein
Mark E. Goldstein
Date:
11/11/94
SECOND AMENDMENT TO THE
SCOTT'S LIQUID GOLD-INC. EMPLOYEE STOCK OWNERSHIP PLAN
1. Plan Sponsor: Scott's Liquid Gold-Inc.
2. Amendment of Plan: The following Amendments to the Scott's Liquid Gold-
Inc. Employee Stock Ownership Plan are adopted, effective as provided in
Paragraph 3:
A. Section 4.8 shall be amended by replacing the existing Section 4.8
with the following language:
4.8 Methods of Valuation. All assets of the Trust Fund shall be
valued at fair market value. The fair market value of Stock shall be
the market price for the Stock as established by the closing price
quoted on the New York Stock Exchange on the Valuation Date or, in the
event the Stock is not traded on the New York Stock Exchange or any
national or regional stock exchange, then as determined by an
independent appraisal by a person who customarily makes such
appraisals.
B. Section 6.6 shall be amended by replacing the first paragraph of
Section 6.6 with the following paragraph:
6.6 Distribution Methods, Consents and Election. Subject to any
restrictions prescribed by Section 6.3, a Participant or Beneficiary
may elect a lump sum distribution in Stock at any time after the
Participant terminates employment with the Employer. Distribution
shall commence to the Participant or Beneficiary within a reasonable
period of time following the request for distribution. Fractional
shares shall be paid in cash. For purposes of a distribution under the
Plan, the value of a Participant's Account shall be its value as of
the Valuation Date immediately preceding the date of the distribution.
3. Effective Date: The Effective Date of paragraph A of this Amendment
shall be November 23, 1994. The Effective Date of paragraph B of this
Amendment shall be January 1, 1995.
4. Terms and Conditions of Plan: Except for the above Amendment, all
terms and conditions of the Plan are unamended and shall remain in full force
and effect.
5. Execution: The Plan Sponsor has executed this Amendment as of the date
set forth below.
Attest: SCOTT'S LIQUID GOLD-INC.
COMPANY
/s/ Carolyn J. Anderson By: /s/ Barry Shepard
Carolyn J. Anderson Barry Shepard
Executive Vice President, Treasurer & Assistant
Chief Operating Officer, Secretary
& Corporate Secretary
Date:
1/19/95
Attest: SLG CHEMICALS, INC.
/s/ Carolyn J. Anderson By: /s/ Barry Shepard
Title:
Treasurer
Date:
1/19/95
Attest: SLG PLASTICS, INC.
/s/ Carolyn J. Anderson By: /s/ Barry Shepard
Title:
Treasurer
Date:
1/19/95
Attest: SLG TOUCH-A-LITE, INC.
/s/ Carolyn J. Anderson By: /s/ Barry Shepard
Title:
Treasurer
Date:
1/19/95
Attest: AQUAFILTER CORPORATION
/s/ Carolyn J. Anderson By: /s/ Barry Shepard
Title:
Treasurer
Date:
1/19/95
Attest: ADVERTISING PROMOTIONS
INCORPORATED
/s/ Carolyn J. Anderson By: /s/ Barry Shepard
Title:
Treasurer
Date:
1/19/95
Attest: NEOTERIC COSMETICS, INC.
/s/ Carolyn J. Anderson By: /s/ Barry Shepard
Title:
Treasurer
Date:
1/19/95
BARRY SHEPARD
CAROLYN J. ANDERSON
MARK E. GOLDSTEIN
TRUSTEE
By: /s/ Barry Shepard
Barry Shepard
Date:
1/19/95
By: /s/ Carolyn J. Anderson
Carolyn J. Anderson
Date:
19 Jan. 1995
By: /s/ Mark E. Goldstein
Mark E. Goldstein
Date:
1/19/95
EXHIBIT NO. 13
SCOTT'S LIQUID GOLD-INC.
ANNUAL REPORT 1999
Description of Business
General
Scott's Liquid Gold-Inc., a Colorado corporation headquartered in Denver, was
incorporated on February 15, 1954. Through its wholly-owned subsidiaries, the
Company manufactures and markets quality household and skin care products. Until
late 1996, it also manufactured a line of disposable cigarette filters through a
wholly-owned subsidiary, Aquafilter Corporation, whose assets, other than cash
and receivables, were sold during 1996 and 1997. In this report, the term
"Company" refers to Scott's Liquid Gold-Inc. and its subsidiaries. The Company's
business is comprised of two segments, household products and skin care
products.
The Company's household products consist of Scott's Liquid Gold for wood, a wood
preservative and cleaner sold nationally for nearly 30 years, and Touch of
Scent, an aerosol room air freshener distributed nationally since 1982. In early
1992, the Company entered into the skin care business through a subsidiary,
Neoteric Cosmetics, Inc. The Company's skin care products are sold primarily
under the name Alpha Hydrox. At the end of 1999, more than twenty skin care
products were being marketed by the Company. The Company plans to introduce
additional products to the market during 2000.
For information on the Company's operating segments, please see Note 9, Segment
Information, to the Consolidated Financial Statements of the Company.
Strategy
The Company's policy is to manufacture and market high quality consumer products
which are distinct within each category in which the Company competes. Scott's
Liquid Gold for wood distinguishes itself from competing products as a wood
cleaner and preservative, not simply a polish. Touch of Scent is different from
most competing aerosol air fresheners in that it need not be shaken before each
use, and, because it is activated by an attractive dispenser which may be
mounted on any hard, smooth surface, it is more convenient to use than competing
aerosol brands. With respect to the Company's line of skin care products, Alpha
Hydrox was the first alpha hydroxy acid skin care product sold to retailers for
resale to the public at affordable prices. Not all of the Company's skin care
products contain alpha hydroxy acids. In 1998, the Company added a retinol
product to its skin care line. The
Company's goal is to operate profitably each year, which it has done every year
during this decade, except for the most recent two years. (Although the Company
experienced a net loss in 1996, it nonetheless produced an operating profit for
that year. But for the settlement of an environmental lawsuit with the U.S. Army
during 1996, the Company would have produced a net profit for that year.) It has
been the Company's aim to grow sales each year, particularly in the area of its
skin care products. Through 1997, the company achieved that goal in reasonable
fashion. However, 1998 and 1999 witnessed significant declines in the Company's
sale of skin care products and, to a lesser extent, one of the Company's major
lines of household products.
The growth in sales of Alpha Hydrox over the past several years caused the
Company to make substantial investments in property, plant and equipment to
handle that growth and the future growth of the Company's skin care products.
The decline in sales of those products in 1998 and 1999 without commensurate
decreases in the Company's cost of doing business, particularly in the area of
fixed costs, dictate that the sales decline be reversed as quickly as possible.
To achieve that goal, the Company intends to maintain an aggressive advertising
posture, to develop additional skin care products where a perceived consumer
need exists, and to remain focused on domestic sales while not ignoring
opportunities for expansion into other countries. Conforming to these
intentions, the Company has added an effective fade creme to eliminate brown
spots, has introduced a skin care product to help diabetics cope with cuts and
bruises, and is examining other products which the Company believes may fit well
with the Company's know how and financial capabilities.
Products
Scott's Liquid Gold for wood, a wood cleaner and preservative, has been the
Company's core product since the Company's inception. It has been popular
throughout the U.S. for over twenty-nine years. In 1982, the Company added Touch
of Scent, a room air freshener, to its line of household products. Household
products accounted for 37% of the Company's consolidated net sales in 1999, and
36.7% in 1998. Scott's Liquid Gold for wood, when applied to wood surfaces such
as furniture, paneling, and kitchen cabinets, and to
outside stained doors and decking, penetrates microscopic pores in the surface
and lubricates beneath, restoring moisture and, at the same time, minimizes the
appearance of scratches, darkening the wood slightly. Scott's Liquid Gold
preserves wood's natural complexion and beauty without wax.
Touch of Scent is intended to be used in conjunction with a decorative dispenser
which can be mounted on any hard surface and into which the consumer inserts an
aerosol refill unit. At a touch, the dispenser propels any of several fragrances
from a refill unit into the air, masking unpleasant odors and refreshing the air
with a pleasant scent. The Company manufactures both the dispenser and the
refill unit. Unlike some competitive aerosol air fresheners, Touch of Scent is
extremely dry and, therefore, leaves practically no residue after use. Touch of
Scent sales have not been strong in recent years. In this regard, see
Management's Discussion and Analysis.
In early 1992, the Company began to market two skin care products under the
trade name of Alpha Hydrox. At the end of 1999, the Company's skin care line
consisted of over 20 products, with additional products on the way for
introduction in 2000. The Company's Alpha Hydrox products are sold through a
wholly-owned subsidiary, Neoteric Cosmetics, Inc.; except for the retinol
product, they are manufactured by Neoteric Cosmetics. Many of the Alpha Hydrox
products contain alpha hydroxyethanoic acids in low but effective
concentrations. Properly blended with a
carrier, alpha hydroxyethanoic acids gently slough off dead skin cells to
promote a healthier, more youthful appearance. Some of the Company's skin care
products, such as its moisturizers, do not contain an alpha hydroxy acid. The
retinol product contains a patented Microsponge" technology that softens fine
lines and wrinkles. Alpha Hydrox products accounted for 63% of the Company's
consolidated net sales in 1999, and 63.3% in 1998.
The Company also manufactures injection molded components, currently consisting
of plastic caps for Touch of Scent and Scott's Liquid Gold, and dispensers for
Touch of Scent.
Marketing and Distribution
All of the Company's products are sold nationally, directly and through
independent brokers, to mass marketers, drugstores, supermarkets, and other
retail outlets; and to wholesale distributors. In 1999, Wal-Mart Stores, Inc. of
Bentonville, Arkansas, accounted for approximately 25% of the Company's sales of
household products. With regard to the Company's skin care products, Wal-Mart
accounted for approximately 25% of 1999 sales.
The loss of this customer would have a material effect on the Company if the
consumer base served by it did not purchase the Company's products at other
retail outlets. No long-term contracts exist between the Company and Wal-Mart
Stores, Inc. or any other customer. The Company permits returns of its products
by its
customers, a common industry practice. The Company's household products and
Alpha Hydrox are or have been advertised nationally on network television and,
at times, on cable television and in print media. In the past, the Company has
also used radio advertising in selected areas and may do so in the future. The
Company maintains an aggressive posture in promoting and advertising its
products, and, in particular, its skin care products. During 2000, but subject
to change, the Company plans a moderate decrease in advertising expenditures
from 1999 levels. The Company periodically reviews its advertising plans and may
revise planned advertising expenditures based upon actual sales results and
competitive conditions.
To enable its customers to make informed decisions, the Company's containers and
promotional materials note the concentration of alpha hydroxy acid contained in
each of its Alpha Hydrox products which contain such acids. The Company does not
exaggerate benefits to be expected from the use of its products and recommends
the use of sunscreen in its written directions contained in every box. The
Company also maintains a 24-hour, toll free telephone number for use by
consumers of its products.
The Company sells its household and skin care products in Canada and other
foreign countries. Please see Note 9, Segment Information, to the Consolidated
Financial Statements for information regarding sales in foreign countries.
Currently, foreign sales are made to distributors who are responsible for the
marketing of the products, and the Company is paid for these products under
letters of credit in United States currency.
Manufacturing
The Company owns and operates its manufacturing facilities and equipment. With
the exception of the Company's retinol product, the Company manufactures all of
its products, maintaining a high quality standard and sufficient inventories to
ship most orders as they are received. Quality control is enforced at all stages
of production, as well as upon the receipt of raw materials from suppliers. Raw
materials are purchased from a number of suppliers and, at the present time, are
readily available. Currently, the Company's sole supplier of glycolic acid,
which is the most common type of alpha hydroxy acid used by the Company in its
Alpha Hydrox products, is E.I. DuPont de Nemours. So far as the Company knows,
this supplier is one of only two U.S. manufacturers of the grade of glycolic
acid approved for use by the Company. No contract exists between the Company and
its supplier of glycolic acid. Relations with that supplier and other suppliers
are satisfactory. Most of the Company's manufacturing operations, including most
packaging, are highly automated, and, as a result, the Company's manufacturing
operations are not labor intensive, nor, for the most part, do they involve
extensive training. An addition to the Company's plant facilities, completed in
early 1996, greatly increased the Company's capacity to produce skin care
products. The Company currently operates on a one-shift basis. The Company's
manufacturing facilities are capable of producing substantially more quantities
of the Company's products without any expansion, and, for that reason, the
Company believes that its physical plant facilities are adequate for the
foreseeable future.
Competition
The Company's business is highly competitive in both household and skin care
products. Household products are comprised of Touch of Scent air fresheners and
Scott's Liquid Gold, a wood cleaner and preservative. Both the air freshener and
wood care categories are dominated by three to five companies significantly
larger than the Company, each of which produce several products. Irrespective of
the foregoing, the Company maintains a visible position in the wood care
category, but does not have sufficient information to make an accurate
representation as to the market share of its products. Over the last several
years, sales of the Company's air freshener products have fallen off
significantly and may continue to do so in the future. From time to time, to
stem the attrition of this product line, the Company offers price incentives to
its customers.
The skin care category is also highly competitive. Several competitors are
significantly larger than Scott's Liquid Gold-Inc., and each of these
competitors produces several products. Some of these companies also produce
retinol and alpha hydroxy acid products with which Alpha Hydrox must compete.
Because of the number of varied products produced by competitors, the Company
cannot make an accurate representation as to the market share of its skin care
products. Irrespective of the foregoing, it can be stated that the Company has
established a strong national base of distribution for Alpha Hydrox, and, based
upon data supplied by an independent rating service, the Company believes that
its products rank among leading brand-name alpha hydroxy acid skin care
products.
Conforming to its corporate philosophy, the Company competes on the basis of
quality and distinguishing characteristics of its products.
Regulation
The Company is subject to various federal, state and local laws and regulations,
which pertain to the type of products it manufactures and sells. The Company's
skin care products containing alpha hydroxy acids are cosmetics within the
meaning of the Federal Food Drug and Cosmetic Act ("FFDCA"). The FFDCA defines
"cosmetics" as products intended for cleansing, beautifying, promoting
attractiveness or altering the appearance. The Company's cosmetics products are
subject to regulation under the FFDCA and the Fair Packaging and Labeling Act
("FPLA"), and the regulations promulgated under these acts. The relevant laws
and regulations are enforced by the U.S. Food & Drug Administration ("FDA").
Such laws and regulations govern the ingredients and labeling of cosmetic
products and set forth general manufacturing practices for companies to follow.
Although FDA regulations require that the safety of a cosmetic ingredient be
substantiated prior to marketing, there is no requirement that a company
contemplating inclusion of a cosmetic ingredient in its products submit to the
FDA the results of its testing or any other data or information with respect to
the ingredient. Prior to marketing its products, the Company conducts studies to
demonstrate that its Alpha Hydrox products do not irritate the skin or eyes.
Consistent with regulations, the Company does not submit the results of its
studies to the FDA.
In April of 1994, an FDA official raised some questions about the safety of
alpha hydroxy acids in skin care products, and later stated that the effects of
long-term usage of such products are unknown. Because of the FDA's questions,
the Cosmetic Ingredient Review Expert Panel ("CIR") sponsored by the cosmetics
industry, was requested to conduct a review of a compilation of alpha hydroxy
acid safety data assembled by cosmetic manufacturers. The CIR is a cooperative
proceeding in which an FDA representative can and does participate as a
nonvoting, liaison member. In June of 1997, the CIR issued its final report
which, among other things, concluded that glycolic acid (the most common type of
alpha hydroxy acid used by the Company) is safe for use in retail domestic
products at concentrations of up to 10%, with a pH level of no less than 3.5,
when the directions for use include the daily use of sun protection. The
Company's products and directions for use meet the CIR's criteria.
Following the issuance in June, 1997 of the CIR report, the FDA, in December,
1998, created a joint working group using staff from both the Center for Food
Safety and Applied Nutrition and the Center for Drug Evaluation and Research to
consider, among other things, whether products containing alpha hydroxy acid
should be classified for regulatory purposes as a drug. This group is expected
to analyze additional research initiated at the FDA's request. It is not
expected that recommendations by the working group will be forthcoming in the
near-term future. Further, any recommendation of the group will probably face
strong opposition by manufacturers of products containing alpha hydroxy acids.
The Company's advertising is subject to regulation under the Federal Trade
Commission Act and its implementing regulations, which prohibit false and
misleading claims in advertising. The Company's labeling and promotional
materials are believed to be in full compliance with applicable statutes and
regulations.
Some chemicals used in consumer products, including some used by the Company,
have come under scrutiny by various state governments and the Congress of the
United States in connection with clean air laws and regulations. These chemicals
are volatile organic compounds ("VOCs") that are contained in various categories
of consumer products. As a result of VOC regulation, it has been necessary, from
time to time, for the Company to reformulate some of its products including a
reformulation of Touch of Scent to conform to certain regulations of the
California Air Resources Board ("CARB") which became effective on January 1,
1996. The regulations concerning VOC content are relevant to the household
products of the Company but have not affected the Company's skin care products.
The Company believes it has done all that is now necessary to satisfy the
current requirements of the Clean Air Act and laws of various state governments.
Currently, all of the Company's products may be sold in all areas of the United
States.
Limitations regarding the VOC content of consumer products by both state and
federal agencies will continue to be a part of regulatory efforts to achieve
compliance for ozone at or near ground level. Under the Clean Air Act Amendments
of 1990, the Environmental Protection Agency ("EPA") is required to study the
contribution of consumer products to ozone problems and to promulgate
regulations reducing the VOC content of consumer products. During 1995, the EPA
published a prioritized list of categories of consumer products for regulation,
including categories which affect Scott's Liquid Gold for Wood and Touch of
Scent. Regulations pertaining to these products were proposed by the EPA in
April, 1996. Final regulations to control VOC's from consumer products, which
are no more stringent than those issued previously by CARB with which the
Company complies, were published in the September 11, 1998 Federal Register.
Various states, in addition to California, have enacted or are considering
promulgating VOC regulations. EPA's adoption of regulations may help to induce
states to conform to consistent, nationwide standards. The Company is unable to
predict how many or which other states might enact legislation regulating the
VOC content of consumer products or what effect such legislation might have upon
its household products. The Company is unaware, at this time, of any states
which have adopted regulations more stringent than those adopted by CARB.
Employees
The Company employs 133 persons, 72 in plant and production related functions
and 61 in administrative, sales and advertising functions. No contracts exist
between the Company and any union. The Company monitors wage and salary rates in
the Rocky Mountain area and pursues a policy of providing competitive
compensation to its employees. The compensation of the Company's executive
officers is under the purview of the Compensation Committee of the Company's
Board of Directors. Fringe benefits for Company employees include an excellent
medical and dental plan, life insurance, a 401K Plan with matching contributions
for lower paid employees (those earning $30,000 or less per annum), an ESOP
plan, and a Profit Sharing Plan. The Company considers its employee relations to
be satisfactory.
Patents and Trademarks
At present, the Company currently owns no patents covering its products,
although the Company is seeking patent protection on at least one product.
However, the Company actively uses its registered trademarks for Scott's Liquid
Gold, Liquid Gold, Touch of Scent, and Neoteric in the United States and has
registered trademarks in a number of additional countries. The Company's
registered trademarks and pending trademark applications concern names and logos
relating to its products as well as the design of boxes for certain of its
products. The Company has applied for federal registration of the trademark
"Alpha Hydrox". The issuance of this trademark was challenged on the basis that
it is a description of the type of acid used as an ingredient. This challenge
was denied by the United States Patent and Trademark Office in 1999. No appeal
has been filed. The Company believes that the issuance of this trademark is
forthcoming in the near future. Whether or not the federal registration of
"Alpha Hydrox" is granted to the Company, the Company claims under common law
the exclusive right to use "Alpha Hydrox" as a trademark and to the right to
prevent the use by others of confusingly similar marks. The outcome of any such
claim, if contested in court, will depend on the facts and circumstances then
existing with respect to the use of the mark in a particular geographical area.
To date, there have been no court contests, but the Company has been successful
in convincing several manufacturers to refrain from the use of marks or trade
dress similar to Alpha Hydrox.
Properties
The Company's facilities, located in Denver, Colorado, are currently comprised
of three connecting, modern buildings and a parking garage (approximately
261,100 square feet in total) and about 16.2 acres of land, of which
approximately 6 acres are available for future expansion. These buildings range
in age from 5 to 30 years (126,600 square feet having been added in 1995 and
1996). The Denver facility houses the Company's corporate headquarters and all
of its operations, and serves as one of several distribution points. The Company
believes that its current space will provide capacity for growth for the
foreseeable future. All of the Company's land and buildings in Denver serve as
collateral under a deed of trust for a $12.0 million bond issue consummated by
the Company on July 29, 1994. An appraisal as of December, 1999, of the
Company's land and buildings established a market value for the Company's realty
of $13,700,000.
<TABLE>
SELECTED FINANCIAL DATA
Scott's Liquid Gold-Inc. & Subsidiaries
(In Thousands of Dollars) 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net sales:
Scott's Liquid Gold household products $12,915 $14,932 $15,536 $17,594 $19,050
Neoteric Cosmetics 21,961 25,700 34,484 26,550 31,623
------ ------ ------ ------ ------
$34,876 $40,632 $50,020 $44,144 $50,673
====== ====== ====== ====== ======
Income (loss) from continuing operations
before income taxes $(761) $(4,532) $8,485 $(1,487) $4,495
Income tax expense (benefit) (256) (1,758) 3,154 (553) 1,711
------ ------ ------ ------ ------
Income (loss) from continuing operations (505) (2,774) 5,331 (934) 2,784
Discontinued operations, net of taxes 0 0 751 23 39
------ ------ ------ ------ ------
Net income (loss) $(505) $(2,774) $6,082 $(911) $2,823
====== ====== ====== ====== ======
Earnings (Loss) Per Share
Income (loss) from continuing operations $(0.05) $(0.27) $0.53 $(0.09) $0.28
Discontinued operations 0.00 0.00 0.07 0.00 0.00
------ ------ ------ ------ ------
Earnings (loss) per share $(0.05) $(0.27) $0.60 $(0.09) $0.28
====== ===== ====== ====== ======
Diluted Earnings (loss) Per Share
Income (loss) from continuing operations $(0.05) $(0.27) $0.52 $(0.09) $0.27
Discontinued operations 0.00 0.00 0.07 0.00 0.01
------ ------ ------ ------ ------
Diluted earnings (loss) per share $(0.05) $(0.27) $0.59 $(0.09) $0.28
====== ====== ====== ====== ======
Dividends declared per common share $ 0 $0.10 $ 0 $ 0 $0.10
====== ====== ====== ====== ======
Assets $28,975 $31,995 $37,592 $34,464 $35,126
====== ====== ====== ====== ======
Working capital* $6,980 $7,940 $11,631 $6,197 $6,331
====== ====== ====== ====== ======
Capital additions $294 $189 $210 $1,057 $10,537
====== ====== ====== ====== ======
Depreciation $974 $1,039 $998 $1,015 $820
====== ====== ====== ======
Long-term debt * $5,866 $6,981 $7,978 $10,777 $10,047
====== ====== ====== ====== ======
* See Management Discussion & Analysis of Financial Condition and Results of Operations.
Selected Quarterly Financial Data
1999
First Second Third Fourth Year
Net sales $10,089 $8,004 $8,640 $8,143 $34,876
Gross profit $6,688 $5,099 $5,622 $5,546 $22,955
Income (loss) before income taxes $(1,319) $(1,844) $343 $2,059 $(761)
Net income (loss) $(831) $(1,369) $226 $1,469 $(505)
Earnings (loss) per share $(0.08) $(0.14) $0.02 $0.15 $(0.05)
Diluted earnings (loss) per share $(0.08) $(0.14) $0.02 $0.15 $(0.05)
1998
First Second Third Fourth Year
Net sales $12,557 $10,019 $9,240 $8,816 $40,632
Gross profit $8,697 $6,745 $5,948 $5,660 $27,050
Loss before income taxes $(1,606) $(2,148) $(544) $(234) $(4,532)
Net loss $(1,011) $(1,354) $(343) $(66) $(2,774)
Loss per share $(0.10) $(0.13) $(0.03) $(0.01) $(0.27)
Diluted loss per share $(0.10) $(0.13) $(0.03) $(0.01) $(0.27)
Management Discussion & Analysis
Of Financial Condition and Results of Operations
</TABLE>
<TABLE>
Year Ended December 31,
<S> <C> <C> <C>
1999 1998 1997
Net sales
Scott's Liquid Gold
household products 37.0% 36.7% 31.1%
Neoteric Cosmetics 63.0% 63.3% 68.9%
----- ----- -----
Total net sales 100.0% 100.0% 100.0%
Cost of sales 34.2% 33.4% 28.2%
----- ----- -----
Gross profit 65.8% 66.6% 71.8%
Other revenue 1.8% 1.5% 0.9%
----- ----- -----
67.6% 68.1% 72.7%
----- ----- -----
Operating expenses 66.3% 76.3% 53.1%
Interest 3.5% 3.0% 2.6%
----- ----- -----
69.8% 79.3% 55.7%
===== ===== =====
Income (loss) from continuing
operations before income taxes (2.2%) (11.2%) 17.0%
</TABLE>
General
The Company manufactures and markets both household and skin care products. In
September of 1996, it discontinued the manufacture and sale of cigarette filters
by one of its wholly owned subsidiaries. The Company's products are sold
throughout the United States and Canada and insignificantly in other countries.
The majority of skin care products are sold under the name Alpha Hydrox and
Neoteric Diabetic skin care. Sales of such products were about $34.5 million in
1997, $25.7 million in 1998, and $22.0 million in 1999. In 1997, the Company's
net income was materially affected by a pre-tax credit to income of about $3.8
million, because of a settlement in 1996 of an environmental lawsuit, which in
that earlier year had resulted in a pre-tax charge to income of approximately
$3.6 million, and because of the profitable sale of real estate in Florida
previously used in a discontinued operation. The net after-tax operating income,
before accounting for those unusual events, was approximately $3.6 million,
equal to $.36 per share, for 1997.
Year Ended December 31, 1999
Compared to Year Ended December 31, 1998
Consolidated net sales for 1999 were $34.9 million vs. $40.6 million for 1998, a
decrease of $5.7 million or about 14.2%. Average selling prices for 1999 were
greater than those of 1998 by $1,290,800, prices of household products being up
by $769,700 ($294,100 for Scott's Liquid Gold for wood and $475,600 for Touch of
Scent), while average selling prices of cosmetics products increased by
$521,100.
During 1999, net sales of cosmetics products accounted for 63.0% of consolidated
net sales compared to 63.3% in 1998. Net sales of those products were
$25,700,000 in 1998 compared to $21,960,700 in 1999, a decrease of $3,739,300 or
14.6%. That decrease was comprised of a drop in unit sales of most of the
Company's earlier established skin care products, offset by an increase in their
average selling prices and by sales of more recently introduced products. The
Company believes that its skin care sales were adversely affected by the
maturation of the alpha hydroxy acid category of skin care products, by the
Company's emphasis on retinol products in allocating its advertising dollars
during 1999, and by intense competition from producers of similar or alternative
products, many of whom are considerably larger than Neoteric Cosmetics, Inc.,
the Company's skin care subsidiary. Although some brands of alpha hydroxy acid
skin care products experienced an increase in sales during 1999, available
information indicates that sales of all brands of such products were down by
about 4% during that year, compared to the next preceding year.
During the second half of 1998, Neoteric Cosmetics, Inc. introduced two new
lines of skin care products, Belleza Latina, specifically designed for the
Hispanic market, and Alpha Hydrox Night ResQ, a retinol-based product; and,
early in 1999, introduced Neoteric Diabetic Skin Care, a healing cream and a
therapeutic moisturizer developed to address skin conditions of diabetics which
is caused by poor blood circulation. Alpha Hydrox Retinol Night ResQ contains a
microsponge-entrapped retinol product (produced by another company) which
softens fine lines and wrinkles. Recently, we announced the development of Alpha
Hydrox Fade Cream, which was designed to lighten age spots and skin
discoloration caused by sun exposure and other factors, and Alpha Hydrox
Oxygenated Moisturizer, which is our second skin care product based on a
patented oxygenated oil technology. Sales of these products and of the diabetic
products have met expectations, but sales of the Belleza Latina line have been
disappointing.
Sales of household products in 1999 accounted for 37.0% of consolidated net
sales compared to 36.7% in 1998. These products are comprised of "Scott's Liquid
Gold" for wood, a wood cleaner which preserves as it cleans, and "Touch of
Scent," a room air freshener. Sales of household products were $14,932,000 in
1998 compared to $12,914,800 in 1999, a decrease of $2,017,200, or 13.5%. Sales
of Scott's Liquid Gold for wood decreased from $9,927,300 in 1998 to $8,974,400
in 1999 (down by $952,900 or 9.6%) and sales of Touch of Scent decreased from
$5,004,700 in 1998 to $3,940,400 in 1999 (down by $1,064,300 or 21.3%). The
Company believes that a substantial decrease in expenditures to advertise
Scott's Liquid Gold for wood during 1999 compared to 1998 and a continued
erosion of its Touch of Scent sales volume were largely responsible for the
decrease in sales of household products. Touch of Scent sales declined once
again in 1999, adding to the downward trend of the last several years. While the
Company is actively seeking products to replace or augment Touch of Scent,
particularly products which would utilize the same manufacturing facilities, it
believes that a centralization of purchasing activities by certain customers may
help to improve Touch of Scent sales in 2000.
On a consolidated basis, cost of goods sold in 1999 was $11,921,300 compared to
$13,581,900 in 1998, a decrease of $1,660,600 or 12.2 % (on a sales decrease of
about 14.2%). As a percentage of consolidated net sales, cost of goods sold was
34.2% in 1999 vs. 33.4% in 1998, an increase of about 2%. That increase in the
cost of goods sold percentage is the result of an increase in average selling
prices in 1999 offset by lower production during 1999 vs. 1998, cost of goods
sold being affected by a lower absorption of on- going (fixed) manufacturing
costs resulting from a lower level of products manufactured by the Company.
Advertising expenses for 1999 were $10,808,300 compared to $15,221,200 for 1998,
a decrease of $4,412,900 or 29% (mostly for television). In 1999, the Company
spent $10,018,900 to advertise its cosmetics products, compared to $11,376,800
in 1998, a decrease of 12.0%, and $789,400 in 1999 compared to $3,844,400 in
1998 to advertise household products, a decrease of almost 79.5%. Advertising
expenses for Scott's Liquid Gold for wood decreased from $3,675,900 in 1998 to
$464,200 in 1999, whereas expenses to advertise Touch of Scent increased from
$168,500 in 1998 to $325,200 in 1999. Irrespective of year to year changes in
expenditures to advertise its products, the Company recognizes that, whenever it
is fiscally responsible to do so, it must continue to advertise aggressively
because the markets for skin care products, furniture polish, and air fresheners
are highly competitive and, accordingly, the Company's brand names need to be
kept in front of current and potential consumers. Sustaining the Company's
advertising program ishighly dependent upon sales of its skin care products.
Selling expenses for 1999 were $7,073,700 compared to $8,534,000 for 1998, a
decrease of $1,460,300 or 17.1%. That decrease was comprised of a decrease in
brokerage commissions and freight out (which vary with sales volume) of
$491,800, a reduction in travel expenses of $140,300, decreases in costs of
promotional merchandise of $225,300, a drop in couponing costs and slotting
allowances of $293,500, a reduction in sales salaries and fringe benefits of
$220,900, a decrease of $96,500 in telephone expenses, and a net decrease in
other expenses of $106,700, none of which, by itself, was significant, all
offset by an increase in depreciation and amortization of $114,700.
Administrative expenses in 1999 were $5,254,900 compared to $7,248,100 in 1998,
a decrease of $1,993,200 or 27.5%. That decrease was attributable to a decrease
of $1,617,100 in legal and professional fees, of which $550,000 derived from an
insurance recovery of expenses incurred in 1998, and to the culmination of a
lawsuit in 1998 for which $770,400 was charged against income in that year (see
"Year Ended December 31, 1998 Compared to Year Ended December 31 1997"), and to
decreases in depreciation expense of $116,800, in salaries, wages, and fringe
benefits of $198,900, and in other administrative expenses, none of which,
standing alone, was significant, of $60,400. The Company anticipates that legal
expenses for the year 2000 will be greater than those of 1999 due to on-going
patent litigation.
Interest expense and other income for 1999 were essentially the same as they
were for 1998. During both 1999 and 1998, expenditures for research and
development were not material (under 2% of revenues).
The Company had profitable third and fourth quarters in 1999. The Company may
experience a loss in its first quarter of 2000 because of a relatively high
level of television advertising for the Company's products. However, the Company
will endeavor to sustain in subsequent quarters and for the year 2000 the
favorable results of the third and fourth quarters of 1999 by advertising its
alpha hydroxy products as an entire line in general as opposed to
advertising specific products, and by maintaining and augmenting cost cuts
implemented in 1999.
Year Ended December 31, 1998
Compared to Year Ended December 31, 1997
Consolidated net sales for 1998 were $40.6 million vs. $50.0 million for 1997, a
decrease of $9.4 million or about 18.8%. Average selling prices for 1998 were
lower than those of 1997 by $1,831,700, with average prices of household
products being down by $1,391,000 (virtually all of which pertained to Touch of
Scent), while average selling prices of skin care products decreased by
$440,700.
During 1998, net sales of skin care products accounted for 63.3% of consolidated
net sales compared to 68.9% in 1997. Notwithstanding an increase in expenses in
1998 to advertise the Company's skin care products, net sales of those products
were $25,700,000 in 1998 compared to $34,483,800 in 1997, a decrease of
$8,783,800 or 25.5%. That decrease resulted from a drop in unit sales of most of
the Company's basic skin care products and lower average selling prices of such
products. The Company believes that sales were affected by the maturation of
alpha hydroxy acid skin care products and the proliferation of competing
products on retail shelves; and that the format of the Company's television
advertising, which was effective in 1997 and included the airing of several new
commercials in that year, lost some of its effectiveness when repeated in 1998.
Please see "Year Ended December 31, 1999 compared to December 31, 1998" for
description of late 1998 and early 1999 product introductions.
Sales of household products in 1998 accounted for 36.7% of consolidated net
sales vs. 31.1% in 1997. These products are comprised of "Scott's Liquid Gold"
for wood, a wood cleaner which preserves as it cleans, and "Touch of Scent", a
room air freshener. Sales of household products were $14,932,000 in 1998
compared to $15,536,500 in 1997, a decrease of $604,500, or 3.9%. Sales of
"Scott's Liquid Gold" for wood increased from $8,529,500 in 1997 to $9,927,300
in 1998 (up by $1,397,800 or 16.4%), and sales of "Touch of Scent" decreased
from $7,007,000 in 1997 to $5,004,700 in 1998 (down by $2,002,300 or 28.6%). The
Company believes that increased expenditures to advertise Scott's Liquid Gold
for wood during 1998 compared to 1997 were largely responsible for its sales
increase. The Company also believes that the substantial decrease in
expenditures to advertise Touch of Scent affected the sales of that product
line. Even so, more than half of the decrease in Touch of Scent sales resulted
from price incentives, and operating results from the Touch of Scent line were
better in 1998 than in 1997. Despite the Company's efforts to revitalize its
line of air fresheners, Touch of Scent sales have declined over an extended
period of time. The Company is actively seeking products to replace or augment
Touch of Scent, particularly products which would utilize the same manufacturing
facilities.
On a consolidated basis, cost of goods sold was $13,581,900 in 1998 compared to
$14,132,200 in 1997, a decrease of 3.9% (on a sales decrease of 18.8%). As a
percentage of consolidated net sales, cost of goods sold was 33.4% in 1998 vs.
28.2% in 1997, an increase of about 18%. That increase in the cost of goods sold
percentage is primarily the result of a decrease in average selling prices in
1998 and a significant change in the mix of products sold during 1998 vs. 1997.
Alpha Hydrox products are less costly to produce relative to their selling
prices than are household products. Such products accounted for 63.3% of
consolidated net sales in 1998 compared to 68.9% in 1997. Cost of goods sold was
also affected by a lower absorption of on-going (fixed) manufacturing costs
resulting from a lower level of products manufactured by the Company.
Advertising expenses for 1998 were $15,221,200 compared to $15,026,000 for 1997,
an increase of $195,200 or 1.3%. In 1998, the Company spent $11,376,800 to
advertise its skin care products, compared to $9,977,200 in 1997, an increase of
14%, and $3,844,400 was spent in 1998 compared to $5,048,800 in 1997 to
advertise household products, a decrease of almost 23.9%. During 1998, expenses
to advertise Scott's Liquid Gold for wood increased by $1,473,600 (66.9%),
whereas expenses to advertise Touch of Scent decreased by $2,678,000 (94.1%).
Irrespective of year to year changes in expenditures to advertise its products,
the Company recognizes that, whenever it is fiscally responsible to do so, it
must continue to advertise aggressively because the market for skin care
products, furniture polish, and air fresheners are highly competitive and,
accordingly, the Company's brand names need to be kept in front of current and
potential consumers. Sustaining the Company's advertising program is highly
dependent upon sales of its skin care products.
Selling expenses for 1998 were $8,534,000 compared to $7,581,100 for 1997, an
increase of $952,900 or 12.6%. That increase was comprised of increases in costs
of promotional merchandise ($262,300), couponing costs and slotting allowances (
$505,500), depreciation and amortization ($191,800), sales salaries and fringe
benefits ($269,000), and a net increase of $103,000 in other selling expenses,
none of which, by itself, was material; all offset by a decrease in brokerage
commissions and freight
out ($378,700).
Administrative expenses in 1998 were $7,248,100 compared to $3,949,200 in 1997,
an increase of $3,298,900 or 83.5%. That increase was comprised of an increase
of $3,707,700 in legal and professional fees, which is primarily the result of
the recovery in 1997 of $2,690,900 of 1996 expenses related to an environmental
lawsuit, offset by "other legal and professional expenses" in 1997 of $703,000;
compared to "other legal and professional expenses" in 1998 of $1,719,800.
"Other legal and professional expenses" in 1997 is comprised of about $200,000
related to the Brooks case, $204,000 related to the TriStrata case (see Legal
Proceedings), and $299,000 related to other matters, primarily to trademarks and
trade names. "Legal and professional expenses" in 1998 consisted of
approximately $770,400 related to the Brooks case, $409,800 related to the
TriStrata case, and $539,600 related to other matters, of which $190,200
pertained to trademarks and trade names and $150,300 pertained to litigation by
the Company against an insurance carrier with regard to the 1996 environmental
lawsuit. The 1998 increase over 1997 in legal and professional expenses
($3,707,700), offset by a decrease in salaries, wages, and fringe benefits of
$355,700 and a net decrease of $53,100 in other administrative expenses, none of
which, standing alone, was material, accounted for the aggregate increase in
1998 over 1997 of $3,298,900 in administrative expenses.
Interest expense for 1998 was $1,201,000 compared to $1,302,300 in 1997, a
decrease of $101,300 or 7.8%. Other income increased by $166,200 during 1998
compared to 1997 due to an increase in interest rates applicable to cash
reserves and an increase in the cash reserves themselves.
During both 1998 and 1997, expenditures for research and development were not
material (under 2% of revenues).
Liquidity and Capital Resources
On July 29, 1994, the Company consummated a $12 million bond issuance to finance
the expansion of the Company's Denver facilities. This expansion, prompted by
the growth of the Company's wholly-owned subsidiary, Neoteric Cosmetics, Inc.,
manufacturer of Alpha Hydrox skin care products, included construction of a
74,600 square foot office building, replacing a
smaller, existing office structure; and an additional 52,000 square feet of
manufacturing and warehouse space at an aggregate cost of approximately $13.65
million, including the cost of furniture, fixtures and equipment. This project
began in August of 1994 and was completed in January of 1996.
Interest on the $12 million bond issue is payable semi- annually at the rate of
10% per annum. (The July 1, 1999 and January 1, 2000 interest payments were made
in a timely manner. There is no reason to believe that the interest payment due
on July 1, 2000 will not be made as is required by the Bond Indenture.) A
sinking fund payment of $1 million is required annually. Should the Company's
bonds remain outstanding through their maturity on July 1, 2001, the Company
will be required at that time to pay $6 million to redeem its bonds in addition
to the $6 million then accumulated in the sinking fund. The Company voluntarily
pays $183,300 each month to the Trustee to cover future interest and sinking
fund payments. The Trustee holds such moneys in accounts to which the Company
has no access.
Among other things, the Bond Indenture requires that the Company maintain a
current ratio of at least 1.0:1 while the bonds are outstanding, and further
requires that the Company maintain a ratio of consolidated funded debt (reduced
by any amount held in the bond sinking fund) to consolidated net worth of not
more than 1.5:1. Both of the foregoing requirements were met at December 31,
1999. The Bond Indenture also states that the Company may not declare or pay any
dividend or distribution on its equity securities, purchase or otherwise acquire
securities of the Company, or incur any additional consolidated funded debt if,
after giving effect to the action, the ratio of consolidated funded debt
(reduced by amounts held in the bond sinking fund) to consolidated net worth
would exceed 1.25 to 1. That provision had also been satisfied at year end. The
bonds are secured by a first deed of trust on the Company's Denver land and
buildings, including structures financed by the bond issuance. Although the
Company's bonds became subject to call on July 29, 1997, and, no matter that
long-term interest rates are significantly lower than the rate required to be
paid on the Company's bonds, the Company (a) has postponed any pursuit of
capital to refund all or a large portion of its bond debt, this in anticipation
of improved operating results in 2000 (which should facilitate any such
refunding), and (b) in order to conserve cash for current operations, has
decided not to use any of its cash reserves to redeem any outstanding bonds at
this time.
During 1999, the Company's working capital decreased by $959,800, while its
current ratio (current assets divided by current liabilities) increased from
2.4:1 at December 31, 1998 to 2.6:1 at December 31, 1999. This decrease in
working capital is attributable to (1) a net loss in 1999 of $504,500, (2) a
reduction of long-term debt of $1,114,700, and (3) a reduction of deferred
income taxes of $20,500, all offset by (4) a decrease in other assets of
$86,400, and (5) depreciation in excess of capital additions of $593,500.
At December 31, 1999 net trade accounts receivable were $2,212,700 compared to
$1,976,500 at the end of 1998, a increase of $236,200, primarily due to a
increase in December 1999 sales vs those of the same month last year. Other
receivables decreased by $1,410,600
during 1999, largely consisting of the net decrease in income tax refunds
receivable of $1,401,700. Inventories were down by $423,400 at the end of 1999
compared to 1998, which was in line with the Company's sales decrease for the
year. Prepaid expenses decreased by $291,400 during 1999, because of the
amortization from a licensing agreement entered into in late 1998 which expired
in August of 1999. The exclusivity of this agreement was not renewed for the
coming year. Trade accounts payable decreased from the end of 1998 to the end of
1999 by $1,394,400, largely due to a decrease in advertising payables at the end
of 1999 vs 1998, the result of cost cutting measures, the reduction in inventory
during the year, and the payment of 1998 nonrecurring legal expenses in 1999.
Accrued expenses were virtually unchanged from 1998 to the
end of 1999.
The Company has no significant capital expenditures planned for 2000 and expects
that its available cash and cash flows from operating activities will fund the
next twelve months cash requirements.
As a result of Board action at a meeting in November, 1999 the Company purchased
62,900 shares of its common stock on the open market at a cost of $50,000. Such
stock was contributed by the company to its Employee Stock Ownership Plan
("ESOP"). In addition on December 30, 1999 the Board authorized the Company to
purchase up to 100,000 shares of the Company's common stock on the open market
during 2000. Such stock will also be contributed by the Company to its ESOP.
Legal Proceedings
Prior Annual Reports of the Company from 1996 forward describe a patent
infringement suit which was filed against Neoteric Cosmetics, Inc. (and others)
in May of 1996 in the United States District Court for the District of Delaware
by TriStrata Technology, Inc. Neoteric Cosmetics, Inc., a wholly owned
subsidiary of the Company, manufactures and sells skin care products under the
name Alpha Hydrox. The plaintiff in the lawsuit alleges that Neoteric Cosmetics
contributes to and/or induces infringement of patents owned by the plaintiff by
selling and
promoting Neoteric skin care products, which contain alpha hydroxy acid, for the
purpose of visibly reducing a human skin wrinkle and/or fine lines and for the
purpose of treating and/or preventing cosmetic conditions and dermatologic
disorders of the human skin such as wrinkles and fine lines. The plaintiff
requests damages to compensate the plaintiff for any infringement, an injunction
against further infringement, and treble damages because of an alleged willful
and deliberate nature of the infringement. In 1995, after the issuance of one of
the patents involved in the lawsuit, the Company changed its advertising and
packaging to remove references to wrinkles and fine lines. The Company denies
the allegations of the plaintiff and asserts the invalidity of patents. Certain
defendants in this lawsuit, including the Company, are cooperating with one
another in matters of common interest to defend against this action. A hearing
was held in November of 1998 at which the plaintiff and the
defendants were given the opportunity to present their interpretations regarding
the scope of plaintiff's patents. In late July of 1999, the Court issued a
decision which construed broadly the plaintiff's patent claims. The Company
believes that the Court's recent decision makes more relevant prior uses of
alpha hydroxy acid for treating aging skin, including wrinkles, and reinforces
the Company's view that the plaintiff's patents are invalid. The Company
continues to mount a vigorous defense in this case. The Company cannot predict
the potential outcome of this lawsuit or the ultimate impact on the Company's
financial position or results of operations.
Market Risks
Market risk represents the risk of loss due to adverse changes in financial and
commodity market prices and rates. The Company is not materially exposed to
market risks regarding interest rates because the Company's outstanding bonds
have a fixed interest rate. Further, the Company does not use foreign currencies
in its business. Currently, it receives payments for sales to parties in foreign
countries through letters of credit in U.S. dollars. Additionally, the Company
does not use derivative instruments or engage in hedging activities. As a
result, the Company does not believe that near-term changes in market risks will
have a material effect on results of operation, financial position or cash flows
of the Company.
Year 2000 ("Y2K") Issues
The Company has previously reported on its progress in implementing a corporate-
wide program to address Year 2000 (also referred to as "Y2K") issues. Most
recently, the Company reported upon the implementation of its plan in its report
to shareholders for the nine months ended September 30, 1999. The Company
experienced little or no difficulties with the advent of Year 2000, either in
its internal operations or in dealings with outside third parties.
While nothing is certain, the Company does not anticipate any significant
problems in the coming year resulting from Y2K-related issues.
Excluding an upgrade of the Company's central computer which would have taken
place as a matter of routine, the Company's incremental costs for handling Y2K
issues were approximately $100,000 in 1998 and approximated that amount in 1999.
Forward Looking Statements
This report may contain "forward-looking statements" within the meaning of the
U.S. federal securities laws. These statements are made pursuant to the safe
harbor provisions of the private Securities Litigation Reform act of 1995.
Forward-looking statements and the Company's performance inherently involve
risks and uncertainties that could cause actual results to differ materially
from the forward-looking statements. Factors that would cause or contribute to
such differences include, but are not limited to, continued acceptance of the
Company's products in the marketplace; the degree of success of any new product
or product line introduction by the Company; competitive factors; the need for
effective advertising of the Company's products; limited resources available for
such advertising; new competitive products and/or technological changes;
dependence upon third party vendors and upon sales to major customers; changes
in the regulation of the Company's products, including applicable environmental
regulations; adverse developments in pending litigation; the loss of any
executive officer; and other matters discussed in the Company's periodic filings
with the Securities and Exchange Commission.
<TABLE>
Consolidated Statements of Operations
Year ended December 31,
1999 1998 1997
<S> <C> <C> <C>
Revenues:
Net sales $34,875,500 $40,632,000 $50,020,300
Other income 625,600 621,700 455,500
----------- ----------- -----------
35,501,100 41,253,700 50,475,800
Costs and Expenses:
Cost of sales 11,921,300 13,581,900 14,132,200
Advertising 10,808,300 15,221,200 15,026,000
Selling 7,073,700 8,534,000 7,581,100
General and administrative 5,254,900 7,248,100 3,949,200
Interest 1,203,900 1,201,000 1,302,300
----------- ----------- -----------
36,262,100 45,786,200 41,990,800
----------- ----------- -----------
Income (loss) from continuing operations
before income taxes -761,000 -4,532,500 8,485,000
Income tax expense (benefit) (Note 7) -256,500 -1,758,400 3,154,400
----------- ----------- -----------
Income (loss) from continuing operations -504,500 -2,774,100 5,330,600
Discontinued operations (Note 5):
Gain on disposal, net of income taxes 0 0 750,900
----------- ----------- -----------
Net income (loss) -$504,500 -$2,774,100 $6,081,500
=========== =========== ===========
Earnings (loss) per common share (Note 8):
Income (loss) from continuing operations -$0.05 -$0.27 $0.53
Income from discontinued operations 0.00 0.00 0.07
----------- ----------- -----------
Net income (loss) per share -$0.05 -$0.27 $0.60
=========== =========== ===========
Diluted earnings (loss) per common share (Note 8):
Income (loss) from continuing operations -$0.05 -$0.27 $0.52
Income from discontinued operations 0.00 0.00 0.07
----------- ----------- -----------
Net income (loss) per share -$0.05 -$0.27 $0.59
=========== =========== ===========
Weighted average number of common shares outstanding 10,103,100 10,103,100 10,069,500
Diluted weighted average number of common
shares outstanding 10,103,100 10,103,100 10,200,900
</TABLE>
See Notes to Consolidated Financial Statements.
<TABLE>
Consolidated Balance Sheets
December 31,
ASSETS 1999 1998
<S> <C> <C>
Current assets:
Cash and cash equivalents $5,008,600 $5,421,400
Trade receivables, less allowances
of $645,500 and $679,200 for
doubtful accounts 2,212,700 1,976,500
Other receivables 408,300 1,818,900
Inventories (Note 2) 2,766,300 3,189,700
Prepaid expenses 216,000 507,400
Deferred tax assets (Note 7) 713,700 752,000
---------- ----------
Total current assets 11,325,600 13,665,900
Property, plant and equipment, net (Note 3) 17,630,800 18,224,300
Other assets 18,700 105,100
---------- ----------
$28,975,100 $31,995,300
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,420,600 $2,815,000
Accrued payroll and benefits 956,800 868,100
Other accrued expenses 967,800 1,042,600
Current maturities of
long-term debt (Note 6) 1,000,000 1,000,000
---------- ----------
Total current liabilities 4,345,200 5,725,700
Long-term debt (Notes 4 & 6) 5,865,900 6,980,600
Deferred income taxes (Note 7) 1,154,500 1,175,000
---------- ----------
11,365,600 13,881,300
Commitments and Contingencies (Note 11)
Shareholders' equity (Note 8):
Common stock $.10 par value,authorized
50,000,000 shares:
issued and outstanding
10,103,100 and 10,089,400 shares 1,010,300 1,010,300
Capital in excess of par 4,829,500 4,829,500
Retained earnings 11,769,700 12,274,200
---------- ----------
Shareholders' equity 17,609,500 18,114,000
---------- ----------
$28,975,100 $31,995,300
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
<TABLE>
Consolidated Statements of Cash Flows
Year ended December 31,
1999 1998 1997
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) -$504,500 -$2,774,100 $6,081,500
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization 1,281,800 1,316,800 1,084,800
Provision for doubtful accounts receivable 0 43,500 68,000
Compensation expense of employee stock plans 0 0 81,300
Gain on sale of discontinued operations 0 0 -1,115,800
Change in assets and liabilities:
Accounts and other receivables 1,174,400 1,376,100 -1,239,100
Inventory 423,400 643,200 296,300
Prepaid expenses -16,300 -38,500 -271,800
Deferred income taxes 17,800 -79,700 1,027,000
Accounts payable and accrued expenses -1,380,500 -1,054,500 -805,900
------ ------ ------
Total adjustments to net income (loss) 1,500,600 2,206,900 -875,200
------ ------ ------
Net Cash Provided (Used) by Operating Activities 996,100 -567,200 5,206,300
------ ------ ------
Cash flows from investing activities:
Purchase of property,plant & equipment -294,200 -189,400 -209,600
Proceeds from sale of discontinued operations 0 0 2,100,000
Net change in assets of discontinued operations 0 0 -609,400
------ ------ ------
Net Cash Provided (Used) by Investing Activities -294,200 -189,400 1,281,000
------ ------ ------
Cash flows from financing activities:
Proceeds from exercise of stock options 0 22,700 13,700
Proceeds from short-term borrowings 110,500 0 135,300
Principal payments on short-term borrowings -110,500 0 -135,300
Principal payments on long-term borrowings 0 -40,200 -2,039,600
Increase in bond sinking fund -1,114,700 -997,200 -1,008,700
Dividends paid 0 -1,009,200 0
------ ------ ------
Net Cash Used by Financing Activities -1,114,700 -2,023,900 -3,034,600
------ ------ ------
Net Increase (Decrease) in Cash and Cash Equivalents -412,800 -2,780,500 3,452,700
Cash and Cash Equivalents, beginning of year 5,421,400 8,201,900 4,749,200
------ ------ ------
Cash and Cash Equivalents, end of year $5,008,600 $5,421,400 $8,201,900
====== ====== ======
Supplemental disclosures:
Cash paid during the year for:
Interest $1,201,800 $1,194,400 $1,333,700
Income taxes $2,700 $1,928,500 $859,800
See Notes to Consolidated Financial Statements.
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1:
SUMMARY OF 'SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated. Certain reclassifications have been made in the 1998
and 1997 Consolidated Financial Statements to conform to the classifications
used in the current year.
The Company manufactures and markets household chemical products, skin
care products, and, until September 20, 1996, cigarette filters (See Note 5
- -- Discontinued Operations).
Inventories are stated at the lower of cost (first-in,first-out method)
or market.
Property,plant and equipment are recorded at historical costs. Depreciation
is provided using the straight-line method over estimated useful lives of the
assets ranging from 3 to 45 years.
The Company considers all highly liquid investments with a maturity of
three months or less at the date of acquisition to be cash equivalents.
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees ("APB 25") and related
interpretations in accounting for its employee stock options. Under APB 25,
if the exercise price of employee stock options equals the market price of
the underlying stock on the date of the grant, no compensation expense is
recorded. The Company has adopted the disclosure-only provisions of Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123") (See Note 8 -- Common Stock).
The Company recognizes revenue when title and risk of ownership of its
products passes to the customer which generally is upon delivery of the
products. The Company estimates the amount of any returns and allowances and
provides for an appropriate reserve.
In December 1999, the SEC Staff issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements." This Bulletin summarizes
certain of the Staff's views in applying generally accepted accounting
principles to selected revenue recognition issues. The effect, if any, of
adopting most of the guidance included in the Bulletin should be accounted for
as a change in accounting principle no later than the first fiscal quarter of
the fiscal year beginning after December 15, 1999. The Company anticipates
adopting such guidance in its fiscal quarter ending March 31, 2000. The
Company is in the process of determining what impact, if any, this guidance
will have on its revenue recognition.
During 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130"). SFAS 130 establishes standards for reporting and display of
comprehensive income and its components. For the years December 31, 1999,
1998 and 1997, the Company's net income (loss) equaled its comprehensive
income (loss) for those periods.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 2:
INVENTORIES
Inventories consisting of materials, labor and overhead at December 31 were
comprised of the following:
<TABLE>
1999 1998
<S> <C> <C>
---------- ----------
Finished goods $1,404,300 $1,739,100
Raw materials 1,362,000 1,450,600
---------- ----------
$2,766,300 $3,189,700
========== ==========
</TABLE>
NOTE 3:
PROPERTY,PLANT and EQUIPMENT:
<TABLE>
Property accounts at December 31 were comprised of the following:
1999 1998
<S> <C> <C>
Land $1,091,600 $1,091,600
Buildings 16,240,200 16,126,600
Production equipment 7,557,800 7,422,600
Office furniture and equipment 1,984,100 1,961,900
Other 234,400 230,300
---------- ----------
27,108,100 26,833,000
Less accumulated depreciation 9,477,300 8,608,700
---------- ----------
$17,630,800 $18,224,300
</TABLE>
NOTE 4:
FINANCIAL INSTRUMENTS
The recorded amounts for cash and cash equivalents, receivables, other
current assets, and account payable and accrued expenses approximate fair
value due to the short-term nature of these financial instruments. The fair
values of the Company's First Mortgage Bonds have been estimated using
discounted cash flow analysis based on current borrowing rates for debt with
similar maturities and ratings.
<TABLE>
December 31, 1999 December 31, 1998
Book Value Fair Value Book Value Fair Value
<S> <C> <C> <C> <C>
Long-term debt $6,865,900 $7,122,500 $7,980,600 $8,400,100
</TABLE>
NOTE 5:
DISCONTINUED OPERATIONS
In 1996, the Company's wholly owned subsidiary, Aquafilter Corporation
("Aquafilter"), sold its manufacturing equipment, inventories, patents, trade
names and goodwill to Lee Pharmaceuticals, Inc. for $800,000.
On October 14, 1997, the Company completed the liquidation of the remaining
assets with the sale of Aquafilter's land and building in Fort Lauderdale,
Florida. The gain from the sale was $750,900, net of applicable income taxes
of $364,900. The net cash proceeds (after closing costs and payoff of the
related mortgage) were approximately $1,450,000.
NOTE 6:
NOTES PAYABLE and LONG-TERM DEBT
Long-term debt at December 31 is presented below:
<TABLE>
<S> <C> <C>
1999 1998
First mortgage bonds,secured by Denver land and
buildings, due 2001, interest at 10% payable
semi-annually with sinking fund requirement
of $1 million per year beginning December 31, 1995. $12,000,000 $12,000,000
Bond sinking fund -5,134,100 -4,019,400
---------- ----------
6,865,900 7,980,600
Less current maturities 1,000,000 1,000,000
---------- ----------
$5,865,900 $6,980,600
========== ==========
</TABLE>
Maturities of long-term debt for the years 2000 through 2001 are respectively:
$1,000,000 and $5,865,900.
See "Liquidity and Capital Resources" section of Management's Discussion and
Analysis for requirements under the Indenture pertaining to the Company's
First Mortgage Bonds.
NOTE 7:
INCOME TAXES
The provisions for income taxes from continuing operations include the
following:
<TABLE>
1999 1998 1997
<S> <C> <C> <C>
Currently payable:
Federal -$368,600 -$1,541,000 $2,063,100
State 0 -176,500 113,400
Total currently
payable -368,600* -1,717,500 2,176,500**
Deferred
Federal 100,200 -36,600 899,700
State 11,900 -4,300 78,200
Total deferred 112,100 -40,900 977,900
Provision
Federal -268,400 -1,577,600 2,962,800
State 11,900 -180,800 191,600
Total provision -$256,500 -$1,758,400 $3,154,400
</TABLE>
* Income tax receivable is included in other receivables in the
accompanying 1999 and 1998 balance sheets.
** Estimated payments of approximately $725,000 were made as of
December 31, 1997 for amounts payable as of that date.
Income tax expense (benefit) from continuing operations at the statutory
tax rate is reconciled below to theoverall income tax expense (benefit)
from continuing operations as follows:
<TABLE>
1999 1998 1997
<S> <C> <C> <C>
Federal income tax
at statutory rates -$258,700 -$1,541,000 $2,884,900
State income taxes,net of
federal tax effect 0 -180,800 288,400
Other 2,300 -36,600 18,700
Total -256,400 -1,758,400 3,192,000
Tax credits -100 0 -37,600
Effective tax -$256,500 -$1,758,400 $3,154,400
========== ========== ==========
</TABLE>
Deferred taxes are determined based on estimated future tax effects of
differences between the amounts reflected in the financial statements and the
tax basis of assets and liabilities given the provisions of enacted tax laws.
The net deferred tax assets and liabilities as of December 31, 1998 and 1997
are comprised of the following:
<TABLE>
<S> <C> <C>
1999 1998
Current:
Allowance for uncollectible
accounts $228,700 $241,500
Inventory reserves 171,700 170,500
Prepaid insurance 63,900 47,000
Accrued vacation 211,700 199,900
State income tax receivable 180,800 180,800
Other -143,100 -87,700
Net current deferred
tax assets $713,700 $752,000
========== ==========
Noncurrent:
Accelerated depreciation for
tax -$1,196,500 -$1,217,400
Tax credits 40,800 40,700
Other 1,200 1,700
Total noncurrent deferred
tax liability -$1,154,500 -$1,175,000
========= =========
</TABLE>
At December 31, 1999 and 1998, the Company has no federal tax credit
carryforwards. The Company is carrying back 1999's federal tax loss to offset
a portion of the taxes paid in 1997. The Company received a federal tax refund
of $1,517,100 during 1999 related to carrying back 1998's federal'tax loss to
taxes paid in 1996 and 1997. The Company has state net operating losses of
$5,717,000 expiring over a period ending in 2019. The Company has state
tax credits of $40,800 expiring overa period ending in 2012.
The Company's consolidated federal income tax returns for the years ended
December 31 1996, 1997 and 1998 are currently under examination. The Company
believes that any assessments that maybecome due as a result of these audits
will not be material.
A reconciliation of the Company's income (loss) before taxes for financial
statement purposes to taxable income (loss) is as follows:
<TABLE>
Year ended December 31,
1999 1998 1997
<S> <C> <C>
Income (loss) from continuing operations
before income taxes -$761,000 -$4,532,500 $8,485,000
Differences between income (loss) before income taxes
and taxable income (loss):
State income taxes 0 0 -161,900
Permanent differences 6,700 12,900 12,300
Lawsuit installment note 0 0 -2,000,000
Net changes in temporary differences -294,900 107,600 -479,400
-288,200 120,500 -2,629,000
Federal taxable income (loss) -$1,049,200 -$4,412,000 $5,856,000
========= ========= =========
</TABLE>
NOTE 8:
COMMON STOCK
In 1986 and 1997, incentive stock option plans were adopted for Company
employees; in 1993, a non-qualified stock option plan was adopted for the
outside directors; and, in 1998, a stock option plan for Company employees,
officers and directors was adopted (all subsequently approved by shareholders)
which permit the Company to grant options up to an aggregate of 1,550,000
shares of common stock. Options are granted at not less than fair market
value of the stock at the date of grant and those granted are exercisable
from the grant date for five years. The 1986 plan expired in 1996 and,
accordingly no shares are available for option under that Plan. In November
1998, the directors approved the voiding of 308,000 of the then outstanding
stock options and the grantingof a like number of options at the then current
fair market value of the Company's common shares.
<TABLE>
1986 Plan 1993 Plan
----------------------- ---------------------
AVERAGE AVERAGE
NUMBER OPTION PRICE NUMBER OPTION PRICE
OF SHARES PER SHARE OF SHARES PER SHARE
<S> <C> <C> <S><C> <C>
Maximum number of shares
at inception of plans 500,000 400,000
Outstanding,December 31, 1996 406,000 $3.31 290,000 $3.19
Granted in 1997 0 0 10,000 2.00
Exercised -8,500 1.62 0 0.00
Cancelled -1,000 4.88 0 0.00
Outstanding,December 31, 1997 396,500 3.35 300,000 3.15
Granted in 1998 0 0 185,000 1.69
Exercised -13,700 1.66 0 0.00
Cancelled -300,800 2.94 -185,000 4.37
Outstanding,December 31, 1998 82,000 5.12 300,000 1.50
Granted in 1999 0 0 0 0.00
Exercised 0 0.00 0 0.00
Cancelled -82,000 5.12 -48,300 1.71
Outstanding,December 31, 1999 0 $0.00 251,700 $1.46
Available for option,
December 31, 1999 0 48,300
</TABLE>
<TABLE>
1997 Plan 1998 Plan
----------------------- ------------------------
AVERAGE AVERAGE
NUMBER OPTION PRICE NUMBER OPTION PRICE
OF SHARES PER SHARE OF SHARES PER SHARE
<S> <C> <C> <C> <C>
Maximum number of shares
at inception of plans 300,000 350,000
Outstanding,December 31, 1996 0 $ -- 0 $ --
Granted in 1997 0 0.00 0 0.00
Exercised 0 0.00 0 0.00
Cancelled 0 0.00 0 0.00
Outstanding,December 31, 1997 0 $0.00 0 0.00
Granted in 1998 523,000 2.65 200,000 1.77
Exercised 0 0.00 0 0.00
Cancelled -231,500 3.87 0 0.00
Outstanding,December 31, 1998 291,500 1.69 200,000 1.77
Granted in 1999 0 0 101,800 1.63
Exercised 0 0.00 0 0.00
Cancelled -15,300 1.76 0 0.00
Outstanding,December 31, 1999 276,200 $1.69 301,800 $1.72
Available for option,
December 31, 1999 23,800 48,200
</TABLE>
The weighted average fair value of each option grant has been estimated as of
the date of grant usin the Black-Scholes option-pricing model using the
following assumptions at December 31:
<TABLE>
1999 1998 1997
<S> <C> <C> <C>
Dividend rate 0 0 0
Expected volatility 56.22% 67.17% 80.00%
Risk-free interest rate 4.55% 4.24% 6.40%
Expected life (in years) 4.5 4.5 4.5
</TABLE>
Using these assumptions, the fair value of the stock options granted in 1999
and 1998 were estimated to be approximately $81,700, $578,500 and $12,600
respectively, net of income taxes. Had compensation cost been recorded
based on the fair value of the options granted, the Company's pro-forma
net income (loss) and net income (loss) per share for the years ended
December 31, 1999, 1998 and 1997 would have been as follows:
<TABLE>
1999 1998 1997
As Reported Pro Forma As Reported Pro Forma As Reported Pro Forma
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) -$504,500 -$586,200 -$2,774,100 -$3,352,600 $6,081,500 $6,068,900
Earnings (loss) per share -$0.05 -$0.06 -$0.27 -$0.33 $0.60 $0.60
Diluted earnings (loss)
per share -$0.05 -$0.06 -$0.27 -$0.33 $0.59 $0.59
</TABLE>
The Company has an Employee Stock Ownership Plan to provide retirement
benefits for its employees. The Plan is designed to invest primarily in the
Company's common stock and is non-contributory on the part of the Company's
employees. Contributions to the Plan are discretionary as determined by the
Company's Board of Directors. The Company expenses the cost of shares issued
to the Plan. The amount expensed for the Plan in 1999, 1998 and 1997 was
$50,000, $103,000 and $81,300 respectively. During 1999, 1998 and 1997, the
Company contributed 62,900 shares, 25,000 shares and 50,000 shares respectively
to the Employee Stock Ownership Plan, of which the 1999 and 1998 shares were
purchased on the open market.
During 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share", which the Company
adopted in 1997. Per share data is determined by using the weighted average
number of common shares outstanding. Common equivalent shares are considered
only for diluted earnings per share, unless considered anti-dilutive (as in
1999 and 1998). Common equivalent shares, determined using the treasury
stock method, result from stock options with exercise prices that are below the
average market price of the common stock. A reconciliation of the weighted
average number of common shares outstanding follows:
<TABLE>
1999 1998 1997
<S> <C> <C> <C>
Common shares outstanding,
beginning of the year 10,103,100 10,089,400 10,030,900
Incremental shares issued to
Employee Stock Ownership Plan 0 0 35,200
Incremental shares of stock
options exercised 0 13,700 3,400
-------------- -------------- --------------
Weighted average number of
common shares outstanding 10,103,100 10,103,100 10,069,500
Incremental common share
equivalents 0 0 131,400
-------------- -------------- --------------
Diluted weighted average number
of common shares outstandin 10,103,100 10,103,100 10,200,900
</TABLE>
The Company has 20,000,000 shares of preferred stock issuable in one or more
series, none of which is outstanding.
On March 2, 1998, the Company paid a dividend of $.10 per share (aggregate
$1,009,200) to shareholders of record on February 24, 1998.
NOTE 9:
SEGMENT INFORMATION
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 requires
disclosure of operating segments, which as defined, are components of an
enterprise about which separate financial information is available and is
evaluated regularly by the chief operating decision maker in deciding how
to allocate resources and in assessing performance.
The Company operates in two different segments: household products
and skin care products. The Company's products are sold nationally, directly
and through independent brokers, to mass marketers, drug stores, supermarkets,
wholesale distributors and other retail outlets. Management has chosen to
organize the Company around these segments based on differences in products
sold. The household chemicals segment produces "Scott's Liquid Gold" for
wood, a wood cleaner which preserves as it cleans, and "Touch of Scent,"
a room air freshener. The skin care segment produces "Alpha Hydrox,"
alpha hydroxy acid cleansers and lotions, including a retinol product, Belleza
Latina," cleansers and lotions specfically designed for the Hispanic market.
and "Diabetic Skin Care," a healing cream and moisturizer developed to
address skin conditions of diabetics.
The Company's accounting policies for segments are the same as those
described in Note 1, "Summary of Significant Accounting Policies."
Management evaluates segment performance based on segment income or loss
before profit sharing, bonuses, income taxes and nonrecurring gains
and losses. The following provides information on the Company's segments
as of and for the years ended December 31:
<TABLE>
1999 1998 1997
Household Household Household
Products Skin Care Products Skin Care Products Skin Care
<S> <C> <C> <C> <C> <C> <C>
Net sales to external
customers $12,914,800 $21,960,700 $14,932,000 $25,700,000 $15,536,500 $34,483,800
Income (loss) before
profit sharing, bonuses
and income taxes 2,008,100 -2,769,100 -2,619,400 -1,766,400 -1,532,300 8,147,200
Identifiable assets 3,916,700 -8,251,200 4,241,400 8,435,900 4,704,100 9,587,600
</TABLE>
The following is a reconciliation of segment information to consolidated
information:
<TABLE>
1999 1998 1997
<S> <C> <C> <C>
Revenues from reportable segments $34,875,500 $40,632,000 $50,020,300
Other revenues 625,600 621,700 455,500
------------ ------------ ------------
Consolidated revenues $35,501,100 $41,253,700 $50,475,800
=========== =========== ===========
Income (loss) before profit sharing,
bonuses and income taxes for
reportable segments -761,000 -4,385,800 6,614,900
Corporate activities 0 -146,700 1,870,100
------------- ------------ -------------
Consolidated income (loss)
before income taxes -$761,000 -$4,532,500 $8,485,000
=========== =========== ===========
Identifiable assets for reportable
segments $12,167,900 $12,677,300 $14,291,700
Corporate assets 16,807,200 19,318,000 23,300,500
------------- ------------- --------------
Consolidated total assets $28,975,100 $31,995,300 $37,592,200
=========== =========== ===========
</TABLE>
The Company attributes revenues to different geographic areas based on the
location of the customer. All of the Company's long-lived assets are located
in the United States.
<TABLE>
1999 1998 1997
<S> <C> <C> <C>
United States $33,133,000 $38,589,300 $48,188,800
Foreign countries 1,742,500 2,042,700 1,831,500
-------------- ------------ -------------
Total net sales $34,875,500 $40,632,000 $50,020,300
=========== =========== ===========
</TABLE>
In 1999, 1998 and 1997, one customer accounted for approximately $8,800,000,
$10,400,000 and $12,600,000 respectively of consolidated revenues. Both
segments sell to this customer. This customer is not related to the Company.
A loss of this customer would have a material effect on the Company if the
Company's consumer base served by this customer did not purchase the Company's
products at other retail outlets. No long-term contracts exist between the
Company and this customer or any other customer.
NOTE 10:
TRANSACTIONS WITH
RELATED PARTIES
During 1997, the Company paid consulting fees of $15,000 to Dr. Norman
Brooks in connection with its cosmetic products. Dr. Brooks' wife is the
daughter of the late Jerome J. Goldstein and the sister of Mark E. Goldstein.
Until January 1999, the Company, Neoteric Cosmetics, Inc., and the
Company's Chairman, Jerome J. Goldstein were defendants in a lawsuit filed
in the Federal District Court for the District of Colorado brought by the
Brooks' and a related corporation. The lawsuit involved a claim for
compensation by the Brooks relating to Alpha Hydrox products. On July 24,
1998, a jury unanimously found in favor of the Company, its subsidiary,
and Jerome J. Goldstein. The jury found that there was no liability as
to each claim of the plaintiffs. Subsequently, the plaintiffs in the Brooks
case filed an appeal of the judgment to the United States Tenth Circuit
Court of Appeals. On January 21, 1999, the Company entered into a settlement
agreement with the plaintiffs in the Brooks case.
The settlement results in a dismissal of the appeal of that case and a
release regarding the Company and the other defendants in the case. The
Company continues to believe that the claims of the plaintiffs in the Brooks
case were groundless. The settlement allowed the Company to avoid the cost,
time and any uncertainty involved in an appeal of the case. Under the terms of
the settlement, the defendants, including the Company, paid $225,000 to the
plaintiffs who sought a jury award of $21 million in the trial court. The
$225,000 was paid in January 1999, but was charged to 1998 operations. In
settlement of its claim against the insurer under the Company's directors
and officers liability insurance policy, the Company, in March 1999, received
$550,000 which was a substantial part of the legal expenses and settlement
paid by the Company with respect to the Brooks case.
The Company has adopted a bonus plan for its executive officers for 2000.
The Plan provides that an amount will be distributed to the Company's
executive officers equal to 10% of the annual before tax profit exceeding
$1,000,000, excluding items that are infrequent, unusual, or extraordinary.
In 1999 and 1998, no bonuses were accrued or paid under the Plan due to the
net losses. In 1997, $561,500 was accrued or paid under a similar plan.
NOTE 11
CONTINGENT LIABILITIES
In May 1996, a patent infringement suit was filed in the United States
District Court for the District of Delaware against Neoteric Cosmetics, Inc.
(and others) by TriStrata Technology, Inc. The plaintiff in the lawsuit
alleges that Neoteric Cosmetics contributes to and/or induces infringement
of patents owned by the plaintiff by selling and promoting Neoteric skin care
products, which contain alpha hydroxy acid, for the purpose of visibly
reducing a human skin wrinkle and/or fine lines and for the purpose of treating
and/or preventing cosmetic conditions and dermatologic disorders of the human
skin such as wrinkles and fine lines. The plaintiff requests damages to
compensate the plaintiff for any infringement, an injunction against further
infringement, and treble damages because of an alleged willful and deliberate
nature of the infringement. In 1995, after the issuance of one of the patents
involved in the lawsuit, the Company changed its advertising and packaging to
remove references to wrinkles and fine lines. The Company denies the
allegations of the plaintiff and asserts the invalidity of patents. Certain
defendants in this lawsuit, including the Company, are cooperating with one
another in matters of common interest to defend against this action. A hearing
was held in November 1998 at which the plaintiff and the defendants were given
the opportunity to present their interpretations regarding the scope of the
plaintiff's patents. In late July 1999, the Court issued a decision which
construed broadly the plaintiff's patent claims. The Company believes that
the Court's decision makes more relevant prior uses of alpha hydroxy acid for
treating aging skin, including wrinkles, and reinforces the Company's view that
the plaintiff's patents are invalid. The Company continues to mount a vigorous
defense in this case. The Company cannot determine the potential outcome of
this lawsuit or the ultimate impact on the Company's financial position or
results of operations.
CORPORATE DATA
Plant and Executive Offices
Scott's Liquid Gold-Inc.,
4880 Havana Street, Denver, Colorado 80239
Phone 303-373-4860
Stock Transfer Agent
Norwest Bank Minnesota N.A.,
161 N. Concord Exchange, South St. Paul, Minnesota 55075-0738
Shareholders
As of January, 2000 the Company had approximately 1200 shareholders of record.
Market Information
The high and low prices of Scott's Liquid Gold-Inc. common stock as traded on
the NASD Over the Counter Bulletin Board commencing November 8, 1999, and prior
to that date on the New York Stock Exchange, were as follows. The over-the-
counter market quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not necessarily represent actual transactions.
1999 1998
Three Months Ended Three Months Ended
High Low High Low
March 31 1-5/8 1-13/16 March 31 4-5/1 6 2-3/4
June 30 1-7/8 1-3/16 June 30 3-1/8 2
September 30 1-7/8 7/8 September 30 2-11/16 1-13/16
December 31 1-3/16 19/32 December 31 2-1/16 1-1/4
NYSE Symbol: SGD (prior to November 8, 1999)
NASD OTCBB Symbol: SLGD (effective November 8, 1999)
No decision has been made as to future dividends. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations-Liquidity and
Capital Resources" for information concerning restrictions on dividends.
Current stock quotes, SEC filings, quarterly earnings and press releases can be
found at:
http://www.businesswire.com/cnn/slgd.htm
Product web sites: http://www.scottsliquidgold.com
http://www.alphahydrox.com
http://www.touchofscent.com
http://www.neotericdiabetic.com
Directors and Officers
Mark E. Goldstein Chairman of the Board,
President, Chief Executive Officer and Director
Carolyn J. Anderson Executive Vice President,
Chief Operating Officer,Corporate Secretary and Director
Barry Shepard Treasurer, Assistant Secretary,
Chief Financial Officer and Director
Jeffrey R. Hinkle* Vice President-Marketing
Dennis H. Field Independent Consultant and Director
James F. Keane Independent Businessman and Director
* Elected February 22, 2000
EXHIBIT NO. 23
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation of our
reports incorporated by reference or included in this Form 10-K, into the
Company's previously filed form S-8 Registration Statement No. 33-63254, No. 333
- -48213, No. 333-67141.
Arthur Andersen LLP
Denver, Colorado
March 29, 2000
EXHIBIT NO. 24
POWER OF ATTORNEY
Each of the undersigned directors and/or officers of Scott's Liquid Gold-
Inc. (the "Company") hereby authorizes Mark E. Goldstein, Carolyn J. Anderson
and Barry Shepard, and each of them, as their true and lawful attorneys-in-fact
and agents (1) to sign in the name of the undersigned and file with the
Securities and Exchange Commission the Company's annual report on Form 10-K, for
the fiscal year ended December 31, 1999, and any amendments to such annual
report; and (2) to take any and all actions necessary or required in connection
with such annual report to comply with the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Securities and Exchange Commission
promulgated thereunder.
Signature Title Date
/s/ Mark E. Goldstein Chairman of the Board, 2/22/00
Mark E. Goldstein Director, President and
Chief Executive Officer
/s/ Carolyn J. Anderson Director, Executive Vice President 2/22/00
Carolyn J. Anderson Chief Operating Officer and
Corporate Secretary
/s/ Barry Shepard Director, Treasurer and Chief 2/22/00
Barry Shepard Financial Officer
/s/ Dennis H. Field Director 2/22/00
Dennis H. Field
/s/ James F. Keane Director 2/22/00
James F. Keane
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 5,008,600
<SECURITIES> 0
<RECEIVABLES> 3,266,500
<ALLOWANCES> 645,500
<INVENTORY> 2,766,300
<CURRENT-ASSETS> 11,325,600
<PP&E> 17,630,800
<DEPRECIATION> 0
<TOTAL-ASSETS> 28,975,100
<CURRENT-LIABILITIES> 4,345,200
<BONDS> 12,000,000
0
0
<COMMON> 1,010,300
<OTHER-SE> 16,599,200
<TOTAL-LIABILITY-AND-EQUITY> 28,975,100
<SALES> 34,875,500
<TOTAL-REVENUES> 35,501,100
<CGS> 11,921,300
<TOTAL-COSTS> 35,058,200
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,203,900
<INCOME-PRETAX> (761,000)
<INCOME-TAX> (256,500)
<INCOME-CONTINUING> (504,500)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (504,500)
<EPS-BASIC> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
