<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000353944
<NAME> INTERNATIONAL GAME TECHNOLOGY
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-02-1999
<PERIOD-END> APR-03-1999
<CASH> 193,160
<SECURITIES> 13,758
<RECEIVABLES> 169,559
<ALLOWANCES> 17,669
<INVENTORY> 134,784
<CURRENT-ASSETS> 664,705
<PP&E> 288,292
<DEPRECIATION> 115,148
<TOTAL-ASSETS> 1,532,941
<CURRENT-LIABILITIES> 214,284
<BONDS> 0
0
0
<COMMON> 95
<OTHER-SE> 469,056
<TOTAL-LIABILITY-AND-EQUITY> 1,532,941
<SALES> 276,220
<TOTAL-REVENUES> 442,577
<CGS> 175,296
<TOTAL-COSTS> 245,035
<OTHER-EXPENSES> 95,198
<LOSS-PROVISION> 3,521
<INTEREST-EXPENSE> 25,185
<INCOME-PRETAX> 102,665
<INCOME-TAX> 34,393
<INCOME-CONTINUING> 68,272
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 68,272
<EPS-PRIMARY> .64
<EPS-DILUTED> .64
</TABLE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ending: April 3, 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 001-10684
INTERNATIONAL GAME TECHNOLOGY
(Exact name of registrant as specified in charter)
Nevada 88-0173041
(State of Incorporation) (IRS Employer Identification No.)
9295 Prototype Drive, Reno, Nevada 89511
(Address of principal executive offices)
(775) 448-7777
(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at May 1, 1999
Common Stock 98,184,267
par value $.000625 per share
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
The accompanying condensed consolidated financial statements have been
prepared by the Company, without audit, and reflect only normal recurring
adjustments which are, in the opinion of management, necessary for a fair
statement of the results for the interim periods. The statements have been
prepared in accordance with the regulations of the Securities and Exchange
Commission (the "SEC"), but omit certain information and footnote
disclosures necessary to present the statements in accordance with
generally accepted accounting principles. Operating results for the
quarter or year to date periods are not necessarily indicative of the
results that may be expected for the fiscal year ending October 2, 1999.
These financial statements should be read in conjunction with the
financial statements, accounting policies and notes included in the
Company's Annual Report on Form 10-K for the fiscal year ended September
30, 1998. Management believes that the disclosures are adequate to make the
information presented herein not misleading.
Organization
International Game Technology (the "Company") was incorporated in
December 1980 to acquire the gaming licensee and operating entity, IGT,
and to facilitate the Company's initial public offering. IGT is one of
the largest manufacturers of computerized casino gaming products and
operators of proprietary gaming systems in the world and was the first to
develop computerized video gaming machines. IGT principally has served
the casino gaming industry in the United States. In 1986, IGT began
expanding its business internationally and currently manufactures its
gaming products in Australia, Japan and the United Kingdom in addition to
the United States. IGT also maintains sales offices in legalized gaming
jurisdictions globally, including Argentina, Brazil, New Zealand, Peru
South Africa and The Netherlands. The Company is currently licensed to
provide gaming products in every significant legalized gaming jurisdiction
in the world. Each of the following corporations is a direct or indirect
wholly-owned subsidiary of the Company: I.G.T. - Argentina S.A. ("IGT-
Argentina"); I.G.T. (Australia) Pty. Limited ("IGT-Australia"); IGT do
Brasil Ltda. ("IGT-Brazil"); IGT-Europe B.V. ("IGT-Europe"); IGT-Iceland
Ltd. ("IGT-Iceland"); IGT Japan K.K. ("IGT-Japan"); IGT-UK Limited ("IGT-
UK"); International Game Technology - Africa (Proprietary) Limited ("IGT-
Africa"); and International Game Technology S.R. Ltda. ("IGT-Peru").
IGT operates principally in two lines of business: (1) the
development, manufacturing, marketing and distribution of gaming products,
what we refer to as "Gaming Product Sales" and (2) the development,
marketing and operation of wide-area progressive systems, what we refer to
as "Gaming Operations."
Gaming Product Sales. IGT manufactures a broad range of
microprocessor-based gaming machines, consisting of traditional spinning
reel slot machines, video gaming machines and government-sponsored and
other video gaming devices. We offer products with such brand names as
Double Diamond; Red, White and Blue; Five Times Pay; Bonus Poker and Deuces
Wild. The Company typically sells our machines directly to casino
operators, but may in certain circumstances finance the sale or lease of
equipment to the operator. In addition to gaming machines, IGT develops
and sells computerized casino management systems which provide casino
operators with slot and table game accounting, player tracking and
specialized bonusing capabilities. The Company also develops and sells
specialized video lottery terminals for lotteries and other applications
and computerized linked proprietary systems to allow the lottery
authorities to monitor video lottery terminals. We derive revenue related
to the operation of these systems and collect license and franchise fees
for the use of the systems.
<PAGE>
Item 1. Financial Statements, (continued)
Gaming Operations. Approximately 3% of the installed base of gaming
machines are revenue share machines, which include wide-area progressive
systems and stand-alone machines in which the manufacturer participates in
the revenue from the machine on a percentage or fee basis. Wide-area
progressive systems are electronically-linked, inter-casino systems that
link gaming machines to a central computer, allowing the system to build a
"progressive" jackpot with every wager made throughout the system until a
player hits a winning combination. IGT has developed and operated wide-
area progressive systems for over 10 years.
Unless the context indicates otherwise, references to "International
Game Technology," "IGT" or the "Company" include International Game
Technology and its wholly-owned subsidiaries and their subsidiaries. The
principal executive offices of the Company are located at 9295 Prototype
Drive, Reno, Nevada 89511; its telephone number is (775) 448-7777.
The following trademarks are owned by IGT and are registered with the
U.S. Patent and Trademark Office: International Game Technology; IGT; the
IGT logo with spade design; Double Diamond; Megabucks; Player's Edge-Plus;
and Red, White & Blue. IGT also owns the trademark rights to the
following: Game King; iGame with Design (interactive gaming); IGS; IGT
Gaming systems; MegaJackpots; Nickels Deluxe; Slot Line; S-Plus Limited
Series; Super Megabucks; Totem Pole; Vision Series; and Vision Slot.
Elvis is a registered trademark of Elvis Presley Enterprises. Wheel of
Fortune is a registered trademark of Califon Productions, Inc. Jeopardy!
is a registered trademark of Jeopardy Productions, Inc. Five-Deck Frenzy
is a trademark of Shufflemaster.
The consolidated financial statements include the accounts of the
Company and all of its majority-owned subsidiaries. All material
intercompany accounts and transactions have been eliminated.
<PAGE>
Condensed Consolidated Statements of Income
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 3, March 31, April 3, March 31,
1999 1998 1999 1998
(Amounts in thousands, except,
per share amounts)
<S> <C> <C> <C> <C>
Revenues
Product sales $139,616 $ 91,660 $276,220 $187,016
Gaming operations 81,255 90,430 166,357 160,087
Total revenues 220,871 182,090 442,577 347,103
Costs and Expenses
Cost of product sales 88,510 53,049 175,296 107,766
Cost of gaming operations 31,138 39,643 69,739 74,135
Selling, general and administrative 31,972 22,750 61,713 43,733
Depreciation and amortization 6,266 3,439 12,373 6,806
Research and development 10,408 8,208 21,112 15,482
Provision for bad debts 2,148 1,778 3,521 3,164
Total costs and expenses 170,442 128,867 343,754 251,086
Income from Operations 50,429 53,223 98,823 96,017
Other Income (Expense)
Interest income 14,570 11,161 26,113 22,336
Interest expense (12,622) (9,202) (25,185) (17,992)
Gain (loss) on the sale of assets (100) 39 3,870 1,081
Other (1,404) (617) (956) (1,192)
Other income, net 444 1,381 3,842 4,233
Income Before Income Taxes 50,873 54,604 102,665 100,250
Provision for Income Taxes 17,042 19,112 34,393 35,087
Net Income $ 33,831 $ 35,492 $ 68,272 $ 65,163
Basic Earnings Per Share $ 0.32 $ 0.31 $ 0.64 $ 0.57
Diluted Earnings Per Share $ 0.32 $ 0.31 $ 0.64 $ 0.56
Weighted Average Common Shares
Outstanding 104,921 113,870 106,480 113,820
Weighted Average Common and
Potential Shares Outstanding 105,652 116,129 107,425 116,122
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
<PAGE>
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
April 3, September 30,
1999 1998
(Dollars in thousands)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 193,160 $ 175,413
Investment securities at market value 13,758 19,354
Accounts receivable, net of allowances
for doubtful accounts of $8,029
and $5,512 169,559 189,521
Current maturities of long-term notes
and contracts receivable, net of
allowances 64,372 63,022
Inventories, net of allowances for
obsolescence of $15,760 and $18,574:
Raw materials 69,733 73,749
Work-in-process 3,762 3,746
Finished goods 61,289 55,659
Total inventories 134,784 133,154
Investments to fund liabilities to
jackpot winners 41,663 41,216
Deferred income taxes 17,526 16,517
Prepaid expenses and other 29,883 32,346
Total Current Assets 664,705 670,543
Long-term notes and contracts receivable,
net of allowances and current maturities 29,516 37,750
Property, plant and equipment, at cost
Land 19,395 19,406
Buildings 71,060 71,136
Gaming operations equipment 81,873 73,222
Manufacturing machinery and equipment 111,153 109,576
Leasehold improvements 4,811 4,955
Total 288,292 278,295
Less accumulated depreciation and
amortization (115,148) (109,542)
Property, plant and equipment, net 173,144 168,753
Investments to fund liabilities to
jackpot winners 367,567 369,427
Deferred income taxes 130,277 131,708
Intangible assets 135,678 131,552
Other assets 32,054 33,895
Total Assets $1,532,941 $1,543,628
</TABLE>
(continued)
<PAGE>
Condensed Consolidated Balance Sheets (continued from previous page)
<TABLE>
<CAPTION>
April 3, September 30,
1999 1998
(Dollars in thousands)
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities
Current maturities of long-term notes
payable and capital lease obligations $ 42,536 $ 30,311
Accounts payable 52,061 57,277
Jackpot liabilities 56,208 50,659
Accrued employee benefit plan liabilities 13,454 17,512
Other accrued liabilities 50,025 44,781
Total Current Liabilities 214,284 200,540
Long-term notes payable and capital lease
obligations, net of current maturities 377,985 322,510
Long-term jackpot liabilities 471,276 479,217
Other liabilities 245 85
Total Liabilities 1,063,790 1,002,352
Commitments and contingencies - -
Stockholders' equity
Common stock, $.000625 par value;
320,000,000 shares authorized;
152,775,332 and 152,586,560
shares issued 95 95
Additional paid-in capital 260,277 256,656
Retained earnings 892,623 827,542
Treasury stock; 52,154,165 and 43,721,200
shares, at cost (676,588) (535,797)
Accumulated other comprehensive loss (7,256) (7,220)
Total Stockholders' Equity 469,151 541,276
Total Liabilities and Stockholders' Equity $1,532,941 $1,543,628
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
<PAGE>
Condensed Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended
April 3, March 31,
1999 1998
(Dollars in thousands)
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 68,272 $ 65,163
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 23,322 17,423
Provision for bad debts 3,521 3,164
Provision for inventory obsolescence 6,310 5,149
Gain on investment securities and fixed
assets (3,870) (1,081)
Common stock awards 710 1,204
(Increase) decrease in assets:
Receivables 25,469 58,208
Inventories (26,218) (46,763)
Prepaid expenses and other 1,607 131
Other assets (1,818) 53
Net accrued and deferred income taxes,
net of tax benefit of employee stock plans 9,292 (8,495)
Decrease in accounts payable and accrued
liabilities (9,568) (8,114)
Earnings of unconsolidated affiliates
(in excess of) less than distributions 3,686 (16,402)
Other 1 81
Total adjustments 32,444 4,558
Net cash provided by operating activities 100,716 69,721
</TABLE>
(continued)
<PAGE>
Condensed Consolidated Statements of Cash Flows (continued from
previous page)
<TABLE>
<CAPTION>
Six Months Ended
April 3, March 31,
1999 1998
(Dollars in thousands)
<S> <C> <C>
Cash Flows from Investing Activities
Investment in property, plant and equipment (6,081) (8,543)
Proceeds from sale of property, plant and
equipment 659 650
Purchase of investment securities - (341)
Proceeds from sale of investment securities 8,791 2,142
Proceeds from investments to fund liabilities
to jackpot winners 20,902 18,095
Purchase of investments to fund liabilities
to jackpot winners (19,489) (52,028)
Investment in unconsolidated affiliates - (697)
Acquisition of businesses - (180,509)
Net cash provided by (used in) investing
activities 4,782 (221,231)
Cash Flows from Financing Activities
Proceeds from long-term debt 598,566 294,394
Principal payments on debt (536,520) (128,865)
Payments on jackpot liabilities (55,930) (18,095)
Collections from systems to fund jackpot
liabilities 54,589 68,965
Proceeds from employee stock plans 2,473 3,088
Purchases of treasury stock (140,774) (19,451)
Payment of cash dividends (6,458) (6,827)
Net cash provided by (used in) financing
activities (84,054) 193,209
Effect of Exchange Rate Changes on Cash and
Cash Equivalents (3,697) 2
Net Increase in Cash and Cash Equivalents 17,747 41,701
Cash and Cash Equivalents at:
Beginning of Period 175,413 151,771
End of Period $193,160 $193,472
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
<PAGE>
Notes to Condensed Consolidated Financial Statements
1. Acquisition
On March 11, 1999, the Company signed a definitive agreement
with Sodak Gaming, Inc. ("Sodak"), for IGT to acquire Sodak, a
distributor of casino gaming products and software systems to Native
American casinos and gaming operators in the United States. A
wholly-owned subsidiary of International Game Technology will acquire
the outstanding common stock of Sodak for $10 per share in cash,
totaling approximately $230 million. The transaction is subject to
certain conditions, including regulatory and Sodak shareholder
approval and IGT obtaining the financing required to fund the
acquisition. The holders of a majority of the common stock of Sodak
have agreed to vote in favor of the merger, and the transaction is
expected to close in the second half of calendar 1999.
2. Notes and Contracts Receivable
The following allowances for doubtful notes and contracts were
netted against current and long-term maturities:
<TABLE>
<CAPTION>
April 3, September 30,
1999 1998
(Dollars in thousands)
<S> <C> <C>
Current $ 9,640 $10,602
Long-term 7,647 6,126
$17,287 $16,728
</TABLE>
3. Intangible Assets
Intangible assets consist of the following:
<TABLE>
<CAPTION>
April 3, September 30,
1999 1998
(Dollars in thousands)
<S> <C> <C>
Intellectual property $ 39,587 $ 37,129
Excess of cost over net
assets acquired 104,787 98,778
144,374 135,907
Less accumulated
amortization (8,696) (4,355)
$135,678 $131,552
</TABLE>
4. Concentrations of Credit Risk
The financial instruments that potentially subject the Company
to concentrations of credit risk consist principally of cash and
cash equivalents and accounts, contracts, and notes receivable. The
Company maintains cash and cash equivalents with various financial
institutions in amounts which, at times, may be in excess of the
FDIC insurance limits.
Product sales and the resulting receivables are concentrated in
specific legalized gaming regions. The Company also distributes a
portion of its products through third party distributors resulting in
significant distributor receivables.
<PAGE>
Notes to Condensed Consolidated Financial Statements, (continued)
Accounts, contracts, and notes receivable by region as a
percentage of total receivables are as follows:
<TABLE>
<CAPTION>
April 3, 1999
<S> <C>
Region
Nevada 26%
Atlantic City (distributor and other) 10%
Europe 10%
South America 10%
Riverboats (greater Mississippi River area) 9%
Australia 8%
Native American casinos (distributor) 8%
Canada 7%
Other regions (individually less than 4%) 12%
Total 100%
</TABLE>
In September 1993, the Company sold its equity ownership
interest in CMS-International ("CMS") to Summit Casinos-Nevada, Inc.
("Summit"), whose owners include senior management of CMS. The
Company remains as guarantor on certain indebtedness of CMS, which at
April 3, 1999, had an aggregate outstanding balance of $14.5 million,
including principal and accrued interest. On April 16, 1999, the
guaranteed notes were restructured with the lender to include the
accrued interest in the principal balance and amend the maturity
dates to October 16, 1999. The notes remain collateralized by the
respective casino properties. In the event the notes are not repaid
in accordance with the terms, the Company expects to be required to
make payment under the guarantee to the lender or make other
arrangements satisfactory to the lender. In such an event, the
Company would record a receivable from CMS and assess the
collectibility of the receivable.
5. Senior Notes
On April 29, 1999, IGT announced that it plans to offer $1.0
billion in aggregate principal amount of Senior Notes. On May 11,
1999, the Senior Notes were offered in two tranches: $400 million
aggregate principal amount of 7 7/8% Senior Notes, due May 15, 2004,
priced at 99.053% and $600 million aggregate principal amount of 8
3/8% Senior Notes, due May 15, 2009, priced at 98.974%. The closing
of the Senior Notes offering is scheduled to occur on May 19, 1999.
The net proceeds from the offering are expected to be used to finance
the Company's previously announced planned acquisition of Sodak, to
redeem the remaining $85.7 million of its 7.84% Senior Notes due
2004, to repay outstanding borrowings under its revolving bank credit
facility and Australian credit facility, and to fund working capital
and the Company's common stock repurchase program. In addition,
proceeds of the Senior Notes will be used to settle a forward equity
share repurchase for 4.9 million shares of the Company's common
stock.
<PAGE>
Notes to Condensed Consolidated Financial Statements, (continued)
6. Earnings Per Share
The following table shows the reconciliation of basic earnings
per share ("EPS") to diluted EPS:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 3, March 31, April 3, March 31,
1999 1998 1999 1998
(Dollars in thousand)
<S> <C> <C> <C> <C>
Net income $ 33,831 $ 35,492 $ 68,272 $ 65,163
Weighted average common
shares outstanding 104,921 113,870 106,480 113,820
Dilutive effect of stock
options outstanding 731 2,259 945 2,302
Weighted average common and
potential shares
outstanding 105,652 116,129 107,425 116,122
Basic earnings per share $ 0.32 $ 0.31 $ 0.64 $ 0.57
Diluted earnings per share $ 0.32 $ 0.31 $ 0.64 $ 0.56
</TABLE>
Options to purchase 1.4 million and 54,000 shares of common
stock at April 3, 1999 and March 31, 1998, respectively, were not
included in the computation of diluted EPS for the respective quarter
because the options' exercise price was greater than the average
market price of the common shares.
Options to purchase 868,000 and 50,000 shares of common stock at
April 3, 1999 and March 31, 1998, respectively, were not included in
the computation of year-to-date diluted EPS because the options'
exercise price was greater than the average market price of the
common shares. The Company has purchased a total of 2.4 million
shares, or approximately 2% of its outstanding common stock during
the period of April 4, 1999 to May 17, 1999. There were no other
transactions during the same period which would have materially
changed the number of common shares or potential common shares
outstanding.
7. Income Taxes
The provision for income taxes is based on estimated effective
annual income tax rates. The provision differs from income taxes
currently payable because certain items of income and expense are
recognized in different periods for financial statement and tax
return purposes.
8. Comprehensive Income
In June 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income," which was adopted by the Company
beginning October 1, 1998. SFAS No. 130 requires the reporting of
comprehensive income and its components in the financial statements.
This Statement also requires that an entity classify items of other
comprehensive income by their nature in an annual financial
statement. The Company intends to disclose this information in its
Annual Report on Form 10-K for the year ending October 2, 1999.
Items of other comprehensive income include cumulative foreign
currency translation adjustments and net unrealized gains on
investment securities.
<PAGE>
Notes to Condensed Consolidated Financial Statements, (continued)
The Company's total comprehensive income is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 3, March 31, April 3, March 31,
1999 1998 1999 1998
(Dollars in thousands)
<S> <C> <C> <C> <C>
Net income $ 33,831 $ 35,492 $ 68,272 $ 65,163
Net change in other
comprehensive income (15) 597 (36) (3,836)
Comprehensive income $ 33,816 $ 36,089 $ 68,236 $ 61,327
</TABLE>
9. Supplemental Cash Flows Information
Certain noncash investing and financing activities are not
reflected in the condensed consolidated statements of cash flows.
The Company manufactures gaming machines which are used on its
proprietary systems and are leased to customers under operating
leases. Property, plant and equipment increased $19.8 million and
$7.5 million during the six months ended April 3, 1999 and March 31,
1998, respectively, as the net result of transfers between inventory
and fixed assets.
The tax benefit of employee stock plans totaled $0.4 million
and $1.6 million for the six month periods ended April 3, 1999 and
March 31, 1998, respectively.
Payments of interest for the first half of fiscal 1999 and 1998
were $24.4 million and $18.0 million, respectively. Payments for
income taxes were $22.7 and $39.4 million for the six month periods
ended April 3, 1999 and March 31, 1998, respectively.
10. Contingencies
The Company has been named in and has brought lawsuits in the
normal course of business. Management does not expect the outcome of
these suits, including the lawsuits described below, to have a
material adverse effect on the Company's financial position or
results of future operations.
Along with a number of other public gaming corporations, the
Company is a defendant in three class action lawsuits, one filed in
the United States District Court of Nevada, Southern Division,
entitled Larry Schreier v. Caesar's World, Inc., et al., and two
filed in the United States District Court of Florida, Orlando
Division, entitled Poulos v. Caesar's World, Inc., et al. and Ahern
v. Caesar's World, Inc., et al., which have been consolidated into a
single action. The Court granted the defendants' motion to transfer
venue of the consolidated action to Las Vegas. The actions allege
that the defendants have engaged in fraudulent and misleading
conduct by inducing people to play video poker machines and
electronic slot machines, based on false beliefs concerning how the
machines operate and the extent to which there is an opportunity to
win on a given play. The amended complaint alleges that the
defendants' acts constitute violations of the Racketeer Influenced
and Corrupt Organizations Act, and also give rise to claims for
common law fraud and unjust enrichment, and seeks compensatory,
special, consequential, incidental and punitive damages of several
billion dollars. In December 1997, the Court denied the motions
that would have dismissed the Consolidated Amended Complaint or that
would have stayed the action pending Nevada gaming regulatory
action. The defendants filed their consolidated answer to the
Consolidated Amended Complaint on February 11, 1998. At this time,
motions concerning class certification are pending before the Court.
<PAGE>
Notes to Condensed Consolidated Financial Statements, (continued)
The Company previously disclosed in its September 30, 1997 Form
10-K that its exclusive distributorship agreement between the Company
and Atlantic City Coin and Slot Service Company ("ACCS") whereby ACCS
agreed to sell certain products on behalf of the Company, principally
into the Atlantic City, New Jersey market, was expected to end in
June 1998 upon expiration of the term of the agreement. In September
1997, the Company notified ACCS that it would not renew the
agreement. ACCS subsequently filed suit in the U.S. District Court
for the District of New Jersey against the Company seeking, among
other things, injunctive relief under the New Jersey Franchise
Practices Act. On July 13, 1998, the Court granted ACCS' motion for
injunctive relief, preliminarily enjoining the Company's termination
of the 1993 agreement. The Company and ACCS have executed a
settlement agreement, approved by the Court in April 1999, that
resolves all outstanding claims. The agreement provides that, among
other things, ACCS will remain the Company's distributor pursuant to
the 1993 agreement.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Three Months Ended April 3, 1999 Compared to the Three Months Ended
March 31, 1998
Net income for the quarter totaled $33.8 million or $0.32 per
diluted share compared to $35.5 million or $0.31 per diluted share in
the prior year.
Revenues and Gross Profit Margins
Total revenues for the second quarter of fiscal 1999 grew 21% to
$220.9 million from $182.1 million in the second quarter of fiscal
1998 due primarily to growth in international product sales. The
Company shipped 25,800 gaming machines resulting in product sales of
$139.6 million for the current quarter compared to 12,600 units and
$91.7 million in the comparable prior year quarter. The Company sold
13,500 gaming machines, or 52% of total units, in international
markets during the current quarter compared to 3,500 gaming machines,
or 28% of total units, during the prior year quarter. The addition
of the Barcrest product lines in March 1998, along with growth in
Japanese pachisuro sales drove the improvement.
IGT shipped 12,300 gaming machines to domestic markets during
the quarter compared to 9,100 in the year earlier period. Domestic
shipments for the current period included sales to the Ontario
Lottery Commission ("OLC"), representing a 55% market share, and an
estimated 70% market share to both the new Mandalay Bay and Venetian
resorts in Las Vegas. In addition, domestic volumes benefited from
increased unit demand from Native American casinos during the current
quarter. IGT recently announced that it plans to acquire Sodak
Gaming, Inc. ("Sodak"), a distributor of casino gaming products and
software systems to Native American markets, subject to certain
conditions including regulatory approvals, Sodak shareholder approval
and IGT obtaining the required financing.
Revenues from gaming operations in the second quarter of fiscal
1999 were $81.3 million compared to $90.4 million for the same period
last year. The fluctuation in quarter-to-quarter revenues is due
primarily to Nevada Megabucks. The jackpot on Nevada Megabucks grew
throughout fiscal 1998 to a record-breaking $27.0 million in November
1998, which resulted in record play levels in the prior year quarter.
In comparison to the prior year, the introduction of new systems
including Elvis, Jeopardy! and Slotopoly in various jurisdictions
partially offset the decrease in Nevada Megabucks and other systems.
The installed base of machines operating on MegaJackpot systems grew
to 14,600 units at the end of the current quarter compared to 13,100
machines one year earlier.
The gross profit on total revenues for the second quarter of
fiscal 1999 increased 13% to $101.2 million compared to $89.4 million
for the second quarter of fiscal 1998 related primarily to growth in
product sales. The gross profit on product sales improved 32% to
$51.1 million compared to $38.6 million for the corresponding quarter
of fiscal 1998. The gross margin percentage on product sales was 37%
for the current quarter versus 42% in the year earlier period
reflecting changes in product mix. Gross profits from gaming
operations totaled $50.1 million for the current quarter versus $50.8
million in the fiscal 1998 first quarter. The gross margin on gaming
operations improved to 62% for the quarter versus 56% for the year
earlier period. The improvement was primarily due to an increase in
the proportion of overall gaming operations revenues attributable to
joint venture activities.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations, (continued)
Expenses
Selling, general and administrative expenses increased $9.2
million to $32.0 million in the second quarter of fiscal 1999 in
comparison to the same prior year period. This fluctuation reflects
the inclusion of operating expenses of the Barcrest and Olympic
businesses which were acquired in the UK and Australia in March 1998,
along with increased domestic advertising, marketing, and compliance
expenses related to new product offerings. Depreciation and
amortization expense totaled $6.3 million and $3.4 million for the
second quarters of fiscal 1999 and 1998, respectively. This increase
was primarily due to amortization of goodwill and additional
depreciation expense arising from the acquired assets.
Research and development expenses increased to $10.4 million for
the current quarter compared to $8.2 million for the second quarter
of fiscal 1998. This increase resulted primarily from the additional
research and development centers in the UK and Australia. The
provision for bad debts totaled $2.1 million in the second quarter of
fiscal 1999 versus $1.8 million in the comparable prior year quarter.
The fluctuation resulted primarily from increased provisions for
international receivables.
Operating expenses were 23% of total revenues for the current
quarter versus 20% in the second quarter of fiscal 1998. This
fluctuation is primarily attributable to lower sales volume of IGT-
Australia machines in addition to the inclusion of operating expenses
from the Olympic acquisition.
Other Income and Expense
Other income for the quarter was $0.4 million compared to $1.4
million in the second quarter of fiscal 1998. An increase in
interest income was partially offset by increased interest expense on
borrowings used for acquisitions and purchases of treasury stock.
Foreign currency losses in excess of amounts hedged also contributed
to the change in other income and expense. Operation of the
Company's MegaJackpot systems results in interest income from both
the investment of systems cash and from investments purchased to fund
jackpot payments. Interest expense on the jackpot liability is
accrued at the rate earned on the investments purchased to fund the
liability. Therefore, interest income and expense relating to
funding jackpot winners are equal and increase at the same rate based
on the growth in total jackpot winners. Interest income from
investment of systems cash increased $0.2 million over the comparable
prior year period as a result of growth in proprietary systems.
The Company's worldwide tax rate declined to 33.5% for the
second quarter compared to 35% in the prior year. The change
reflects the expiration of tax contingencies, implementation of
beneficial tax strategies related to the IGT Foreign Sales
Corporation, research and development credits and structuring of
foreign acquisitions, as well as an increase in foreign operations in
jurisdictions which have lower statutory tax rates.
Six Months Ended April 3, 1999 Compared to the Six Months Ended March
31, 1998
Net income for the first six months of fiscal 1999 totaled $68.3
million or $0.64 per diluted share compared to $65.2 million or $0.56
per diluted share in the prior year. Growth in international product
sales and continued gains in proprietary systems revenue contributed
most significantly to the 5% improvement in net income.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations, (continued)
Revenues and Gross Profit Margins
Total revenues for the six months ended April 3, 1999 grew 28%
to $442.6 million from $347.1 million in the first half of fiscal
1998. IGT shipped 58,000 gaming machines resulting in product sales
of $276.2 million for the first half of fiscal 1999 compared to
27,200 units and $187.0 million in the comparable prior year period.
Internationally, IGT shipped 38,400 gaming machines, or 66% of total
units, during the current year-to-date period versus 9,500 machines,
or 35% of total units, during the prior year period. The replacement
markets in the UK and Japan contributed most significantly to the
growth in international sales. Japanese sales totaled 16,200 units,
driven by the introduction of IGT-Japan's latest pachisuro game,
Popper King. Barcrest, the Company's UK subsidiary acquired in March
1998, sold 15,600 gaming machines during the current period. Domestic
shipments totaled 19,500 gaming machines during the current period
compared to 17,700 units in the comparable prior year period. Sales
in the Canadian, Native American and Nevada markets drove the 10%
improvement in domestic machine sales.
Revenues from gaming operations in the first six months of
fiscal 1999 increased to $166.4 million from $160.1 million for the
same period last year. This increase is primarily attributable to the
continued popularity of the Wheel of Fortune game. Over the past
year, IGT has introduced new progressive systems with enhanced
entertainment value and improved player appeal including Elvis,
Jeopardy!, Slotopoly, Super Megabucks and Triple Play Poker in
various jurisdictions. Increases in revenue from new systems have
offset revenues from IGT's traditional games which have experienced
declining play levels. The addition of wide area progressive gaming
in Iowa also contributed positively to the overall increase in gaming
operations revenues. The installed base of machines operating on
MegaJackpot systems grew to 14,600 units at the end of the current
period compared to 13,100 machines one year earlier.
The gross profit on total revenues for the six months ended
April 3, 1999 increased to $197.5 million from $165.2 million for the
prior year period. This 20% improvement resulted from an increase of
$21.7 million in product sales gross profit and a $10.7 million
increase in gaming operations gross profit. The gross profit on
product sales grew to $100.9 million from $79.3 million reported for
the corresponding period of fiscal 1998. The gross margin percentage
on product sales was 37% for the current six month period compared to
42% in the year earlier period. This fluctuation was due to the
larger mix of international sales, which grew to 48% of total product
sales from 29% in the year earlier period. The gross margin
percentage domestically was influenced by a higher mix of new product
lines, which carry higher margin dollars but lower margin
percentages, as well as increased discounts and inventory
obsolescence. The gross margin on gaming operations grew to $96.6
million or 58% in the first half of fiscal 1999 versus $86.0 million
or 54% for the comparable period of fiscal 1998. The improvement in
gross profit margin is primarily due to joint venture activities
totaling $38.0 million, which, for accounting purposes, are reported
net of expenses in gaming operations revenue, partially offset by
declining interest rates which increased the costs of interest
sensitive assets the Company purchases to fund jackpot payments.
Expenses
Selling, general and administrative expenses increased $18.0
million to $61.7 million in the first half of fiscal 1999 in
comparison to the same prior year period. This fluctuation is
primarily due to the inclusion of operating expenses attributable to
the businesses acquired in the UK and Australia in March 1998, along
with increased domestic advertising, marketing, and compliance
expenses related to new product offerings.
Depreciation and amortization expense totaled $12.4 million and
$6.8 million for the six months ended April 3, 1999 and March 31,
1998, respectively. This increase is primarily due to amortization
of goodwill and additional depreciation of the acquired assets.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations, (continued)
Research and development expenses increased $5.6 million over
the prior year period due primarily to the additional research and
development centers in the UK and Australia. The provision for bad
debts totaled $3.5 million and $3.2 million for the current and prior
year periods, respectively. An increase in provisions for
international receivables was offset by a decline in domestic bad
debt expense reflecting the current period product sales mix.
Operating expenses as a percent of total revenues were 22% for
the period ended April 3, 1999 versus 20% in the comparable prior
year period. This fluctuation is primarily attributable to lower
sales volume of IGT-Australia units in addition to the inclusion of
operating expenses from the Olympic acquisition. The Company has
recently restructured its IGT-Australia operation to realize benefits
from the addition of Olympic.
Other Income and Expense
Other income for the six months ended April 3, 1999 was $3.8
million versus $4.2 million for the comparable prior year period.
This fluctuation was primarily the result of increased interest
expense on borrowings used for acquisitions and purchases of treasury
stock. The increase in interest expense was partially offset by
increased gains on sales of investments. Operation of the Company's
MegaJackpot systems results in interest income from both the
investment of systems cash and from investments purchased to fund
jackpot payments. Interest expense on the jackpot liability is
accrued at the rate earned on the investments purchased to fund the
liability. Therefore, interest income and expense relating to
funding jackpot winners are equal and increase at the same rate based
on the growth in total jackpot winners. Interest income from
investment of systems cash increased $0.8 million over the comparable
prior year period as a result of growth in proprietary systems.
Liquidity and Capital Resources
Working Capital
Working capital declined $19.6 million to $450.4 million since
the prior year end. Changes in current assets which contributed to
the overall fluctuation in working capital included a decrease in
accounts receivable resulting from improvement in the average
collection period partially offset by an increase in cash. Changes
in current liabilities contributing to the overall fluctuation in
working capital included an increase in current maturities of long-
term debt resulting from borrowings on the Australian line of credit.
Cash Flows
The Company's cash and cash equivalents totaled $193.2 million
at the end of the current period, a $17.7 million increase from the
prior fiscal year end. Cash provided by operating activities for the
first half of fiscal 1999 and 1998 totaled $100.7 million and $69.7
million, respectively. During these periods, fluctuations in
receivables and inventories were influenced by sales volumes and
timing and resulted in the most significant changes in cash flows
from operating activities.
Purchases of treasury stock of $140.8 million was the primary
use of financing cash in the current period. Proceeds from
additional borrowings of $62.0 million, net of principal payments,
were primarily used to fund stock repurchases. Net borrowings in the
prior year period were used primarily to acquire businesses.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations, (continued)
The Company's proprietary systems provide cash through
collections from systems to fund jackpot liabilities and from
maturities of US government securities purchased to fund jackpot
liabilities. Cash is used to make payments to jackpot winners or to
purchase investments to fund liabilities to jackpot winners. The net
cash provided by these activities was $72,000 and $16.9 million for
current and prior year periods, respectively.
Federal legislation was passed October 21, 1998 which permits
jackpot winners to elect to receive the discounted value of
progressive jackpots won in lieu of annual installments. For
jackpots won after this date, the Company has made this offer to
winners in jurisdictions which have also permitted such payments.
For jackpots won prior to the effective date of the legislation, the
winner may make this election after July 1, 1999. As a result,
fiscal 1999 third and fourth quarter cash flows from operating
activities may increase due to the realization of deferred tax
assets related to the timing of the tax deductibility of jackpot
payments. The realization of the deferred tax asset is dependent
upon the number of winners who make this election. The Company
cannot predict the cash flow impact at this time.
Lines of Credit
As of April 3, 1999, the Company had a $250.0 million unsecured
bank line of credit with various interest rate options available to
the Company. The Company is charged a nominal fee on amounts used
against the line as security for letters of credit. Funds available
under this line are reduced by amounts reserved as security for
letters of credit. At April 3, 1999, $0.7 million was available
under this line of credit and $3.3 million was reserved as security
for letters of credit.
IGT-Australia entered into a facility agreement in March 1998
which included a $19.0 million line of credit. The line bears
interest at various rates and is supported by a guarantee from the
Company. At April 3, 1999, $2.5 million was available under this
line.
IGT-Japan had a $5.8 million line of credit available as of
April 3, 1999. The line is supported by a guarantee from the
Company and bears interest at various rates. The line of credit was
fully available at the end of the current period.
The Company is required to comply with certain covenants
contained in these agreements which, among other things, limit
financial commitments the Company may make without the written
consent of the lenders and require the maintenance of certain
financial ratios, minimum working capital and net worth of the
Company. At April 3, 1999, the Company was not in breach of any
applicable covenants.
The Company is in the process of offering $1.0 billion in
aggregate principal amount of Senior Notes in a private placement
pursuant to rule 144A under the Securities Act of 1933. On May 11,
1999, the Senior Notes were offered in two tranches: $400 million
aggregate principal amount of 7 7/8% Senior Notes, due May 15, 2004,
priced at 99.053% and $600 million aggregate principal amount of 8
3/8% Senior Notes, due May 15, 2009, priced at 98.974%. The closing
of the Senior Notes offering is scheduled to occur on May 19, 1999.
The net proceeds from the offering are expected to be used to repay
outstanding borrowings under the $250 million line of credit and the
Australian credit facility as well as to redeem the remaining $85.7
million of its 7.84% Senior Notes due 2004, finance the planned
acquisition of Sodak and to fund working capital and the Company's
common stock repurchase program. In addition, proceeds of the Senior
Notes may be used to settle a forward equity share repurchase for 4.9
million shares of the Company's common stock.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations, (continued)
Stock Repurchase Plan
A stock repurchase plan was originally authorized by the Board
of Directors in October 1990. As of May 6, 1999, the Company was
authorized to purchase a remaining 12.4 million shares under the
Board authorization. During the period of October 1, 1998 to May 6,
1999, the Company reacquired 10.8 million shares for an aggregate
purchase price of $178.7 million. The Company has entered into a
forward equity purchase agreement for 4.9 million shares of its
common stock during the third fiscal quarter. The Company may use
proceeds of the Senior Notes offering to settle the forward equity
share repurchase agreement.
Dividends
IGT's Board of Directors voted to discontinue payment of cash
dividends in future quarters and redirect the funds toward the stock
repurchase plan or other corporate purposes which may result in more
meaningful long-term benefit for the Company's shareholders.
Recently Issued Accounting Standards
On June 30, 1997, the FASB issued SFAS No. 131, "Disclosure
About Segments of an Enterprise and Related Information." This
statement establishes additional standards for segment reporting in
financial statements and is effective for the Company's fiscal year
ending October 2, 1999. Management intends to comply with the
disclosure requirements of this statement in its fiscal 1999 Annual
Report on Form 10-K and does not anticipate a material impact on the
results of operations for each segment.
On June 30, 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards for derivative
instruments and hedging activities and is effective for the Company's
fiscal year ending September 30, 2000. Management believes that
adoption of this statement will not have a material impact on its
financial condition or results of operations.
Year 2000
The Year 2000 readiness issue, which is common to most
businesses, arises from the inability of computer information systems
with date-sensitive processes to properly recognize and accurately
process date-sensitive information on and beyond January 1, 2000. If
the Company or its customers, suppliers, or other third parties fail
to make corrections for programs that have defined dates using a two-
digit year, this could result in system failure or malfunction of
certain computer equipment, software, and other devices dependent
upon computerized mechanisms that are date sensitive. This problem
may cause disruptions of operations, including, among other things, a
temporary inability to process transactions, send invoices, or engage
in similar normal business activities. Assessments of the potential
cost and effects of Year 2000 issues vary significantly among
businesses, and it is difficult to predict the actual impact.
Recognizing this uncertainty, management has and is continuing to
actively analyze, assess, and plan for various Year 2000
contingencies across the Company.
The Company has undertaken various initiatives intended to
ensure that its computer equipment and software will function
properly with respect to dates in and beyond the Year 2000.
Information technology ("IT") systems impacted by the Year 2000 issue
include systems commonly thought of as IT systems, such as
accounting, data processing and telephone/PBX systems, as well as
systems that are not commonly thought of as IT systems, such as alarm
systems, security systems, fax machines, mail machines, automated
assembly lines, and other miscellaneous systems. Both IT and non-IT
systems may contain imbedded technology which compounds the
identification, assessment, remediation, and testing efforts.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations, (continued)
All subsidiaries of the Company will perform the identification,
assessment, remediation and testing phases. However, the Company has
identified its largest manufacturing locations, IGT (North America),
IGT-UK, IGT-Japan and IGT-Australia as critical operating locations
as most other subsidiaries are dependent upon these locations. IGT
and IGT-UK have substantially completed the identification and
assessment phases and are now in the remediation and testing phases.
IGT-Japan utilizes a third party to manufacture its products and has
received assurance that this manufacturer is Year 2000 ready. IGT-
Australia has recently structured their information systems
department under a new director and remains in the assessment phase
of its Year 2000 efforts. Remediation efforts are in the early
stages and are planned for completion by November 1999. In addition,
the Company is in the process of assessing Year 2000 readiness issues
of Sodak (see Note 1 in Notes to Condensed Consolidated Financial
Statements). At this stage, the Company believes that its Year 2000
deficiencies will be remedied through computer equipment and software
replacement or modification in a timely fashion.
The Company is utilizing both internal and external resources to
accomplish its Year 2000 plan, which began in December 1997 and is
expected to be substantially completed by August 1999, with the
exception of IGT-Australia's slot tracking systems, which is
presently under review for the timing of completion. The Company
estimates that as of May 10, 1999, it had completed approximately 50%
of the initiatives necessary to fully address potential Year 2000
issues. The remaining project efforts are underway and are
anticipated to be completed prior to any currently anticipated impact
on its computer equipment and software. The Company engaged third
parties to review the IGT and IGT-UK information systems plans and
has incorporated the recommendations of such parties into the plan.
The Company has also initiated efforts to ensure the readiness
of its products and services. As part of its assessment of current
products and services, IGT is currently upgrading all wide-area
progressive jackpot system software. The Company has installed the
software upgrade in Nevada and received approval for the software
update from gaming regulators in most other jurisdictions. The
Company has notified all of its customers who may have products with
Year 2000 readiness issues.
IGT uses an AS400 for the majority of its North American
software applications, including the manufacturing process, and has
identified this as a critical system. The assessment and remediation
efforts on the system have been substantially completed. The testing
phase is expected to be completed by August 1999. IGT-UK has finished
the implementation of Oracle as an enterprise wide improvement to its
information systems and a resolution to Year 2000 readiness issues.
The Company has also surveyed its key vendors and service
providers to determine the extent to which interfaces with such
entities are vulnerable to Year 2000 issues. As of May 10, 1999, the
Company had received responses from approximately 65% of such third
parties, a majority of which have provided assurances that they are
either Year 2000 ready or expect to address all their significant
Year 2000 issues on a timely basis. A follow-up mailing to
significant vendors and service providers that did not initially
respond, or whose responses were deemed unsatisfactory by the
Company, is substantially complete at IGT's North American location.
IGT-UK and IGT-Australia are currently conducting follow-up mailings.
Although the Company has developed a system of communicating with
vendors to understand their ability to continue providing services
and products through the Year 2000 without interruption, there can be
no assurance that the systems of other companies on which the Company
may rely will be timely converted or that such failure to convert by
another company would not have an adverse effect on the Company's
systems.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations, (continued)
The Company believes that the cost of its Year 2000 efforts are
not expected to exceed $3.0 million, which will be funded from
operating cash flows. Approximately $2.1 million of this total is
for the replacement of non-compliant equipment and software which is
expected to be capitalized as fixed assets in fiscal 1999. As of May
10, 1999, the Company had incurred costs of approximately $1.5
million, including the cost of third party reviews. Two of the
Company's subsidiaries are implementing enterprise wide information
system improvements which also resolve Year 2000 issues. The cost of
implementing these systems has not been included in this cost because
the implementations were not initiated specifically to resolve the
Year 2000 issue. A significant portion of the software remediation
costs are not likely to be incremental to the Company's results of
operations, but rather will represent the redeployment of existing
information technology and other resources. As a result of the
redeployment of internal resources for the Year 2000 remediation
efforts, certain enhancements of the Company's current systems may be
postponed. The Company does not expect the postponement of these
enhancements to have a significant impact on the Company's financial
condition or results of operations.
The Year 2000 issue presents a number of other risks and
uncertainties that could impact the Company, including, but not
limited to, third parties whose services the Company relies on to
produce and sell our products, such as key suppliers and customers,
public utilities, telecommunication providers, financial
institutions, or certain regulators of the various jurisdictions
where the Company does business, which could result in lost
production, sales, or administrative difficulties on the part of the
Company. The Company believes that the implementation of new business
systems and completion of the Year 2000 project as scheduled will
significantly reduce the risk of operational difficulties within our
operating systems, facilities and products. The Company's Year 2000
project requires the majority of its application systems to be
remedied and tested by August 31, 1999. In those instances where
completion by the end of 1999 is not assured, appropriate contingency
plans are in development or to be determined by August 31, 1999. The
Company's Year 2000 project teams are reviewing the support which may
be necessary during the first week of the new year to investigate non-
functioning applications, remediate and test the programs, and
implement the corrected applications. In addition, manual back-up
procedures are being considered in user areas to ensure continuity of
essential business operations. The Company believes that its most
reasonably likely exposure to Year 2000 readiness issues is in the
IGT-Australia gaming systems. IGT-Australia is in the process of
assessing the readiness of these systems, designating system upgrades
and preparing a contingency plan. While the Company continues to
believe the Year 2000 issues will not materially affect its
consolidated financial position or results of operations, it remains
uncertain as to what extent, if any, the Company may be impacted.
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of
the Private Securities Litigation Reform Act of 1995
The foregoing Management's Discussion and Analysis and other
portions of this report on Form 10-Q contain various "forward-
looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Sections 21E of the
Securities Exchange Act of 1934, as amended, which represent the
Company's expectations or beliefs concerning future events,
including the following: the statement that the outcome of pending
legal actions are not expected to have a material adverse effect on
the Company's financial position or results of operations; and
statements regarding estimated completion dates and costs for the
Year 2000 project. In addition, statements containing expressions
such as "believes," "anticipates," "plans" or "expects" used in the
Company's periodic reports on Forms 10-K and 10-Q filed with the SEC
are intended to identify forward-looking statements.
<PAGE>
The Company cautions that such statements included in this
report and in previously filed periodic reports including reports
filed on Forms 10-K and 10-Q and the Company's operations, financial
condition and results of operations are subject to risks and other
important factors, including, without limitation, the following: a
decline in demand for the Company's gaming products or reduction in
the growth rate of new and existing markets; delays of scheduled
openings of newly constructed or planned casinos; the effect of
changes in economic conditions; a decline in the public acceptance
of gaming; unfavorable public referendums or anti-gaming
legislation; unfavorable legislation affecting or directed at
manufacturers or operators of gaming products and systems; delays or
lack of funding from regulatory agencies; political and economic
instability in developing international markets; a decline in the
demand for replacement machines; a decrease in the desire of
established casinos to upgrade machines in response to added
competition from newly constructed casinos; a decline in player
appeal for the Company's gaming products or an increase in the
popularity of existing or new games of competitors; the loss of a
significant distributor; changes in interest rates causing a
reduction of investment income or in the market interest rate
sensitive investments; loss or retirement of key Company executives;
approval of pending patent applications of parties unrelated to the
Company that restrict the ability of the Company to compete
effectively with products that are the subject of such pending
patents or infringement upon existing patents; the effect of
regulatory and governmental actions; unfavorable determination of
suitability by gaming regulatory authorities with respect to Company
officers, directors or key employees; the limitation, conditioning
or suspension of any Company gaming license; fluctuations in foreign
exchange rates, tariffs and other barriers; adverse changes in the
credit worthiness of parties with whom the Company has forward
currency exchange contracts; the loss of sublessors of the leased
properties abandoned by the Company; with respect to legal actions
to which the Company is a party, the discovery of facts not
presently known to the Company or determinations by judges, juries
or other finders of fact which do not accord with the Company's
evaluation of the possible liability or outcome of existing
litigation; and with respect to the Year 2000, IGT's ability to
successfully remedy the Year 2000 readiness issues.
Pending Legislation
On March 22, 1999, legislation was introduced in the Nevada
legislature, on behalf of some of the Company's customers, proposing
additional regulations for gaming manufacturers who provide products
to casino customers through revenue sharing arrangements and wide-
area progressive systems. On April 9, 1999, the Judiciary Committee
of the Nevada Assembly approved a compromise version of the bill as
agreed upon by the proponents and opponents of the bill originally
introduced. The revised bill requires gaming manufacturers to pay
their "full proportionate share" of: (a) the Nevada gaming revenue
tax; (b) the $80 annual per gaming machine tax; and (c) the $250
annual tax paid on slot machines by certain Nevada casinos. The
bill also imposes additional regulatory requirements on gaming
manufacturers. The revised bill was passed by the Assembly on April
17, 1999. The legislation was approved by the Senate Judiciary
Committee on May 7, 1999 and must now be approved by a vote of the
Senate by May 21, 1999. To become law, the bill must be approved by
the Governor. Amendments to the bill may be proposed at any time
during this process. It appears likely that the legislation will
pass in its current form. If the legislation is not passed, similar
legislation cannot be reintroduced until 2001, since the Nevada
legislature only meets every two years. If the legislation is
passed in its current form, the Company does not believe it will
have a material adverse effect on its results of operations.
The Company is working with its customers in an effort to address
their concerns. The Company cannot predict the outcome of any such
efforts or the financial impact these efforts may have on the
Company.
<PAGE>
Part II - Other Information
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 4. Submission of Matters to a Vote of Security Holders
(a) On March 5, 1999, the Company held its annual meeting of
stockholders.
(b) The following directors were re-elected to serve until the next
annual meeting: Albert J. Crosson, Wilbur K. Keating, Charles N.
Mathewson, Warren L. Nelson, Frederick B. Rentschler, John J.
Russell, Rockwell A. Schnabel and Claudine B. Williams. These
directors constitute all of the directors of the Company. Voting at
the meeting was as follows:
<TABLE>
<CAPTION>
Motion Votes Cast Votes
For Withheld
<S> <C> <C>
Albert J. 94,170,887 389,466
Crosson
Wilbur K. 94,116,442 443,911
Keating
Charles N. 94,159,927 400,426
Mathewson
Warren L. Nelson 94,050,206 510,147
Frederick B. 94,080,027 480,326
Rentschler
John J. Russell 94,113,122 447,231
Rockwell A. 94,134,109 426,244
Schnabel
Claudine B. 93,997,282 563,071
Williams
</TABLE>
(c) Stockholders approved amendments to the Company's Employee Stock
Purchase Plan (the "ESPP") to (i) modify the class of employees who
are eligible to participate in the ESPP; (ii) modify the amendment
authority allowing the Board to amend the ESPP at anytime, subject to
stockholder approval only to the extent required by Section 423 of
the Internal Revenue Code of 1986, as amended (the "Code"), or other
applicable law, or to the extent deemed necessary or advisable by the
Board. The ESPP was originally adopted by the Board of Directors on
February 26, 1987 and was approved by the Company's stockholders on
February 16, 1988. Votes in favor of the amendments totaled 64.4
million with 10.4 million votes against the amendments and 355,000
abstaining.
<PAGE>
Part II - Other Information, (continued)
(d) Stockholders approved the amendments to the Company's 1993 Stock
Option Plan, to modify the maximum number of shares of the Company's
common stock that may be delivered pursuant to awards and that may be
issued to Non-Employee Directors. Votes in favor of the amendments
totaled 71.0 million with 23.2 million votes against the amendments
and 377,000 abstaining.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.11 IGT Profit Sharing Plan (As Amended and
Restated Effective as of December 31, 1998).
(b) Reports on Form 8-K
The Company filed current reports on Form 8-K dated March 12,
1999, April 29, 1999 and April 30, 1999.
<PAGE>
Pursuant to the requirements 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: May 18, 1999
INTERNATIONAL GAME TECHNOLOGY
By: /s/Maureen Imus
Maureen Imus
Chief Financial Officer and
Vice President, Finance
IGT PROFIT SHARING PLAN
(As Amended and Restated Effective as of December 31, 1998)
<PAGE>
TABLE OF CONTENTS
ARTICLE I
TITLE AND DEFINITIONS
1.1 Title 2
1.2 Definitions 2
ARTICLE II
PARTICIPATION
2.1 Eligibility Requirements 17
2.2 Participation 17
2.3 Reemployment 18
2.4 Designation of Beneficiary 18
2.5 Designation of Investments 19
ARTICLE III
CONTRIBUTIONS
3.1 Discretionary Company Contributions 21
3.2 Compensation Deferrals 22
3.3 Employer Matching Contributions 24
3.4 Rollover Contributions 25
3.5 Section 402(g) Limit on Compensation Deferrals 26
3.6 Section 401(k) Limitations on Compensation Deferrals 27
3.7 Section 401(m) Limitations on Employer Matching
Contributions 31
3.8 Investment Funds 35
3.9 Valuation of Accounts 38
3.10 Forfeitures 38
3.11 Notification of Participants 39
3.12 Limitations on Contributions 39
ARTICLE IV
LIMITATION ON ANNUAL ADDITIONS
4.1 Section 415 Limitations 41
<PAGE>
TABLE OF CONTENTS
(continued)
ARTICLE V
VESTING
5.1 Fully Vested Accounts 42
5.2 Company Contribution Account 42
ARTICLE VI
DISTRIBUTIONS6.1 Distribution of Benefits 45
6.2 Hardship Withdrawals from Compensation Deferral Accounts
and Company Contribution Accounts 47
6.3 Rollover Account Withdrawals 49
6.4 Qualified Domestic Relations Orders 50
6.5 Inability to Locate Participant 50
6.6 Limitations on Distributions 50
6.7 Direct Rollovers 52
ARTICLE VII
THE COMMITTEE
7.1 Members 54
7.2 Committee Action 54
7.3 Rights and Duties 55
7.4 Procedure for Establishing Funding Policy - Transmittal
of Information 59
7.5 Other Information 59
7.6 Compensation, Bonding, Expenses and Indemnity 59
7.7 Manner of Administering 61
7.8 Duty of Care 61
7.9 Committee Report 61
7.10 Section 404(c) Provisions 61
7.11 Expenses of Plan and Trust 63
ARTICLE VIII
AMENDMENT AND TERMINATION
8.1 Amendments 64
8.2 Discontinuance of Plan 65
8.3 Failure to Contribute 66
8.4 Plan Merger or Consolidation; Transfer of Plan Assets 66
<PAGE>
TABLE OF CONTENTS
(continued)
ARTICLE IX
MISCELLANEOUS
9.1 Contributions Not Recoverable 68
9.2 Limitation on Participant's Rights 68
9.3 Receipt or Release 69
9.4 Alienation 69
9.5 Persons Under Incapacity 70
9.6 Governing Law 70
9.7 Headings, etc. Not Part of Plan 71
9.8 Masculine Gender Includes Feminine and Neuter 71
9.9 Instruments in Counterparts 71
9.10 Successors and Assigns; Reorganization of Company 71
9.11 Loans to Participants 71
9.12 Top-Heavy Plan Requirements 74
<PAGE>
IGT PROFIT-SHARING PLAN
(As Amended and Restated Effective as of December 31, 1998)
This amendment to and restatement of the IGT Profit Sharing
Plan (the "Plan") is adopted by International Game Technology, a
Nevada corporation, hereinafter sometimes called the "Company."
This amendment to and restatement of the Plan is effective as of
December 31, 1998, except as otherwise specified
herein.
The Company desires to encourage loyalty,
efficiency, continuity of service and productivity of
its Employees. In order to accomplish these
purposes, the Company maintains the Plan to provide
incentives and security for its Eligible Employees
and their Beneficiaries. The Trust maintained
pursuant to the Plan (incorporated herein by this
reference) and its assets shall not be used for, or
diverted to, purposes other than the exclusive
benefit of Participants or their Beneficiaries, as
prescribed in Section 401(a) of the Code.
It is also intended that the Plan constitute an
accident and health plan so that amounts distributed
on account of disability are excluded from income
under Section 105(c) of the Code to the extent
provided by law.
<PAGE>
ARTICLE I
TITLE AND DEFINITIONS
.1 Title.
The Plan shall be known as the IGT Profit
Sharing Plan. It is intended that the Plan
constitute a profit sharing plan with a qualified
cash or deferred arrangement under Section 401(k) of
the Code. Contributions may be made to the Plan
without regard to the current or accumulated profits
of the Company.
.2 Definitions.
Whenever the following terms are used in the
Plan, with the first letter capitalized, they shall
have the meanings specified below.
"Account" or "Accounts" shall mean the accounts
maintained by the Committee for each Participant that are
credited with the amounts provided for herein. The
following "Accounts" are maintained under the Plan:
Company Contributions Accounts, Compensation Deferral
Accounts, Employer Matching Contributions Accounts,
and Rollover Accounts.
"Anniversary Date" shall mean the last day of
each Plan Year.
"Approved Absence" shall mean a leave of absence
(without pay) granted to an Eligible Employee under
the Company's established leave policy.
"Beneficiary" or "Beneficiaries" shall mean the
person or persons, including a trustee, personal
representative or other fiduciary, last designated in
writing by a Participant in accordance with the
provisions of Section 2.4 to receive the benefits
specified hereunder in the event of the Participant's
<PAGE>
death. If there is no valid Beneficiary designation
in effect that complies with the provisions of
Section 2.4, or if there is no surviving designated
Beneficiary, then the Participant's surviving spouse
shall be the Beneficiary. If there is no surviving
spouse to receive any benefits payable in accordance
with the preceding sentence, the duly appointed and
currently acting personal representative of the
Participant's estate (which shall include either the
Participant's probate estate or living trust) shall
be the Beneficiary. In any case where there is no
such personal representative of the Participant's
estate duly appointed and acting in that capacity
within 90 days after the Participant's death (or such
extended period as the Committee determines is
reasonably necessary to allow such personal
representative to be appointed, but not to exceed 180
days after the Participant's death), then Beneficiary
or Beneficiaries shall mean the person or persons who
can verify by affidavit or court order to the
satisfaction of the Committee that they are legally
entitled to receive the benefits specified hereunder.
In the event any amount is payable under the
Plan to a minor, payment shall not be made to the
minor, but instead shall be paid (a) to that person's
then living parent(s) to act as custodian, (b) if
that person's parents are then divorced, and one
parent is the sole custodial parent, to such
custodial parent, or (c) if no parent of that person
is then living, to a custodian selected by the
Committee to hold the funds for the minor under the
Uniform Transfers or Gifts to Minors Act in effect in
the jurisdiction in which the minor resides. If no
parent is living and the Committee decides not to
select another custodian to hold the funds for the
minor, then payment shall be made to the duly
appointed and currently acting guardian of the estate
for the minor or, if no guardian of the estate for
the minor is duly appointed and currently acting
<PAGE>
within 60 days after the date the amount becomes
payable, payment shall be deposited with the court
having jurisdiction over the estate of the minor.
"Board of Directors" and "Board" shall mean the Board
of Directors of the Company.
"Break in Employment" shall mean any termination
of Employment by reason of resignation, discharge,
retirement, Disability or death.
"Code" shall mean the Internal Revenue Code of 1986,
as amended from time to time.
"Committee" shall mean the Committee appointed
pursuant to the provisions of the Plan.
"Company" shall mean International Game
Technology, a Nevada corporation, any predecessor
corporation, or any successor corporation resulting
from merger, consolidation, or transfer of assets
substantially as a whole which shall expressly agree
in writing to continue the Plan and, where the
context so warrants, any Participating Affiliate.
"Company Contributions" shall mean an amount
contributed to the Plan by the Company or by a
Participating Affiliate in accordance with Section
3.1.
"Company Contributions Account" shall mean the
Account maintained by the Committee for each
Participant that is credited with payments to the
Plan by the Company and any Participating Affiliate
in accordance with Section 3.1 on behalf of such
Employee, together with the allocations thereto as
required by the Plan.
<PAGE>
"Compensation" shall mean a Participant's earned
income from salaries and wages, as defined below, and
commissions and bonuses, paid by the Company or a
Participating Affiliate to the Participant during the
Plan Year, subject to limitations imposed by
regulation or law.
(a) For purposes of this definition, "salaries
and wages" means base pay, plus overtime,
discretionary time off (which term includes vacation
and sick time), shift differentials and similar
amounts.
(b) For purposes of this definition,
"Compensation" will not include (1) any amounts paid
to an Eligible Employee prior to the date on which he
became a Participant pursuant to Section 2.1
or 2.3, as applicable; (2) severance payments, cash-
sharing payments, and any amounts from similar
incentive programs; (3) amounts from auto allowances,
move-related pay (including relocation or other
expenses paid or reimbursed by the Company or a
Participating Affiliate), housing allowances,
expatriate cost of living adjustments, attributed
pay, special awards, tuition reimbursement, dependent
subsidy, forms of imputed income, other non-recurring
pay, other cash or non-cash fringe benefits, welfare
benefits, and similar taxable and non-taxable
amounts; (4) contributions to a plan of deferred
compensation which are not includible in the
Participant's gross income for the taxable year in
which contributed, or any distributions from a plan
of deferred compensation; (5) amounts realized from
the exercise of a non-qualified stock option, or when
restricted stock (or property) held by the
Participant either becomes freely transferable or is
no longer subject to a substantial risk of
forfeiture; and (6) amounts realized from the sale,
exchange or other disposition of stock acquired under
an incentive stock option or other income related to
stock option activity.
<PAGE>
In addition, Compensation shall include any
amounts contributed to a plan qualifying under
Section 401(k) of the Code as salary reduction
contributions or to a cafeteria plan under Section
125 of the Code.
Notwithstanding the foregoing, the maximum
amount of an Employee's Compensation which shall be
taken into account under the Plan for any Plan Year
("Maximum Compensation Limitation") shall be (a)
$200,000 for Plan Years beginning on or after January
1, 1989, and (b) $150,000 for Plan Years beginning on
or after January 1, 1994, such limitation adjusted at
the same time and in the same manner as under
Sections 401(a)(17) and 415(d) of the Code. For any
Plan Year of fewer than twelve months, the
Maximum Compensation Limitation shall be reduced to
the amount obtained by multiplying such limitation by
a fraction having a numerator equal to the number of
months in the Plan Year and a denominator equal to
twelve.
"Compensation Deferral Account" shall mean the
Account maintained by the Committee for each
Participant that is to be credited with Company
payments to the Plan attributable to the
Participant's Compensation Deferrals that are
credited to this Account in accordance with Section
3.2, together with the allocations thereto as
required by the Plan.
"Compensation Deferrals" shall mean an amount
contributed to the Plan by the Company in lieu of
being paid to a Participant as salary or wages.
Compensation Deferrals shall be made under salary
reduction arrangements between each Participant and
the Company with respect to salary or wages not yet
paid or otherwise available to the Participant as of
the date of the Participant's election under the
arrangement. Section 3.2 contains the provisions
under which Compensation Deferrals may be made.
<PAGE>
"Disability" shall mean the total and permanent
incapacity, as determined by the Committee based on
competent medical advice, of a Participant to render
substantial services to the Company by reason of a
mental or physical disability.
"Effective Date" of the Plan shall mean the date
the Plan was originally effective, January 1, 1980.
The effective date of this amendment to and
restatement of the Plan shall be December 31, 1998,
except as otherwise provided herein.
"Eligible Employee" shall mean any Employee of
the Company; except that there shall be excluded:
(a) all leased employees (as such term is defined in
Section 414(n) of the Code);
(b) those Employees covered by a collective
bargaining agreement between the Company and any collective
bargaining representative if retirement benefits were
the subject of good faith bargaining between such
representative and the Company, unless the Employee
is a member of a group of employees to whom the Plan
has been extended by such a collective bargaining
agreement; and
(c) Employees who are nonresident aliens and receive
no United States source income.
For purposes of this definition of "Eligible
Employee" and notwithstanding any other provisions of
the Plan to the contrary, individuals who are not
classified by the Company, in its discretion, as
employees under Section 3121(d) of the Code
(including, but not limited to, individuals
classified by the Company as independent contractors
and non-employee consultants) and individuals who are
<PAGE>
classified by the Company, in its discretion, as
employees of any entity other than the Company or a
Related Company do not meet the definition of
Eligible Employee and are ineligible for benefits
under the Plan, even if the classification by the
Company is determined to be erroneous, or is
retroactively revised. In the event the
classification of an individual who is excluded from
the definition of Eligible Employee under the
preceding sentence is determined to be erroneous or
is retroactively revised, the individual shall
nonetheless continue to be excluded from the
definition of Eligible Employee and shall be
ineligible for benefits for all periods prior to the
date the Company determines its
classification of the individual is erroneous or
should be revised. The foregoing sets forth a
clarification of the intention of the Company
regarding participation in the Plan for any Plan
Year, including Plan Years prior to the adoption of
the Plan restatement.
"Eligibility Computation Period" shall mean
(a) The 12-consecutive month period commencing
with the first day that an Employee completes an Hour
of Service for the Company or a Related Company;
(b) The first 12-consecutive month period
coinciding with the Plan Year which includes the
first anniversary of the first day that an Employee
completes an Hour of Service for the Company or a
Related Company; and
(c) Succeeding 12-consecutive month periods
coinciding with the Plan Year.
Notwithstanding the above, if an Employee
completes more than 500 Hours of Service during any
<PAGE>
such Eligibility Computation Period and then fails
to complete more than 500 Hours of Service during a
subsequent Eligibility Computation Period, then
future Eligibility Computation Periods shall be
measured from the first day that the Employee
completes an Hour of Service following the
Eligibility Computation Period in which the
Employee has been credited with not more than 500
Hours of Service. In addition, any reemployed
individual described in the preceding sentence who
terminates employment again shall measure Eligibility
Computation Periods from the date of subsequent
reemployment if no Hours of Service are performed
during an Eligibility Computation Period ending
subsequent to the termination.
"Employee" shall mean every person who renders
services to the Company or a Related Company in the
status of an "employee" (as such term is defined in
Section 3121(d) of the Code).
"Employer Matching Contribution" shall mean
an amount contributed to the Plan by the Company
or by a Participating Affiliate in accordance with
Section 3.3.
"Employer Matching Contributions Account" shall
mean the Account maintained for a Participant that is
credited with payments to the Plan by the Company and
any Participating Affiliate in accordance with
Section 3.3 on behalf of such Participant, together
with the allocations thereto as required by the Plan.
"Employment" shall mean that period of actual
service to the Company or a Related Company as an
Employee following an Employee's date of employment,
or his most recent date of reemployment, whichever is
later. It shall also include the following period or
<PAGE>
periods of absence from actual service if the
Employee was in the service of the Company or a
Related Company on the day prior to such a period:
(a) Service in the Armed Forces of the United
States or the Public Health Service of the United
States as a result of which such Employee is entitled
to reemployment rights from the Company pursuant to
the provisions of Section 2021 et seq. of Title 38 of
the United States Code, provided that the Employee
returns to work within the time period specified in
such provisions.
(b) Approved Absences, vacation periods, and
temporary layoffs for lack of work.
"ERISA" shall mean the Employee Retirement
Income Security Act of 1974, as amended from time to
time.
"Fiduciary" shall mean all persons defined in
Section 3(21) of ERISA associated in any manner with
the control, management, operation, and
administration of the Plan or the assets of the Plan,
and such term shall be construed as including the
term "Named Fiduciary" with respect to those
Fiduciaries named in the Plan or who are identified
as Fiduciaries pursuant to procedures specified in
the Plan.
"Highly Compensated Employee" shall mean
(a) Any Employee who performs services for the
Company or any Related Company who (1) was a 5% owner
of the Company or any Related Company at any time
during the Plan Year or the preceding Plan Year; or
(2) for the preceding Plan Year, received
compensation from the Company or a Related Company in
excess of $80,000 (as adjusted pursuant to Section
<PAGE>
414(q)(1) of the Code) and for the preceding Plan
Year was a member of the "top-paid group" for such
year.
(b) Any former Employee who separated from
service (or was deemed to have separated) prior to
the current Plan Year, who performs no services for
the Company or any Related Company during the current
Plan Year, and who met the description in (a) above
for either the year of his separation or for any year
after he attained age 55.
(c) The top-paid group for a Plan Year shall
consist of the top 20% of Employees ranked on the
basis of compensation received during the year
excluding Employees described in Section 414(q)(5) of
the Code and Treasury Regulations thereunder. For
purposes of this definition of "Highly Compensated
Employee," "compensation" means compensation within
the meaning of Section 415(c)(3) of the Code, but
including elective or salary reduction contributions
to a cafeteria plan, cash or deferred arrangement or
tax-sheltered annuity.
(d) This definition of "Highly Compensated
Employee" shall be effective for Plan Years beginning
on or after January 1, 1997, except that for purposes
of determining if an Employee was a Highly
Compensated Employee in 1997, this definition will be
treated as having been in effect in 1996.
"Hour of Service" shall mean an hour (a) for
which an Employee is paid, or entitled to payment,
for the performance of duties for the Company or a
Related Company; (b) for which the Employee is paid
or entitled to payment by the Company or a Related
Company on account of a period during which no duties
are performed (irrespective of whether the employment
relationship has terminated) due to holiday,
discretionary time off (which term includes vacation
<PAGE>
and sick time), incapacity (including disability),
temporary layoff, jury duty, military duty, or leave
of absence; or (c) for which back pay, irrespective
of mitigation of damages, is either awarded or agreed
to by the Company or a Related Company.
The following additional rules shall apply in
calculating Hours of Service: (1) no more than 501
Hours of Service are required to be credited to an
Employee on account of any single period during which
the Employee performs no duties; (2) an hour for
which an Employee is directly or indirectly paid, or
entitled to payment, on account of a period during
which no duties are performed is not required to be
credited to the Employee if such payment is made or
due under a plan maintained solely for the purpose of
complying with applicable worker's compensation,
unemployment compensation, or disability insurance
laws; (3) Hours of Service are not required to be credited
for a payment which solely reimburses an Employee for
medical or medically related expenses incurred by the
Employee; (4) a payment shall be deemed to be made by
or due from a Company or a Related Company regardless
of whether such payment is made by or due from the
Company or a Related Company directly, or indirectly
through, among others, a trust fund, or insurer, to
which the Company or a Related Company contributes or
pays premiums and regardless of whether contributions
made or due to the trust fund, insurer, or other
entity are for the benefit of particular Employees or
on behalf of a group of Employees in the aggregate;
(5) no more than one Hour of Service shall be
credited with respect to any hour of time.
The definition of "Hour of Service" set forth
herein shall also be construed in accordance with,
and shall include any additional periods of service,
that may be required by regulations promulgated by
the United States Department of Labor. The hour of
<PAGE>
service rules stated in the Department of Labor
Regulations Section 2530.200b-2(b) and -2(c) are
herein incorporated by reference.
Notwithstanding the foregoing, for purposes of
Section 3.1 Hours of Service shall include only hours
performed at the Company's work place or other
location designated by the Company. In addition,
Hours of Service shall not include any hour for which
an Employee is paid pursuant to a termination of
employment agreement in which the Employee is paid
for a period of time during which no regular duties
are performed and no regular hours of service are
performed.
"Investment Fund" shall mean one of the funds
established by the Committee for the investment of
the assets of the Plan pursuant to Section 3.8.
"Investment Manager" shall mean a Fiduciary
designated by the Committee under the Plan to whom
has been delegated the responsibility and authority
to manage, acquire or dispose of Plan assets (a) who
(1) is registered as an investment adviser under the
Investment Advisers Act of 1940; (2) is a bank, as
defined in that Act; or (3) is an insurance company
qualified to perform investment advisory services
under the laws of more than one state; and (b) who
has acknowledged in writing that he is a Fiduciary
with respect to the management, acquisition, and
control of Plan assets.
"Normal Retirement Age" shall mean a Participant's
65th birthday.
"One-Year Break in Service Year" shall mean any
Plan Year in which an Employee fails to complete more
than 500 Hours of Service. Notwithstanding the
preceding sentence and solely for purposes of this
<PAGE>
paragraph, if an Employee fails to complete more than
500 Hours of Service during a Plan Year by reason of
an absence that arises because of her pregnancy, the
birth or adoption of the Employee's child (or child
care for a period immediately following such birth or
adoption), such Employee shall not necessarily incur
a One-Year Break in Service Year; rather, the
Employee shall be credited for such Plan Year with
(a) the Hours of Service for which the Employee would
have received credit (but for such absence), if
determinable, or (b)eight Hours of Service per day
during such absence. If a OneYear Break in Service
Year would not occur in the Plan Year that includes
the beginning of such absence even in the absence of
the preceding sentence, the Employee shall receive
credit for the hours specified under (a) or (b) above
in the Plan Year immediately following the Plan Year
in which such absence initially occurs solely to
prevent the occurrence of a One-Year Break in Service
Year in such Plan Year. Notwithstanding any other
provision of this paragraph, any Employee shall not
be credited with more than 501 Hours of Service by
reason of such absence.
"Participant" shall mean any Eligible Employee
who becomes eligible for participation in accordance
with the provisions of the Plan.
"Participating Affiliate" shall mean any Related
Company which, by resolution of its board of
directors and with the approval of the Committee,
elects to participate in the Plan.
Any such resolution of participation by a
Participating Affiliate may modify the eligibility
requirements for participation in the Plan by an
Employee of the Participating Affiliate, so long as
any such modification complies with the Code and
ERISA. By electing to participate in the Plan, a
Participating Affiliate agrees to be bound by any
Plan or Trust amendment adopted by resolution of the
Board of Directors or the Committee, by the written
<PAGE>
instrument of any person to whom the Board of
Directors or the Committee has delegated its
authority to adopt the amendment or by any other
method of amendment permitted under the Plan. If a
Participating Affiliate ceases to be a Related
Company, except by merger with its parent, the
employment of each Employee of the Participating
Affiliate shall be deemed to have terminated for
purposes of the Plan, except to any extent any
such Employee is required by law to continue to be
treated under the Plan as an Employee of the Company.
"Plan" shall mean the IGT Profit Sharing Plan set
forth herein, now in effect or hereafter amended.
"Plan Year" shall mean the twelve-consecutive
month period ending on December 31. The Plan Year
shall be the limitation year for purposes of Section
415 of the Code.
"Related Company" shall mean (a) each
corporation which is a member of a controlled group
of corporations (within the meaning of Section
1563(a) of the Code, determined without regard to
Section 1563(a)(4) and (e)(3)(C) thereof) of which
the Company is a component member, (b) each entity
(whether or not incorporated) which is under common
control with the Company, as such common control is
defined in Section 414(c) of the Code and Regulations
issued thereunder, (c) any organization which is a
member of an affiliated service group (within the
meaning of Section 414(m) of the Code) of which the
Company or a Related Company is a member, and (d) any
organization which is required by regulations issued
under Section 414(o) of the Code to be treated as a
Related Company. For the purposes of Article IV of
the Plan the phrase "more than 50 percent" shall be
substituted for the phrase "at least 80 percent" each
place it appears in Section 1563(a)(1) of the Code.
<PAGE>
The term "Related Company" shall also include each
predecessor employer to the extent required by
Section 414(a) of the Code. Notwithstanding the
foregoing, an organization shall not be considered a
Related Company for any purpose under the Plan prior
to the date it is considered affiliated under clauses
(a) through (d) above.
"Rollover Account" shall mean the Account
maintained for a Participant that is credited with
the amount, if any, received by the Plan in
accordance with Section 3.4 as an "Eligible Rollover
Distribution" pursuant to Section 402(c) of the Code,
as defined in Section 6.7 of the Plan (or, with
respect to distributions prior to January 1, 1993, a
rollover contribution, as defined in Section
402(a)(5) of the Code), together with the allocations
thereto as required by the Plan.
"Trust" shall mean the trust which is established to
hold and invest contributions under the Plan.
"Trustee" (or "Trustees," if more than one is
appointed and acting) shall mean the trustee or
trustees, whether original or successor, appointed
under the Trust.
"Year of Eligibility Service" means each
Eligibility Computation Period during which the
Employee is credited with at least 1,000 Hours of
Service.
"Year of Vesting Service" shall mean a Plan
Year, excluding Plan Years commencing before the Plan
Year in which the Employee attains age 18, during
which an Employee is credited with at least 1,000
Hours of Service.
<PAGE>
ARTICLE II
PARTICIPATION
.1 Eligibility Requirements.
(a) Provided he is then an Eligible Employee,
and has attained age 18, each Eligible Employee shall
become a Participant in the Plan on the first day of
the first payroll period coinciding with or next following
the earlier of (1) his completion of one Year of Eligibility
Service or (2) his completion of 90 days of continuous
employment as a full-time Employee.
(b) Notwithstanding subsection (a), an Eligible
Employee may not participate with respect to allocations
of Employer Contributions under Section 3.1 until the
January 1 of the Plan Year in which
the later of the following occurs:
(1) his completion of one Year of Eligibility Service,
(2) the date he becomes an Eligible Employee, and
(3) his attainment of age 18.
.2 Participation.
Participation of a Participant shall commence as
of the appropriate date specified in Section 2.1 or
2.3, as applicable, and shall continue during the
Participant's Employment with the Company and until
the occurrence of a Break in Employment or until the
Participant is no longer an Eligible Employee.
An Eligible Employee on Approved Absence shall
not become a Participant until the end of his
Approved Absence; but a Participant who is on
Approved Absence shall continue as a Participant
during the period of his Approved Absence.
<PAGE>
Notwithstanding any other provision of the Plan
to the contrary, contributions, benefits and service
credit with respect to qualified military service
will be provided in accordance with Section 414(u) of
the Code.
.3 Reemployment.
(a) An Eligible Employee who has met the
eligibility requirements described in Section 2.1,
but who incurs a Break in Employment prior to
becoming a Participant and is later reemployed as an
Eligible Employee shall become a Participant as of
the later of (1) the date set forth in Section 2.1(a)
on which he could participate or (2) the date of
reemployment; provided that he is an Eligible
Employee on such date.
(b) A Participant who incurs a Break in
Employment and is later reemployed as an Eligible
Employee shall resume participation immediately upon
his reemployment.
.4 Designation of Beneficiary.
Upon forms provided by the Committee, each
Eligible Employee who becomes a Participant shall
designate in writing the Beneficiary or Beneficiaries
whom such Employee desires to receive any benefits
payable under the Plan in the event of such
Employee's death. A Participant may from time to
time change his designated Beneficiary or
Beneficiaries without the consent of such Beneficiary
or Beneficiaries by filing a new designation in
writing with the Committee or its delegate. However,
if a married Participant wishes to designate a person
other than his spouse as Beneficiary, such
designation shall be consented to in writing by the
spouse, which consent shall acknowledge the effect of
the designation and be witnessed by a Plan
representative or a notary public. The Participant
may change any election designating a Beneficiary or
Beneficiaries without any requirement of further
<PAGE>
spousal consent if the spouse's consent so provides.
Notwithstanding the foregoing, spousal consent shall
be unnecessary if it is established (to the
satisfaction of a Plan representative) that there is
no spouse or that the required consent cannot be
obtained because the spouse cannot be located, or
because of other circumstances prescribed by Treasury
Regulations. The Company, the Committee and the
Trustee may rely upon a Participant's designation of
Beneficiary or Beneficiaries last filed in accordance
with the terms of the Plan. Upon the dissolution of
marriage of a Participant, any designation of the
Participant's former spouse as a Beneficiary shall be
treated as though the Participant's former spouse had
predeceased the Participant, unless (a) the
Participant executes another Beneficiary designation
that complies with this Section 2.4 and that clearly
names such former spouse as a Beneficiary, or (b) a
court order presented to the Committee prior to
distribution on behalf of the Participant explicitly
requires the Participant to continue to maintain the
former spouse as the Beneficiary. In any case in
which the Participant's former spouse is treated
under the Participant's Beneficiary designation as
having predeceased the Participant, no heirs or
other beneficiaries of the former spouse shall
receive benefits from the Plan as a Beneficiary of
the Participant except as provided otherwise in the
Participant's Beneficiary designation.
.5 Designation of Investments.
(a) Subject to the restrictions contained
herein and in Section 3.8, each Participant shall
designate in a manner prescribed by the Committee
whether and to what extent the contributions
allocated to his Accounts are to be invested in the
respective Investment Funds. Any Participant who
does not so notify the Committee of his initial
choice of Investment Fund(s) shall be deemed to have
<PAGE>
elected the "default" Investment Fund selected by
the Committee in accordance with Section 3.8.
(b) Each Participant may change the
designation for the investment of new contributions,
as well as of any percentage of the balance of his
Accounts, in accordance with Section 3.8.
(c) A former Participant who has elected to defer
distribution of his Accounts may continue to designate
the investment of the amounts credited to his Accounts
in accordance with this Section
2.5 and Section 3.8.
<PAGE>
ARTICLE III
CONTRIBUTIONS
.1 Discretionary Company Contributions.
(a) Permissible Amount of Company Contributions.
The Company and each Participating Affiliate shall
contribute to the Trust for each Plan Year, beginning with the first Plan
Year, such amounts as the Board of Directors shall
determine in its sole discretion. Notwithstanding
the foregoing, contributions under this Section 3.1
shall be subject to any applicable limitations of
Articles III and IV.
(b) Allocation of Company Contributions.
Company Contributions shall be allocated as of the
Anniversary Date for the Plan Year
with respect to which such Company Contribution is
made to the Company Contribution Account of each
Participant who satisfies the requirements of
Section 2.1(b) and all of the following
requirements:
(1) the Participant must have been an
Eligible Employee at some time during the Plan
Year with respect to which the contribution
is being made;
(2) the Participant must have completed at
least 1,000 Hours of Service during the Plan
Year with respect to which the contribution is
being made; and
(3) the Participant must have been an
Eligible Employee on the last day of the Plan
Year with respect to which the contribution
is being made; or must have died, retired (at
age 65) or became Disabled during the Plan Year
with respect to which the contribution is being
made.
Severance and settlement of employment contract
payments do not extend the date on which a
Participant ceases to be an Employee beyond the last
day physically present.
<PAGE>
The amount allocated to each Participant who is
eligible for an allocation is that portion of the
total allocable Company Contribution that the
Participant's Compensation for the Plan
ear with respect to which the contribution is being
made bears to the total Compensation of all such
Participants for the Plan Year with respect to which
the contribution is being made. Unless otherwise
provided by the Board of Directors with respect to
the contribution pursuant to Section 3.1(a) for a
particular Plan Year, the term "Compensation" for
purposes of this Section 3.1(b) is used as defined in
Section 1.2 but excludes commissions and bonuses.
The Company Contribution made by the Company or any
Participating Affiliate shall be allocated to the
Participants employed by such Company or
Participating Affiliate, respectively.
.2 Compensation Deferrals.
(a) Election to Defer. The Company, subject to
any applicable limitations contained in Articles III
and IV, shall contribute to the Plan the amount of
Compensation Deferrals agreed to between
the Company and the Participants. Each Participant
may elect Compensation Deferrals in 1% increments and
in the manner prescribed by the Committee, of up to
15% of the Participant's Compensation. A
Participant's election to commence Compensation
Deferrals shall be effective at the time established
by the Committee, but no earlier than the first day
of the first payroll period commencing after the
Committee's receipt of such election. The Committee
may permit telephonic elections and may adopt rules
establishing the specific pay periods for which
Compensation Deferrals may be made. The
Participant's Compensation shall be reduced by the
amount of his Compensation Deferrals, which shall be
credited to the Participant's Compensation Deferral
Account, and shall be made in accordance with rules
established by the Committee. Subject to the above
maximum 15% limitation, the Committee may adopt rules
<PAGE>
specifying the maximum and/or minimum Compensation
Deferrals, either as dollar or percentage amounts.
(b) Change in Percentage or Suspension of
Compensation Deferrals. A Participant's
Compensation Deferral percentage will remain in
effect, notwithstanding any change in
Compensation, until the Participant elects to
change the percentage. A Participant may elect
at any time to suspend, change or resume
Compensation Deferrals, provided he makes an
election in the manner prescribed by the
Committee. The Committee may permit telephonic
elections and may adopt rules specifying the
frequency with which elections may be changed
and the effective times of such change
elections. After the Committee receives a
Participant's election to suspend, change or
resume Compensation Deferrals, such election
shall be effective no earlier than the first day
of the first payroll period following the
Committee's receipt of such election.
(c) Status of Compensation Deferrals. To make
Compensation Deferrals under this Section 3.2, the
Company will reduce the Participant's Compensation in
the amount authorized by the Participant and make a
contribution to the Trustee equal to such reduction
as of the earliest date on which such amount can
reasonably be segregated from the Company's general
assets; provided, however, that such contribution
shall be made no later than the fifteenth business
day of the month following the date on which such
amount would otherwise have been payable to the
Participant in cash, or as of such earlier or later
date (in the case of any available extensions of
time) as may be required or permitted by regulations
issued pursuant to ERISA. Compensation Deferrals
constitute Company contributions under the Plan and
are intended to qualify as elective contributions
under Code Section 401(k).
<PAGE>
(d) General Limitations on Compensation
Deferrals. As of the last day of the Plan Year,
the Committee shall determine the
amount of Compensation Deferrals in excess of
those permitted under Section 3.6 of the Plan,
and any excess shall be distributed to the
Participant responsible for the excess
Compensation Deferral.
.3 Employer Matching Contributions.
(a) Amount of Employer Matching Contribution.
Subject to the limitations contained in Articles
III and IV, for each Plan Year the Company may make
an Employer Matching Contribution to the
Plan in an amount as is determined by applying a
formula to the Compensation Deferrals made during
the Plan Year. The formula for the Company shall
be established each year by its Board of Directors.
The formula may, by way of example and not of
limitation, contain the following components:
(1) A specific percentage of
Compensation Deferrals for which Employer
Matching Contributions shall be made; and
(2) The maximum Employer Matching
Contribution which shall be made for any
Participant. The maximum may be expressed as
a percentage of Compensation, a dollar limit
(which, for any class of Participants, may be
zero), a percentage of Compensation Deferrals
or in some other fashion determined by the
Board of Directors.
The Company shall pay to the Trustee the Employer
Matching Contribution for any Plan Year within the
time prescribed by law, including extensions of time,
for the filing of the Company's federal income tax
return for the Company's taxable year ending with
or within the Plan Year to which the contribution
relates.
<PAGE>
(b) Allocation of Employer Matching
Contributions. The Employer Matching
Contributions for any Plan Year shall be allocated
to the Employer Matching Contributions Account
maintained for the Participant on behalf of whom
the contribution under Section 3.3(a) was made.
.4 Rollover Contributions.
(a) An Eligible Employee (regardless of
whether he has satisfied the participation
requirements of Section 2.1 or 2.3, as
applicable) who has received an Eligible Rollover
Distribution (as defined in Section 6.7(b)) from a
plan which meets the requirements of Section 401(a)
of the Code may, in accordance with procedures
approved by the Committee, transfer the distribution
received from the other plan to the Trust; provided
that the distribution is eligible for rollover
treatment and exclusion from the gross income of the
Participant in accordance with Section 402(c) of the Code.
(b) The Committee shall develop such
procedures, and may require such information from an
Employee desiring to make such a transfer, as it
deems necessary or desirable to determine that the
proposed transfer will meet the requirements of this
Section 3.4. Upon approval by the Committee, the
amount transferred shall be deposited in the Trust
and shall be credited to an account which shall be
referred to as the "Rollover Account." Such account
shall be 100% vested in the Eligible Employee and
shall share in income allocations as provided in the
Plan, but shall not share in Company contribution
allocations. Upon termination of employment, the
total amount of the Employee's Rollover Account shall
be distributed in accordance with Article VI.
<PAGE>
(c) Upon such transfer by an Eligible Employee who
has not yet completed the participation requirements
of Section 2.1 (or 2.3, if the Eligible Employee had
no other interest in the Plan upon his date of
reemployment), his Rollover Account shall represent
his sole interest in the Plan until he becomes a
Participant.
.5 Section 402(g) Limit on Compensation Deferrals.
(a) Compensation Deferrals made on behalf of
any Participant under the Plan and all other plans
(which are described in Section 3.5(c)) maintained by
the Company or a Related Company shall not exceed the
limitation under Code Section 402(g)(1) for the
taxable year of the Participant, as adjusted annually
under Section 402(g)(5) of the Code, and shall be
effective as of January 1 of each calendar year.
(b) In the event that the dollar limitation
provided for in Section 3.5(a) is exceeded, the
Participant is deemed to have requested a
distribution of the excess amount by the first March
1 following the close of the Participant's taxable
year, and the Committee shall distribute such excess
amount, and any income allocable to such amount, to
the Participant by the first April 15th thereafter.
In determining the excess amount distributable with
respect to a Participant's taxable year, excess
Compensation Deferrals previously distributed for the
Plan Year beginning with or within such taxable year
shall reduce the amount otherwise distributable under
this Paragraph (b).
(c) In the event that a Participant is also a
participant in (1) another qualified cash or deferred
arrangement as defined in Section 401(k) of the Code,
(2) a simplified employee pension, as defined in
Section 408(k) of the Code, or (3) a salary reduction
arrangement, within the meaning of Section
3121(a)(5)(D) of the Code, and the elective
deferrals, as defined in Section 402(g)(3) of the
Code, made under such other arrangement(s) and the
<PAGE>
Plan cumulatively exceed the dollar limit under
Section 3.5(a) for such Participant's taxable year,
the Participant may, not later than March 1 following
the close of his taxable year, notify the Committee
in writing of such excess and request that the
Compensation Deferrals made on his behalf under the
Plan be reduced by an amount specified by the
Participant. The Committee may then determine to
distribute such excess in the same manner as provided
in Section 3.5(b).
.6 Section 401(k) Limitations on Compensation
Deferrals.
(a) The Committee will estimate, as soon as
practical before the close of the Plan Year and at
such other times as the Committee
in its discretion determines, the extent, if any, to
which Compensation Deferral treatment under Section
401(k) of the Code may not be available to any
Participant or class of Participants. In accordance
with any such estimate, the Committee may modify the
limits in Section 3.2(a), or set initial or interim
limits, for Compensation Deferrals relating to any
Participant or class of Participants. These rules
may include provisions authorizing the suspension or
reduction of Compensation Deferrals above a
specified dollar amount or percentage of Compensation.
(b) For each Plan Year, an actual deferral
percentage will be determined for each Participant
equal to the ratio of the total amount of the
Participant's Compensation Deferrals allocated
under Section 3.2(a) for the Plan Year divided by the
Participant's Compensation in the Plan Year. For
purposes of this Section 3.6, the Company, in its sole
discretion, may treat all or any part of its Employer
Matching Contributions as Compensation Deferrals to the
extent permitted by Treasury Regulations. For purposes
of this Section 3.6, "Compensation" shall meet the
requirements of Section 414(s) of the Code and Treasury
<PAGE>
Regulations issued thereunder and shall, effective
January 1, 1997, include elective or salary reduction
contributions to a cafeteria plan or cash or deferred
arrangement other than a tax-sheltered annuity under
Code Section 403(b). An Employee's Compensation taken
into account for this purpose shall be limited to
Compensation received during the Plan Year while the
Employee is a Participant. Except as otherwise
provided in this Section 3.6(b), with respect to
Participants who have made no Compensation Deferrals
under the Plan, such actual deferral percentage will be
zero.
(c) The average of the actual deferral
percentages for Highly Compensated Employees in any
Plan Year beginning on or after January 1, 1997 (the
"High Average") when compared with the
average of the actual deferral percentages for non-Highly
Compensated Employees in the preceding Plan Year (the "Low
Average") must meet one of the following requirements:
(1) The High Average is no greater than 1.25
times the Low Average; or
(2) The High Average is no greater than two
times the Low Average, and the High Average is no
greater than the Low Average plus two percentage
points.
(d) If, at the end of a Plan Year, a Participant or
class of Participants has excess Compensation
Deferrals, then the Committee may elect, at its
discretion, to pursue any of the following courses of
action or any combination thereof:
(1) Excess Compensation Deferrals, and any
earnings attributable thereto through the last day of
the Plan Year for which the excess occurred (but not
including earnings for the "gap period" between the
end of such Plan Year and the date of distribution),
may be distributed to the Participant (as set forth in
subsection (e)), within 2-1/2 month period following
the close of the Plan Year to which the excess
Compensation Deferrals relate to the extent feasible,
but in all events no later than 12 months after the
close of such Plan Year. Any such excess Compensation
<PAGE>
Deferrals distributed from the Plan with respect to a
Participant for a Plan Year shall be reduced by any
amount previously distributed to such Participant
under Section 3.5(b) for the Participant's taxable
year ending with or within such Plan Year.
(2) Any such excess Compensation Deferrals
distributed from the Plan with respect to a
Participant for a Plan Year shall be reduced by any
amount previously distributed to such Participant
under Section 3.5(b) for the Participant's taxable
year ending with or within such Plan Year.
(3) The Committee may authorize a suspension or
reduction of Compensation Deferrals made pursuant to
Section 3.2 in accordance with rules promulgated by
the Committee. These rules may include provisions
authorizing the suspension or reduction of
Compensation Deferrals above a specified dollar amount
or percentage of Compensation.
(4) The Company, in its discretion, may make a
contribution to the Plan, which will be allocated as a
fixed dollar amount among the Accounts of some or all
non-Highly Compensated Employees (as determined by the
Company) who have met the requirements of Section 2.1
or 2.3, as applicable. Such contributions shall be
fully (100%) vested at all times, and shall be subject
to the withdrawal restrictions which are applicable to
Compensation Deferrals. Such contributions shall be
considered "Qualified NonElective Contributions" under
applicable Treasury Regulations.
(e) Excess Compensation Deferrals for the Plan
Years beginning on or after January 1, 1997 will be
determined by the Committee in accordance with this Section 3.6(e).
<PAGE>
The Committee shall calculate a tentative reduction amount to the
Compensation Deferrals of the Highly Compensated
Employee(s) with the highest actual deferral percentage
equal to the amount which, if it were actually reduced,
would enable the Plan to meet the limits in (c) above,
or to cause the actual deferral percentage of such
Highly Compensated Employee(s) to equal the actual
deferral percentage of the Highly Compensated
Employee(s) with the next-highest actual deferral
percentage, and the process shall be repeated until the
limits in (c) above are satisfied. The aggregate
amount of the tentative reduction amounts in the
preceding sentence shall constitute "Refundable
Contributions." The entire aggregate amount of the
Refundable Contributions shall be refunded to Highly
Compensated Employees (as set forth in subsection
(d)(i)). The amount to be refunded to each Highly
Compensated Employee (which shall constitute his excess
Compensation Deferrals) shall be determined as follows:
(1) the Compensation Deferrals of the Highly
Compensated Employee(s) with the highest dollar amount
of Compensation Deferrals shall be refunded to the
extent that there are Refundable Contributions or to
the extent necessary to cause the dollar amount of
Compensation Deferrals of such Highly Compensated
Employee(s) to equal the dollar amount of Compensation
Deferrals of the Highly Compensated Employee(s) with
the next-highest Compensation Deferrals, and (2) the
process in the foregoing clause shall be repeated until
the total amount of Compensation Deferrals refunded
equals the total amount of Refundable Contributions.
The earnings attributable to excess Compensation
Deferrals will be determined in accordance with
Treasury Regulations. The Committee will not be liable
to any Participant (or his Beneficiary, if applicable)
for any losses caused by inaccurately estimating or
calculating the amount of any Participant's excess
<PAGE>
Compensation Deferrals and earnings attributable to the
Compensation Deferrals.
(f) If the Committee determines that an amount to
be deferred pursuant to the election provided in
Section 3.2 would cause Company contributions under
this and any other tax-qualified retirement plan
maintained by any Company to exceed the
applicable deduction limitations contained in Section
404 of the Code, or to exceed the maximum Annual
Addition determined in accordance with Article IV, the
Committee may treat such amount in accordance with the
rules in Section 3.6(d)(3).
(g) In the discretion of the Committee, the tests
described in this Section 3.6 may be applied by
aggregating the Plan with any other defined contribution
plans permitted under the Code. For purposes of
determining whether the Plan satisfies the
requirements of this Section 3.6, all Compensation
Deferrals and elective contributions under any other
Plan maintained by the Company which is aggregated
with the Plan for purposes of Section 401(a) or
410(b) of the Code (other than Section
410(b)(2)(A)(ii)) are to be treated as made under a
single plan. Furthermore, if two or more plans are
permissively aggregated for purposes of the test
described in this Section 3.6, the aggregated plans
must also satisfy Code Sections 401(a)(4) and 410(b)
as though they were a single plan.
.7 Section 401(m) Limitations on Employer Matching
Contributions.
(a) The Committee will estimate, as soon as
practical, before the close of the Plan Year and at
such other times as the
Committee in its discretion determines, the extent,
if any, to which Employer Matching Contributions may
not be available to any Participant or class of
Participants under Code Section 401(m). In accordance
<PAGE>
with any such estimate, the Committee may modify the
percentages in Section 3.3 or set initial or interim
limits or percentages for Employer Matching
Contributions relating to any Participant or class of
Participants. After determining the amount of excess
Compensation Deferrals, if any, under subsections
3.6, the Committee shall determine the aggregate
contribution percentage under (b) below.
(b) For each Plan Year, a contribution
percentage will be determined for each Participant
equal to the ratio of the total amount of the
Participant's Employer Matching Contributions
allocated under Section 3.3 for the Plan Year divided
by the Participant's Compensation in the Plan Year.
For purposes of the preceding sentence, the Company,
in its sole discretion, may treat all or any part of
its Company Contributions and Compensation Deferrals
as Employer Matching Contributions to the extent
permitted by Treasury Regulations. Except as
otherwise permitted by the Code or Treasury
Regulations, any such Company Contributions that are
treated as Employer Matching Contributions shall not
be treated as Compensation Deferrals for purposes of
Section 3.6(b). To the extent Compensation Deferrals
are treated as Employer Matching Contributions for
purposes of this Section 3.7, the Plan must satisfy
Section 3.6(b) by excluding such amounts from
Compensation Deferrals. Furthermore, any Employer
Matching Contributions or Company Contributions
treated as Compensation Deferrals under Section
3.6(b) shall not be used to satisfy the requirements
of this Section 3.7(b), except as otherwise permitted
by the Code or Treasury Regulations. In the case of
any Participant who is a Highly Compensated Employee
and who is eligible to participate in one or more
other defined contribution plans of the Company or a
Related Company to which Employer Matching
Contributions are made, the contribution percentage
shall be determined by treating the Plan and such
other plans (other than those which may not be
aggregated under Treasury Regulations) as a single
plan. For purposes of this Section 3.7,
<PAGE>
"Compensation" shall meet the requirements of Section
414(s) of the Code and Treasury Regulations issued
thereunder and shall, effective January 1, 1997,
include elective or salary reduction contributions to
a cafeteria plan or cash or deferred arrangement
other than a tax-sheltered annuity under Code Section
403(b). An Employee's Compensation taken into
account for this purpose shall be limited to
Compensation received during the Plan Year while the
Employee is a Participant. Except as otherwise
provided in this Section 3.7(b), with respect to
Participants for whom there were no Employer Matching
Contributions under the Plan, such contribution
percentage will be zero.
(c) The average of the contribution percentages
for Highly Compensated Employees in any Plan Year
beginning on or after January 1, 1997 (the "High
Average") when compared with the average of the
contribution percentages for non-Highly Compensated
Employees in the preceding Plan Year (the "Low
Average") must meet one of the following
requirements:
(1) The High Average is no greater than 1.25
times the Low Average; or
(2) The High Average is no greater than two
times the Low Average, and the High Average is no
greater than the Low Average plus two percentage
points.
(d) If, at the end of a Plan Year, the contribution
percentage for Highly Compensated Employees exceeds the
limits established
in (c), then the Committee may elect, at its discretion,
to pursue any of the following courses of action or any
combination thereof:
(1) Excess Employer Matching Contributions (and
any earnings attributable thereto through the end of
the Plan Year) may be forfeited.
(2) Excess Employer Matching Contributions (and
any earnings attributable thereto through the end of
the Plan Year) may be distributed to the Participant
<PAGE>
within the 2-1/2 month period following the close of
the Plan Year to the extent feasible, and in all
events no later than 12 months after the close of Plan
Year.
(e) Notwithstanding the foregoing, the conditions in this
Section 3.7(e) must be met if there are Employer Matching
Contributions allocated to a Participant which are
attributable to excess Compensation Deferrals under
Section 3.5 or 3.6. In such case, such Employer
Matching Contributions shall not be allocated to the
Account of any Participant who had excess Employer
Matching Contributions in such Plan Year. In
addition, Employer Matching Contributions remaining
in the Plan allocated to the Participant after
satisfying Section 3.7 cannot exceed the amount which
may be allocated under Section 3.3 when taking into
account only those Compensation Deferrals remaining
in the Plan after satisfying Sections 3.5, 3.6, and
3.7. Any such excess Employer Matching Contributions
(and earnings attributable thereto) must be forfeited
or distributed pursuant to this Section 3.7.
(f) Excess Employer Matching Contributions for
Plan Years beginning on or after January 1, 1997
shall be determined by the Committee in accordance
with this Section 3.7(f). The Committee shall
calculate a tentative reduction amount to the
Employer Matching Contributions made with respect to
the Highly Compensated Employee(s) with the highest
contribution percentage equal to the amount which, if
it were actually reduced, would enable the Plan to
meet the limits in (c) above, or to cause the
contribution percentage of such Highly Compensated
Employee(s) to equal the actual contribution
percentage of the Highly Compensated Employee(s) with
the next-highest contribution percentage, and the
process shall be repeated until the limits in
(c) above are satisfied. The aggregate amount of the
tentative reduction amounts in the preceding sentence
shall constitute "Refundable Matching Contributions."
<PAGE>
The entire aggregate amount of the Refundable
Matching Contributions shall be refunded to Highly
Compensated Employees. The amount to be refunded to
each Highly Compensated Employee (which shall
constitute his excess Employer Matching
Contributions) shall be determined as follows: (1)
the Employer Matching Contributions made with respect
to the Highly Compensated Employee(s) with the
highest dollar amount of aggregate Employer Matching
Contributions shall be refunded to the extent that
there are Refundable Matching Contributions or to the
extent necessary to cause the dollar amount of
Employer Matching Contributions of such Highly
Compensated Employee(s) to equal the dollar amount of
Employer Matching Contributions made with respect to
the Highly Compensated Employee(s) with the next
highest aggregate Employer Matching Contributions,
and (2) the process in the foregoing clause shall be
repeated until the total amount of Employer Matching
Contributions refunded equals the total amount of
Refundable Matching Contributions. The earnings
attributable to excess contributions will be
determined in accordance with Treasury Regulations.
The Committee will not be liable to any Participant
(or to his Beneficiary, if applicable) for any losses
caused by inaccurately estimating or calculating the
amount of any Participant's excess contributions and
earnings attributable to the contributions.
(g) The tests of Sections 3.6(c) and 3.7(c)
shall be met in accordance with the prohibition
against the multiple use of the alternative
limitation under Code Section 401(m)(9). For
purposes of determining whether the Plan satisfies
the requirements of this Section 3.7, all
Compensation Deferrals and Employer Matching
Contributions under any other Plan maintained by the
Company which is aggregated with the Plan for
purposes of Section 401(a) or 410(b) of the Code
(other than Section
410(b)(2)(A)(ii)) are to be treated as made under a
<PAGE>
single plan. Furthermore, if two or more plans are
permissively aggregated for purposes of the test
described in this Section 3.8, the aggregated plans
must also satisfy Code Section 401(a)(4) and 401(b)
as though they were a single plan. If it is
necessary to make corrections concerning the
prohibition against the multiple use of the
alternative limitation under Code Section 401(m)(9),
the correction shall be made by reducing and
refunding the Compensation Deferrals of Highly
Compensated Employees. All Highly Compensated
Employees shall be subject to such correction. .8
Investment Funds.
(a) Separate Investment Funds shall be
established and maintained under the Plan by the
Committee. The Committee may, in its discretion,
terminate any Investment Fund. Pursuant to Section
7.3(b), the Committee shall determine the number of
Investment Funds and the Committee, the Trustee, or
the Investment Manager, as applicable, shall
determine the investments to be made under each
Investment Fund. The Committee shall describe the
investments to be made under each Investment Fund in
such detail as the Committee deems appropriate in its
sole discretion. Pursuant to rules established by
the Committee and subject to the provisions of this
Section 3.8, each Participant shall have the right
and obligation to designate in which of the
Investment Funds his Accounts will be invested, and
to change such designation. The designation shall be
in a manner and on such forms as are established by
the Committee, or pursuant to such other methods
(including telephone transfers) authorized by the
Committee. Unless otherwise provided by the
Committee, investment elections must be in 1%
increments and the investment allocation of a
Participant's Accounts must total 100%. If any
Participant fails to designate the Investment Fund or
Funds in which his Accounts shall be invested, the
<PAGE>
Committee shall invest all of his Accounts in the
"default" Investment Fund
or Funds determined by the Committee in its sole
discretion. Participant loans made pursuant to
Section 9.11 shall not be included in any of the
Investment Funds. Instead, for any Participant who
takes such a loan, the loan shall be considered an
investment of his Account(s). Such Participant's
Account(s) shall be credited with the investment
gain or loss attributable to such loan. The
Committee may establish any other rules,
regulations and procedures regarding the Investment
Funds as it deems appropriate in its sole
discretion.
(b) IGT Stock Fund.
(1) One of the Investment Funds available shall
be the IGT Stock Fund, which is a pool of assets
maintained by the Trustee
invested in the common stock of the Company ("IGT
Stock"). Up to 100% of the assets of the Plan may be
invested in IGT Stock; the actual amount of the Plan
assets that shall be invested in IGT Stock will be
the amount selected by the Participants to be so
invested. Cash dividends, stock dividends and stock
splits, if any, received by the Trustee on the IGT
Stock held in the IGT Stock Fund shall be credited to
the appropriate accounts of the Participants who have
invested in the IGT Stock Fund. Any cash dividends
on IGT Stock shall be reinvested as soon as feasible
in additional IGT Stock. The Trustee may maintain a
residual amount of cash or cash equivalents in the
IGT Stock Fund as appropriate (for example, if a
Participant's Account does not have sufficient cash
to buy a whole share of IGT Stock, for amounts
pending distribution, and any amount the Committee
may determine appropriate to provide liquidity for
such fund).
<PAGE>
(2) Pursuant to rules established by the
Committee, each Participant who directs that a
portion of his Account be invested in the IGT Stock
Fund is entitled to direct the voting of the IGT
Stock attributable to the Participant's Account. Any
shares of IGT Stock with respect to which
Participants do not direct the voting shall be voted
by the Trustee in accordance with the
fiduciary duties of the Trustee under ERISA. The
Committee shall establish appropriate procedures
whereby Participants will be furnished with a copy of
the proxy materials given to shareholders of the
Company.
(3) The Committee may charge to Participants who
invest in the IGT Stock Fund any administrative
expenses related to such fund. Such administrative
expenses may be allocated among Participants
in any manner deemed appropriate by the Committee.
(4) The Committee may (but need not) adopt such
rules and/or take such actions or implement such
measures and/or limitations
as it deems desirable in order to comply with 17
C.F.R. 240.16b3, promulgated under Section 16 of the
Securities Exchange Act of 1934, as amended ("SEC
Section 16"). Neither the Company, the Board, the
Committee, any Invested Manager, the Trustee nor the
Plan, nor any other fiduciary of the Plan, shall have
any liability to any Participant in the event that
any Participant has any liability under SEC Section
16 due to any rule so adopted, the failure to adopt
any rule, any Plan provision (or lack thereof) or any
transaction under the Plan.
.9 Valuation of Accounts.
(a) The value of the Accounts invested in the Investment Funds
shall be established on each business day by the Trustee
or the applicable Investment Manager, and investment gains
or losses shall be allocated to such Accounts according to the
investment elections of Participants.
<PAGE>
(b) Notwithstanding anything to the contrary
herein, if the Committee determines that an
alternative method of allocating earnings and losses
would better serve the interests of Participants and
Beneficiaries or could be more readily implemented,
the Committee may substitute such alternative;
provided that any such alternative method must result
in Plan earnings being allocated on the general basis
of Account balances.
.10 Forfeitures.
Any amount which has been forfeited under
the Plan during the Plan Year shall be used as
described in this Section 3.10. Forfeitures from
Company Contribution Accounts during a Plan Year (a)
shall first be used by the Company to pay for any
expenses of maintaining the Plan, (b) to the extent
that any forfeitures remain, such forfeitures shall
be used to offset any required Company contributions
to the Plan, and (c) to the extent that any
forfeitures remain after applying (b), such excess
forfeitures shall be allocated as of the Anniversary
Date to the Company Contribution Accounts of the
other eligible Participants in the Plan during that
Plan Year in accordance with the allocation
methodology set forth in Section 3.1 for Company
Contributions. Any forfeitures to be allocated to
Participants in accordance with the preceding
sentence shall be allocated according to the formula
for allocations of Company Contributions as set forth
in Section 3.1(b) and only those Participants who are
eligible for any Company Contributions in accordance
with such section. Any allocable forfeitures
attributable to the Company or any Participating
Affiliate shall be allocated to the Participants
employed by such Company or Participating Affiliate.
<PAGE>
.11 Notification of Participants.
After the Committee has made the allocations to
the Accounts of each Participant required as of each
Anniversary Date, it shall notify each Participant
with respect to the status of such Participant's
Accounts as of such date. Such notification shall be
made as soon as administratively practicable after
each Plan Year. The total amounts so credited to
each Participant's Accounts shall represent each
Participant's contingent share of the Trust as of
such date. In addition, the Committee may notify
each Participant of the status of his Account(s) as
of any other date chosen by the Committee. Such
allocation and notification
shall not vest in any Participant any right, title or
interest in the Trust, except to the extent, at the
time or times, and upon the terms and conditions set
forth herein. Neither the Company, the Trustee, nor
the Committee to any extent warrants, guarantees or
represents that the value of any Participant's
Accounts at any time will equal or exceed the amount
previously allocated or contributed thereto. There
is a fee for providing a statement of account
balances more frequently than the quarterly statement
which is automatically provided.
.12 Limitations on Contributions.
In no event shall the aggregate contribution for any Plan
Year made by the Company and any Participating
Affiliates under Sections 3.1, 3.2 and 3.4, and under
any other profit sharing or stock bonus plan(s)
maintained by the Company or a Participating
Affiliate, exceed 15% of the Compensation paid or
accrued to all Participants, plus the amount of any
"unused pre-87 limitation carryforwards" available
under Section 404(a)(3)(A) of the Code. The
Compensation taken into account for purposes of the
preceding sentence shall be Compensation paid or
accrued during the Company's taxable year ending with
or within the Plan Year to which the Company
<PAGE>
contribution relates, but shall not include any
salary reduction contributions which are excludable
from Participants' income in accordance with Code
Sections 125 or 402(g).
<PAGE>
ARTICLE IV
LIMITATION ON ANNUAL ADDITIONS
.1 Section 415 Limitations.
Notwithstanding anything else contained herein,
the Annual Additions, to all the Accounts of a
Participant shall not exceed the lesser of $30,000
(adjusted as permitted under Section
415(d)(1) of the Code and regulations issued
thereunder) or 25% of the Participant's Section 415
Compensation from the Company and all Related
Companies during the Plan Year. This Section 4.1
shall be construed and interpreted in accordance with
the provisions of Appendix A attached hereto.
<PAGE>
ARTICLE V
VESTING
.1 Fully Vested Accounts.
A Participant's Compensation Deferral Account, Employer
Matching Contributions Account, and Rollover Account
shall be 100% vested and nonforfeitable.
.2 Company Contribution Account.
(a) The interest of each Participant in his Company
Contribution Account shall vest and become nonforfeitable
up to a maximum of 100% as follows:
(1) A Participant shall become 100% vested if,
while an Employee, he attains his Normal Retirement
Age, incurs a Disability, or dies; or
(2) A Participant shall become vested in
accordance with the following schedule:
<TABLE>
<CAPTION>
Years of Percentage Vested
Vesting Service
<S> <C>
less than 1 0%
1 10%
2 20%
3 30%
4 45%
5 60%
6 80%
7 or more 100%
</TABLE>
(a) If a Participant incurs a Break in Employment which is
followed by five consecutive One-Year Break in Service
Years and is subsequently reemployed, no Year of Vesting Service
after such five consecutive One-Year Break in Service Years shall be
taken into account in determining the vested percentage
in a Participant's Company Contributions Account accrued
up to any such One-Year Break in Service Year. All Years
<PAGE>
of Service shall be taken into account in determining the
vested percentage in a Participant's Company
Contributions Account accrued after five consecutive One-
Year Break in Service Years.
(b) When a Participant ceases to participate and
receives distribution of his Company Contributions
Account, such portion of his Company Contributions
Account as of the coinciding or next following
Anniversary Date as is not vested shall be forfeited and
allocated in the manner provided in Section 3.10 as of
such Anniversary Date. For purposes of the preceding
sentence, a Participant who ceases to participate in the
Plan and whose nonforfeitable percentage in his Company
Contributions Account is zero, shall be deemed to have
received a complete distribution of the nonforfeitable
portion of his Company Contributions Account. If a former
Participant who has suffered a forfeiture on account of
his termination of participation in accordance with this
subsection (c) is reemployed as an Employee by the
Company before incurring five consecutive One-Year Break
in Service Years and repays to the Plan all money
distributed from his Company Contributions Account prior
to 60 months after such reemployment, any amounts so
forfeited (unadjusted for any increase or decrease in the
value of Trust assets subsequent to the Anniversary Date
on which the forfeiture occurred) shall be reinstated to
the Participant's Company Contributions Account within a
reasonable time after such repayment. Such reinstatement
shall be made from forfeitures of Participants occurring
during the Plan Year in which such reinstatement occurs
to the extent such forfeitures are attributable to
contributions by the same Company (or a Company that is a
Related Company to that Company) and earnings on such
contributions; provided, however, if such forfeitures are
not sufficient to provide such reinstatement, the
reinstatement shall be made from the current year's
contribution by that Company to the Plan. When a
Participant ceases to participate and incurs five
<PAGE>
consecutive One-Year Break in Service Years, such portion
of his Company Contribution Account as is not vested (and
was not previously forfeited in accordance with the
foregoing provisions of this subsection) shall be
forfeited and allocated in the manner provided in Section
3.10 as of the Anniversary Date occurring on or
immediately following the date the Participant incurred
such five consecutive One-Year Break in Service Years.
(c) Notwithstanding the preceding subsections, in the
case of a Participant who incurs a Break in Employment prior to the
first Plan Year beginning after 1984, the word "one"
shall be substituted for "five" in subsections (b)
and (c) if a One-Year Break in Service Year would
have occurred before the first Plan Year beginning
after 1984.
<PAGE>
ARTICLE VI
DISTRIBUTIONS
.1 Distribution of Benefits
Benefits shall become distributable to a
Participant or his Beneficiary (in the case of
death) as soon as administratively practicable
after the Participant's Break in Employment.
(d) The amount of the benefits distributable to a
Participant pursuant to (a) above shall be the vested
amount credited to such Participant's Accounts as of the
date on which the amount representing the distribution
is liquidated from the appropriate Investment Funds
pending distribution.
(e) Except as provided in the next two sentences,
distribution shall be in the form of a cash lump sum.
To the extent a Participant's account is invested in the
IGT Stock Fund, the Participant may, at such time as a
distribution is to be made to the Participant (other than a hardship
distribution) elect to receive the amount in the
IGT Stock Fund either in the form of
whole shares of IGT Stock (plus any residual cash
held in such Participant's IGT Stock Fund account),
or in cash, or in a combination of cash and stock.
The Committee may adopt rules as to the manner and
timing of such elections; provided that in all cases
an election, in order to be valid, must be received
by the Committee prior to the date that benefits are
actually paid. To the extent a Participant elects
to receive a distribution in the form of cash or a
combination of cash and stock, the cash to be
distributed shall equal the actual net proceeds of
the sale of the IGT Stock in such Participant's
Account.
(f) Notwithstanding the foregoing, upon a
Break in Employment, if, as of the date benefits
become distributable under Section 6.1(a), the
nonforfeitable balance in the Participant's Accounts
<PAGE>
exceeds $5,000, distribution shall be made as soon
as practicable after a Break in Employment only if
the Participant consents to a distribution of the
nonforfeitable balance of his Accounts in writing.
If the Participant does not so consent (unless
Treasury Regulations otherwise provide and the
Committee adopts different rules), distribution of
the amounts payable shall be made as soon
as administratively practicable after the
Participant's death or the attainment of his Normal
Retirement Age, whichever occurs first.
(g) An explanation of the Participant's right
to defer distribution of the nonforfeitable balance
of his Accounts shall be provided to the Participant
no less than 30 and no more than 90 days before the
date such distribution is to be made (consistent
with such regulations as the Secretary of the
Treasury may prescribe). Participants who defer
their distributions following termination of
employment will have the administrative expenses
associated with maintaining their Accounts deducted
directly from their Accounts.
(h) If the nonforfeitable balance of a terminating
Participant's Accounts is a distribution to which Sections
401(a)(11) and 417 of the Code do not apply, such distribution may
commence less than 30 days after the notice described
in subsection (d) is given, provided that: (1) the
Committee clearly informs the Participant that the
Participant has the 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 (2) the Participant, after receiving the
notice, affirmatively elects an immediate
distribution.
(i) If a terminating Participant receives a
distribution, the nonvested portion of his Accounts, if
any, shall be forfeited and his rights with respect to
the forfeited portion shall be
governed by Section 3.10.
<PAGE>
.2 Hardship Withdrawals from Compensation Deferral
Accounts and Company Contribution Accounts.
(a) Subject to the approval of the Committee and guidelines
promulgated by the Committee, withdrawals from the
Participant's Compensation Deferral Account and vested
Company Contribution Account balance may be permitted to
meet a financial hardship resulting from:
(1) Uninsured medical expenses previously
incurred by the Participant, or the Participant's
spouse or dependent or necessary to obtain such
medical care;
(2) The purchase (excluding mortgage payments) of a
principal residence of the Participant;
(3) The payment of tuition for the next 12 months of
postsecondary education for the Participant, or the
Participant's
spouse, children or dependents;
(4) The prevention of eviction of the Participant
from his principal residence, or foreclosure on the
mortgage of the Participant's principal residence; and
(5) Any other event described in Treasury
Regulations or rulings as an immediate and heavy financial
need and approved by the
Company as a reason for permitting distribution
under this Section 6.2.
The Committee shall determine, in a non-discriminatory
manner, whether a Participant has a financial
hardship. A distribution may be made under this
Section 6.2 only if such distribution does not exceed
the amount required to meet the immediate financial
need created by the hardship (including taxes or
<PAGE>
penalties reasonably anticipated from the
distribution) and is not reasonably available from
other resources of the Participant.
(b) The withdrawal amount shall not in any
event exceed the value of the Participant's
Compensation Deferral Account and vested Company
Contribution Account balance as of the date
immediately following the Committee's acceptance of
the Participant's written application for a hardship
withdrawal. In addition, except as provided
otherwise in the following sentence, the withdrawal
amount with respect to Compensation Deferral Account
shall not exceed the value of the Participant's
Compensation Deferrals to such Accounts, less
previous withdrawals and excluding earnings.
Notwithstanding the foregoing, any distribution under
this Section 6.2 may include earnings accrued to the
Participant's Compensation Deferral Account prior to
1989. Payment of the withdrawal shall be in a single
sum no later than the end of the month following the
date on which the withdrawal is approved by the
Committee.
(c) If a Participant withdraws any amount from
his Account pursuant to this Section 6.2, he must
agree in writing that he shall be unable to elect
that any Compensation Deferrals or any other employee
contributions (excluding mandatory employee
contributions to a defined benefit plan) be made on
his behalf under the Plan or under any other plan
maintained by the Company or a Related Company until
one year after receipt of the withdrawal. For purposes of the preceding
sentence, a plan includes any qualified plan or
nonqualified plan of deferred compensation and any
stock purchase or stock option plan, but does not
include cafeteria plans or any other health or
welfare benefit plans. In addition, a Participant
who withdraws any amount pursuant to this Section 6.2
shall be unable to elect any Compensation Deferrals
under the Plan or under any other plan maintained by
the Company or a Related Company for the
<PAGE>
Participant's taxable year immediately following the
taxable year of the withdrawal to any extent that
such Compensation Deferral would exceed the
applicable limit under Section 402(g) of the Code for
such taxable year, reduced by the amount of such
Participant's Compensation Deferrals for the taxable
year of the withdrawal.
(d) A Participant shall not be permitted to
make any withdrawals pursuant to this Section 6.2
until he has obtained all
distributions, other than hardship distributions,
and all nontaxable loans currently available under
all qualified profit sharing and retirement plans
maintained by the Company or a Related Company.
(e) All hardship withdrawals shall be made
in cash. The Participant shall specify the
Investment Funds from which the amounts are
withdrawn.
(f) The Participant's request for a withdrawal
shall include his written statement that the need
cannot be relieved: (i) through reimbursement or
compensation by insurance or otherwise; (ii) by
reasonable liquidation of the Participant's assets,
to the extent such liquidation would not itself cause immediate and
heavy financial need; (iii) by cessation of
Compensation Deferrals under the Plan; or (iv) by
other distributions or nontaxable loans currently
available from plans maintained by the Company or a
Related Company, or by borrowing from commercial
sources on reasonable commercial terms.
.3 Rollover Account Withdrawals.
A Participant may withdraw all (but not part) of
his Rollover Account at any time prior to his Break
in Employment.
<PAGE>
.4 Qualified Domestic Relations Orders.
Subject to the procedures established by the
Committee under Section 9.4(b), benefits may be paid
from the nonforfeitable balance of a Participant's
Accounts in accordance with a qualified domestic
relations order as defined in Section 414(p) of the
Code without regard to whether the Participant has
attained the "earliest retirement age," as defined in
Section 414(p) of the Code.
.5 Inability to Locate Participant.
In the case of any distribution of an Account under the
Plan, if the Committee is unable to make such payment
within three years after payment is due a Participant
or Beneficiary because it cannot locate such
Participant or Beneficiary, the Trustee shall direct
that such amount shall be forfeited and shall be used
and/or reallocated (as of the Anniversary Date
coincident with or next succeeding the expiration of
the aforesaid time limit) in the same manner as
amounts forfeited for any other reason and the assets
of the Plan shall be relieved of the liability for
such payment. If, after such forfeiture, the
Participant or Beneficiary later claims such benefit,
such account shall be reinstated from forfeitures of
Participants in the Plan occurring during the Plan
Year in which such reinstatement occurs; provided,
however, that if such forfeitures are not sufficient
to provide such reinstatement, an additional Company
contribution shall be made for the Plan Year in which
reinstatement occurs to cover such reinstatement.
Establishment of an account through such
reinstatement shall not be deemed an
"annual addition" under Section 415 of the Code or
Article IV of the Plan.
<PAGE>
.6 Limitations on Distributions.
(a) When benefits become distributable, the
Committee shall direct the Trustee to distribute the
amount described above promptly, the payment of such
benefits to commence, notwithstanding anything to the
contrary contained herein, no later than 60 days
following the close of the later of the Plan Year in
which (1) a Participant reaches Normal Retirement
Age, (2) the Participant incurs a Break in
Employment, or (3) occurs the 10th anniversary of the
year in which the Participant commenced participation
in the Plan (unless the amount of the Participant's
benefit has not been calculated by that date or the
Participant cannot be located, in which case
distribution shall begin no later than 60 days after
the payment can be calculated or the Participant
located).
(b) Notwithstanding anything to the contrary
contained herein, the distribution options under the
Plan shall comply with Section 401(a)(9) of the Code
and regulations promulgated thereunder,
which are hereby incorporated by this reference as a
part of the Plan. Accordingly, unless otherwise
permitted by law, the entire interest of each
Participant who is a five percent (5%) owner with
respect to the Plan Year in which the Participant
attains age 70-1/2 shall commence to be distributed
by April 1 of the calendar year following the
calendar year in which the Participant reaches age 70-
1/2. Any Participant not described in the prior
sentence who has not commenced receipt of
distributions as of December 31, 1998 shall not be
required to receive distribution of his interest
until he separates from service.
Any distribution to a five percent owner pursuant to
this Section 6.6(b) shall be made in a single lump
sum or over the life of such Participant (or over the
lives of the Participant and his
Beneficiary) or over a period not extending beyond
the life expectancy of the Participant (or over a
<PAGE>
period not extending beyond the life expectancy of
the Participant and his Beneficiary), provided that
the entire remaining balance shall be distributed
upon termination of employment. If a distribution
has begun in accordance with the preceding sentence
or under this Section 6.6(b) as contained in the
prior version of the Plan, and the Participant dies
before his entire interest has been distributed to
him, the remaining portion of his interest shall be
distributed to his Beneficiary in a single lump sum.
If a Participant dies before the distribution of his
interest has begun, his entire interest shall be
distributed to his Beneficiary in a single lump sum.
For purposes of this paragraph and to the extent
permitted by law, any amount paid to a Participant's
child shall be treated as if it had been paid to the
Participant's surviving spouse if such amount will
become payable to the surviving spouse upon such
child reaching majority (or other designated event
permitted by law).
.7 Direct Rollovers.
(a) This Section 6.7 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 6.7, if a
Distributee will receive an Eligible Rollover
Distribution of at least $200, the 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; provided, however, that a
Distributee may not elect to have an Eligible
Rollover Distribution of less than $500 paid directly
to an Eligible Retirement Plan unless the Distributee
elects to have his or her entire Eligible Rollover
Distribution paid directly to the Eligible Retirement
Plan.
<PAGE>
(b) Definitions.
(1) 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: (i) any distribution that is one of a series of
substantially equal periodic payments (not less frequently than
annually) made for the life (or joint life expectancies) of the
Distributee and the Distributee's designated Beneficiary, or for a
specified period of ten years or more; (ii) any distribution to the
extent such distribution is required under Section 401(a)(9) of the
Code; (iii) the portion of any distribution that is not includible
in gross income (determined without regard to the exclusion for net
unrealized appreciation with respect to employer securities); and
(iv) any other type of distribution which the Internal Revenue
Service announces (pursuant to regulation, notice or otherwise) is
not an Eligible Rollover Distribution.
(2) An "Eligible Retirement Plan" is an individual retirement
account described in Section 408(a) of the Code, an individual
retirement annuity described Section 408(b) of the Code, an
annuity plan described in Section 403(a) of the Code, or a qualified
trust described in Section 401(a) of the Code, 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.
(3) 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
<PAGE>
defined in Section 414(p) of the Code, are Distributees with regard to
the interest of the Spouse or former Spouse.
(4) A "Direct Rollover" is a payment by the Plan to the Eligible
Retirement Plan specified by the Distributee.
<PAGE>
ARTICLE VII
THE COMMITTEE
.1 Members.
A committee (hereinafter referred to as the "Committee")
shall be appointed by, and shall serve at the pleasure of, the
Board. The Board shall appoint a member of the Committee as the
Committee Chairman. The number of members comprising the
Committee shall be determined by the Board which may from time to
time vary the number of members. A member of the Committee may
resign by delivering a written notice of resignation to the
Committee Chairman. The Committee Chairman may resign (such
office or from the Committee) by delivering a written notice of
resignation to the Board. The Board may remove any member of the
Committee (or provide that the Committee Chairman shall no longer
act as such) by delivering written notice thereof to such member.
Vacancies in the membership of the Committee shall be filled
promptly by the Committee Chairman with the concurrence by a
majority vote of the committee, subject to annual review by the
Board. If for any reason there is no Committee Chairman, the
Board shall promptly appoint a new Committee Chairman.
.2 Committee Action.
The Committee shall choose a Secretary. The Secretary shall
keep minutes of the Committee's proceedings and all records and
documents pertaining to the Committee's administration of the
Plan. Any action of the Committee shall be taken pursuant to the
vote or written consent of a majority of its members present, and
such action shall constitute the action of the Committee and be
binding upon the same as if all members had joined therein. A
member of the Committee shall not vote or act upon any matter
which relates solely to himself as a Participant. The Chairman or
<PAGE>
any other member or members of the Committee designated by the
Chairman may execute any certificate or other written direction
on behalf of the Committee. The Trustee or any third person
dealing with the Committee may conclusively rely upon any
certificate or other written direction so signed.
.3 Rights and Duties.
(c) The Company shall be the Plan Administrator (as defined in
Section 3(16)(A) of ERISA). The Company delegates its duties
under the Plan to the Committee. The Committee shall act as the Fiduciary
with respect to control and management of the Plan for purposes of ERISA
on behalf of the Participants and their Beneficiaries, shall enforce the
Plan in accordance with its terms, shall be charged with the general
administration of the Plan, and shall have all powers necessary to
accomplish its purposes, including, but not by way of limitation, the
following:
(1) To determine all questions relating to the eligibility of
Employees to participate;
(2) To construe and interpret the terms and provisions of the
Plan;
(3) To compute, certify to, and direct the Trustee with regard
to the amount and kind of benefits payable to Participants and
their Beneficiaries;
(4) To authorize all disbursements by the Trustee from the
Trust;
(5) To maintain all records that may be necessary for the
administration of the Plan other than those maintained by the
Trustee;
<PAGE>
(6) To provide for the disclosure of all information and the
filing or provision of all reports and statements to
Participants, Beneficiaries or governmental agencies as shall be
required by ERISA or other law, other than those prepared and filed
by the Trustee;
(7) To make and publish such rules for the regulation of the
Plan as are not inconsistent with the terms hereof;
(8) To appoint a plan administrator or, any other agent, and to
delegate to them or to the Trustee such powers and duties in
connection with the administration of the Plan as the Committee
may from time to time prescribe, and to designate each such
administrator or agent as Fiduciary with regard to matters delegated
to him; and
(9) To make decisions on claims in a manner consistent with
regulations of the Secretary of Labor for presentation of claims by
Participants and Beneficiaries for Plan benefits, which shall include
consideration of such claims, review of claim denials and issuance of
a decision on review. Such claims procedures shall at a minimum
consist of the following:
(A) The Committee shall notify Participants and, where
appropriate, Beneficiaries of their right to claim benefits under the
claims procedures, shall make forms available for filing of such claims,
and shall provide the name of the person or persons with whom such
claims should be filed.
(B) The Committee shall establish procedures for action upon
claims initially made and the communication of a decision to the
claimant promptly and, in any event, not later than 90 days after
the claim is received by the Committee, unless special
circumstances require an extension of time for processing the
<PAGE>
claim. If an extension is required, notice of the extension
shall be furnished the claimant prior to the end of the initial
90-day period, which notice shall indicate the reasons for the
extension and the expected decision date. The extension shall
not exceed 90 days. The claim may be deemed by the claimant to
have been denied for purposes of further review described below
in the event a decision is not furnished to the claimant within
the period described in the three preceding sentences. Every
claim for benefits which is denied shall be denied by written
notice setting forth in a manner calculated to be understood by
the claimant (i) the specific reason or reasons for the denial, (ii)
specific reference to any provisions of the Plan on which denial is
based, (iii) description of any additional material or information
necessary for the claimant to perfect his claim with an explanation of
why such material or information is necessary, and (iv) an explanation
of the procedure for further reviewing the denial of the claim under
the Plan.
(C) The Committee shall establish a procedure for review of
claim denials, such review to be undertaken by the Committee.
The review given after denial of any claim shall be a full and fair
review with the claimant or his duly authorized representative having
60 days after receipt of denial of his claim to request such review,
the right to review all pertinent documents and the right to submit
issues and comments in writing.
(D) The Committee shall establish a procedure for issuance of a
decision by the Committee not later than 60 days after receipt of
a request for review from a claimant unless special
circumstances, such as the need to hold a hearing, require a
<PAGE>
longer period of time, in which case a decision shall be rendered
as soon as possible but not later than 120 days after receipt of
the claimant's request for review. The decision on review shall
be in writing and shall include specific reasons for the decision
written in a manner calculated to be understood by the claimant
with specific reference to any provisions of the Plan on which the
decision is based.
(d) With respect to management or control of investments, the
Committee shall have the power to direct the Trustee in writing
with respect to the investment of the Trust assets or any part
thereof. Where investment authority, management and control of
Trust assets have been delegated to the Trustee by the Committee,
the Trustee shall be the Fiduciary with respect to the investment,
management and control of the Trust assets contributed by the
Company and Participants with full discretion
in the exercise of such investment, management and control. Except
as otherwise provided by law, the Committee may appoint one or
more Investment Manager(s), as defined in Section 1.2 of the Plan,
to invest the Trust assets or any part thereof. Where investment
authority, management, and control of Trust assets is not
specifically delegated to the Trustee, the Trustee shall be
subject to the direction of the Committee or the Investment
Manager(s) appointed by the Committee, if any, regarding the
investment, management and control of such assets, and in such
case the Committee, or the Investment Manager(s), as the case may
be, shall be the Fiduciary with respect to the investment,
management and control of such assets.
(e) Each Fiduciary under the Plan and Trust shall be solely
responsible for its own acts or omissions. Except to the extent
required by ERISA or the Code, no Fiduciary shall have the duty to
<PAGE>
question whether any other Fiduciary is fulfilling any or all of
the responsibilities imposed upon such other Fiduciary by ERISA or
by any regulations or rulings issued thereunder. No Fiduciary
shall have any liability for a breach of fiduciary responsibility
of another Fiduciary with respect to the Plan or Trust unless he
knowingly participates in such breach, knowingly undertakes to
conceal such breach, has actual knowledge of such breach and fails
to take reasonable remedial action to remedy said breach or,
through his negligence in performing his own specific fiduciary
responsibilities, has enabled such other Fiduciary to commit a
breach of the latter's fiduciary responsibilities.
.4 Procedure for Establishing Funding Policy - Transmittal of Information.
In order to enable the Committee to establish a funding
policy and perform its other functions under the Plan, the Company
shall supply full and timely information to the Committee on all
matters relating to the Compensation, employment,
retirement, death, or the cause for termination of employment of
each Participant and such other pertinent facts as may be
required. The Committee shall advise the Trustee and the
Investment Manager, as appropriate, of such of the foregoing facts
as may be pertinent to the duties of the Trustee and Investment
Manager under the Plan.
.5 Other Information.
To enable the Committee to perform its functions, the Company
shall supply full and timely information to the Committee on all
matters relating to the compensation of all Participants, their
employment, retirement, death or other cause for termination of
employment, and such other pertinent facts as the Committee may
require; and the Committee shall advise the Trustee of such of the
foregoing facts as may be pertinent to the Trustee's duties under
the Plan.
<PAGE>
.6 Compensation, Bonding, Expenses and Indemnity.
(1) The members of the Committee shall serve without
compensation for their services hereunder.
(2) Members of the Committee and any delegates shall be bonded to
the extent required by Section 412(a) of ERISA and the regulations
thereunder. Bond premiums and all expenses of the Committee or of any
delegate who is an employee of the Company
shall be paid by the Company and the Company shall furnish the
Committee and any such delegate with such clerical and other assistance
as is necessary in the performance of their duties.
(3) The Committee is authorized at the expense of the Company to
employ such legal counsel as it may deem advisable to assist in
the performance of its duties hereunder. Expenses and fees in
connection with the administration of the Plan and the Trust
shall be paid from the Trust assets to the fullest extent
permitted by law, unless the Company determines otherwise.
(4) To the extent permitted by applicable state law, the Company
shall indemnify and save harmless the Committee and each member
thereof, the Board of Directors and any delegate of the Committee
who is an employee of the Company against any and all expenses,
liabilities and claims, including legal fees to defend against
such liabilities and claims arising out of their discharge in good
faith of responsibilities under or incident to the Plan, other
than expenses and liabilities arising out of willful misconduct.
This indemnity shall not preclude such further indemnities as may
be available under insurance purchased by the Company or provided
by the Company under any by-law, agreement or otherwise, as such
<PAGE>
indemnities are permitted under state law. Payments with respect
to any indemnity and payment of any expenses and fees under this
Section 7.6 shall be made only from assets of the Company and
shall not be made directly or indirectly from Trust assets.
.7 Manner of Administering.
The Committee shall have full discretion to construe and
interpret the terms and provisions of the Plan, which
interpretation or construction shall be final and binding on all
parties, including but not limited to the Company and any
Participant or Beneficiary, except as otherwise provided by law.
The Committee shall administer such terms and provisions in a
uniform and nondiscriminatory manner and in full accordance with
any and all laws applicable to the Plan.
.8 Duty of Care.
In the exercise of the powers and duties of the Committee as
Plan Administrator and Fiduciary with respect to the investment,
management and control of the Plan, each member of the Committee
shall use the care, prudence, and diligence under the
circumstances then prevailing that a prudent person 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.
.9 Committee Report.
The Committee shall keep the Board of Directors apprised of
the investment results of the Plan and shall report any other
information necessary to fully inform the Board of Directors of
the status and operation of the Plan and Trust.
<PAGE>
.10 Section 404(c) Provisions.
(f) The Plan is intended to constitute a plan described in
Section 404(c) of ERISA, and the regulations thereunder. As a
result, with respect to elections described in the Plan and any
other exercise of control by a Participant or his or her
Beneficiary over assets in the Participant's Accounts, such
Participant or Beneficiary shall be solely responsible for such
actions and neither the Trustee, the Committee, the Company, nor
any other person or entity which is otherwise a fiduciary shall
be liable for any loss or liability which results from such
Participant's or Beneficiary's exercise of control.
(g) The Committee shall provide to each Participant or his or
her Beneficiary the information described in Section 2530.404c
1(b)(2)(i)(B)(1) of the Department of Labor Regulations. Upon
request by a Participant or his or her Beneficiary, the Committee
shall provide the information described in Section 2530.404c
1(b)(2)(i)(B)(2) of the Department of Labor Regulations.
(h) The Committee shall take such actions and establish such
procedures as it deems necessary to ensure the confidentiality of
information relating to the purchase, sale, and holding of IGT
Stock, and the exercise of voting, tender and similar rights with
respect to such stock by a Participant or his or her Beneficiary.
Notwithstanding the foregoing, such information may be disclosed to
the extent necessary to comply with applicable state and federal
laws.
(i) In the event of a tender or exchange offer with respect to
the Company, or in the event of a contested election with respect
to the Board of Directors, the Company shall, at its own
expense, appoint an independent fiduciary to carry out the
Committee's administrative functions with respect to the IGT
Stock Fund.
Such independent fiduciary shall not be an "affiliate" of the
<PAGE>
Company as such term is defined in Section 2530.404c-1(e)(3) of
the Department of Labor Regulations.
(j) The Committee may take such other actions or implement such
other procedures as it deems necessary or desirable in order that
the Plan comply with Section 404(c) of ERISA.
.11 Expenses of Plan and Trust.
Expenses of administering the Plan and Trust shall, unless
paid by the Company, be paid from the Trust.
<PAGE>
ARTICLE VIII
AMENDMENT AND TERMINATION
.1 Amendments.
The Company shall have the right to amend or modify the Plan
by resolution of the Board of Directors and to amend or cancel
any amendments. In addition, the Committee shall have the
authority to amend the Plan in any manner which is necessary to
maintain the qualification and tax exempt status of the Plan under
the Code and ERISA, and the authority to adopt any other amendment
to the Plan which (1) does not have the effect of increasing the
liability of the Company in a manner which would cause a
significant detriment to the Company and (2) does not
significantly increase the benefits payable to any Committee
member, except in his capacity as a member of a broad class of
employees for whom benefits are being increased. Any amendment
shall be stated in an instrument in writing, executed in the same
manner as the Plan. Except as may be required to permit the Plan
and Trust to meet the requirements for qualification and tax
exemption under the Code, or the corresponding provisions of other
or subsequent revenue laws or of ERISA, no amendment may be made
which may:
(k) Cause any of the assets of the Trust, at any time prior to
the satisfaction of all liabilities with respect to Participants
and their Beneficiaries, to be used for or diverted to purposes other
than for the exclusive benefit of Participants or their Beneficiaries;
(l) Decrease the accrued benefit of any Participant or
Beneficiary within the meaning of Section 411(d)(6) of the Code;
<PAGE>
(m) Create or effect any discrimination in favor of Participants
who are Highly Compensated Employees; and
(n) Increase the duties or liabilities of the Trustee without
its written consent.
If the Plan's vesting schedule is amended or the Plan is
amended in any way that directly or indirectly affects the
computation of a Participant's nonforfeitable percentage, each
Participant with at least 3 Years of Vesting Service (computed
without regard to any minimum age requirement and including Years
of Vesting Service, if any, disregarded pursuant to Article V) may
elect to have his nonforfeitable percentage computed under the
Plan without regard to such amendment or change. For Participants
who do not have at least 1 Hour of Service in any Plan Year
beginning after December 31, 1988, the preceding sentence shall be
applied by substituting "5 Years of Vesting Service" for "3 Years
of Vesting Service" where such language appears. The period
during which the election may be made shall commence with the date
the amendment is adopted or deemed to be made and shall end 60
days after the latest of the date on which:
(1) the amendment is adopted;
(2) the amendment becomes effective; or
(3) the Participant is issued written notice of the amendment by
the Company.
.2 Discontinuance of Plan.
(o) It is the Company's expectation that the Plan and the
payment of contributions hereunder will be continued
indefinitely, but continuance of the Plan by the Company is not
assumed as a contractual obligation, and the Company reserves the
right to permanently discontinue contributions hereunder. In the
event of the complete discontinuance of contributions by the
Company, the entire interest of each Participant affected thereby
shall immediately become 100% vested. The Company shall not be
liable for the payment of any benefits under the Plan and all
benefits hereunder shall be payable solely from the assets of the
Trust.
(p) The Company may terminate the Plan at any time. Upon
complete termination or partial termination of the Plan, the
entire interest of each of the affected Participants shall become
<PAGE>
100% vested. The Trustee shall thereafter, upon direction of the
Committee, distribute to the Participants the amounts in such
Participant's Accounts in the same manner as set forth in Article
VI, subject, where appropriate, to Section 403(d)(1) of ERISA and
regulations of the Secretary of Labor thereunder as may affect
allocation of assets upon termination of the Plan.
.3 Failure to Contribute.
Any failure by the Company to contribute to the Trust in any
year when no contribution is required under the Plan shall not of
itself be a discontinuance of contributions under the Plan.
.4 Plan Merger or Consolidation; Transfer of Plan Assets.
(q) The Plan shall not be merged or consolidated with, nor shall
its assets or liabilities be transferred to, any other plan
unless each 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 such Participant would have been entitled to receive
immediately before the merger, consolidation or transfer (if the
Plan had been terminated). Where the foregoing requirement is
satisfied, the Plan and its related Trust may be merged or
consolidated with another qualified plan and trust.
(r) The Committee may, in its discretion, authorize a plan
to plan transfer, provided such a transfer will meet the
requirements of Section 414(l) of the Code and that all other
<PAGE>
actions legally required are taken. In the event of a transfer of
assets from the Plan pursuant to this subsection, any
corresponding benefit liabilities shall also be transferred.
<PAGE>
ARTICLE IX
MISCELLANEOUS
.1 Contributions Not Recoverable.
Except where contributions or earnings are required to be
returned to the Company by the provisions of the Plan as permitted
or required by ERISA or the Code, it shall be impossible for any
part of the contributions made under the Plan (or earnings with
respect thereto) to be used for, or diverted to, purposes other
than the exclusive benefit of Participants or their Beneficiaries.
Notwithstanding this or any other provision of the Plan, the
Company shall be entitled to recover, and the Participants under
the Plan shall have no interest in (a) any contributions made
under the Plan by mistake of fact, so long as the contribution is
returned within one year after payment and (b) any contributions
for which deduction is disallowed under Section 404 of the Code,
so long as the contributions are returned to the Company within
one year following such disallowance or as permitted or required
by the Code or ERISA.
In the event of such mistake of fact or disallowance of
deductions, contributions shall be returned to the Company,
subject to the limitations, if any, of Section 403(c) of ERISA.
All contributions to the Plan (other than rollover contributions)
are conditioned upon the deductibility of the contributions under
Code Section 404.
.2 Limitation on Participant's Rights.
Participation in the Plan shall not give any Employee the
right to be retained as an Employee of the Company or any right or
interest under the Plan other than as herein provided. The
Company reserves the right to dismiss any Employee without any
<PAGE>
liability for any claim either against the Trustee, the Trust
except to the extent provided in the Trust, or against the
Company. All benefits under the Plan shall be provided solely
from the assets of the Trust.
.3 Receipt or Release.
Any payment to any Participant or Beneficiary in accordance
with the provisions of the Plan shall, to the extent thereof, be
in full satisfaction of all claims against the Trustee, the
Committee, and the Company. The Trustee may require such
Participant or Beneficiary, as a condition precedent to such
payment, to execute a receipt and release to such effect.
.4 Alienation.
(s) None of the benefits, payments, proceeds or claims of any
Participant or Beneficiary shall be subject to any claim of any
creditors and, in particular, the same shall not be subject to
attachment or garnishment or other legal process by any creditor,
nor shall any such Participant or Beneficiary have the right to
alienate, anticipate, commute, pledge, encumber or assign any of the
benefits or payments or proceeds which such Participant or
Beneficiary may expect to receive, contingently or otherwise, under
the Plan.
(t) Notwithstanding subsection (a), the right to benefits
payable with respect to a Participant pursuant to a "qualified
domestic relations order" (within the meaning of Code Section 414(p))
may be created, assigned or recognized. The Committee shall establish
reasonable procedures to determine the qualified status of domestic
relations orders and to administer distributions under such qualified
orders. In the event a qualified domestic relations order exists with
respect to a benefit payable under the Plan, the benefits otherwise
payable to a Participant or Beneficiary shall be payable to the
alternate payee specified in the qualified domestic relations order.
In addition, anything in the Plan to the contrary notwithstanding, the
<PAGE>
Committee shall follow any distribution requirement contained in a
"qualified domestic relations order" (within the meaning of Code
Section 414(p)) which provides for an earlier lump sum distribution
than would otherwise be permitted under the Plan.
(u) Notwithstanding subsection (a), a loan described in Section
9.11 of the Plan, shall not be considered a violation of this
Section 9.4.
(v) Notwithstanding subsection (a), the Plan may offset against
the Account(s) of a Participant any amount that the Participant
is ordered or required to pay under a judgment, order, decree or
settlement agreement described in ERISA Section 206(d)(4), subject
to the joint and survivor requirements of ERISA Section
206(d)(4)(C) and ERISA Section 206(d)(5), if applicable.
.5 Persons Under Incapacity.
In the event any amount is payable under the Plan to a
person for whom a conservator has been legally appointed, the
payment shall be distributed to the duly appointed and currently
acting conservator, without any duty on the part of the Committee
to supervise or inquire into the application of any funds so
paid.
.6 Governing Law.
The Plan shall be construed, administered, and governed in
all respects under applicable federal law, and to the extent that
federal law is inapplicable, under the laws of the State of
Nevada; provided, however, that if any provision is susceptible to
more than one interpretation, such interpretation shall be given
thereto as is consistent with the Plan's remaining qualified
within the meaning of Section 401(a) of the Code. If any
<PAGE>
provisions of this instrument shall be held by a court of
competent jurisdiction to be invalid or unenforceable, the
remaining provisions hereof shall continue to be fully effective.
.7 Headings, etc. Not Part of Plan.
Headings and subheadings in the Plan are inserted for
convenience of reference only and are not to be considered in the
construction of the provisions hereof.
.8 Masculine Gender Includes Feminine and Neuter.
As used in the Plan, the masculine gender shall include the
feminine gender.
.9 Instruments in Counterparts.
The Plan may be executed in several counterparts, each of
which shall be deemed an original, and said counterparts shall
constitute but one and the same instrument, which may be
sufficiently evidenced by any one counterpart.
.10 Successors and Assigns; Reorganization of Company.
The Plan shall inure to the benefit of, and be binding upon
the parties hereto and their successors and assigns. If the
Company merges or consolidates with or into a successor, the Plan
shall continue in effect unless the successor terminates the Plan.
.11 Loans to Participants.
(a) Each Participant shall have the right, subject to prior
approval by the Committee, to borrow from his Accounts.
Application for a loan must be submitted by a Participant to the
Committee on such form(s) as the Committee may require. Approval
shall be granted or denied as specified in subsection (b), on the
terms specified in subsection (c). For purposes of this Section
<PAGE>
9.11, but only to the extent required by Department of Labor
Regulations Section 2550.408b-1, the term "Participant" shall
include any Employee, former Employee, Beneficiary or alternate
payee under a qualified domestic relations order, as defined in
Section 414(p) of the Code, who is a party in interest and has an
interest in the Plan that is not contingent.
(b) The Committee shall grant any loan which meets each of the
requirements of paragraphs (1), (2) and (3) below:
(1) The amount of the loan, when added to the outstanding
balance of all other loans to the Participant from the Plan or
any other qualified plan of the Company or any Related Company,
shall not exceed the lesser of:
(A) $50,000, reduced by the excess, if any, of a
Participant's highest outstanding balance of all loans from
the Plan or any other qualified plan maintained by the Company or any
Related Company during the preceding 12 months over the outstanding
balance of such loans on the loan date, or
(B) 50% of the value of the vested balance of the Participant's
Accounts established as of the Anniversary Date preceding the
date upon which the loan is made;
(2) The loan shall be for at least $1,000; and
(3) The Participant pays the administrative fees associated with
the loan.
(c) Each loan granted shall, by its terms, satisfy each of the
following additional requirements:
(1) Each loan must be repaid within five years;
<PAGE>
(2) Each loan must require substantially level amortization over the
term of the loan, with payments not less frequently than
quarterly; and
(3) Each loan must be adequately secured, with the security to
consist of the balance of the Participant's Accounts.
(A) In the case of any Participant who is an active Employee,
automatic payroll deductions shall be required as additional
security.
(B) In the case of any other Participant, the outstanding loan
balance may at no time exceed 50% of the outstanding vested
balance of the Participant's Accounts. If such limit is at any
time exceeded, or if the Participant fails to make timely
repayment, the loan will be treated as in default and become
immediately payable in full.
(C) If a Participant's loan is secured by the Participant's
Accounts, the investment gain or loss attributable to the loan
shall not be included in the calculation or allocation of the
increase or decrease in fair market value of the general assets of
the Plan pursuant to Section 3.5. Instead, the entire gain or
loss (including any gain or loss attributable to interest payments
or default) shall be allocated to the Accounts of the Participant.
(4) Each loan shall bear reasonable rate of interest, which rate
shall be established by the Committee from time to time and shall
in no event be less than 1% over the prime rate.
(d) All loan payments shall be transmitted by the Company to the
Trustee as soon as practicable but not later than the date of
transmittal to the Trustee of Compensation Deferrals withheld
<PAGE>
during the month during which such loan amounts were received or
withheld. Each loan may be prepaid in full at any time. Partial
prepayments are not permitted. Any prepayment shall be paid
directly to the Trustee in accordance with procedures adopted by
the Committee.
(e) Each loan shall be evidenced by a promissory note executed by
the Participant and payable in full to the Trustee, not later than the
earliest of (1) a fixed maturity date meeting the requirements of
subsection (c)(1) above, (2) the Participant's death, or (3) the
termination of the Plan. Such promissory note shall evidence such
terms as are required by this Section 9.11.
(f) The Committee shall have the power to modify the above rules
or establish any additional rules with respect to loans extended
pursuant to this Section 9.11. Such rules may be included in a
separate document or documents and shall be considered a part of
the Plan; provided, each rule and each loan shall be made only in
accordance with the regulations and rulings of the Internal
Revenue Service and Department of Labor and other applicable state
or federal law. The Committee shall act in its sole discretion to
ascertain whether the requirements of such regulations and rulings
and this Section 9.11 have been met.
.12 Top-Heavy Plan Requirements.
For any Plan Year for which the Plan is a Top-Heavy Plan, as
defined in Section B.3 of Appendix B, attached hereto, and despite
any other provisions of the Plan to the contrary, the Plan will be
subject to the provisions of Appendix B.
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this document
to be executed by its duly authorized officer on this 2nd day of
April, 1999.
INTERNATIONAL GAME TECHNOLOGY
By: /s/ Randy Kirner
Print Name: Randy Kirner
Its: Vice President Human Resources
<PAGE>
APPENDIX A
ANNUAL ADDITION LIMITS
Article IV of the Plan shall be construed in accordance with
this Appendix A. Unless the context clearly requires otherwise,
words and phrases used in this Appendix A shall have the same
meanings that are assigned to them under the Plan.
A.1 Definitions.
As used in this Appendix A, the following terms shall have
the meanings specified below.
"Annual Additions" shall mean the sum credited to a
Participant's Accounts for any Plan Year of (a) Company
contributions, (b) voluntary contributions, (c) forfeitures
allocated to the Participant's Accounts in accordance with Section
3.10 of the Plan, (d) amounts credited after March 31, 1984 to an
individual medical account, as defined in Section 415(l)(2) of the
Code which is part of a Defined Benefit Plan maintained by the
Company, and (e) amounts derived from contributions paid or
accrued after December 31, 1985, in taxable years ending after
such date, which are attributable to postretirement medical
benefits allocated to the separate account required with respect
to a key employee (as defined in Section B.2(e) of Appendix B to
the Plan) under a welfare benefit plan (as defined in Section
419(e) of the Code) maintained by the Company.
"Defined Benefit Plan" means a plan described in Section
414(k)(1) of the Code.
"Defined Contribution Plan" means a plan described in
Section 414(k)(1) of the Code.
<PAGE>
"Defined Benefit Plan Fraction" shall mean a fraction, the
numerator of which is the projected annual benefit (determined as
of the close of the relevant Plan Year) of the Participant under
all Defined Benefit Plans maintained by one or more Related
Companies, and the denominator of which is the lesser of (a) the
product of 1.25 multiplied by the dollar limitation in effect
under Section 415(b)(1)(A) of the Code for the Plan Year, or
(b) the product of 1.4 multiplied by the amount which may be taken
into account under Section 415(b)(1)(B) of the Code with respect
to the Participant for the Plan Year.
"Defined Contribution Plan Fraction" shall mean a fraction,
the numerator of which is the sum of the annual additions to a
Participant's accounts under all Defined Contribution Plans
maintained by one or more Related Companies, and the denominator
of which is the sum of the lesser of (a) or (b) for such Plan Year
and for each prior Plan Year of service with one or more Related
Companies, where (a) is the product of 1.25 multiplied by the
dollar limitation in effect under Section 415(c)(1)(A) of the Code
for the Plan Year (determined without regard to Section 415(c)(6)
of the Code), and (b) is the product of 1.4 multiplied by the
amount which may be taken into account under Section 415(c)(1)(B)
of the Code (or Section 415(c)(7) of the Code, if applicable) with
respect to the Participant for the Plan Year. Solely for purposes
of this definition, contributions made directly by an Employee to
a Defined Benefit Plan which maintains a qualified cost-of-living
arrangement as such term is defined in Section 415(k)(2) shall be
treated as Annual Additions. Notwithstanding the foregoing, the
numerator of the Defined Contribution Plan Fraction shall be
adjusted pursuant to Treasury Regulations 1.415-7(d)(1), Questions
T-6 and T-7 of Internal
Revenue Service Notice 83-10, and Questions Q-3 and Q-14 of
Internal Revenue Service Notice 87-21.
<PAGE>
"Section 415 Compensation" shall mean a Participant's wages,
as defined in Code Section 3401, and as adjusted in accordance
with Treas. Regs. Section 1.415-2(d)(11). Compensation for any
limitation year is the compensation actually paid or includable in
gross income during such year.
A.2 Annual Addition Limitations.
(a) The compensation limitation of Section 4.1 of the Plan
shall not apply to any contribution for medical benefits (within
the meaning of Section 419A(f)(2)) after separation from service
which is treated as an Annual Addition. In the event that Annual
Additions to all the accounts of a Participant would exceed the
limitations of Section 4.1 of the Plan, they shall be reduced in
the following priority: (1) return of voluntary contributions to
the Participant; (2) reduction of Company contributions.
(b) If any Company or any Related Company contributes
amounts, on behalf of Participants covered by the Plan, to other
Defined Contribution Plans, the limitation on Annual Additions
provided in Article IV of the Plan shall be applied to Annual
Additions in the aggregate to the Plan and such other plans.
Reduction of Annual Additions, where required, shall be
accomplished by first refunding any voluntary contributions to
Participants, then by reducing contributions under such other
plans pursuant to the directions of the fiduciary for
administration of such other plans or under priorities, if any,
established by the terms of such other plans, and then, if
necessary, by reducing contributions under the Plan. Reduction of
<PAGE>
contributions to or benefits from all plans, where required, shall
be accomplished by first reducing benefits under such other
Defined Benefit Plan or plans, then by allocating any excess in
the manner set out above with respect to the Plan, and finally by
reducing contributions or allocating any excess contributions with
respect to other Defined Contribution Plans, if any; provided,
however, that adjustments necessary under this or the next
preceding paragraph may be made in a different manner and priority
pursuant to the agreement of the Committee and the administrators
of all other plans covering such Participant, provided such
adjustments are consistent with procedures and priorities
prescribed by Treasury Regulations under Section 415 of the Code.
(c) In any case where a Participant under the Plan is also a
participant under a Defined Benefit Plan or a Defined Benefit Plan
and other Defined Contribution Plans maintained by the Company or
a Related Company, the sum of the Defined Benefit Plan Fraction
and the Defined Contribution Plan Fraction shall not exceed 1.0.
(d) In the event the limitations of Section 4.1 of the Plan
or this Appendix A are exceeded and the conditions specified in
Treasury Regulations 1.415-6(b)(6) are met, the Committee may
elect to apply the procedures set forth in Treasury Regulations
1.415-6(b)(6), all of which Treasury Regulations are
incorporated herein by this reference.
<PAGE>
APPENDIX B
TOP-HEAVY PROVISIONS
Section 9.13 of the Plan shall be construed in accordance
with this Appendix B. Definitions in this Appendix B shall
govern for the purposes of this Appendix B. Any other words and
phrases used in this Appendix B, however, shall have the same
meanings that are assigned to them under the Plan, unless the
context clearly requires otherwise.
B.1 General.
This Appendix B shall be effective for Plan Years beginning
on or after January 1, 1984. This Appendix B shall be interpreted
in accordance with Section 416 of the Code and the regulations
thereunder.
B.2 Definitions.
(a) The "Benefit Amount" for any Employee means (1) in the
case of any defined benefit plan, the present value of his normal
retirement benefit, determined on the Valuation Date as if the
Employee terminated on such Valuation Date, plus the aggregate
amount of distributions made to such Employee within the fiveyear
period ending on the Determination Date (except to the extent
already included on the Valuation Date) and (2) in the case of any
defined contribution plan, the sum of the amounts credited, on the
Determination Date, to each of the accounts maintained on behalf
of such Employee (including accounts reflecting any nondeductible
employee contributions) under such plan plus the aggregate amount
of distributions made to such Employee within the five-year period
ending on the Determination Date. For purposes of this Section
B.2, the present value shall be computed using a 5% interest
assumption and the mortality assumptions contained in the defined
benefit plan for benefit equivalence purposes, provided that, if
<PAGE>
more than one defined benefit plan is being aggregated for top-
heavy purposes, the actuarial assumptions which shall be used for
testing topheaviness are those of the plan with the lowest
interest assumption, provided further that if the lowest interest
assumption is the same for two or more plans, the actuarial
assumptions used shall be that of the plan with the greatest
value of assets on the applicable date.
(b) "Company" means any company (including unincorporated
organizations) participating in the Plan or plans included in the
"aggregation group" as defined in this Appendix B.
(c) "Determination Date" means the last day of the preceding
Plan Year or, in the case of the first Plan Year of the Plan, the
last day of the Plan Year.
(d) "Employees" means employees, former employees,
beneficiaries, and former beneficiaries who have a Benefit Amount
greater than zero on the Determination Date.
(e) "Key Employee" means any Employee who, during the Plan
Year containing the Determination Date or during the four
preceding Plan Years, is:
(1) one of the ten Employees of a Company having annual
compensation from such Company of more than the limitation in
effect under Section 415(c)(1)(A) of the Code and owning (or
considered as owning within the meaning of Section 318 of the
Code) both more than a 1/2% interest and the largest
interests in such Company (if two Employees have the same
interest the Employee having the greater annual compensation
from the Company shall be treated as having a larger
interest);
<PAGE>
(2) a 5% owner of a Company;
(3) a 1% owner of a Company who has an annual
compensation above $150,000; or
(4) an officer of a Company having an annual
compensation greater than 50% of the amount in effect under
Section 415(b)(1)(A) of the Code for any such Plan Year
(however, no more than the lesser of (A) 50 employees or (B)
the greater of 3 employees or 10% of the Company's employees
shall be treated as officers). For purposes of
determining the number of employees taken into account under this
Section B.2(e)(4), employees described in Section 414(q)(5) of the
Code shall be excluded.
(f) A "Non-Key Employee" means an Employee who is not a Key
Employee.
(g) "Valuation Date" means the first day (or such other date
which is used for computing plan costs for minimum funding
purposes) of the 12-month period ending on the Determination Date.
(h) A "Year of Service" shall be calculated using the Plan
rules that normally apply for determining vesting service.
These definitions shall be interpreted in accordance with
Section 416(i) of the Code and the regulations thereunder and such
rules are hereby incorporated by reference. The term "Key
Employee" shall not include any officer or employee of an entity
referred to in Section 414(d) of the Code. For the purpose of
this subsection, "compensation" shall mean compensation as defined
in Section 414(q)(4) of the Code and shall be determined without
<PAGE>
regard to Sections 125, 402(a)(8), 402(h)(1)(B) or, in the case of
employer contributions made pursuant to a salary reduction
agreement, Section 403(b).
B.3 Top-Heavy Definition.
The Plan shall be top-heavy for any Plan Year if, as of the
Determination Date, the "top-heavy ratio" exceeds 60%. The top
heavy ratio is the sum of the Benefit Amounts for all employees
who are Key Employees divided by the sum of the Benefit Amounts
for all Employees. For purposes of this calculation only, the
following rules shall apply:
(a) The Benefit Amounts of all Non-Key Employees who were
Key Employees during any prior Plan Year shall be disregarded.
(b) The Benefit Amounts of all employees who have not
performed any services for any Company at any time during the five-
year period ending on the Determination Date shall be disregarded;
provided, however, if an Employee performs no services for five
years and then again performs services, such Employee's Benefit
Amount shall be taken into account.
(c) (1) Required Aggregation. This calculation shall be
made by aggregating any plans, of the Company or a Related
Company, qualified under Section 401(a) of the Code in which
a Key Employee participates or which enables the Plan to meet
the requirements of Section 401(a)(4) or 410 of the Code; all
plans so aggregated constitute the "aggregation group."
<PAGE>
(2) Permissive Aggregation. The Company may also
aggregate any such plan to the extent that such plan, when
aggregated with this aggregation group, continues to meet the
requirements of Section 401(a)(4) and Section 410 of the
Code.
If an aggregation group includes two or more defined benefit
plans, the actuarial assumptions used in determining an
Employee's Benefit Amount shall be the same under each defined
benefit plan and shall be specified in such plans. The
aggregation group shall also include any terminated plan which
covered a Key-Employee and which was maintained within the five
year period ending on the Determination Date.
(d) This calculation shall be made in accordance with
Section 416 of the Code (including 416(g)(3)(B) and (g)(4)(A)) and
the regulations thereunder and such rules are hereby incorporated
by reference. For purposes of determining the accrued benefit of
a Non-Key Employee who is a Participant in a defined benefit plan,
this calculation shall be made using the method which is used for
accrual purposes for all defined benefit plans of the Company, or
if there is no such method, as if such benefit accrued not more
rapidly than the slowest accrual rate permitted under Section
411(b)(1)(C) of the Code.
B.4 Vesting.
Notwithstanding the vesting provisions of the Plan, if the
Plan is top-heavy for any Plan Year, any Participant who completes
one Hour of Service during any day of such Plan Year or any
subsequent Plan Year and who terminates during any day of such
Plan Year or any subsequent Plan Year shall be entitled to a
vested benefit which is the greater of his vested interest
pursuant to Section 5.2 of the Plan, or a vested interest at least
equal to the product of (x) the benefit such Participant would
<PAGE>
receive under the Plan if he was 100% vested on the date of such
termination times (y) the percentage shown below:
<TABLE>
<CAPTION>
Number of Completed
Years of Service Percentage
<S> <C>
2 20%
3 40%
4 60%
5 80%
6 100%
</TABLE>
Notwithstanding the foregoing, the nonforfeitable percentage
of a Participant's benefit under the Plan shall not be less than
that determined under the Plan without regard to the preceding
vesting schedule. Such benefit shall be payable in accordance
with the provisions of the Plan regarding payments to terminated
Participants.
Notwithstanding the preceding paragraph, if the Plan is no
longer top-heavy in a Plan Year following a Plan Year in which it
was top-heavy, a Participant's vesting percentage shall be
computed under the vesting schedule that otherwise exists under
the Plan. However, in no event shall a Participant's vested
percentage in his accrued benefit be reduced. In addition, a
Participant shall have the option of remaining under the vesting
schedule set forth in this Section B.4 if he has completed three
years of Vesting Service. The period for exercising such option
shall begin on the first day of the Plan Year for which the Plan
is no longer top-heavy and shall end 60 days after the later of
such first day or the day the Participant is issued written notice
of such option by the Company or the Committee.
<PAGE>
B.5 Minimum Benefits or Contributions, Compensation Limitations
and Section 415 Limitations.
If the Plan is top-heavy for any Plan Year, the following
provisions shall apply to such Plan Year:
(a) (1) Except to the extent not required by Section 416
of the Code or any other provision of law, notwithstanding
any other provision of the Plan, if the Plan and all other
plans which are part of the aggregation group are defined
contribution plans, each Participant (and any other Employee
required by Section 416 of the Code) other than Key Employees
shall receive an allocation of employer contributions and
forfeitures from a plan which is part of the aggregation
group at least equal to 3% (or, if lesser, the largest
percentage allocated to any Key Employee for the Plan Year)
of such Participant's compensation for such Plan Year (the
"defined contribution minimum"). For purposes of this
subsection, salary reduction contributions on behalf of a Key
Employee must be taken into account. For purposes of this
subsection, a non-Key Employee shall be entitled to a
contribution if he is employed on the last day of the Plan
Year (i) regardless of his level of compensation, (ii)
without regard to whether he has made any mandatory
contributions required under the Plan, and (iii) regardless
of whether he has less than 1,000 Hours of Service (or the
equivalent) for the accrual computation period.
(2) Except to the extent not required by Section 416
of the Code or any other provision of law, notwithstanding
any other provisions of the Plan, if the Plan or any other
plan which is part of the aggregation group is a defined
benefit plan each
<PAGE>
Participant who is a participant in any such defined
benefit plan (who is not a Key Employee) who accrues a full
Year of Service during such Plan Year shall be entitled to an
annual normal retirement benefit from a defined benefit plan
which is part of the aggregation group which shall not be
less than the product of (i) the employee's average
compensation for the five consecutive years when the
employee had the highest aggregate compensation and (ii) the
lesser of 2% per Year of Service or 20% (the "defined benefit
minimum"). A Non-Key Employee shall not fail to accrue a
benefit merely because he is not employed on a specified date
or is excluded from participation because
(i) his compensation is less than a stated minimum or
(ii) he fails to make mandatory employee contributions. For
purposes of calculating the defined benefit minimum,
(i) compensation shall not include compensation in Plan Years
after the last Plan Year in which the Plan is topheavy and
(ii) a Participant shall not receive a Year of Service in any
Plan Year before January 1, 1984 or in any Plan Year in which
the Plan is not top-heavy. This defined benefit minimum
shall be expressed as a life annuity (with no ancillary
benefits) commencing at normal retirement age. Benefits paid
in any other form or time shall be the actuarial equivalent
(as provided in the plan for retirement benefit equivalence
purposes) of such life annuity. Except to the extent not
required by Section 416 of the Code or any other provisions
of law, each Participant (other than Key Employees) who is
not a participant in any such defined benefit plan shall
receive the defined contribution minimum (as defined in
paragraph (a)(1) above).
<PAGE>
(3) If a non-Key Employee is covered by plans described
in both paragraphs (1) and (2) above, he shall be entitled
only to the minimum described in paragraph (1), except that
for the purpose of paragraph (1) "3% (or, if lesser, the
largest percentage allocated to any key employee for the Plan
Year)" shall be replaced by "5%". Notwithstanding the
preceding sentence, if the accrual rate under the plan
described in (2) would comply with this Section B.5 absent
the modifications required by this
Section, the minimum described in paragraph (1) above shall
not be applicable.
(b) For purposes of this Section, "compensation" shall mean
all earnings included in the Employee's Form W-2 for the calendar
year that ends within the Plan Year, not in excess of $150,000,
adjusted at the same time and in the same manner as under Section
415(d) of the Code.
(c) (1) Unless the Plan qualifies for an exception under
Section B.5(c)(2), "1.0" shall be substituted for "1.25" in
the definitions of Defined Benefit Plan Fraction and Defined
Contribution Plan Fraction used in Appendix A to the Plan.
(2) A Plan qualifies for an exception from the rule of
Section B.5(c)(1) if the Benefit Amount of all Employees who
are Key Employees does not exceed 90% of the sum of the
Benefit Amounts for all Employees and one of the following
requirements is met:
(A) A defined benefit minimum of 3% per Year of
Service (up to 30%) is provided;
<PAGE>
(B) For Participants covered only by a defined
contribution plan, a defined contribution minimum of 4%
is provided;
(C) For Participants covered by both types of
plans, benefits from the defined contribution minimum
are comparable to the 3% defined benefit minimum;
(D) The plan provides a floor offset where the
floor is a 3% defined benefit minimum; or
(E) A defined contribution minimum of 7-1/2% of
compensation is provided for any non-Key Employee who
is covered under both a defined benefit plan and a
defined contribution plan (each of which is top-heavy)
of a Company.
